Filing summary
Entity and period: The supplied filing is Acxiom Corporation’s Form 10-Q, not a filing under the name Liveramp Holdings, Inc. It reports the three months ended June 30, 2017, Acxiom’s first quarter of fiscal 2018. The filing describes LiveRamp as part of Acxiom’s Connectivity business.
Business context and results
Acxiom provides data, identity-resolution, connectivity and marketing services. Its segments are Marketing Services (MS), Audience Solutions (AS) and Connectivity.
| Metric | Quarter ended June 30, 2017 | Prior-year quarter |
|---|---|---|
| Revenue | $212.5 million | $214.8 million |
| Gross profit / margin | $98.6 million / 46.4% | $92.0 million / 42.8% |
| Operating income (loss) / margin | ($5.7) million / (2.7%) | $8.2 million / 3.8% |
| Net income (loss) | ($1.3) million | $4.0 million |
| Diluted earnings (loss) per share | ($0.02) | $0.05 |
| Operating cash flow | $5.0 million | $0.8 million |
Material changes and segment performance
- Revenue declined 1.1%. Connectivity grew 44.2% to $45.2 million, and AS grew 2.7% to $75.7 million; MS fell 16.5% to $91.6 million.
- Management attributed the overall revenue shortfall principally to the prior-year comparison including $12.3 million of Impact email revenue before its August 2016 sale. Foreign exchange and the shift of Australia operations toward Connectivity also affected comparisons.
- Gross margin improved to 46.4%, reflecting AS and Connectivity growth and cost efficiencies. Cost of revenue fell 7.2% to $114.0 million.
- Operating expenses rose 24% to $104.3 million. The quarter included $15.0 million of noncash stock compensation, $6.0 million of acquired-intangible amortization, and $7.1 million of separation and transformation costs. Higher costs and investment more than offset improved gross profit, producing an operating loss.
- Connectivity’s $13.8 million revenue increase included LiveRamp growth, partly offset by a $3.0 million reduction in revenue-sharing revenue from a lost customer. AS digital-data growth was partly offset by consumer-data declines.
Cash, debt and liquidity
- Cash and cash equivalents were $163.1 million at June 30, 2017, down $7.2 million from March 31. Working capital was $198.6 million, up from $138.3 million, primarily because refinancing removed periodic principal payments.
- Operating activities provided $5.0 million; investing activities used $10.5 million, including $6.9 million of capital expenditures and $3.4 million of capitalized software costs. Financing activities used $2.1 million after the refinancing transactions.
- Total debt was $235.0 million, including $230.0 million drawn on a new $600 million revolving facility. The facility matures June 20, 2022; the borrowing rate was 3.3% at quarter-end. The company reported compliance with its debt covenants.
- Management said available liquidity and operating cash flow should be sufficient for working capital and capital expenditure needs for the foreseeable future. Cash held outside the U.S. was approximately $16.5 million; the company had no current plan to repatriate it.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or margin guidance. Management cautioned that quarterly results are not necessarily indicative of full-year results.
- Management identified risks including competition, client cancellations or reduced reliance on its services, data-supplier withdrawals, privacy and regulatory changes, security breaches or service interruptions, acquisition integration, and foreign-exchange exposure. It had no foreign-currency hedges.
- The company recorded a $7.4 million income-tax benefit on an $8.7 million pretax loss, including a $1.5 million discrete benefit from stock-compensation tax items. Adoption of the stock-compensation accounting standard also increased retained earnings by $2.6 million at the beginning of the quarter.
- Operating leases totaled approximately $81.0 million in future payments; purchase commitments were $76.3 million. The company guaranteed up to $2.5 million of lease payments for the disposed Impact business if the buyer defaults. Management said no pending legal matter was considered materially exposed, while noting that adverse outcomes could still affect results if accruals prove inadequate.
- The filing states disclosure controls were effective at quarter-end and reports no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer and security: this source is an Acxiom Corporation filing, despite the request identifying Liveramp Holdings, Inc.
- Assess whether Connectivity growth can continue and whether it can translate into segment profitability after increased research, sales and marketing investment.
- Separate underlying performance from the Impact divestiture, foreign-exchange effects, customer losses, and the quarter’s $7.1 million separation and transformation costs.
- Review the new revolving facility’s covenants, variable-rate exposure, refinancing terms and outstanding balance, and monitor cash generation against debt and commitments.
- Evaluate the quality and sustainability of the reported tax benefit and the effects of stock-based compensation, including dilution and future compensation expense.