LiveRamp Holdings, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended September 30, 2018 (the company’s fiscal second quarter and first half of fiscal 2019). The company changed its name from Acxiom to LiveRamp on October 1, 2018. AMS is presented as discontinued operations following shareholder approval of its sale; continuing-operations results primarily reflect the LiveRamp business.
Financial performance
| Metric | Three months ended Sept. 30 | Six months ended Sept. 30 |
|---|---|---|
| Revenue | $64.8 million, up 20% year over year | $127.3 million, up 26% |
| Gross profit / margin | $40.3 million / 62.3% (55.5% prior year) | $79.2 million / 62.2% (52.3% prior year, per MD&A discussion) |
| Operating expenses | $78.5 million, up 15% | $147.0 million, up 12% |
| Operating loss | $38.2 million; operating margin -58.9% | $67.8 million; operating margin -53.3% |
| Continuing-operations net loss | $41.2 million, or $0.53 per diluted share | $69.0 million, or $0.89 per diluted share |
| Net earnings including discontinued operations | $20.6 million, or $0.27 per diluted share | $17.6 million, or $0.23 per diluted share |
| Cash from continuing operating activities | Quarterly figure cited in MD&A: $27.1 million used | $29.4 million used |
Quarterly subscription revenue grew 29.6%; Marketplace and Other revenue declined $1.8 million, which management attributed to a lost customer in a revenue-sharing arrangement. For the first half, subscription revenue was $106.2 million and Marketplace and Other was $21.1 million. The filing reports first-half gross margin as 62.2% in its discussion of results; another summary table contains an inconsistent 48.7% figure.
At September 30, cash and cash equivalents were $87.0 million, versus $140.0 million at March 31. Long-term debt was $230.0 million gross, or $226.3 million net of deferred financing costs. Working capital excluding assets and liabilities held for sale was $92.8 million, down $51.2 million from March 31. Continuing-operations investing and financing activities used $5.9 million and $55.9 million, respectively, in the first half. Company-wide cash decreased $53.0 million to $87.0 million, including cash flows from discontinued operations.
Material changes and unusual items
- AMS sale: The company completed the sale of Acxiom Marketing Solutions to IPG on October 1, 2018 for stated consideration of $2.3 billion, less $38.5 million of closing adjustments and transaction costs. It used $230.5 million of proceeds to repay debt and interest and expects to report a gain on sale. Further proceeds were intended for share repurchases and general corporate purposes.
- Discontinued-operations earnings: AMS contributed after-tax earnings of $61.8 million in the quarter and $86.6 million in the first half. These amounts included approximately $45.6 million of tax benefit from recognizing deferred tax assets. Thus, reported total net earnings do not represent continuing-business profitability.
- Revenue accounting: The company adopted Topic 606 on April 1, 2018 using the modified retrospective method. Adoption added $12.7 million, net of tax, to opening retained earnings, primarily from capitalizing customer-acquisition costs. Capitalized commissions were $8.5 million at September 30 and are amortized over an estimated four-year benefit period.
- Expenses and taxes: Quarterly sales and marketing expense rose 38%, primarily reflecting stock-based and incentive compensation. First-half stock-based compensation from continuing operations was $35.5 million. A $5.5 million discrete tax expense arose from a valuation allowance on deferred tax assets; the lower U.S. federal tax rate also affected tax results.
- Capital returns: The company repurchased 1.9 million shares for $45.8 million in the first half. On October 25, the board increased the repurchase authorization by $500 million, to as much as $1.0 billion through December 31, 2020, and authorized a Dutch auction tender offer initially capped at $500 million, plus up to 2% of outstanding shares.
Outlook, risks and contingencies
Management said existing cash and proceeds from the AMS sale should be sufficient for working capital and capital expenditures for the foreseeable future. It also stated that liquidity and capital resources were expected to be sufficient to operate the business. No specific revenue or earnings guidance was provided. Fixed customer-contract performance obligations not yet recognized totaled $168.0 million; the company expected to recognize substantially all by March 31, 2021.
Key disclosed risks include privacy, data-protection and regulatory changes; security breaches or service interruptions; loss of data suppliers or customers; competition and changing demand; and challenges retaining qualified employees. The company reported no pending legal matters considered material and believed accruals were adequate, while noting that adverse outcomes could still materially affect results if accruals prove insufficient. Operating lease commitments were $52.8 million, and purchase commitments were $20.1 million. The $230.0 million term loan shown in September 30 contractual obligations was paid off at the AMS closing.
Important facts for investors to verify
- Confirm the completed AMS sale’s final proceeds, reported gain, tax effects and use of remaining proceeds in subsequent filings.
- Assess continuing-operations revenue growth, subscription retention and the impact of the lost Marketplace and Other customer.
- Reconcile the filing’s conflicting first-half gross-margin presentation and confirm the basis used in future reporting.
- Track post-sale cash, debt repayment, tender-offer execution and actual share repurchases against the expanded authorization.
- Monitor continuing-business losses, operating cash use, stock-based compensation and the valuation allowance on deferred tax assets.
- Review privacy, security and regulatory developments and whether the $168.0 million of remaining performance obligations convert to revenue as expected.