Filing summary
Entity and period: The supplied filing is Acxiom Corporation’s Form 10-Q for the quarter ended September 30, 2013 (the second quarter of Acxiom’s fiscal 2014), not a Liveramp Holdings, Inc. filing or a 2013 calendar-year Q2 filing. Financial statements are unaudited.
Business context and results
Acxiom describes itself as an enterprise data, analytics and software-as-a-service company. Its segments are Marketing and Data Services (MDS), IT Infrastructure Management (IM), and Other Services. It launched the Acxiom Audience Operating System on September 24, 2013, and a consumer data portal, AboutTheData.com.
| Metric | Three months ended Sept. 30, 2013 | Prior-year quarter | Six months ended Sept. 30, 2013 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $276.3 million | $277.5 million | $542.5 million | $549.1 million |
| Operating income | $19.6 million | $30.2 million | $43.7 million | $55.6 million |
| Operating margin | 7.1% | 10.9% | 8.1% | 10.1% |
| Net earnings attributable to Acxiom | $9.8 million | $16.5 million | $23.0 million | $29.8 million |
| Diluted EPS attributable to Acxiom | $0.13 | $0.21 | $0.30 | $0.38 |
Quarterly gross margin increased to 24.9% from 24.6%; six-month gross margin increased to 24.1% from 23.8%. The quarterly decline in operating income reflected higher SG&A and $6.4 million of restructuring and legal-contingency items. Quarterly SG&A rose 12.6% to $42.9 million and included $2.2 million of segment-separation costs. For the six months, cost of revenue declined while SG&A increased.
- Quarterly segment revenue: MDS $201.0 million, up 1.2%; IM $66.8 million, down 4.6%; Other Services $8.5 million, down 3.5% (rounded).
- MDS quarterly operating income fell to $16.0 million from $22.3 million, partly reflecting product investment and higher costs. IM operating income rose to $12.0 million from $8.5 million, helped by customer termination fees. Other Services returned to quarterly operating income of $0.2 million from a $0.5 million loss.
Cash flow, liquidity and debt
- Six-month operating cash flow was $57.4 million, versus $37.4 million a year earlier. Investing used $34.7 million, mainly for capital expenditures ($18.2 million), capitalized software ($13.6 million) and data acquisition ($2.9 million). Financing used $29.5 million, including $38.8 million of share repurchases and $9.2 million of debt payments. Cash decreased $6.4 million to $216.6 million.
- At September 30, cash was $216.6 million, current assets $460.5 million, and current liabilities $205.8 million; reported working capital was $254.7 million. Trade receivable days sales outstanding increased to 56 days from 52 at March 31.
- Debt and capital-lease obligations totaled $244.3 million, including a $215.0 million term loan; no revolving-credit borrowings were outstanding. The company reported compliance with debt covenants at quarter-end.
- On October 9, 2013, after quarter-end, Acxiom refinanced: it borrowed $300 million under a new term loan, repaid the prior $215 million term loan, and established a revolving facility of up to $300 million (previously $120 million). The new term loan extends scheduled repayments through October 2018. The filing says management believed liquidity and capital resources would be sufficient for operations.
Outlook, material items and risks
- Management expected to reduce annual operating costs by roughly $20–$30 million over the next six to twelve months, while continuing investment in AOS and innovation. The restructuring scope, timing and savings were not finalized and could differ from estimates.
- Management expected fiscal 2014 IM revenue of $65–$70 million from clients that had given termination notice; revenue from those contracts was expected to be negligible in fiscal 2015. Termination fees supported current-period IM revenue and margins.
- Acxiom said product investment could support revenue growth in fiscal 2014 and beyond, but this is a forward-looking expectation, not a quantified revenue or earnings forecast. The filing provides no specific full-year revenue or EPS guidance.
- A putative Fair Credit Reporting Act class action resulted in a $2.5 million probable-loss accrual; the company could not estimate reasonably possible additional loss. A GoDigital dispute was settled after quarter-end for $1.3 million; $0.7 million was accrued at September 30, with the remaining $0.6 million described as purchase price for the founders’ interests.
- Restructuring charges included a $2.5 million lease accrual for a vacated facility, with the lease running through November 2021; actual sublease proceeds may differ from estimates. Total future operating lease commitments were about $132.0 million, and purchase commitments totaled $139.8 million.
- Goodwill was $381.0 million. The annual impairment test found no potential impairment, but management warned that weaker projections, higher discount rates or lower market valuations could lead to future impairment testing or charges. Foreign-exchange movements are not hedged with forward contracts, and the company identified data security, client terminations, regulatory changes, competition, and execution risks among its forward-looking risk factors.
Most important facts to verify
- Confirm the intended issuer and period: the supplied document is Acxiom’s, not Liveramp’s, and covers the quarter ended September 30, 2013.
- Check the refinancing’s final terms, interest costs, covenants and use of remaining proceeds; the $300 million borrowing occurred after quarter-end.
- Assess whether the projected $20–$30 million cost reductions are achieved without impairing product investment or growth.
- Track announced IM contract terminations and the transition from current termination-fee revenue to expected negligible fiscal 2015 revenue.
- Monitor the class action, GoDigital settlement accounting, and lease-sublease assumptions for additional charges or cash needs.
- Reconcile the period’s share repurchases and remaining program authorization; the filing reports $21.2 million of capacity remaining through February 5, 2014.