Business context and reporting period
The supplied filing is Acxiom Corporation’s unaudited Form 10-Q for the quarter ended December 31, 2014, covering fiscal Q3 2015 and the nine months ended that date. This does not appear to be a filing by Liveramp Holdings, Inc.; Acxiom acquired LiveRamp, Inc. on July 1, 2014, and included it in its Marketing and data services segment.
Acxiom describes itself as an enterprise data, analytics, and software-as-a-service company. It sold its U.K. call center business, 2Touch, during the period and reports it as discontinued operations.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2014 | Nine months ended Dec. 31, 2014 |
|---|---|---|
| Revenue | $260.4 million, down 3.1% year over year | $762.7 million, down 3.9% |
| Operating income | $5.2 million; 2.0% operating margin | $4.0 million; 0.5% operating margin |
| Continuing-operations net income (loss) | $4.5 million | $(3.1) million |
| Net income (loss) | $4.2 million | $(5.0) million |
| Diluted EPS | $0.05 | $(0.06) |
- Gross margin declined to 21.8% from 25.1% in the quarter and to 21.2% from 24.8% for the nine-month period.
- Operating cash flow was $70.3 million for the nine months, versus $122.6 million a year earlier. Investing used $333.7 million, including $265.7 million net cash paid for LiveRamp; financing used $30.5 million. Cash declined by $291.7 million to $126.9 million.
- Working capital was $149.7 million, down from $416.1 million at March 31, 2014. The decline primarily reflected the LiveRamp cash acquisition payment.
- Total debt and capital leases were $296.0 million, including $33.3 million current and $262.8 million long-term. The $300 million revolving facility had no borrowings outstanding; the company reported covenant compliance. Term-loan interest averaged 2.3%.
Material changes versus prior comparable periods
- Marketing and data services revenue rose 0.8% in the quarter and 0.6% for nine months; IT Infrastructure management revenue fell 16.0% and 17.5%, respectively, largely due to prior client terminations.
- Higher corporate costs, restructuring, business separation and transformation spending, and acquisition-related stock compensation and amortization contributed to steep declines in operating income. Nine-month corporate operating loss was $42.0 million versus $18.3 million.
- LiveRamp contributed $15.9 million of revenue and a $10.0 million net loss from acquisition through December 31; that loss included $7.5 million of acquired-intangible amortization and $9.9 million of non-cash share-based compensation.
- Acxiom recorded a $1.9 million tax benefit in the quarter, including approximately $2.0 million from retroactive reinstatement of the U.S. research and development tax credit.
Outlook, commentary, risks and unusual items
- Management said existing liquidity and capital resources should be sufficient to operate the business. It expected elevated product investment, including engineering, capitalized software, and new data sources, at least through the remainder of the fiscal year. No specific revenue or earnings guidance was provided in the supplied text.
- Management was continuing business transformation and separation of operating segments and expected further consulting and third-party costs. Nine-month restructuring charges were $11.7 million; business separation and transformation expense was approximately $29.5 million.
- The U.S. IT Infrastructure management reporting unit had a reduced fair-value cushion following client contract losses; further client losses or weaker assumptions could lead to goodwill impairment. The filing reported no impairment in its latest annual test.
- A putative Fair Credit Reporting Act class action had a tentative settlement; Acxiom accrued $3.7 million and considered additional loss remote. Certain 2Touch assets remained subject to a second closing.
- Other exposures include $144.8 million of operating lease commitments, $119.1 million of purchase commitments, and a lease guarantee with maximum potential payments of $1.1 million. Foreign currency movements are not hedged with forward contracts.
Important facts for investors to verify
- Confirm the intended issuer and filing: the provided document is Acxiom Corporation’s 10-Q, not a Liveramp Holdings, Inc. filing.
- Review the drivers and sustainability of the sharp operating-margin decline, especially client losses in IT Infrastructure management and costs of transformation.
- Assess LiveRamp’s post-acquisition revenue, losses, integration progress, and the provisional purchase-price allocation, including $216.0 million of acquired goodwill.
- Track cash generation, debt repayment and covenant headroom, as well as the company’s planned product investment and remaining share-repurchase authorization.
- Monitor the class-action settlement, remaining 2Touch sale matters, restructuring estimates, and goodwill impairment indicators.