Filing summary
Entity mismatch: The supplied filing is Acxiom Corporation’s Form 10-Q, not a filing by Liveramp Holdings, Inc. The information below summarizes the filing actually provided.
Business context and reporting period
Acxiom reported its fiscal 2012 third quarter ended December 31, 2011, with comparisons to the quarter ended December 31, 2010. The filing also reports the nine months ended December 31, 2011. Acxiom provides marketing technology, data, analytics, and IT outsourcing services. During the quarter, it reorganized reporting into Marketing and Data Services, IT Infrastructure Management, and Other Services.
Financial performance
| Metric | Quarter ended Dec. 31, 2011 | Prior-year quarter | Nine months ended Dec. 31, 2011 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $280.9 million | $287.9 million | $843.4 million | $826.5 million |
| Operating income | $15.5 million | $33.8 million | $63.3 million | $79.5 million |
| Operating margin | 5.5% | 11.8% | 7.5% | 9.6% |
| Net earnings from continuing operations | $1.8 million | $20.0 million | $22.8 million | $39.9 million |
| Net earnings attributable to Acxiom | $7.9 million | $20.8 million | $31.2 million | $43.9 million |
| Diluted EPS attributable to Acxiom | $0.10 | $0.25 | $0.39 | $0.54 |
Quarterly revenue declined 2.4%; year-to-date revenue grew 2.0%. Quarterly gross margin fell to 23.3% from 24.1%, principally reflecting weaker international margins and Brazil losses. For the nine-month period, gross margin was 22.4%, compared with 22.9%.
The quarter included $17.8 million of impairment charges related to Brazil ($13.8 million goodwill and $4.0 million other intangible assets). Acxiom also reversed a $2.6 million Brazil earn-out liability; management said the impairment and earn-out adjustment together reduced diluted EPS attributable to Acxiom by $0.12. The quarterly effective tax rate was 84.1%, versus 27.5% a year earlier; the filing attributes the elevated rate partly to impairment and other items and notes no tax benefit for certain charges.
Cash flow, debt, and liquidity
- Cash and equivalents were $145.9 million at December 31, 2011, down from $207.0 million at March 31, 2011. Working capital was $169.6 million, down from $251.4 million.
- For the nine months, operating cash flow was $173.0 million, versus $124.2 million in the prior-year period. Investing activities used $51.8 million and financing activities used $181.6 million. Cash declined by $61.1 million over the period.
- Total debt and capital lease obligations were $284.8 million, including $27.9 million current installments, compared with $422.2 million at March 31. Term-loan principal was $225.5 million. Acxiom prepaid $125.0 million of term debt during the nine months; no revolving-credit borrowings were outstanding.
- The term loan’s weighted-average rate was 3.8%; a $150 million interest-rate swap hedged exposure to LIBOR through January 2014. Acxiom reported compliance with its debt covenants at December 31.
- Contractual cash obligations totaled $421.5 million, excluding interest, and purchase commitments totaled $144.4 million. Cash from operations and available borrowing capacity were expected to cover foreseeable working-capital and capital needs, subject to operating results and financing availability.
Material changes, outlook, and risks
- Segment trends: Quarterly Marketing and Data Services revenue was $187.8 million, IT Infrastructure Management revenue $77.2 million, and Other Services revenue $15.9 million. Marketing and Data Services grew 4.7% for the nine-month period; IT Infrastructure Management and Other Services declined 1.7% and 8.7%, respectively.
- Management outlook: Acxiom planned to significantly increase product-development investment over the following two years. Incremental fiscal 2013 investment could be as much as $30 million, mostly research and development; management said this was intended to support revenue growth in fiscal 2014 and beyond. No specific revenue or earnings forecast was provided.
- Divestitures: Acxiom sold its background-screening unit, AISS, for $74 million on February 1, 2012, after quarter-end. AISS was presented as discontinued operations; it generated $12.3 million of quarterly revenue and $38.8 million for the nine-month period. Acxiom also disposed of its MENA interest in July 2011.
- Capital allocation and management: Acxiom repurchased 4.0 million shares for $43.1 million through December 31 under an expanded $89.1 million authorization. The company was in a management transition, naming a new CEO in July 2011 and a new CFO and chief revenue officer in January 2012.
- Key risks: Brazil underperformance and uncertain valuation assumptions could lead to additional impairment charges. Other risks disclosed include customer contract losses or cancellations, competitive and economic pressures, data privacy and regulatory changes, security or service interruptions, foreign-exchange exposure (not hedged), and the ability to retain key personnel. The filing cites $136.7 million of operating lease commitments and maximum potential payments of $1.2 million under third-party loan guarantees.
- A securities class-action lawsuit filed in April 2011 was voluntarily dismissed in August 2011. Management said other ordinary-course legal matters were not expected to have a material adverse effect, while noting outcomes remain uncertain. Disclosure controls were assessed as effective, with no material change in internal control reported for the quarter.
Important facts for investors to verify
- Confirm the intended issuer: the supplied 10-Q is for Acxiom Corporation, not Liveramp Holdings, Inc.
- Review the Brazil impairment valuation, the earn-out reversal, and the possibility of further impairment.
- Assess whether the planned product investment of up to $30 million in fiscal 2013 can improve growth without weakening cash generation or margins.
- Track the AISS sale proceeds and discontinued-operation treatment, as the transaction closed after the reporting date.
- Monitor the decline in cash and working capital, debt repayment schedule, covenant compliance, and remaining repurchase authorization.