LiveRamp Holdings, Inc. — Form 10-Q Summary
Business context and reporting period: LiveRamp provides a data connectivity and identity platform, with subscription and Marketplace and Other revenue. This fiscal third-quarter report covers the three and nine months ended December 31, 2022; comparisons are with the corresponding prior-year periods. Amounts below are in U.S. dollars.
Financial performance
| Metric | Three months ended Dec. 31, 2022 | Prior-year quarter | Nine months ended Dec. 31, 2022 | Prior-year period |
|---|---|---|---|---|
| Revenue | $158.6 million | $140.6 million | $448.0 million | $386.9 million |
| Gross profit / margin | $115.3 million / 72.7% | $102.0 million / 72.6% | $321.3 million / 71.7% | $279.0 million / 72.1% |
| Operating loss | $23.9 million | $13.8 million | $78.7 million | $37.6 million |
| Net loss | $29.7 million | $15.4 million | $87.3 million | $4.4 million |
| Diluted loss per share | $0.46 | $0.23 | $1.31 | $0.07 |
Quarterly revenue grew 12.8%; subscription revenue rose 13.8% to $126.4 million, and Marketplace and Other revenue rose 9.2% to $32.2 million. Management attributed subscription growth primarily to new customers and expansion with existing customers; a $4.0 million customer contract settlement also contributed. Marketplace growth reflected Data Marketplace volume.
For the nine-month period, revenue increased 15.8%. Operating expenses rose 20% in the quarter and 26% year to date, outpacing revenue growth. The quarter’s operating margin was negative 15.1%, versus negative 9.8% a year earlier.
- Cash flow: For the nine months, operating cash flow was $3.8 million, versus $19.1 million; investing cash flow was negative $4.7 million, versus positive $18.2 million; and financing cash flow was negative $145.8 million, versus negative $57.3 million. The prior-year investing inflow included a $31.2 million distribution from a retained profits interest. MD&A reports quarterly operating cash flow of $15.8 million, versus $25.5 million.
- Liquidity: Cash and cash equivalents were $453.5 million at December 31, 2022, down from $600.2 million at March 31, 2022. Working capital was $520.4 million, down from $631.3 million, primarily reflecting share repurchases. Management said available cash should meet working-capital and capital expenditure needs for the foreseeable future.
- Debt: The balance sheet does not present a borrowing or debt balance as of December 31, 2022.
- Other balance-sheet items: Current assets were $696.2 million and current liabilities were $175.8 million. Receivables were $173.4 million; days sales outstanding increased to 101 from 94 at March 31, 2022.
Material changes and notable items
- Quarterly gross margin was broadly stable year over year; nine-month gross margin declined 0.4 percentage points, with cloud infrastructure and security costs cited as contributing factors.
- Operating expenses included $11.7 million of restructuring and other charges in the quarter. For the nine months, these charges totaled $25.6 million, including $15.5 million of lease impairments, $2.6 million of lease-related restructuring, and $7.4 million of employee termination costs.
- On November 3, 2022, LiveRamp announced a workforce reduction of approximately 10% and further office-footprint reductions. Management expects annualized operating expense savings of $30 million to $35 million beginning in fiscal Q4 2023.
- Quarterly general and administrative expenses included $4.1 million of transformation costs and higher stock-based compensation. A plan amendment accelerated $7.0 million of stock-compensation expense into the quarter.
- The company recorded a $4.0 million impairment of a strategic investment in the quarter. Nine-month other income was $2.2 million, compared with $30.5 million a year earlier, which included a $30.1 million retained-profits-interest distribution gain.
- Cash used for repurchases was $150.0 million for the nine months, including $49.9 million in the quarter. The repurchase authorization was increased by $100 million to $1.1 billion and extended through December 31, 2024; $217.8 million remained available at period end.
- Remaining performance obligations were $405.7 million, of which $324.4 million was expected to be recognized over the next 12 months.
Outlook, risks, and contingencies
Management identified macroeconomic uncertainty, recession risk, inflation, rising interest rates, foreign-exchange effects, and customer collection or spending changes as potential pressures. Other key risks include evolving privacy and data-use regulation, reduced availability of third-party data, changes to tracking technologies, security incidents, competition, and the ability to sublease exited offices on favorable terms. Management cautioned that results may vary and that interim results are not necessarily indicative of the full fiscal year.
The company reported $5.8 million of income tax expense on a quarterly pretax loss, citing the required capitalization and amortization of research and development costs under IRC Section 174. Management estimated that, if the requirement is not changed, it could reduce fiscal 2023 cash flow by approximately $9 million. The company maintained a full valuation allowance on net deferred tax assets except in certain foreign jurisdictions. Ordinary-course legal matters remain outstanding; management considers accruals appropriate and the probability of material loss beyond accrued amounts remote, while noting outcomes remain uncertain.
Important facts for investors to verify
- Whether revenue growth continues without reliance on the $4.0 million contract settlement, and how subscription and Marketplace trends develop.
- Whether the announced cost savings begin in fiscal Q4 as expected, and what restructuring, lease, and transformation costs remain.
- How cash conversion, receivables, and DSO evolve, given the decline in nine-month operating cash flow and increase in receivables.
- The pace of share repurchases relative to liquidity needs, remaining authorization, and the 1% excise tax applicable to repurchases after December 31, 2022.
- The effects of IRC Section 174 on cash taxes and the company’s ability to realize deferred tax assets.
- Potential changes to data privacy rules, third-party data access, and tracking technologies that could affect products and customer demand.