Business context and reporting period
Issuer discrepancy: The supplied filing is for Acxiom Corporation and subsidiaries, not Liveramp Holdings, Inc. It is a Form 10-Q for the quarter ended September 30, 2011, Acxiom’s second quarter of fiscal 2012; it also reports six-month results. The financial statements are unaudited.
Acxiom described its business as marketing technology and services, reported in Information Services and Information Products. The company was in a management transition: a new CEO was appointed July 25, 2011, and it was recruiting a CFO.
Key financial results
| Metric | Quarter ended September 30, 2011 | Year-over-year change |
|---|---|---|
| Revenue | $300.0 million | Up 2.9% |
| Operating income | $28.9 million | Up 6.0%; 9.6% operating margin versus 9.4% |
| Pre-tax earnings | $23.3 million | Up 9.9% |
| Net earnings | $13.0 million consolidated; $12.3 million attributable to Acxiom | Consolidated up from $12.7 million; attributable earnings down from $13.3 million |
| Diluted EPS attributable to Acxiom | $0.15 | Down from $0.16 |
| Gross margin | 23.6% | Up from 23.2% |
Quarter revenue comprised $230.7 million of services and $69.4 million of products. Services gross margin declined to 21.5% from 22.1%, while products gross margin increased to 30.9% from 26.9%.
For the six months ended September 30, revenue was $589.0 million, up 4.8%; operating income was $51.2 million versus $49.4 million; net earnings were $23.0 million versus $22.1 million; and diluted EPS attributable to Acxiom was $0.28, unchanged year over year.
Cash flow, debt and liquidity
- Six-month operating cash flow was $90.5 million, compared with $60.0 million a year earlier. Investing used $32.1 million and financing used $145.4 million; cash declined $87.9 million to $119.2 million.
- Management reported quarterly operating cash flow of $57.7 million, versus $43.0 million a year earlier.
- Working capital was $143.7 million, down from $229.8 million at March 31, 2011. Cash was $119.2 million; current assets were $369.1 million and current liabilities $225.4 million.
- Total debt and capital lease obligations were $312.8 million, including $252.0 million in term loans. The company prepaid $100 million of term debt during the six months; no revolving borrowings were outstanding. Term-loan interest was 3.7% weighted average.
- The company repurchased 3.7 million shares for $39.1 million under a $50 million authorization; $34.1 million was paid by quarter-end. It reported compliance with debt covenants.
Material changes and management commentary
- Services revenue grew 2.2% for the quarter, supported by multichannel marketing and consulting. Infrastructure Management revenue was affected by the loss of a significant contract in fiscal Q4 2011.
- Product revenue grew 5.0%; improved product margins reflected lower U.S. costs and operating leverage from higher European revenue.
- Management attributed lower services margins to the lost contract, additional delivery resources and revenue mix, despite improved international services margins.
- Acxiom disposed of its MENA operations in July 2011, recording a $3.4 million total loss: $2.5 million in operating items and $0.9 million attributable to noncontrolling interest. The transaction included a $1.0 million cash payment.
- No specific fiscal-year revenue or earnings guidance was provided in the supplied filing text. Management said existing cash and operating cash flow were expected to support working-capital and capital-expenditure needs for the foreseeable future, while noting additional capital might be needed for acquisitions or operating shortfalls.
Risks, contingencies and unusual items
- Goodwill was $413.7 million. The annual impairment test found no potential impairment, but management highlighted Brazil Information Services as having fair value close to carrying value and a history of operating losses; changed assumptions could lead to impairment.
- The filing cites risks including economic uncertainty, customer cancellations or contract penalties, data security failures, regulatory changes affecting data use, competition, foreign exchange movements, and the ability to hire and retain key personnel. The company had no foreign-currency hedges.
- Operating lease commitments totaled $133.9 million; total contractual cash obligations were $446.7 million, plus purchase commitments of $120.6 million. Guarantees on third-party loans had a maximum potential exposure of $1.3 million.
- A securities class-action lawsuit filed in April 2011 was voluntarily dismissed in August. Management said other ordinary-course claims were not expected to have a material adverse effect, while acknowledging litigation outcomes are uncertain.
- The company recorded a $1.2 million unrealized loss on a new interest-rate swap in other comprehensive income. Management estimated a one-percentage-point short-term rate increase would not materially affect results over the next four quarters.
Important facts to verify
- Confirm the issuer and period: this is an Acxiom 2011 filing, not a Liveramp filing.
- Review the MENA disposal accounting and distinguish the $3.4 million total loss from the $2.5 million operating charge.
- Assess services-margin pressure, the lost Infrastructure Management contract, and Brazil’s goodwill impairment sensitivity.
- Verify debt repayment, share repurchase settlement, covenant headroom and the large 2015 term-loan maturity.
- Reconcile reported quarterly operating cash flow with the six-month cash-flow statement and assess working-capital and commitment needs.