Acxiom Corporation 10-Q Summary
Filing identity: The request identifies Liveramp Holdings, Inc., but the supplied filing is for Acxiom Corporation. Acxiom’s filing describes LiveRamp as part of its Connectivity segment; it does not present this report as a Liveramp Holdings, Inc. filing.
Business context and reporting period
Acxiom provides data, identity-resolution, marketing technology and marketing services. This unaudited Form 10-Q covers the quarter and nine months ended December 31, 2017, within fiscal 2018. Acxiom reports three segments: Marketing Services (MS), Audience Solutions (AS) and Connectivity.
Financial performance and liquidity
| Metric | Quarter ended Dec. 31, 2017 | Nine months ended Dec. 31, 2017 |
|---|---|---|
| Revenue | $234.9 million; up 5.2% year over year | $672.6 million; up 2.6% |
| Gross profit / margin | $119.0 million / 50.6%, versus 47.8% | $327.7 million / 48.7%, versus 45.2% |
| Operating income / margin | $11.1 million / 4.7%, versus $9.1 million / 4.1% | $5.8 million / 0.9%, versus $24.4 million / 3.7% |
| Net earnings / diluted EPS | $22.9 million / $0.28, versus $1.1 million / $0.01 | $18.3 million / $0.22, versus $12.2 million / $0.15 |
| Operating cash flow | $43.6 million, down $5.3 million year over year | $76.4 million, versus $85.2 million |
- Quarterly net earnings included a $20.3 million benefit from remeasuring deferred tax liabilities after U.S. tax-law changes. The nine-month period had a pretax loss of $1.7 million but net earnings, principally reflecting the tax benefit.
- Quarterly segment revenue: Connectivity $56.0 million, up 44.5%; AS $84.4 million, up 1.2%; MS $94.5 million, down 6.6%. Nine-month Connectivity revenue rose 48.9% to $153.5 million; MS fell 11.5% to $280.1 million; AS rose 1.4% to $239.0 million.
- At December 31, cash was $177.8 million and debt was $233.9 million, implying net debt of approximately $56.1 million. Working capital was $209.4 million. The company reported compliance with its credit covenants.
- Cash from operations for the nine months declined primarily because of unfavorable working-capital movements. Investing used $34.9 million and financing used $35.1 million. Capital expenditures were $27.0 million; capitalized software costs were $10.3 million.
Material changes versus prior comparable periods
- Connectivity’s rapid growth and improved segment profitability supported higher consolidated quarterly revenue and gross margin. Management attributed the gross-margin improvement to Connectivity growth and MS cost efficiencies.
- For the nine months, operating income declined 76% despite higher revenue and gross profit. Higher stock-based compensation and separation and transformation costs were key factors; those costs included $17.8 million of separation and transformation expense, versus $5.6 million in the prior-year period.
- MS revenue fell partly because Acxiom sold its Impact email business in fiscal 2017; the prior-year nine-month comparison included $20.4 million of Impact revenue. Other MS declines reflected volume and contract reductions.
- Quarterly operating expenses rose 10.4%, including increased investment in Connectivity and higher stock-based compensation. Interest expense also increased year over year.
- Nine-month operating cash flow fell $8.8 million. Investing cash use was substantially lower than the prior year, which included $137.4 million of net acquisition payments.
Outlook, commentary, risks and unusual items
- No quantified company-wide revenue or earnings guidance is provided in the supplied filing text. Management said liquidity and capital resources should be sufficient for operations.
- Management expected more significant AS Digital Data revenue declines in fiscal 2018’s fourth quarter, with possible continuation into fiscal 2019. It cited changes in revenue-sharing arrangements, conversion to licenses and publishers seeking alternative data relationships.
- Acxiom said it intended to reorganize and explore strategic options to strengthen Acxiom Marketing Solutions, combining MS with certain AS businesses. Options could include a partnership, acquisition, merger, joint venture, spin-off or sale; no outcome is assured.
- The Tax Act reduced the federal corporate rate to 21% effective January 1, 2018. The company used a blended 31.5% federal statutory rate for fiscal 2018 and described its deferred-tax remeasurement as provisional and subject to revision. It reported no expected transition-tax liability.
- Debt was refinanced in June 2017 into a $600 million revolving facility maturing in June 2022; $230 million was drawn at period-end, at a weighted-average rate of 3.6%. The filing reports $84.5 million of future operating-lease payments and a $2.3 million maximum exposure under a lease guarantee related to the Impact sale.
- Risks highlighted include data privacy, security breaches, regulatory changes affecting data use, loss of data suppliers or customers, competition, customer cancellations, integration of acquisitions and uncertainty in tax-law effects. Management reported no pending legal matters considered material and stated disclosure controls were effective.
Important facts for investors to verify
- Confirm the issuer: the supplied 10-Q is Acxiom Corporation’s, not a filing identified as Liveramp Holdings, Inc.
- Assess underlying earnings apart from the $20.3 million tax remeasurement benefit and the effects of stock compensation, amortization and separation costs.
- Monitor whether Connectivity growth can offset MS weakness and the forecast AS Digital Data declines, including publisher relationship changes.
- Review cash conversion and working capital, including receivables days sales outstanding, which increased to 61 days from 57 at March 31, 2017.
- Track debt, covenant headroom, share repurchases and the outcome of management’s strategic review; the filing does not quantify the potential financial effects of strategic alternatives.