Filing summary
Entity note: The supplied filing is Acxiom Corporation’s Form 10-Q, not a filing by LiveRamp Holdings, Inc. LiveRamp was acquired by Acxiom after the quarter ended.
Business context and reporting period
The filing covers the three months ended June 30, 2014, Acxiom’s first fiscal quarter of fiscal 2015. Acxiom describes itself as an enterprise data, analytics, and software-as-a-service company. Its continuing operations reported two segments: Marketing and data services (MDS) and IT Infrastructure management (IM). The U.K. call-center operation 2Touch was sold and presented as discontinued operations.
Financial performance and liquidity
| Metric | Quarter ended June 30, 2014 | Comparable 2013 period |
|---|---|---|
| Revenue | $242.2 million | $257.2 million |
| Operating income (loss) | $(4.5) million | $23.5 million |
| Net income (loss) from continuing operations | $(6.1) million | $12.5 million |
| Net income (loss), including discontinued operations | $(7.6) million | $13.1 million |
| Diluted earnings (loss) per share | $(0.10) | $0.17 |
| Cash from operating activities | $1.9 million | $16.5 million |
- Revenue declined 5.8%. MDS revenue was $186.7 million, down 0.6%; IM revenue was $55.5 million, down 20.0%.
- Gross margin fell to 20.6% from 23.7%; operating margin was (1.8%) versus 9.1%.
- Operating expenses rose 5.6% to $246.7 million. They included $6.7 million of restructuring charges, $0.8 million of LiveRamp acquisition-related costs, and $12.0 million of business transformation and separation expenses.
- Cash and cash equivalents were $392.9 million at June 30, down $25.7 million from March 31. Working capital was $401.9 million, down $14.2 million. Net cash used in continuing operations was $28.9 million.
- Investing activities used $24.6 million, including $19.0 million of capital expenditures and $5.0 million of capitalized software development. Financing activities used $6.2 million, including $5.5 million of debt payments.
- Total debt and capital leases were $310.3 million, including $288.8 million of term loans. There were no revolving-credit borrowings; the term-loan rate averaged 2.3%, and the company reported covenant compliance.
Material changes and unusual items
- IM revenue declined primarily because of lost business and lower project revenue. It included about $2.2 million in customer termination fees; one terminating customer contributed about $9.3 million as services wound down.
- MDS operating income decreased to $10.3 million from $12.7 million; IM operating income decreased to $4.7 million from $10.8 million. Corporate operating costs were $19.5 million, including the noted transformation, separation, restructuring, and acquisition costs.
- Acxiom substantially completed the sale of 2Touch on May 30, 2014. The quarter included a $1.9 million pretax loss on sale; discontinued operations reported a net loss of $1.5 million.
- On July 1, 2014, after quarter-end, Acxiom acquired LiveRamp for $265.7 million net of cash acquired, funded with available cash and without revolving-credit borrowing. Purchase accounting was incomplete. LiveRamp’s most recent fiscal-year revenue was approximately $22 million.
Outlook, risks, and contingencies
- No specific numerical earnings or revenue guidance is provided. Management said it expected to maintain increased product-investment spending, primarily in engineering, capitalized software, and new data sources, at least through the rest of fiscal 2015, and stated that investment was expected to support revenue growth in fiscal 2015 and beyond.
- Management believed liquidity and capital resources would be sufficient for operations. The filing’s cash balance predates the LiveRamp acquisition; the post-acquisition cash position is not stated.
- Risks include continued IM client losses, execution of business transformation and cost reductions, acquisition integration, data privacy and regulatory changes, data security or service interruptions, foreign-exchange exposure, and possible future goodwill impairment. The annual goodwill test found no potential impairment, but the filing noted a significant decline in estimated fair value for U.S. Infrastructure management since the prior annual test.
- A Fair Credit Reporting Act class action had a tentative settlement; Acxiom accrued $3.7 million and considered additional loss remote. The company also disclosed $123.6 million of operating-lease commitments, $114.7 million of purchase commitments, and a $1.4 million maximum exposure under a lease guarantee.
Important facts for investors to verify
- Confirm the intended issuer: this filing is Acxiom Corporation’s, while the request names LiveRamp Holdings, Inc.
- Review subsequent filings for post-acquisition cash, purchase accounting, LiveRamp results, and integration costs.
- Track IM contract wind-downs and revenue, and whether MDS investment translates into growth and margin improvement.
- Assess ongoing transformation and restructuring costs, including actual savings and any lease-sublease estimate changes.
- Monitor resolution of the class action and the valuation headroom of U.S. Infrastructure management goodwill.