Filing and reporting period
The supplied filing is Acxiom Corporation’s unaudited Form 10-Q for the quarter and nine months ended December 31, 2010 (fiscal 2011 third quarter). This does not match the request metadata identifying Liveramp Holdings, Inc. and “2010 Q3”; confirm the intended issuer and period before relying on this summary.
Financial performance and position
Amounts below are in U.S. dollars; financial statement figures are generally in millions.
| Metric | Quarter ended Dec. 31, 2010 | Prior-year quarter | Nine months ended Dec. 31, 2010 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $299.1 | $283.8 | $861.2 | $810.9 |
| Operating income | $34.6 | $29.9 | $84.0 | $63.6 |
| Net earnings | $20.4 | $14.2 | $42.5 | $27.8 |
| Diluted EPS attributable to Acxiom shareholders | $0.25 | $0.18 | $0.54 | $0.35 |
| Operating cash flow | $64.2 | $74.5 | $124.2 | $151.4 |
- Quarterly revenue grew 5.4%; services revenue rose 6.6%, while products revenue rose 1.3%. Nine-month revenue increased 6.2%.
- Quarterly operating margin was 11.6%, versus 10.5%; total gross margin was 24.2%, versus 26.0%. Services gross margin fell to 23.3% from 25.3%, partly due to migration costs on a large infrastructure-management contract. Nine-month operating margin improved to 9.7% from 7.8%.
- At December 31, cash was $203.9; working capital was $201.8. Current assets were $445.0 and current liabilities $243.2.
- Total debt and capital-lease obligations were $445.1, including $30.8 current and $414.3 long-term; the term loan was $369.0. Cash exceeded revolver borrowings, which were zero. The company prepaid $53.5 of term debt during the nine months and reported compliance with debt covenants.
Material changes and drivers
- Quarterly operating income improved 16% year over year; nine-month operating income improved 32%. Acxiom attributed progress in part to revenue recovery and operating-efficiency initiatives.
- Growth was uneven: U.S. background-screening revenue rose 35% in the quarter and 29% year to date, while CDI services declined 13.9% in the quarter, reflecting contract losses. European services also faced prior contract losses.
- Quarterly services gross margin was pressured by higher migration costs on a large contract; the filing says migration was completed and the nine-month cost impact was about $10 million. Products gross margin also declined in the quarter, partly due to Consumer Insights.
- Operating cash flow declined despite higher earnings, with increased deferred costs and lower depreciation and deferred-tax adjustments among the factors cited. Capital expenditures increased to $46.8 from $31.4 for the nine-month period.
Outlook, unusual items, and risks
- Management said the macroeconomic environment remained challenging but showed signs of improvement, and expected continued near-term revenue recovery and margin-expansion opportunity as revenue recovered. No quantified earnings or revenue guidance was provided.
- Quarter results included a $3.6 net benefit from gains, losses and other items, mainly lease-reserve, legal-reserve and earnout adjustments, partly offset by restructuring accruals. A separate $3.5 tax-benefit recognition followed expiration of a tax statute of limitations. Management said these items together increased quarterly EPS attributable to shareholders by about $0.06; the quarter’s 28% effective tax rate was 40% excluding the tax item.
- Legal matters include a drivers’ license data class-action settlement that became effective January 18, 2011, and a remaining $0.5 accrual related to Spanish data-protection claims. Management said other ordinary-course claims were not expected to materially affect results.
- Risks identified include data privacy and regulatory changes, security breaches or service interruptions, customer contract losses or cancellations, contract execution and migration costs, foreign-exchange movements, acquisition integration, access to credit, and potential goodwill impairment. International Products goodwill had only 12% excess fair value in the latest annual test.
- Contractual obligations totaled $590.5, excluding interest, with a large term-loan maturity in fiscal 2015; purchase commitments were $131.4. Management believed cash and available debt capacity would meet foreseeable operating and capital needs, but noted additional financing could be needed for significant acquisitions or adverse operating variance.
Most important facts to verify
- Confirm that Acxiom Corporation, rather than Liveramp Holdings, Inc., and the quarter ended December 31, 2010 are the intended issuer and reporting period.
- Assess earnings quality: the disclosed $0.06-per-share combined benefit from unusual items and the tax reserve release.
- Track services-margin recovery after completion of the migration, and whether CDI contract losses and European weakness persist.
- Review operating-cash-flow conversion, capital spending, debt repayment capacity, and the substantial fiscal-2015 term-loan payment.
- Monitor privacy litigation and regulation, foreign exchange, and goodwill valuation sensitivity, particularly International Products.