LiveRamp Holdings, Inc. — Form 10-Q Summary
Business context and reporting period. LiveRamp provides a data connectivity and identity platform, earning revenue primarily from subscriptions and its Data Marketplace. This filing covers the quarter and six months ended September 30, 2022 (the second quarter of fiscal 2023); the statements are unaudited. Amounts below are in U.S. dollars.
Financial performance
- Revenue: Second-quarter revenue was $147.1 million, up 15.6% year over year. Subscription revenue rose 13.5% to $119.7 million; Marketplace and Other rose 25.3% to $27.4 million. Six-month revenue was $289.3 million, up 17.5%.
- Profit and margins: Second-quarter gross profit was $104.8 million and gross margin was 71.2%, down from 72.4%. Operating loss widened to $29.1 million from $6.2 million; net loss was $30.4 million, or $0.45 per diluted share, versus a $6.4 million loss, or $0.09 per share. For six months, net loss was $57.7 million versus net earnings of $10.9 million a year earlier.
- Cash flow: The six-month period used $12.0 million in operating cash, compared with $6.3 million used a year earlier. Investing activities used $4.0 million and financing activities used $96.8 million, including $100.1 million of share repurchases. Cash declined by $114.6 million to $485.6 million. The MD&A separately reports quarterly operating cash provided of $21.4 million versus $10.9 million; the cash flow statement presents six-month totals, so these figures cover different periods.
- Liquidity and debt: At September 30, cash was $485.6 million, current assets were $704.8 million, and current liabilities were $150.2 million; working capital was $554.6 million. The balance sheet does not list borrowings or debt.
- Other metrics: Six-month stock-based compensation expense was $51.5 million, compared with $37.7 million. Trade receivables were $157.7 million, and days sales outstanding increased to 99 from 94 at fiscal year-end.
Changes versus the prior comparable period
- Revenue growth came from both subscription sales, attributed primarily to new customers and upsells, and Marketplace volume growth. Foreign exchange reduced international revenue growth by approximately 13 percentage points.
- Cost of revenue grew faster than quarterly revenue, and management attributed the gross-margin decline primarily to higher cloud infrastructure and security costs.
- Operating expenses increased 36% in the quarter, with higher research and development, sales and marketing, and general and administrative expenses. Management cited headcount investment as a key driver.
- Quarterly other income was $2.2 million, compared with $0.2 million. The six-month prior-year comparison included a $30.1 million gain from a distribution related to a previously disposed business, contributing to the change from prior-year earnings to a current-period loss.
Outlook, risks and unusual items
- On November 3, 2022, after quarter-end, LiveRamp announced a workforce reduction of approximately 10% and further real-estate downsizing. It expects annualized operating expense savings of $30 million to $35 million, with approximately $5 million of employee-related charges and $14 million to $17 million of real-estate charges, substantially in fiscal 2023’s third and fourth quarters.
- The quarter included $10.2 million of lease impairment charges and $2.1 million of lease-related restructuring charges; six-month restructuring and other charges also included employee termination costs. These items contributed to the $13.1 million quarterly “gains, losses and other items” expense.
- Management believes existing cash will meet working-capital and capital-expenditure needs for the foreseeable future. It warned that economic uncertainty, customer collections, inflation, rising interest rates, and capital-market volatility could affect liquidity. The filing estimates that required capitalization and amortization of research and development costs could increase fiscal 2023 cash taxes and reduce cash flows by approximately $9 million.
- Key disclosed risks include changes to privacy and data-use laws, data availability, competition, reliance on tracking technologies, cybersecurity and service interruptions, and macroeconomic conditions. Management said the pandemic had not materially adversely affected the business to date.
- The company had repurchased $832.3 million under its $1.0 billion repurchase authorization through September 30, 2022, leaving $167.7 million of capacity. The program was authorized through December 31, 2022; the filing notes a 1% excise tax on share repurchases after that date.
Important facts for investors to verify
- Whether revenue growth and the announced $30 million to $35 million of annualized savings translate into improved operating margins and cash generation.
- The timing and realized costs of the workforce and real-estate actions, including the estimates announced after quarter-end.
- The sustainability of cash levels given six-month operating cash use, share repurchases, purchase commitments of $170.5 million, and lease obligations.
- How stock-based compensation, cloud and security costs, and foreign-exchange movements affect future profitability.
- The period basis of the MD&A’s reported $21.4 million quarterly operating cash inflow versus the cash flow statement’s six-month operating cash outflow of $12.0 million.