Business context and reporting period
Acxiom Corporation (the registrant in this filing) reported its unaudited first quarter of fiscal 2019, the three months ended June 30, 2018; the prior-year comparison is the three months ended June 30, 2017. The company provided marketing data, technology and services through two segments: LiveRamp and Acxiom Marketing Solutions (AMS). The filing describes a planned subsequent rebrand to LiveRamp Holdings, Inc.; it is not a filing by a company already renamed LiveRamp Holdings.
Financial results and liquidity
| Metric | Quarter ended June 30, 2018 | Prior-year quarter |
|---|---|---|
| Revenue | $227.0 million | $212.5 million |
| Gross profit / margin | $109.7 million / 48.3% | $98.6 million / 46.4% |
| Operating loss / margin | $5.7 million / (2.8%) | $5.7 million / (2.7%) |
| Net loss | $3.0 million; $0.04 diluted loss per share | $1.3 million; $0.02 diluted loss per share |
| Cash provided by operating activities | $17.2 million | $5.0 million |
- Revenue increased 6.8%. LiveRamp revenue rose 33.6% to $62.5 million; AMS revenue declined 0.8% to $164.5 million.
- Cash and cash equivalents were $95.1 million at June 30, down from $142.3 million at March 31, 2018. Working capital was $149.3 million, versus $182.0 million at March 31.
- Debt was $232.7 million, including $230.0 million of revolving borrowings; the weighted-average rate on the revolver was 3.9%. The company reported compliance with its debt covenants.
- Investing activities used $10.7 million and financing activities used $52.6 million. Financing outflow included $45.8 million for repurchases of 1.9 million shares.
Material changes versus the prior-year quarter
- Revenue growth was driven by LiveRamp, partly offset by AMS. AMS revenue was affected by an approximately $9 million decline from Facebook following contract termination, partly offset by new customers and other increases.
- LiveRamp subscription revenue grew 38.4%; its marketplace and other revenue growth was partly affected by an approximately $2 million reduction related to a lost customer.
- Gross margin expanded by 1.9 percentage points, which management attributed to LiveRamp growth and cost efficiencies. LiveRamp reported segment operating income of $9.2 million, compared with a $0.1 million segment operating loss; AMS segment operating income was $47.5 million versus $48.4 million.
- Total operating expenses rose 10.7% to $115.4 million. Stock-based compensation increased to $20.4 million from $15.0 million, while separation and transformation costs were $6.8 million versus $7.1 million.
- Operating cash flow increased by $12.2 million, primarily from favorable working-capital changes. The share repurchase reduced cash and working capital.
Outlook, accounting, risks and unusual items
- AMS sale: On July 2, 2018, Acxiom agreed to sell AMS to The Interpublic Group of Companies for $2.3 billion in cash, subject to customary adjustments, shareholder approval, regulatory review and other closing conditions. The company expected approximately $1.7 billion of net proceeds and anticipated closing in fiscal 2019’s third quarter. It expected to record a gain, but the filing gives no clear amount.
- After closing, the company intended to repay its approximately $230 million debt balance, launch a $500 million cash tender offer, seek up to $500 million of additional repurchase authorization, and use remaining proceeds for growth, acquisitions and ongoing cash needs. These were plans, not completed actions or guaranteed distributions to shareholders.
- The filing warned that the sale and reorganization might not close and could disrupt customer, vendor and employee relationships, divert management attention, and constrain business actions. It also cited risks to the smaller post-sale LiveRamp business’s ability to sustain growth, profitability and positive cash flow. Specified termination circumstances could trigger an $86.25 million fee or, in certain circumstances, up to $15 million of expenses.
- Acxiom adopted ASC 606 on April 1, 2018 using the modified retrospective method. Adoption increased opening retained earnings by $12.7 million, net of tax, primarily from capitalizing customer-acquisition costs. Deferred commissions were $18.1 million at quarter-end. The company said adoption improved reported quarterly net income by $1.9 million relative to the presented estimate without adoption; 2017 figures were not restated, so comparisons are affected by different accounting.
- Management cited the Tax Act, nondeductible stock compensation and foreign losses as factors affecting taxes. It reported no material pending legal matters and said disclosure controls were effective. Other risks include privacy and data-use regulation, data security incidents, loss of data suppliers or customers, and foreign-exchange exposure; the company reported it did not hedge currency exposure.
- The company expected sufficient liquidity to operate, but cautioned that quarterly results are not necessarily indicative of the full fiscal year. It provided no specific revenue or earnings guidance in the supplied filing text.
Important facts for investors to verify
- Whether the AMS sale and related reorganization received shareholder and regulatory approvals, closed on the anticipated timetable, and produced the expected net proceeds and gain.
- Whether planned debt repayment, tender offer and expanded repurchase authorization occurred, and how proceeds were ultimately allocated.
- Whether LiveRamp maintained revenue growth and achieved sustainable profitability and positive cash flow after separation from AMS.
- How customer concentration and contract losses—including the Facebook reduction and lost marketplace customer—affected subsequent revenue and margins.
- How comparable results should be interpreted given ASC 606 adoption, and whether working capital, cash generation and debt remained adequate.