Business context and reporting period
Entity and period clarification: The supplied filing is Acxiom Corporation’s Form 10-Q, not a Liveramp Holdings, Inc. filing. It covers the three months ended June 30, 2015 (Acxiom fiscal Q1 2016), with comparisons to the three months ended June 30, 2014. LiveRamp was an Acxiom subsidiary acquired in fiscal 2015 and reported within Connectivity. Financial statements are unaudited; dollar amounts below are in U.S. dollars.
Acxiom describes itself as an enterprise data, analytics, and software-as-a-service company. During the quarter it reorganized reporting into Marketing Services and Audience Solutions (MSAS) and Connectivity, and classified its IT Infrastructure Management business (ITO) as discontinued operations following an agreement to sell it. The ITO sale closed July 31, 2015, after quarter-end.
Financial performance and position
| Metric | Quarter ended June 30, 2015 | Comparable 2014 period |
|---|---|---|
| Continuing-operations revenue | $196.9 million | $186.7 million |
| Gross profit / gross margin | $79.2 million / 40.2% | $73.6 million / 39.4% |
| Operating loss | $2.9 million | $13.1 million |
| Loss from continuing operations | $5.2 million | $10.7 million |
| Discontinued-operations earnings, net of tax | $4.1 million | $3.1 million in the statements of operations |
| Net loss / diluted loss per share | $1.0 million / $0.01 | $7.6 million / $0.10 |
| Operating cash flow, continuing operations | +$12.0 million | −$15.5 million |
| Cash and cash equivalents at quarter-end | $123.2 million | $392.9 million at June 30, 2014 |
The filing’s discontinued-operations note reports $4.1 million of earnings for 2015 and $4.7 million for 2014, whereas the statements of operations show $3.1 million for 2014; the supplied text does not reconcile this difference clearly.
- Revenue mix: MSAS revenue was $176.3 million, down 3.3%; Connectivity revenue was $20.6 million, up 376%, primarily reflecting $16.2 million from LiveRamp.
- Margins and expenses: Cost of revenue rose 4.1%, slower than revenue growth, lifting gross margin by 0.8 percentage point. Operating expenses declined 5.3% to $82.1 million. MSAS operating income fell to $38.3 million from $46.2 million; Connectivity’s operating loss narrowed to $8.0 million from $14.3 million.
- Liquidity: Quarter-end working capital was $190.8 million, down from $253.2 million at March 31, 2015, principally because $55 million of debt was classified as current in anticipation of the ITO-sale repayment requirement. Cash declined $17.8 million during the quarter. Total cash flow from continuing and discontinued operations was negative $18.1 million.
- Debt: Reported debt and capital leases totaled $272.0 million at June 30, including $87.2 million current and $184.8 million long-term. The term loan was $262.5 million; there were no revolver borrowings. Its weighted-average rate was 2.3%, and Acxiom reported compliance with debt covenants at quarter-end.
- Other: Capital expenditures were $12.9 million and capitalized software development costs were $2.8 million. Acxiom repurchased 0.8 million shares for $15.0 million. DSO increased to 63 days from 56 days.
Material changes versus the prior comparable period
- Revenue increased 5.5%, but growth was concentrated in Connectivity following the LiveRamp acquisition; MSAS revenue declined, including a 7.5% decline in Audience Solutions.
- Operating loss improved by $10.2 million. Lower restructuring and other charges and reduced separation and transformation costs contributed; R&D and sales and marketing spending increased.
- Operating cash flow improved by $27.5 million, largely due to changes in payables and other liabilities, including lower incentive-compensation payments.
- Cash was substantially lower than a year earlier, and the company continued to carry meaningful term-loan debt. Quarter-end cash was also down from $141.0 million at March 31, 2015.
- Prior-period expense categories were reclassified to the current presentation; the company said this did not affect operating loss, pretax loss, or net loss. Segment comparatives were also restated to the new segment structure.
Outlook, commentary, risks, and unusual items
- Management said it expected available liquidity and capital resources to be sufficient to operate the business, while noting that future capital-market transactions or refinancing could depend on performance, obligations, credit limits, capital needs, and market conditions. The filing provides no specific revenue or earnings guidance.
- The completed ITO sale generated approximately $133 million cash after closing adjustments. Acxiom applied $55 million to repay debt and planned to use additional proceeds for stock repurchases and general corporate purposes. It may receive up to $50 million in contingent payments and retained a 5% profits interest; the company expected to record a gain, with no amount specified.
- Credit amendments effective after the sale modified certain financial covenants through March 31, 2016; they prohibited dividends during that period and limited share repurchases to no more than $100 million, depending on leverage. Acxiom also had $82.6 million of remaining capacity under its existing repurchase program, subject to applicable credit restrictions.
- Quarterly costs included $8.1 million of non-cash share-based compensation, $3.8 million of purchased-intangible amortization, $1.4 million of accelerated software amortization, $3.4 million of separation and transformation costs, and $0.8 million of restructuring and other charges.
- A putative Fair Credit Reporting Act class action had a tentative settlement; Acxiom accrued $3.7 million and said additional loss was considered remote. Court approval was pending after a July 29, 2015 hearing. The company also disclosed lease, purchase, and other commitments and risks involving data privacy and regulation, security breaches, client retention, competition, foreign exchange, and acquisition integration.
- The annual goodwill impairment assessment found no potential impairment. Management cautioned that reported results are not necessarily indicative of the full fiscal year.
Most important facts for investors to verify
- Confirm the issuer identity: this document is Acxiom Corporation’s filing, despite the Liveramp Holdings, Inc. request metadata.
- Reconcile the conflicting 2014 discontinued-operations earnings figures in the statements and note disclosures.
- Review the ITO sale’s final accounting, gain, contingent consideration, retained profits interest, and use of proceeds, including the $55 million debt repayment.
- Assess whether Connectivity growth and MSAS performance, including Audience Solutions declines, support sustainable continuing-operations growth and improving profitability.
- Check debt covenant headroom, post-sale repurchase limits, cash conversion, and the increase in DSO.
- Monitor settlement approval and any change to the $3.7 million legal accrual, as well as restructuring liabilities and other disclosed commitments.