UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 20172018
OR
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| | | | |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ----- to -----
Commission file number 0-13163
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Acxiom CorporationLiveRamp Holdings, Inc. | |
(Exact Name of Registrant as Specified in Its Charter) | |
| |
DELAWARE (State or Other Jurisdiction of Incorporation or Organization) | 71-058189783-1269307
(I.R.S. Employer Identification No.) |
| |
301 E. Dave Ward Drive225 Bush Street, Seventeenth Floor
Conway, ArkansasSan Francisco, CA
(Address of Principal Executive Offices) | 7203294104
(Zip Code) |
| |
(501) 342-1000(866) 352-3267
(Registrant's Telephone Number, Including Area Code) | |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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| | | | |
Large accelerated filer [X] | Accelerated filer [ ] |
| |
Non-accelerated filer [ ] | Smaller reporting company [ ] |
| |
(Do not check if a smaller reporting company) | Emerging growth company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The number of shares of common stock, $ 0.10 par value per share, outstanding as of February 2, 20186, 2019 was 79,100,637.68,203,284.
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
INDEX
REPORT ON FORM 10-Q
December 31, 20172018
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ACXIOM CORPORATIONLIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
| | | | December 31, 2017 | | March 31, 2017 | | December 31, 2018 | | March 31, 2018 |
ASSETS | | (Unaudited) | | |
| ASSETS | | | | |
Current assets: | | |
| | |
| Current assets: | |
Cash and cash equivalents | | $ | 177,807 |
| | $ | 170,343 |
| Cash and cash equivalents | | $ | 1,546,774 | | $ | 140,018 |
Trade accounts receivable, net | | 155,634 |
| | 142,768 |
| Trade accounts receivable, net | | 71,906 | | 52,047 |
Refundable income taxes | | 6,365 |
| | 7,098 |
| Refundable income taxes | | — | | 9,977 |
Other current assets | | 42,357 |
| | 48,310 |
| Other current assets | | 27,366 | | 20,173 |
Assets held for sale | | Assets held for sale | | — | | 138,374 |
Total current assets | | 382,163 |
| | 368,519 |
| Total current assets | | 1,646,046 | | 360,589 |
| | | | | | | | |
Property and equipment, net of accumulated depreciation and amortization | | 153,039 |
| | 155,974 |
| Property and equipment, net of accumulated depreciation and amortization | | 24,587 | | 32,340 |
Software, net of accumulated amortization | | 37,489 |
| | 47,638 |
| Software, net of accumulated amortization | | 8,027 | | 13,970 |
Goodwill | | 592,827 |
| | 592,731 |
| Goodwill | | 204,671 | | 203,639 |
Purchased software licenses, net of accumulated amortization | | 7,775 |
| | 7,972 |
| |
Deferred income taxes | | 9,621 |
| | 10,261 |
| Deferred income taxes | | 149 | | 10,703 |
Deferred commissions, net | | Deferred commissions, net | | 9,478 | | — |
Other assets, net | | 43,576 |
| | 51,443 |
| Other assets, net | | 34,560 | | 37,854 |
Assets held for sale | | Assets held for sale | | — | | 550,402 |
| | $ | 1,226,490 |
| | $ | 1,234,538 |
| | $ | 1,927,518 | | $ | 1,209,497 |
LIABILITIES AND EQUITY | | |
| | |
| LIABILITIES AND EQUITY | | | | |
Current liabilities: | | |
| | |
| Current liabilities: | |
Current installments of long-term debt | | $ | 1,837 |
| | $ | 39,819 |
| Current installments of long-term debt | | $ | — | | $ | 1,583 |
Trade accounts payable | | 46,211 |
| | 40,208 |
| Trade accounts payable | | 25,125 | | 18,759 |
Accrued payroll and related expenses | | 36,592 |
| | 53,238 |
| Accrued payroll and related expenses | | 13,960 | | 13,774 |
Other accrued expenses | | 53,999 |
| | 59,861 |
| Other accrued expenses | | 55,135 | | 39,624 |
Deferred revenue | | 34,169 |
| | 37,087 |
| Deferred revenue | | 2,929 | | 4,506 |
Income taxes payable | | Income taxes payable | | 443,590 | | — |
Liabilities held for sale | | Liabilities held for sale | | — | | 100,353 |
Total current liabilities | | 172,808 |
| | 230,213 |
| Total current liabilities | | 540,739 | | 178,599 |
| | | | | | | | |
Long-term debt | | 227,943 |
| | 189,241 |
| Long-term debt | | — | | 227,837 |
Deferred income taxes | | 34,300 |
| | 58,374 |
| Deferred income taxes | | 178 | | 40,243 |
Other liabilities | | 17,328 |
| | 17,730 |
| Other liabilities | | 26,985 | | 10,016 |
Other liabilities held for sale | | Other liabilities held for sale | | — | | 3,707 |
Commitments and contingencies | |
|
| |
|
| Commitments and contingencies | |
Equity: | | |
| | |
| |
Stockholders' equity: | | Stockholders' equity: | |
Common stock | | 13,552 |
| | 13,288 |
| Common stock | | 14,084 | | 13,609 |
Additional paid-in capital | | 1,216,565 |
| | 1,154,429 |
| Additional paid-in capital | | 1,366,221 | | 1,235,679 |
Retained earnings | | 623,156 |
| | 602,609 |
| Retained earnings | | 1,715,066 | | 628,331 |
Accumulated other comprehensive income | | 9,826 |
| | 7,999 |
| Accumulated other comprehensive income | | 7,891 | | 10,767 |
Treasury stock, at cost | | (1,088,988 | ) | | (1,039,345 | ) | Treasury stock, at cost | | (1,743,646) | | (1,139,291) |
Total equity | | 774,111 |
| | 738,980 |
| Total equity | | 1,359,616 | | 749,095 |
| | $ | 1,226,490 |
| | $ | 1,234,538 |
| | $ | 1,927,518 | | $ | 1,209,497 |
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
| | | | For the three months ended | | For the three months ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2018 | | 2017 |
Revenues | | $ | 234,871 |
| | $ | 223,312 |
| Revenues | | $ | 80,021 | | $ | 59,121 |
Cost of revenue | | 115,920 |
| | 116,468 |
| Cost of revenue | | 34,838 | | 24,526 |
Gross profit | | 118,951 |
| | 106,844 |
| Gross profit | | 45,183 | | 34,595 |
Operating expenses: | | | | | Operating expenses: | | | | |
Research and development | | 23,318 |
| | 20,950 |
| Research and development | | 20,469 | | 14,311 |
Sales and marketing | | 53,730 |
| | 43,048 |
| Sales and marketing | | 40,054 | | 27,832 |
General and administrative | | 30,886 |
| | 31,620 |
| General and administrative | | 27,828 | | 20,929 |
Gains, losses and other items, net | | (41 | ) | | 2,111 |
| Gains, losses and other items, net | | 5,043 | | (788) |
Total operating expenses | | 107,893 |
| | 97,729 |
| Total operating expenses | | 93,394 | | 62,284 |
Income from operations | | 11,058 |
| | 9,115 |
| |
Other income (expense): | | | | | |
Interest expense | | (2,566 | ) | | (1,743 | ) | |
Other, net | | 419 |
| | 35 |
| |
Total other expense | | (2,147 | ) | | (1,708 | ) | |
Income before income taxes | | 8,911 |
| | 7,407 |
| |
Loss from operations | | Loss from operations | | (48,211) | | (27,689) |
| Total other income | | Total other income | | 10,404 | | 432 |
Loss from continuing operations before income taxes | | Loss from continuing operations before income taxes | | (37,807) | | (27,257) |
Income taxes (benefit) | | (14,030 | ) | | 6,334 |
| Income taxes (benefit) | | (22,546) | | (29,791) |
Net earnings (loss) from continuing operations | | Net earnings (loss) from continuing operations | | (15,261) | | 2,534 |
Earnings from discontinued operations, net of tax | | Earnings from discontinued operations, net of tax | | 1,071,661 | | 20,407 |
Net earnings | | $ | 22,941 |
| | $ | 1,073 |
| Net earnings | | $ | 1,056,400 | | $ | 22,941 |
| | | | | | | | |
Basic earnings per share | | $ | 0.29 |
| | $ | 0.01 |
| |
Basic earnings (loss) per share: | | Basic earnings (loss) per share: | |
Continuing operations | | Continuing operations | | $ | (0.20) | | $ | 0.03 |
Discontinued operations | | Discontinued operations | | 13.85 | | 0.26 |
Net earnings | | Net earnings | | $ | 13.65 | | $ | 0.29 |
| | | | | | | | |
Diluted earnings per share | | $ | 0.28 |
| | $ | 0.01 |
| |
Diluted earnings (loss) per share: | | Diluted earnings (loss) per share: | |
Continuing operations | | Continuing operations | | $ | (0.20) | | $ | 0.03 |
Discontinued operations | | Discontinued operations | | 13.85 | | 0.25 |
Net earnings | | Net earnings | | $ | 13.65 | | $ | 0.28 |
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
| | | | For the nine months ended | | For the nine months ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2018 | | 2017 |
Revenues | | $ | 672,625 |
| | $ | 655,380 |
| Revenues | | $ | 207,304 | | $ | 159,891 |
Cost of revenue | | 344,952 |
| | 359,392 |
| Cost of revenue | | 82,958 | | 72,596 |
Gross profit | | 327,673 |
| | 295,988 |
| Gross profit | | 124,346 | | 87,295 |
Operating expenses: | | | | | Operating expenses: | | | | |
Research and development | | 70,894 |
| | 58,631 |
| Research and development | | 54,379 | | 44,750 |
Sales and marketing | | 152,288 |
| | 118,243 |
| Sales and marketing | | 109,317 | | 77,904 |
General and administrative | | 95,166 |
| | 91,993 |
| General and administrative | | 71,128 | | 68,240 |
Gains, losses and other items, net | | 3,521 |
| | 2,724 |
| Gains, losses and other items, net | | 5,534 | | 2,042 |
Total operating expenses | | 321,869 |
| | 271,591 |
| Total operating expenses | | 240,358 | | 192,936 |
Income from operations | | 5,804 |
| | 24,397 |
| |
Other income (expense): | | | | | |
Interest expense | | (7,432 | ) | | (5,244 | ) | |
Other, net | | (61 | ) | | 135 |
| |
Total other expense | | (7,493 | ) | | (5,109 | ) | |
Income (loss) before income taxes | | (1,689 | ) | | 19,288 |
| |
Loss from operations | | Loss from operations | | (116,012) | | (105,641) |
| Total other income | | Total other income | | 10,479 | | 115 |
Loss from continuing operations before income taxes | | Loss from continuing operations before income taxes | | (105,533) | | (105,526) |
Income taxes (benefit) | | (19,994 | ) | | 7,099 |
| Income taxes (benefit) | | (21,274) | | (54,980) |
Net loss from continuing operations | | Net loss from continuing operations | | (84,259) | | (50,546) |
Earnings from discontinued operations, net of tax | | Earnings from discontinued operations, net of tax | | 1,158,267 | | 68,851 |
Net earnings | | $ | 18,305 |
| | $ | 12,189 |
| Net earnings | | $ | 1,074,008 | | $ | 18,305 |
| | | | | | | | |
Basic earnings per share | | $ | 0.23 |
| | $ | 0.16 |
| |
Basic earnings (loss) per share: | | Basic earnings (loss) per share: | |
Continuing operations | | Continuing operations | | $ | (1.09) | | $ | (0.64) |
Discontinued operations | | Discontinued operations | | 14.99 | | 0.87 |
Net earnings | | Net earnings | | $ | 13.90 | | $ | 0.23 |
| | | | | | | | |
Diluted earnings per share | | $ | 0.22 |
| | $ | 0.15 |
| |
Diluted earnings (loss) per share: | | Diluted earnings (loss) per share: | |
Continuing operations | | Continuing operations | | $ | (1.09) | | $ | (0.64) |
Discontinued operations | | Discontinued operations | | 14.99 | | 0.87 |
Net earnings | | Net earnings | | $ | 13.90 | | $ | 0.23 |
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
| | | | For the three months ended | | For the three months ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2018 | | 2017 |
Net earnings | | $ | 22,941 |
| | $ | 1,073 |
| Net earnings | | $ | 1,056,400 | | $ | 22,941 |
Other comprehensive income: | | | | | |
Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Change in foreign currency translation adjustment | | 416 |
| | (1,340 | ) | Change in foreign currency translation adjustment | | (2,301) | | 416 |
Unrealized gain on interest rate swap | | — |
| | 21 |
| |
Other comprehensive income | | 416 |
| | (1,319 | ) | |
| Comprehensive income | | $ | 23,357 |
| | $ | (246 | ) | Comprehensive income | | $ | 1,054,099 | | $ | 23,357 |
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
| | | | For the nine months ended | | For the nine months ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2018 | | 2017 |
Net earnings | | $ | 18,305 |
| | $ | 12,189 |
| Net earnings | | $ | 1,074,008 | | $ | 18,305 |
Other comprehensive income (loss): | | | | | Other comprehensive income (loss): | |
Change in foreign currency translation adjustment | | 1,827 |
| | (2,410 | ) | Change in foreign currency translation adjustment | | (2,876) | | 1,827 |
Unrealized gain on interest rate swap | | — |
| | 117 |
| |
Other comprehensive income (loss) | | 1,827 |
| | (2,293 | ) | |
| Comprehensive income | | $ | 20,132 |
| | $ | 9,896 |
| Comprehensive income | | $ | 1,071,132 | | $ | 20,132 |
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
NINE MONTHS ENDED DECEMBER 31, 20172018
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | Accumulated | |
| | | | | | | | | | Accumulated | | | | | | | | Common Stock | | | Additional | | other | | Treasury Stock | | |
| | Common Stock | | Additional | | | | other | | Treasury Stock | | | | Number | | | paid-in | | Retained | | comprehensive | | Number | | | Total |
| | Number | | | | paid-in | | Retained | | comprehensive | | Number | | | | Total | | of shares | | Amount | | Capital | | earnings | | income (loss) | | of shares | | Amount | | Equity |
| | of shares | | Amount | | Capital | | earnings | | income | | of shares | | Amount | | Equity | |
Balances at March 31, 2017 | | 132,875,373 |
| | $ | 13,288 |
| | $ | 1,154,429 |
| | $ | 602,609 |
| | $ | 7,999 |
| | (54,582,392 | ) | | $ | (1,039,345 | ) | | $ | 738,980 |
| |
Cumulative-effect adjustment from adoption of ASU 2016-09 | | — |
| | — |
| | 384 |
| | 2,242 |
| | — |
| | — |
| | — |
| | $ | 2,626 |
| |
Balances at March 31, 2018 | | Balances at March 31, 2018 | | 136,079,676 | | $ | 13,609 | | $ | 1,235,679 | | $ | 628,331 | | $ | 10,767 | | (58,304,917) | | $ | (1,139,291) | | $ | 749,095 |
Cumulative-effect adjustment from adoption of ASU 2014-09 | | Cumulative-effect adjustment from adoption of ASU 2014-09 | | — | | — | | — | | 12,727 | | — | | — | | — | | 12,727 |
Employee stock awards, benefit plans and other issuances | | 805,768 |
| | 80 |
| | 15,229 |
| | — |
| | — |
| | (389,912 | ) | | (10,202 | ) | | $ | 5,107 |
| Employee stock awards, benefit plans and other issuances | | 1,122,879 | | 112 | | 17,243 | | — | | — | | (953,523) | | (36,906) | | (19,551) |
Non-cash stock-based compensation | | 487,385 |
| | 49 |
| | 46,658 |
| | — |
| | — |
| | — |
| | — |
| | $ | 46,707 |
| Non-cash stock-based compensation | | 334,225 | | 33 | | 113,680 | | — | | — | | — | | — | | 113,713 |
Restricted stock units vested | | 1,351,652 |
| | 135 |
| | (135 | ) | | — |
| | — |
| | — |
| | — |
| | $ | — |
| Restricted stock units vested | | 3,300,959 | | 330 | | (330) | | — | | — | | — | | — | | — |
Warrant exercises | | Warrant exercises | | — | | — | | (51) | | — | | — | | 3,488 | | 51 | | — |
Acquisition of treasury stock | | — |
| | — |
| | — |
| | — |
| | — |
| | (1,588,964 | ) | | (39,441 | ) | | $ | (39,441 | ) | Acquisition of treasury stock | | — | | — | | — | | — | | — | | (2,253,265) | | (64,107) | | (64,107) |
Acquisition of treasury stock from tender offer | | Acquisition of treasury stock from tender offer | | — | | — | | — | | — | | — | | (11,235,955) | | (503,393) | | (503,393) |
Comprehensive income: | | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
|
| Comprehensive income: | | |
Foreign currency translation | | — |
| | — |
| | — |
| | — |
| | 1,827 |
| | — |
| | — |
| | $ | 1,827 |
| Foreign currency translation | | — | | — | | — | | — | | (2,876) | | — | | — | | (2,876) |
Net earnings | | — |
| | — |
| | — |
| | 18,305 |
| | — |
| | — |
| | — |
| | $ | 18,305 |
| Net earnings | | — | | — | | — | | 1,074,008 | | — | | — | | — | | 1,074,008 |
Balances at December 31, 2017 | | 135,520,178 |
| | $ | 13,552 |
| | $ | 1,216,565 |
| | $ | 623,156 |
| | $ | 9,826 |
| | (56,561,268 | ) | | $ | (1,088,988 | ) | | $ | 774,111 |
| |
Balances at December 31, 2018 | | Balances at December 31, 2018 | | 140,837,739 | | $ | 14,084 | | $ | 1,366,221 | | $ | 1,715,066 | | $ | 7,891 | | (72,744,172) | | $ | (1,743,646) | | $ | 1,359,616 |
See accompanying notes to condensed consolidated financial statements
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| | | | For the nine months ended | | For the nine months ended | |
| | December 31, | | December 31, | |
| | 2017 | | 2016 | | 2018 | | 2017 |
Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net earnings | | $ | 18,305 |
| | $ | 12,189 |
| Net earnings | | $ | 1,074,008 | | $ | 18,305 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | | |
| | |
| |
Earnings from discontinued operations, net of tax | | Earnings from discontinued operations, net of tax | | (1,158,267) | | (68,851) |
Adjustments to reconcile net earnings to net cash used in operating activities: | | Adjustments to reconcile net earnings to net cash used in operating activities: | |
Depreciation and amortization | | 63,719 |
| | 61,097 |
| Depreciation and amortization | | 25,274 | | 28,255 |
Loss (gain) on disposal or impairment of assets | | 2,646 |
| | (520 | ) | |
Loss on disposal or impairment of assets | | Loss on disposal or impairment of assets | | 3,345 | | 2,303 |
Provision for doubtful accounts | | Provision for doubtful accounts | | 1,259 | | 322 |
Accelerated deferred debt costs | | 720 |
| | — |
| Accelerated deferred debt costs | | — | | 720 |
Deferred income taxes | | (20,451 | ) | | (1,982 | ) | Deferred income taxes | | 20,723 | | (19,425) |
Non-cash stock compensation expense | | 46,707 |
| | 33,955 |
| Non-cash stock compensation expense | | 61,547 | | 38,844 |
Changes in operating assets and liabilities: | | | | |
| Changes in operating assets and liabilities: | |
Accounts receivable, net | | (11,432 | ) | | (6,161 | ) | Accounts receivable, net | | (35,011) | | (9,818) |
Deferred commissions | | Deferred commissions | | (3,035) | | — |
Other assets | | (1,277 | ) | | 8,653 |
| Other assets | | 654 | | 2,365 |
Accounts payable and other liabilities | | (18,232 | ) | | (11,819 | ) | Accounts payable and other liabilities | | (29,274) | | 1,786 |
Deferred revenue | | (4,314 | ) | | (10,247 | ) | Deferred revenue | | (1,555) | | 439 |
Net cash provided by operating activities | | 76,391 |
| | 85,165 |
| |
Net cash used in operating activities | | Net cash used in operating activities | | (40,332) | | (4,755) |
| | | | | | | | |
Cash flows from investing activities: | | |
| | |
| Cash flows from investing activities: | |
Capitalized software development costs | | (10,332 | ) | | (11,171 | ) | Capitalized software development costs | | (1,322) | | (1,720) |
Capital expenditures | | (26,950 | ) | | (30,096 | ) | Capital expenditures | | (3,973) | | (5,249) |
Data acquisition costs | | (621 | ) | | (463 | ) | |
| Equity investments | | (1,000 | ) | | — |
| Equity investments | | (2,500) | | (1,000) |
Net cash received from disposition | | 4,000 |
| | 16,988 |
| Net cash received from disposition | | — | | 4,000 |
Net cash paid in acquisitions | | — |
| | (137,383 | ) | |
| Net cash used in investing activities | | (34,903 | ) | | (162,125 | ) | Net cash used in investing activities | | (7,795) | | (3,969) |
| | | | | | | | |
Cash flows from financing activities: | | |
| | |
| Cash flows from financing activities: | |
Proceeds from debt | | 230,000 |
| | 70,000 |
| Proceeds from debt | | — | | 230,000 |
Payments of debt | | (226,732 | ) | | (24,173 | ) | Payments of debt | | (233,293) | | (226,732) |
Fees for debt refinancing | | (4,001 | ) | | — |
| Fees for debt refinancing | | (300) | | (4,001) |
Sale of common stock, net of stock acquired for withholding taxes | | 5,107 |
| | 9,670 |
| |
Excess tax benefits from stock-based compensation | | — |
| | 1,785 |
| |
Sale of common stock | | Sale of common stock | | 17,355 | | 15,309 |
Shares repurchased for tax withholdings upon vesting of stock-based awards | | Shares repurchased for tax withholdings upon vesting of stock-based awards | | (36,906) | | (10,202) |
Acquisition of treasury stock | | (39,441 | ) | | (30,542 | ) | Acquisition of treasury stock | | (64,107) | | (39,441) |
Net cash provided by (used) in financing activities | | (35,067 | ) | | 26,740 |
| |
| | | | | |
Effect of exchange rate changes on cash | | 1,043 |
| | (1,559 | ) | |
| | | | | |
Net change in cash and cash equivalents | | 7,464 |
| | (51,779 | ) | |
Cash and cash equivalents at beginning of period | | 170,343 |
| | 189,629 |
| |
Cash and cash equivalents at end of period | | $ | 177,807 |
| | $ | 137,850 |
| |
| | | | | |
Acquisition of treasury stock from tender offer | | Acquisition of treasury stock from tender offer | | (503,393) | | — |
Net cash used in financing activities | | Net cash used in financing activities | | (820,644) | | (35,067) |
Net cash used in continuing operations | | Net cash used in continuing operations | | $ | (868,771) | | $ | (43,791) |
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
|
| | | | | | | | |
| | For the nine months ended |
| | December 31, |
| | 2017 | | 2016 |
Supplemental cash flow information: | | |
| | |
|
Cash paid during the period for: | | |
| | |
|
Interest | | $ | 6,712 |
| | $ | 5,301 |
|
Income taxes, net of refunds | | 1,152 |
| | 4,796 |
|
| | | | |
Non-cash investing and financing activities: | | | | |
Leasehold improvements paid directly by lessor | | 978 |
| | — |
|
| | | | | | | | | | | | | | |
| | For the nine months ended | | |
| | December 31, | | |
| | 2018 | | 2017 |
Cash flows from discontinued operations: | | | | |
From operating activities | | 40,980 | | 81,369 |
From investing activities | | 2,236,530 | | (30,934) |
| | | | |
Effect of exchange rate changes on cash | | (172) | | 175 |
Net cash provided by discontinued operations | | 2,277,338 | | 50,610 |
Net cash provided by continuing and discontinued operations | | 1,408,567 | | 6,819 |
| | | | |
Effect of exchange rate changes on cash | | (1,811) | | 868 |
| | | | |
Net change in cash and cash equivalents | | 1,406,756 | | 7,687 |
Cash and cash equivalents at beginning of period | | 140,018 | | 168,680 |
Cash and cash equivalents at end of period | | $ | 1,546,774 | | $ | 176,367 |
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| | | | |
Supplemental cash flow information: | | | | |
Cash (received) during the period for: | | | | |
Income taxes | | (239) | | (362) |
| | | | |
Non-cash investing and financing activities: | | | | |
Leasehold improvements paid directly by lessor | | — | | 978 |
| | | | |
| | | | |
| | | | |
| | | | |
See accompanying notes to condensed consolidated financial statements.
ACXIOM CORPORATION
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
On September 20, 2018, we implemented a holding company reorganization, as a result of which Acxiom Holdings, Inc. became the successor issuer to Acxiom Corporation. On October 1, 2018, we changed our name to LiveRamp Holdings, Inc. ("LiveRamp"). References to "we", "us", "our", "Registrant", or the "Company" for events that occurred prior to September 20, 2018 refer to Acxiom Corporation and its subsidiaries; for events that occurred from September 20, 2018 to October 1, 2018, to Acxiom Holdings, Inc. and its subsidiaries; and after October 1, 2018, to LiveRamp Holdings, Inc. and its subsidiaries.
These condensed consolidated financial statements have been prepared by Acxiom Corporation (“Registrant,” “Acxiom,” we, us or the “Company”),LiveRamp, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC” or the “Commission”). In the opinion of the Registrant’s management, all adjustments necessary for a fair presentation of the results for the periods included have been made, and the disclosures are adequate to make the information presented not misleading. All such adjustments are of a normal recurring nature. Certain note information has been omitted because it has not changed significantly from that reflected in Notes 1 through 1918 of the Notes to Consolidated Financial Statements filed as part of Item 8 of the Registrant’s annual report on Form 10-K for the fiscal year ended March 31, 20172018 (“20172018 Annual Report”), as filed with the CommissionSEC on May 26, 2017.25, 2018. This quarterly report and the accompanying condensed consolidated financial statements should be read in connection with the 20172018 Annual Report. The financial information contained in this quarterly report is not necessarily indicative of the results to be expected for any other period or for the full fiscal year ending March 31, 2018.2019.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). Actual results could differ from those estimates. Certain of the accounting policies used in the preparation of these condensed consolidated financial statements are complex and require management to make judgments and/or significant estimates regarding amounts reported or disclosed in these financial statements. Additionally, the application of certain of these accounting policies is governed by complex accounting principles and their interpretation. A discussion of the Company’s significant accounting principles and their application is included in Note 1 of the Notes to Consolidated Financial Statements and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s 20172018 Annual Report.
Accounting Pronouncements Adopted During the Current Year
In JanuaryMay 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-01, "Business Combinations2017-09, "Compensation-Stock Compensation (Topic 805)719): ClarifyingScope of Modification Accounting" ("ASU 2017-09"). ASU 2017-09 clarifies when changes to the Definitionterms or conditions of a Business" ("ASU 2017-01"), which amended the existing FASB Accounting Standards Codification. The standard provides additional guidance to assist entities with evaluation of whether transactions shouldstock-based payment award must be accounted for as acquisitions (or disposals)modifications. ASU 2017-09 will reduce diversity in practice and result in fewer changes to the terms of assetsan award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a stock-based payment award if the award's fair value, vesting conditions and classification as an equity or businesses.liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill,guidance is effective for annual periods, and consolidation.interim periods within those annual periods, beginning after December 15, 2017. ASU 2017-012017-09 is effective for the Company beginning in fiscal 2019, with early adoptions permitted.2019. We adopted the standard in the current fiscal year, on a prospective basis, and do not expect the adoption of this guidance todid not have a material impact on our condensed consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash" ("ASU 2016-18"). This standard is intended to reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. The standard requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as presented on the statement of cash flows. As a result, entities will no longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017 (fiscal 2019 for the Company), including interim periods within those fiscal years; earlier adoption is permitted. We adopted the standard during the current fiscal year. Early adoption did not result in any changes to our existing accounting policies, presentation of items in our condensed consolidated financial statements and related disclosures, or any changes resulting from the retrospective application to all periods reported.
In March 2016,May 2014, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation2014-09, Revenue from Contracts with Customers (Topic 718): Improvements606) and issued subsequent amendments to Employee Share-Based Payment Accounting" ("the initial guidance in August 2015, March 2016, April 2016, May 2016 and December 2016 within ASU 2016-09"), which is intended to improve the accounting for stock-based payment transactions as part2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively. Topic 606 supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the FASB's simplification initiative. The ASU changes five aspects ofnew guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the accounting for stock-based payment award transactions that will affect public companies,
including: (1) accounting for income taxes; (2) classification of excess tax benefits onconsideration to which the statement of cash flows; (3) forfeitures; (4) minimum statutory tax withholding requirements; and (5) classification of employee taxes paid on the statement of cash flows when an employer withholds shares for tax-withholding purposes. The inclusion of excess tax benefits and deficiencies as a component of income tax expense will increase volatility within our provision for income taxes as the amount of excess tax benefits or deficiencies from stock-based compensation awards depends on our stock price at the date the awards vest or the date of option exercises. This guidance also requires excess tax benefitsentity expects to be presented as an operating activity on the statement of cash flows and allows an entity to make an accounting policy election to either estimate expected forfeituresentitled in exchange for those goods or to account for them as they occur.
services. We adopted ASU No. 2016-09 during the current fiscal year, which required us to reflect any adjustmentsTopic 606 as of April 1, 2017. We elected to account2018 using the modified retrospective method. See Note 2 for forfeitures as they occur rather than estimating expected forfeitures. We recorded the cumulative impact of adoption through an increase in retained earnings of $2.2 million, of which $2.6 million related to deferred tax assets from certain federal and state research tax credit carryforwards attributable to excess tax benefits from stock-based compensation that had not been previously recognized, offset by $0.4 million related to elimination of the forfeiture pool. We elected to prospectively adopt the effect on the statement of cash flows and accordingly, did not restate the Condensed Consolidated Statement of Cash Flows for the nine months ended December 31, 2016.further details.
Recent Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual periods beginning after December 15, 2019 (fiscal 2021 for the Company), including interim periods within those fiscal years; earlier adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), as a comprehensive new standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. The new standard will require lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases with the exception ofexcept short-term leases. For lessees, leases will continue to be classified as either operating or financefinancing in the income statement. Lessor accounting is similar to the current model but updated to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. Subsequently, the FASB has issued various ASU's to provide further clarification around aspects of Topic 842, including an alternative method that permits application of the new guidance at the beginning of adoption, recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, in addition to the method of applying the new guidance retrospectively to each prior reporting period presented. ASU 2016-02 is effective for annual periods beginning after December 15, 2018 (fiscal 2020 for the Company), including interim periods within those fiscal years. Earlieryears, with early adoption is permitted. InWe will adopt the financial statements in whichnew standard on April 1, 2019 using the ASU is first applied, leases shall be measured and recognized at the beginning of the earliest comparative period presented with an adjustment to equity.modified retrospective approach. The Company is continuing to evaluate the impact of the adoption of this guidance on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued update ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)" ("ASU 2014-09") and issued subsequent amendments We plan to the initial guidance in August 2015, March 2016, April 2016, May 2016, and December 2016 within ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12 and ASU 2016-20, respectively (ASU 2014-09 and the subsequent amendments, collectively, "Topic 606"). Topic 606 supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principletake advantage of the new guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The guidance defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be requiredtransition package of practical expedients permitted within the revenue recognition process than are required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation, among others. Topic 606 also provides guidance on the recognition of costs related to obtaining customer contracts. The effective date for the Company is the first quarter of fiscal 2019 using either of two methods: (i) retrospective application to each prior reporting period presented with the option to elect certain practical expedients; or (ii) retrospective application with the cumulative effect recognized at the date of initial application and providing certain additional disclosures. The Company has completed its preliminary assessment of the new standard, which will allow us to carry forward the historical lease classification, to not reassess whether any existing contracts are or contain leases and is continuing assessment as we complete
implementation design activities.to not reassess initial direct costs for any existing leases. We also plan to adopt Topic 606 inmake policy elections not to apply the first quarter of fiscal 2019 pursuantbalance sheet recognition requirements for qualifying short-term leases and not to the aforementioned adoption method (ii), and we do not believe there will be a material impactseparate non-lease components, as applicable, to our revenues upon adoption.facility leases. We are continuingcurrently assessing whether to evaluateelect the impacthindsight practical expedient to our revenues related to our pending adoption of Topic 606 and our preliminary assessments are subject to change. We are also continuing to evaluatedetermine the provisions of Topic 606 related to costs of obtaining customer contracts.reasonably certain lease term for existing leases.
The Company does not anticipate that the adoption of any other recent accounting pronouncements will have a material impact on the Company's consolidated financial position, results of operations or cash flows.
2. TOPIC 606 ADOPTION IMPACT AND REVENUE FROM CONTRACTS WITH CUSTOMERS:
On April 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of April 1, 2018. Results for reporting periods beginning after April 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic reporting under Topic 605.
Under Topic 606, revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The Company determines revenue recognition through the following steps:
•Identification of the contract, or contracts, with a customer
•Identification of the performance obligations in the contract
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the Company satisfies a performance obligation
We recorded a net increase to our opening retained earnings of $12.7 million, net of tax, due to the cumulative impact of adopting Topic 606, with the impact primarily related to the capitalization of costs of obtaining customer contracts.
The details of the significant changes and quantitative impact of the changes are disclosed below.
Costs of Obtaining Customer Contracts
The Company previously recognized commission payments made for obtaining a contract as an operating expense when incurred. Under Topic 606, the Company capitalizes incremental costs to acquire contracts and amortizes them over the expected period of benefit, which we have determined to be four years. As of December 31, 2018, the remaining unamortized contract costs were $9.5 million and are included in deferred commissions, net, in the condensed consolidated balance sheet. Net capitalized costs of $3.0 million were recorded as a reduction to operating expense for the nine months ended December 31, 2018. No impairment was recognized for the nine months ended December 31, 2018.
Impacts on Financial Statements
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheet | | Impact of changes in accounting policies | | | | |
| | As reported December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
Deferred income taxes | | 149 | | 2,256 | | 2,405 |
Deferred commissions, net | | 9,478 | | (9,478) | | — |
Others | | 1,917,891 | | — | | 1,917,891 |
Total assets | | $ | 1,927,518 | | $ | (7,222) | | $ | 1,920,296 |
| | | | | | |
| | | | | | |
| | | | | | |
Total liabilities | | 567,902 | | — | | 567,902 |
| | | | | | |
Retained earnings | | 1,715,066 | | (7,222) | | 1,707,844 |
Other equity | | (355,450) | | — | | (355,450) |
Total equity | | 1,359,616 | | (7,222) | | 1,352,394 |
Total liabilities and equity | | $ | 1,927,518 | | $ | (7,222) | | $ | 1,920,296 |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations | | Impact of changes in accounting policies | | | | |
| | As reported for the nine months ended December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
Revenues | | $ | 207,304 | | $ | — | | $ | 207,304 |
Cost of revenue | | 82,958 | | — | | 82,958 |
Gross profit | | $ | 124,346 | | $ | — | | $ | 124,346 |
| | | | | | |
Operating expenses: | | | | | | |
Sales and marketing | | $ | 109,317 | | $ | 3,035 | | $ | 112,352 |
Other operating expenses | | 131,041 | | — | | 131,041 |
Total operating expenses | | 240,358 | | 3,035 | | 243,393 |
| | | | | | |
Loss from operations | | (116,012) | | (3,035) | | (119,047) |
Total other income | | 10,479 | | — | | 10,479 |
Loss from continuing operations before income taxes | | (105,533) | | (3,035) | | (108,568) |
Income taxes (benefit) | | (21,274) | | (722) | | (21,996) |
Net loss from continuing operations | | $ | (84,259) | | $ | (2,313) | | $ | (86,572) |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Comprehensive Income | | Impact of changes in accounting policies | | | | |
| | As reported for the nine months ended December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
Net earnings | | $ | 1,074,008 | | $ | (2,313) | | $ | 1,071,695 |
Other comprehensive loss: | | | | | | |
Change in foreign currency translation adjustment | | (2,876) | | — | | (2,876) |
Comprehensive income | | $ | 1,071,132 | | $ | (2,313) | | $ | 1,068,819 |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Cash Flows | | Impact of changes in accounting policies | | | | |
| | As reported for the nine months ended December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
Net earnings | | $ | 1,074,008 | | $ | (2,313) | | $ | 1,071,695 |
Earnings from discontinued operations | | (1,158,267) | | — | | (1,158,267) |
Adjustments for: | | | | | | |
Deferred income taxes | | 20,723 | | (722) | | 20,001 |
Others | | 91,425 | | — | | 91,425 |
Changes in: | | | | | | |
Accounts receivable, net | | (35,011) | | — | | (35,011) |
Deferred commissions | | (3,035) | | 3,035 | | — |
Other assets | | 654 | | — | | 654 |
Accounts payable and other liabilities | | (29,274) | | — | | (29,274) |
Deferred revenue | | (1,555) | | — | | (1,555) |
Net cash from operating activities | | (40,332) | | — | | (40,332) |
Net cash from investing activities | | (7,795) | | — | | (7,795) |
Net cash from financing activities | | (820,644) | | — | | (820,644) |
Net cash from discontinued operations | | 2,277,338 | | — | | 2,277,338 |
Effect of exchange rate changes on cash | | (1,811) | | — | | (1,811) |
| | | | | | |
Net change in cash and cash equivalents | | 1,406,756 | | — | | 1,406,756 |
Cash and cash equivalents at beginning of period | | 140,018 | | — | | 140,018 |
Cash and cash equivalents at end of period | | $ | 1,546,774 | | $ | — | | $ | 1,546,774 |
Disaggregation of Revenue
In the following table, revenue is disaggregated by primary geographical market and major service offerings (dollars in thousands).
| | | | | | | | | | | | | | |
| | For the nine months ended | | |
| | December 31, | | |
Primary Geographical Markets | | 2018 | | 2017 |
United States | | $ | 189,997 | | $ | 143,937 |
Europe | | 13,858 | | 12,916 |
APAC | | 3,449 | | 3,038 |
| | $ | 207,304 | | $ | 159,891 |
| | | | |
Major Offerings/Services | | | | |
Subscription | | 171,184 | | 125,157 |
Marketplace and Other | | 36,120 | | 34,734 |
| | $ | 207,304 | | $ | 159,891 |
| | | | |
Transaction Price Allocated to the Remaining Performance Obligations
We have performance obligations associated with fixed commitments in customer contracts for future services that have not yet been recognized in our condensed consolidated financial statements. The amount of fixed revenue not yet recognized was $335.1 million as of December 31, 2018. The Company expects to recognize revenue on substantially all of these remaining performance obligations by March 31, 2021 with the balance recognized thereafter.
3. EARNINGS PER SHARE AND STOCKHOLDERS’ EQUITY:
Earnings Per Share
A reconciliation of the numerator and denominator of basic and diluted earnings per share is shown below (in thousands, except per share amounts):
| | | | For the three months ended | | For the nine months ended | | For the three months ended | | | For the nine months ended | |
| | December 31, | | December 31, | | December 31, | | | December 31, | |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2018 | | 2017 | | 2018 | | 2017 |
Basic earnings per share: | | | | |
| | | | |
| Basic earnings per share: | | | | | | | | |
Net earnings (loss) from continuing operations | | Net earnings (loss) from continuing operations | | $ | (15,261) | | $ | 2,534 | | $ | (84,259) | | $ | (50,546) |
Earnings from discontinued operations, net of tax | | Earnings from discontinued operations, net of tax | | 1,071,661 | | 20,407 | | 1,158,267 | | 68,851 |
Net earnings | | $ | 22,941 |
| | $ | 1,073 |
| | $ | 18,305 |
| | $ | 12,189 |
| Net earnings | | $ | 1,056,400 | | $ | 22,941 | | $ | 1,074,008 | | $ | 18,305 |
| | | | | | | | | | | | | | | | |
Basic weighted-average shares outstanding | | 79,043 |
| | 77,507 |
| | 78,983 |
| | 77,475 |
| Basic weighted-average shares outstanding | | 77,398 | | 79,043 | | 77,260 | | 78,983 |
| | |
| | |
| | |
| | |
| | |
Continuing operations | | Continuing operations | | $ | (0.20) | | $ | 0.03 | | $ | (1.09) | | $ | (0.64) |
Discontinued operations | | Discontinued operations | | 13.85 | | 0.26 | | 14.99 | | 0.87 |
Basic earnings per share | | $ | 0.29 |
| | $ | 0.01 |
| | $ | 0.23 |
| | $ | 0.16 |
| Basic earnings per share | | $ | 13.65 | | $ | 0.29 | | $ | 13.90 | | $ | 0.23 |
| | | | | | | | | | | | | | | | |
Diluted earnings per share: | | |
| | |
| | |
| | |
| Diluted earnings per share: | |
Basic weighted-average shares outstanding | | 79,043 |
| | 77,507 |
| | 78,983 |
| | 77,475 |
| Basic weighted-average shares outstanding | | 77,398 | | 79,043 | | 77,260 | | 78,983 |
Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method | | 2,826 |
| | 2,344 |
| | 2,611 |
| | 2,019 |
| Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method | | — | | 2,826 | | — | | — |
Diluted weighted-average shares outstanding | | 81,869 |
| | 79,851 |
| | 81,594 |
| | 79,494 |
| Diluted weighted-average shares outstanding | | 77,398 | | 81,869 | | 77,260 | | 78,983 |
| | |
| | |
| | |
| | |
| | | | | | | | | |
Continuing operations | | Continuing operations | | $ | (0.20) | | $ | 0.03 | | $ | (1.09) | | $ | (0.64) |
Discontinued operations | | Discontinued operations | | 13.85 | | 0.25 | | 14.99 | | 0.87 |
Diluted earnings per share | | $ | 0.28 |
| | $ | 0.01 |
| | $ | 0.22 |
| | $ | 0.15 |
| Diluted earnings per share | | $ | 13.65 | | $ | 0.28 | | $ | 13.90 | | $ | 0.23 |
OptionsDue to the net loss from continuing operations during the three months ended December 31, 2018, the dilutive effect of options, warrants and restricted stock units covering 3.3 million shares of common stock was excluded from the diluted loss per share calculation since the impact on the calculation was anti-dilutive. Due to the net loss from continuing operations during the nine months ended December 31, 2018 and 2017, respectively, the dilutive effect of options, warrants and restricted stock units covering 3.5 million and 2.6 million shares of common stock, respectively, was excluded from the diluted loss per share calculation since the impact on the calculation was anti-dilutive.
Additional options, warrants to purchase shares of common stock, and restricted stock units that were outstanding during the periods presented but were not included in the computation of diluted earningsloss per share because the effect was anti-dilutive are shown below (shares in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | For the nine months ended | | |
| | December 31, | | | | December 31, | | |
| | 2018 | | 2017 | | 2018 | | 2017 |
Number of shares outstanding under options, warrants and restricted stock units plans | | 22 | | 97 | | 235 | | 89 |
Range of exercise prices for options | | N/A | | $32.85 | | N/A | | $32.85 |
|
| | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Number of shares outstanding under options, warrants and restricted stock units | | 97 |
| | 156 |
| | 89 |
| | 345 |
|
Range of exercise prices for options | | $32.85 |
| | $32.85 |
| | $32.85 |
| | $20.27-$32.85 |
|
Stockholders’ Equity
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded, most recently on July 28, 2016.October 25, 2018. On that date, the board of directors authorized a $500 million increase to the existing common stock repurchase program. Under the modified common stock repurchase program, the Company may purchase up to $400.0 million$1 billion of its common stock through the period ending June 30, 2018. December 31, 2020.
During the nine months ended December 31, 2017,2018, the Company repurchased 1.62.3 million shares of its common stock for $39.4 million.$64.1 million under the stock repurchase program. Through December 31, 2017,2018, the Company had repurchased a total
of 18.422.4 million shares of its stock for $325.2 million, leaving remaining capacity of $74.8$438.7 million under the stock repurchase program.program, leaving remaining capacity of $561.3 million.
On October 25, 2018, the board of directors authorized a Dutch auction tender offer (the "Offer") to purchase shares of its outstanding common stock at an initial aggregate purchase price not to exceed $500 million, plus up to 2% of the Company's outstanding shares of common stock in accordance with the rules and regulations of the SEC. On December 13, 2018, the Company accepted for purchase 11,235,955 shares of its common stock at a price of $44.50 per share, for an aggregate cost of $503.4 million, including fees and expenses. These shares represented approximately 14.2% of the shares outstanding.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income accumulated balances of $9.8$7.9 million and $8.0$10.8 million at December 31, 20172018 and March 31, 2017,2018, respectively, reflect accumulated foreign currency translation adjustments.
3. SHARE-BASED4. DISPOSITION:
On July 2, 2018, the Company entered into a definitive agreement to sell its Acxiom Marketing Solutions business (“AMS”) to The Interpublic Group of Companies, Inc. (“IPG”) for $2.3 billion in cash. As required regulatory approvals were being sought and received, the Company solicited and received shareholder approval for the transaction. Shareholder approval was received on September 20, 2018, and the Company began reporting the financial information pertaining to AMS as a component of discontinued operations in the condensed consolidated financial statements as of the second quarter of fiscal 2019. Prior to the discontinued operations classification, the AMS business was included in the AMS segment in the Company’s segment results.
The sale was completed on October 1, 2018. At the closing of the transaction, the Company received total consideration of $2.3 billion ($2.3 billion stated sales price less closing adjustments and transaction costs of $49.0 million). Additionally, the Company applied $230.5 million of proceeds from the sale to repay outstanding Company debt and interest. The Company reported a gain of $1.7 billion on the sale, which is included in earnings from discontinued operations, net of tax.
Summary results of operations of AMS for the three and nine months ended December 31, 2018 and 2017, respectively, are segregated and included in earnings from discontinued operations, net of tax, in the condensed consolidated statements of operations.
The following is a reconciliation of the major classes of line items constituting earnings from discontinued operations, net of tax (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | For the nine months ended | | |
| | December 31, | | | | December 31, | | |
| | 2018 | | 2017 | | 2018 | | 2017 |
Revenues | | $ | — | | $ | 175,750 | | $ | 332,185 | | $ | 512,734 |
Cost of revenue | | 24,677 | | 91,394 | | 213,512 | | 272,356 |
Gross profit | | (24,677) | | 84,356 | | 118,673 | | 240,378 |
Operating expenses: | | | | | | | | |
Research and development | | 6,703 | | 9,007 | | 21,621 | | 26,144 |
Sales and marketing | | 18,110 | | 25,898 | | 60,743 | | 74,384 |
General and administrative | | 27,767 | | 9,957 | | 72,150 | | 26,926 |
Gains, losses and other items, net | | (1,658,667) | | 747 | | (1,656,014) | | 1,479 |
Total operating expenses | | (1,606,087) | | 45,609 | | (1,501,500) | | 128,933 |
Income from discontinued operations | | 1,581,410 | | 38,747 | | 1,620,173 | | 111,445 |
Interest expense | | — | | (2,566) | | (5,702) | | (7,432) |
Other, net | | 74 | | (13) | | 97 | | (176) |
Earnings from discontinued operations before income taxes | | 1,581,484 | | 36,168 | | 1,614,568 | | 103,837 |
Income taxes | | 509,823 | | 15,761 | | 456,301 | | 34,986 |
Earnings from discontinued operations, net of tax | | $ | 1,071,661 | | $ | 20,407 | | $ | 1,158,267 | | $ | 68,851 |
| | | | | | | | |
Substantially all of the interest expense was allocated to discontinued operations.
The carrying amounts of the major classes of assets and liabilities of AMS are segregated and included in assets and liabilities held for sale in the condensed consolidated balance sheets. The following is a reconciliation of the assets and liabilities held for sale (dollars in thousands):
| | | | | | | | |
| | March 31, 2018 |
| | (Unaudited) |
Cash and cash equivalents | | $ | 2,261 |
Trade accounts receivable, net | | 115,141 |
Other current assets | | 20,972 |
Property and equipment, net | | 124,193 |
Software, net | | 21,014 |
Goodwill | | 392,356 |
Purchased software licenses, net | | 7,502 |
Deferred income taxes | | 1,522 |
Other assets, net | | 3,815 |
Assets held for sale | | $ | 688,776 |
| | |
Trade accounts payable | | 27,929 |
Accrued payroll and related expenses | | 28,725 |
Other accrued expenses | | 16,241 |
Deferred revenue | | 27,214 |
Income taxes payable | | 244 |
Other liabilities | | 3,707 |
Liabilities held for sale | | $ | 104,060 |
The Company entered into certain agreements with AMS in which services will be provided from the Company to AMS, and from AMS to the Company. The terms of these agreements are primarily 60 months from the date of sale.
Cash inflows and outflows related to the agreements are included in cash flows from operating activities in the condensed consolidated statements of cash flows. Revenues and costs related to the agreements are included in loss from operations in the condensed consolidated statements of operations. The related cash inflows and outflows and revenues and costs for the three months ended December 31, 2018 was (dollars in thousands):
| | | | | | | | |
| | |
| | For the three months ended December 31, 2018 |
Cash inflows | | $ | 9,417 |
Cash outflows | | $ | 521 |
| | |
Revenues | | $ | 11,832 |
Costs | | $ | 4,176 |
The revenues include approximately $4.5 million incremental to amounts reported as LiveRamp revenues in previous periods.
5. STOCK-BASED COMPENSATION:
Share-basedStock-based Compensation Plans
The Company has stock option and equity compensation plans for which a total of 34.542.3 million shares of the Company’s common stock have been reserved for issuance since the inception of the plans. These plans provide that the exercise prices of qualified options will be at or above the fair market value of the common stock at the time of the grant. Board policy requires that nonqualified options also be priced at or above the fair market value of the common stock at the time of grant. At December 31, 2017,2018, there were a total of 6.212.3 million shares available for future grants under the plans.
During the quarter ended JuneSeptember 30, 2017,2018, the Board voted to amend the Amended and Restated 2005 Equity Compensation Plan to increase the number of shares available under the plan from 28.432.9 million shares to 32.937.9 million shares, bringing the total number of shares reserved for issuance since inception of theall plans from 30.037.3 million shares at March 31, 2017June 30, 2018 to 34.542.3 million shares at December 31, 2017. Thatbeginning in the quarter ended September 30, 2018. The amendment received shareholder approval at the August 8, 2017September 20, 2018 annual shareholders' meeting.
Stock-based Compensation Expense
The Company's stock-based compensation activity for the nine months ended December 31, 2018, by award type, was (dollars in millions):
| | | | | | | | | | | | | | |
| | For the nine months ended | | |
| | December 31, | | |
| | 2018 | | 2017 |
Stock options | | $ | 2.6 | | $ | 4.0 |
Performance stock options | | 0.2 | | 0.9 |
Restricted stock units | | 34.6 | | 21.6 |
Arbor acquisition consideration holdback | | 11.5 | | 11.5 |
Pacific Data Partners assumed performance plan | | 11.8 | | — |
Other non-employee stock-based compensation | | 0.9 | | 0.9 |
Total non-cash stock-based compensation included in the condensed consolidated statements of operations | | 61.6 | | 38.9 |
Less expense related to liability-based equity awards | | (10.8) | | — |
Stock-based compensation of discontinued operations | | 62.9 | | 7.8 |
Total non-cash stock-based compensation included in the condensed consolidated statement of equity | | $ | 113.7 | | $ | 46.7 |
Stock Option Activity of Continuing Operations
Stock option activity for the nine months ended December 31, 20172018 was:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted-average | | |
| | | | Weighted-average | | remaining | | Aggregate |
| | Number of | | exercise price | | contractual term | | Intrinsic value |
| | shares | | per share | | (in years) | | (in thousands) |
Outstanding at March 31, 2018 | | 2,456,184 | | $ | 13.30 | | | | |
| | | | | | | | |
Exercised | | (870,453) | | $ | 11.22 | | | | $ | 27,517 |
Forfeited or canceled | | (25,591) | | $ | 18.64 | | | | |
Outstanding at December 31, 2018 | | 1,560,140 | | $ | 14.37 | | 4.8 | | $ | 37,850 |
Exercisable at December 31, 2018 | | 1,378,721 | | $ | 15.27 | | 4.5 | | $ | 32,210 |
|
| | | | | | | | | | | | | |
| | | | | | Weighted-average | | |
| | | | Weighted-average | | remaining | | Aggregate |
| | Number of | | exercise price | | contractual term | | Intrinsic value |
| | shares | | per share | | (in years) | | (in thousands) |
Outstanding at March 31, 2017 | | 3,033,071 |
| | $ | 13.14 |
| | | | |
Performance units converted to options | | 299,641 |
| | $ | 21.32 |
| | | | |
|
Exercised | | (526,842 | ) | | $ | 15.05 |
| | | | $ | 6,044 |
|
Forfeited or canceled | | (88,870 | ) | | $ | 20.08 |
| | | | |
|
Outstanding at December 31, 2017 | | 2,717,000 |
| | $ | 13.45 |
| | 5.7 | | $ | 38,448 |
|
Exercisable at December 31, 2017 | | 2,109,993 |
| | $ | 13.53 |
| | 5.1 | | $ | 29,701 |
|
The aggregate intrinsic value at period end represents the total pre-tax intrinsic value (the difference between Acxiom’sLiveRamp’s closing stock price on the last trading day of the period and the exercise price for each in-the-money option) that would have been received by the option holders had option holders exercised their options on December 31, 2017.2018. This amount changes based upon changes in the fair market value of Acxiom’sLiveRamp’s common stock.
A summary of stock options outstanding and exercisable as of December 31,
20172018 was:
| | | | | | | | | Options outstanding | | Options exercisable | | Options outstanding | | | Options exercisable | |
Range of | Range of | | | | Weighted-average | | Weighted-average | | | | Weighted-average | Range of | | | | Weighted-average | | Weighted-average | | | Weighted-average |
exercise price | exercise price | | Options | | remaining | | exercise price | | Options | | exercise price | exercise price | | | Options | | remaining | | exercise price | | Options | | exercise price |
per share | per share | | outstanding | | contractual life | | per share | | exercisable | | per share | per share | | | outstanding | | contractual life | | per share | | exercisable | | per share |
$ | 0.61 |
| | — | | $ | 9.99 |
| | 690,169 |
| | 6.4 years | | $ | 1.68 |
| | 474,434 |
| | $ | 1.77 |
| 0.61 | | — | | $ | 9.99 | | 304,455 | | 5.3 years | | $ | 1.45 | | 192,111 | | $ | 1.46 |
$ | 10.00 |
| | — | | $ | 19.99 |
| | 1,262,595 |
| | 4.9 years | | $ | 14.94 |
| | 1,076,909 |
| | $ | 14.47 |
| 10.00 | | — | | $ | 19.99 | | 732,241 | | 3.9 years | | $ | 14.78 | | 662,833 | | $ | 14.50 |
$ | 20.00 |
| | — | | $ | 24.99 |
| | 744,684 |
| | 6.6 years | | $ | 21.31 |
| | 539,098 |
| | $ | 21.33 |
| 20.00 | | — | | $ | 24.99 | | 523,444 | | 5.8 years | | $ | 21.31 | | 523,444 | | $ | 21.31 |
$ | 25.00 |
| | — | | $ | 32.85 |
| | 19,552 |
| | 5.9 years | | $ | 32.85 |
| | 19,552 |
| | $ | 32.85 |
| |
| | | | | | | 2,717,000 |
| | 5.7 years | | $ | 13.45 |
| | 2,109,993 |
| | $ | 13.53 |
| |
| | | 1,560,140 | | 4.8 years | | $ | 14.37 | | 1,378,388 | | $ | 15.27 |
Total expense related to stock options for the nine months ended December 31, 2017 and 2016 was approximately $4.1 million and $5.4 million, respectively. Future expense for these options is expected to be approximately $7.1$3.4 million in total over the next fourthree years.
Performance Stock Option Unit Activity of Continuing Operations
Performance stock option unit activity for the nine months ended December 31, 20172018 was:
|
| | | | | | | | | | | | | | |
| | | | | | Weighted-average | | |
| | | | Weighted-average | | remaining | | Aggregate |
| | Number | | exercise price | | contractual term | | intrinsic value |
| | of shares | | per share | | (in years) | | (in thousands) |
Outstanding at March 31, 2017 | | 555,123 |
| | $ | 21.41 |
| | | | |
Performance units converted to options | | (183,322 | ) | | $ | 21.41 |
| | | | |
Forfeited or canceled | | (25,201 | ) | | $ | 21.32 |
| | | | |
Outstanding at December 31, 2017 | | 346,600 |
| | $ | 21.41 |
| | 1.9 |
| | $ | 2,131 |
|
Exercisable at December 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted-average | | |
| | | | Weighted-average | | remaining | | Aggregate |
| | Number | | exercise price | | contractual term | | intrinsic value |
| | of shares | | per share | | (in years) | | (in thousands) |
Outstanding at March 31, 2018 | | 322,823 | | $ | 21.42 | | | | |
| | | | | | | | |
| | | | | | | | |
Forfeited or canceled | | (187,885) | | $ | 21.41 | | | | |
Outstanding at December 31, 2018 | | 134,938 | | $ | 21.44 | | 1.4 | | $ | 2,320 |
Exercisable at December 31, 2018 | | — | | $ | — | | — | | $ | — |
Of the performance stock option units outstanding at March 31, 2017, 183,3222018, 161,412 reached maturity of the relevant performance period at March 31, 2017. During2018. The units attained a 0% attainment level. As a result, they were canceled in the quarter ended June 30, 2017, the units vested at an approximate 163% attainment level resulting in issuance of 299,641 stock options having a weighted average exercise price of $21.32.current fiscal year.
Total expense related to performance stock option units for the nine months ended December 31, 2017 and 2016 was $0.9 million and $1.0 million, respectively. Future expense for these performance stock option units is expected to be approximately $2.1$0.6 million in total over the next fourthree years.
Restricted Stock Appreciation RightUnit Activity Related to Disposition of AMS
Performance-based Restricted Stock Unit Conversions
In conjunction with the disposition of AMS, together with the change-in-control guidelines of the Company's 2005 Equity Compensation Plan, the Company converted its outstanding TSR-based performance restricted stock units ("SAR"PSUs") Activityto time-vesting restricted stock units ("RSUs"). On the conversion date, the performance period was truncated and attainment measured, resulting in conversion of the PSUs to RSUs at a 200% conversion rate. Each converted RSU held by an AMS associate was vested immediately. The remaining converted RSUs will cliff vest on the same date as the original PSU performance period maturity date.
SAR activity for the nine months ended December 31, 2017 was:
|
| | | | | | | | | | | | | | |
| | | | | | Weighted-average | | |
| | | | Weighted-average | | remaining | | Aggregate |
| | Number | | exercise price | | contractual term | | intrinsic value |
| | of shares | | per share | | (in years) | | (in thousands) |
Outstanding at March 31, 2017 | | 245,404 |
| | $ | 40.00 |
| | | | |
Forfeited or canceled | | (245,404 | ) | | $ | 40.00 |
| | | | |
Outstanding at December 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | — |
|
Share activity related to these conversions was: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Continuing Operations | | Discontinued Operations | | Total Continuing and Discontinued Operations |
TSR-based performance restricted stock units converted to time-based restricted stock units, by fiscal year granted: | | Original Performance Maturity Date: | | | | | | |
Fiscal 2017 PSU | | 3/31/2019 | | (168,939) | | (45,657) | | (214,596) |
Fiscal 2018 PSU | | 3/31/2020 | | (153,233) | | (32,545) | | (185,778) |
Fiscal 2019 PSU | | 3/31/2021 | | (186,539) | | (30,188) | | (216,727) |
Totals | | | | (508,711) | | (108,390) | | (617,101) |
| | | | | | | | |
Time-based restricted stock units converted from TSR-based performance restricted stock units | | RSU Cliff Vest Date (Continuing Ops Only): | | | | | | |
Fiscal 2017 PSU | | 3/31/2019 | | 337,878 | | 91,314 | | 429,192 |
Fiscal 2018 PSU | | 3/31/2020 | | 306,466 | | 65,090 | | 371,556 |
Fiscal 2019 PSU | | 3/31/2021 | | 373,078 | | 60,376 | | 433,454 |
Totals | | | | 1,017,422 | | 216,780 | | 1,234,202 |
AllThe Company recognized both incremental and accelerated compensation costs in the condensed consolidated statement of operations related to the SAR units outstanding at March 31, 2017 reached maturityPSU conversions. The impact on compensation costs was (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Continuing Operations | | Discontinued Operations | | Total Continuing and Discontinued Operations |
Incremental compensation costs | | $ | 7,179 | | $ | 1,599 | | $ | 8,778 |
Accelerated compensation costs of original grant date fair value related to immediate vesting of converted PSUs of AMS associates | | $ | — | | $ | 1,607 | | $ | 1,607 |
AMS Restricted Stock Unit Accelerations
In conjunction with the disposition of AMS, the relevant performance period on March 31, 2017. The units achieved a 100% performance attainment level. However, application ofCompany accelerated the vesting multiplier resultedof substantially all outstanding time-vesting restricted stock units of AMS associates to the date of disposition, including converted PSU shares, resulting in zerothe release of restricted stock units covering 1,187,344 shares grantedof common stock. The Company recognized $54.0 million of compensation costs related to the accelerated vesting and cancellationrelease of allthese units which is included in net earnings from discontinued operations, net of tax in the units duringcondensed consolidated statement of operations. Of the quarter ended June 30, 2017.$54.0 million compensation costs, $27.0 million represented incremental compensation cost and $27.0 million represented accelerated original grant date fair value compensation cost.
Restricted Stock Unit Activity
During the nine months ended December 31, 2017,2018, the Company granted time-vesting restricted stock units covering 1,687,4161,877,874 shares of common stock with a fair value at the date of grant of $44.2$63.2 million. Of the restricted stock units granted in the current period, 358,812197,115 vest in equal annual increments over four years, 106,571 vest in equal annual increments over three years, 1,008,8511,272,337 vest 25% at the one-year anniversary and 75% in equal quarterly increments over the subsequent three years, 174,368330,415 vest 50% at the one-yeartwo-year anniversary and 50% in equal quarterlyannual increments over the following year,subsequent two years, and 38,81478,007 vest inover one year. Grant date fair value of these units is equal to the quoted market price for the shares on the date of grant.
Time-vesting restricted stock unit activity for the nine months ended December 31, 20172018 was:
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted-average | | |
| | | | fair value per | | Weighted-average |
| | Number | | share at grant | | remaining contractual |
| | of shares | | date | | term (in years) |
Outstanding at March 31, 2018 | | 2,702,497 | | $ | 24.60 | | 2.34 |
Granted | | 1,877,874 | | $ | 33.66 | | |
Vested | | (1,363,871) | | $ | 24.60 | | |
Forfeited or canceled | | (265,878) | | $ | 25.39 | | |
PSUs converted to RSUs in conjunction with AMS disposition | | 1,017,422 | | $ | 21.21 | | |
Outstanding at December 31, 2018 | | 3,968,044 | | $ | 27.97 | | 2.37 |
|
| | | | | | | | | |
| | | | Weighted-average | | |
| | | | fair value per | | Weighted-average |
| | Number | | share at grant | | remaining contractual |
| | of shares | | date | | term (in years) |
Outstanding at March 31, 2017 | | 3,307,577 |
| | $ | 22.57 |
| | 2.45 |
Granted | | 1,687,416 |
| | $ | 26.17 |
| | |
Vested | | (1,067,370 | ) | | $ | 22.30 |
| | |
Forfeited or canceled | | (345,581 | ) | | $ | 23.36 |
| | |
Outstanding at December 31, 2017 | | 3,582,042 |
| | $ | 24.27 |
| | 2.48 |
The total fair value of time-vesting restricted stock units vested for the nine months ended December 31, 2018 was $54.4 million and is measured as the quoted market price of the Company's common stock on the vesting date for the number of shares vested.
During the nine months ended December 31, 2017,2018, the Company granted performance-based restricted stock units, in two separate plans, covering 425,880516,954 shares of common stock having a fair value at the date of grant of $11.2$21.1 million. OfUnder the performance-based restrictedfirst performance plan, units covering 186,539 shares of common stock unitswere granted in the current period, 221,746 units - having a fair value at the date of grant of $6.2$5.8 million, determined using a Monte Carlo simulation model -model. The units vest subject to attainment of performance criteriamarket conditions established by the compensation committee of the board of directors (“compensation committee”) and continuous employment through the vesting date. The 221,746186,539 units may vest in a number of shares from 25% to 200% of the award, based on the total shareholder return of LiveRamp common stock compared to total shareholder return of a group of peer companies established by the compensation committee for the period from April 1, 2018 to March 31, 2021. All of these awards were converted to RSUs at the time of the AMS disposition. Under the second performance plan, units covering 330,415 shares of common stock were granted having a fair value at the date of grant of $15.3 million equal to the quoted market price for the shares on the date of grant. The units vest subject to attainment of performance criteria established by the compensation committee of the board of directors. The units may vest in a number of shares from zero to 200% of the award, based on the total shareholder return of Acxiom common stock compared to total shareholder return of a group of peer companies (“TSR”) established by the compensation committee for the period from April 1, 2017 to March 31, 2020.
Of the performance-based restricted stock units granted in the current period, 87,184 units - having a fair value at the date of grant of $2.1 million, based on the quoted market price for the shares on the date of grant - vest over two periods, each being subject to attainment of performance criteria established by the compensation committee and continuous employment through the vesting date. At the end of the first year, the performance units may vest in a number of shares, from zero to 75% of the initial award. At the end of the second year, the performance units may vest in a number of shares, from zero to 150% of the initial award, less the number of shares awarded at completion of year one. The units will vest based on the attainment of certain revenue growth initiatives for the period from October 1, 2017 to September 30, 2019.
The remaining 116,950 performance-based restricted stock units granted in the current period - having a fair value at the date of grant of $2.9 million, based on the quoted market price for the shares on the date of grant - vest in three equal tranches, each being subject to attainment of performance criteria established by the compensation committee and continuous employment through the vesting date. Each of the three tranches may vest in a number of shares, from zero to 300% of the initial award, based on the attainment of certain revenue growth and operating margin targets for the years ending March 31, 2018, 2019, and 2020, respectively.targets.
Non-vested performance-based restricted stock unit activity for the nine months ended December 31, 20172018 was:
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted-average | | |
| | | | fair value per | | Weighted-average |
| | Number | | share at grant | | remaining contractual |
| | of shares | | date | | term (in years) |
Outstanding at March 31, 2018 | | 561,018 | | $ | 25.68 | | 2.53 |
Granted | | 516,954 | | $ | 40.82 | | |
Additional earned performance shares | | 176 | | $ | 23.89 | | |
Vested | | (61,330) | | $ | 24.22 | | |
Forfeited or canceled | | (129,501) | | $ | 25.15 | | |
PSUs converted to RSUs in conjunction with AMS disposition | | (508,711) | | $ | 28.08 | | |
Outstanding at December 31, 2018 | | 378,606 | | $ | 43.55 | | 3.45 |
|
| | | | | | | | | |
| | | | Weighted-average | | |
| | | | fair value per | | Weighted-average |
| | Number | | share at grant | | remaining contractual |
| | of shares | | date | | term (in years) |
Outstanding at March 31, 2017 | | 732,711 |
| | $ | 20.89 |
| | 1.13 |
Granted | | 425,880 |
| | $ | 26.22 |
| | |
Additional earned performance shares | | 94,775 |
| | $ | 19.46 |
| | |
Vested | | (252,760 | ) | | $ | 19.46 |
| | |
Forfeited or canceled | | (48,422 | ) | | $ | 22.00 |
| | |
Outstanding at December 31, 2017 | | 952,184 |
| | $ | 23.45 |
| | 1.37 |
Of the performance-based restricted stock units outstanding at March 31, 2017, 157,985 related to a performance period ended March 31, 2017. During the quarter ended June 30, 2017, the units vested at a 160% attainment level based on performance results approved by the compensation committee, resulting in issuance of 252,760 shares of common stock, of which 94,775 were the additional earned performance shares referenced in the table above.
Of the performance-based restricted stock units outstanding at December 31, 2017, 251,399 will reach maturity of the relevant performance period at March 31, 2018. The units are expected to vest at an approximate 200% attainment level, resulting in issuance of approximately 502,798 shares of common stock, before consideration of the TSR multiplier, in the first quarter of fiscal 2019.
Total expense related to restricted stock for the nine months ended December 31, 2017 and 2016 was approximately $29.5 million and $24.4 million, respectively. Future expense for restricted stock units is expected to be approximately $11.8$12.5 million for the three months ending March 31, 2018, $36.0 million in fiscal 2019, $24.6$42.5 million in fiscal 2020, $11.7$27.9 million in fiscal 2021, and $2.0$15.6 million in fiscal 2022.2022, and $4.2 million in fiscal 2023.
Other Performance Unit Activity
Other performance-based stock unit activity for the nine months ended December 31, 20172018 was:
| | | | | | | | | | Weighted-average | | |
| | | | Weighted-average | | | | | fair value per | | Weighted-average |
| | | | fair value per | | Weighted-average | | | Number | | share at grant | | remaining contractual |
| | Number | | share at grant | | remaining contractual | | | of shares | | date | | term (in years) |
| | of shares | | date | | term (in years) | |
Outstanding at March 31, 2017 | | 597,193 |
| | $ | 4.14 |
| | 0.30 | |
Outstanding at March 31, 2018 | | Outstanding at March 31, 2018 | | 111,111 | | $ | 5.33 | | - |
Vested | | (24,573 | ) | | $ | 2.94 |
| | Vested | | (45,364) | | $ | 5.33 | |
Forfeited or canceled | | (461,509 | ) | | $ | 3.92 |
| | | Forfeited or canceled | | (65,747) | | $ | 5.33 | |
Outstanding at December 31, 2017 | | 111,111 |
| | $ | 5.33 |
| | 0.25 | |
Outstanding at December 31, 2018 | | Outstanding at December 31, 2018 | | — | | $ | — | | - |
Of the otherThe 111,111 performance-based stock units outstanding at March 31, 2017, 201,4642018 reached maturity of the relevant performance period on March 31, 2017.2018. The units achieved a 100% performance attainment level. However, application of the share price adjustment factor resulted in zero shares granted and cancellation of all the units during the quarter ended June 30, 2017.
Of the other performance-based stock units outstanding at March 31, 2017, 284,618 reached maturity of the relevant performance period on June 30, 2017. The units achieved an approximate 9% performance attainment level, resulting in issuance of 24,573 shares of common stock during the quarter ended September 30, 2017.
The remaining 111,111 performance-based units outstanding at December 31, 2017 will reach maturity of the relevant performance period on March 31, 2018. The units are expected to achieve a 100% performance attainment level. However, application of the share price adjustment factor is expected to result in an approximate 75%59% reduction in shares granted,vested in the first quartercurrent fiscal quarter.
During the nine months ended December 31, 2018, shares having a fair value of fiscal 2019.approximately $36.9 million were withheld from the units vested and exercised in the tables above. The withheld shares represented the value of employee payroll tax withholding for taxable stock-based compensation awards. The $36.9 million fair value resulted in the return of 953,523 shares to treasury stock and is included in shares repurchased for tax withholding upon vesting of stock-based awards in the condensed consolidated statements of cash flows.
Stock-based Compensation Expense Related to Discontinued Operations
Total stock-based compensation expense related to other performance unitsdiscontinued operations for the nine months ended December 31, 2018 and 2017 and 2016 was $0.1$62.9 million and $0.7$7.8 million, respectively. Future expense for these performance unitsrespectively and is expected to be approximately $0.1 million overincluded in non-cash stock-based compensation in the next three months ending March 31, 2018.condensed consolidated statement of equity.
Consideration Holdback
As part of the Company’s acquisition of Arbor in fiscal 2017, $38.3 million of the acquisition consideration otherwise payable with respect to shares of restricted Arbor common stock held by certain key employees was subject to holdback by the Company pursuant to agreements with those employees (each, a “Holdback Agreement”). The consideration holdback vests in 30 equal monthly increments followingHoldback Agreement specifies the date of close, subject to the Arbor key employees' continued employment through each monthly vesting date. At each vesting date, 1/30thpayment of the $38.3 million holdback consideration vests and is settled in monthly installments using LiveRamp shares of Company common stock. The number of shares is based on the then-current market price of the Company common stock.
over a thirty month period. Total expense related to the Holdback AgreementAgreements for the nine months ended December 31, 2018 and 2017 was $11.5 million in each period. Through December 31, 2018, the Company had recognized a total of $31.9 million expense related to the Holdback Agreements. Future expense related to the Holdback Agreements is expected to be approximately $11.5 million. $6.4 million over the next two fiscal quarters.
4. DISPOSITION:
Disposition of Impact email business
Pacific Data Partners ("PDP") Assumed Performance Plan
In connection with the fiscal 2017,2018 acquisition of PDP, the Company completedassumed the saleoutstanding performance compensation plan under the 2018 Equity Compensation Plan of its Impact email business to Zeta Interactive for total consideration of $22.0 million, including a $4.0 million subordinated promissory note with interest accruing at a rate of 6.0% per annum. The note was paid in full during the quarter ended September 30, 2017. The Company also entered into a separate multi-year contract to provide Zeta Interactive with Connectivity and Audience Solutions services. PriorPacific Data Partners, LLC ("PDP PSU plan"). Total expense related to the disposition,PDP PSU plan for the Impact email businessnine months ended December 31, 2018 was included$11.8 million. Through December 31, 2018, the Company has recognized a total of $13.8 million related to the PDP PSU plan. Future expense is expected to be approximately $3.9 million in fiscal 2019, $15.8 million in fiscal 2020, $15.8 million in fiscal 2021, and $15.7 million in fiscal 2022, based on expectations of full attainment. At December 31, 2018, the recognized, but unpaid, balance related to the PDP PSU plan in other accrued expenses in the Marketing Services segment results. The business did not meet the requirements of a discontinued business; therefore, all financial results are included in continuing operations.condensed consolidated balance sheet was $12.4 million.
Revenue and income from operations from the disposed Impact email business are shown below (dollars in thousands):
|
| | | | | | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Revenues | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 20,375 |
|
Income from operations | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 120 |
|
5.6. OTHER CURRENT AND NONCURRENT ASSETS:
Other current assets consist of the following (dollars in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2018 | | March 31, 2018 |
Prepaid expenses and other | | $ | 13,660 | | $ | 6,622 |
Assets of non-qualified retirement plan | | 13,706 | | 13,551 |
Other current assets | | $ | 27,366 | | $ | 20,173 |
|
| | | | | | | | |
| | December 31, 2017 | | March 31, 2017 |
Prepaid expenses and other | | $ | 28,246 |
| | $ | 25,714 |
|
Escrow deposit | | — |
| | 5,880 |
|
Note receivable | | — |
| | 4,000 |
|
Assets of non-qualified retirement plan | | 14,111 |
| | 12,716 |
|
Other current assets | | $ | 42,357 |
| | $ | 48,310 |
|
Other noncurrent assets consist of the following (dollars in thousands):
| | | | December 31, 2017 | | March 31, 2017 | | December 31, 2018 | | March 31, 2018 |
Acquired intangible assets, net | | $ | 36,183 |
| | $ | 43,884 |
| Acquired intangible assets, net | | $ | 26,562 | | $ | 33,922 |
Deferred data acquisition costs | | 982 |
| | 1,116 |
| |
Other miscellaneous noncurrent assets | | 6,411 |
| | 6,443 |
| Other miscellaneous noncurrent assets | | 7,998 | | 3,932 |
Noncurrent assets | | $ | 43,576 |
| | $ | 51,443 |
| |
Other assets, net | | Other assets, net | | $ | 34,560 | | $ | 37,854 |
6.7. OTHER ACCRUED EXPENSES:
Other accrued expenses consist of the following (dollars in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2018 | | March 31, 2018 |
Liabilities of non-qualified retirement plan | | 13,706 | | 13,551 |
Other miscellaneous accrued expenses | | 41,429 | | 26,073 |
Other accrued expenses | | $ | 55,135 | | $ | 39,624 |
8. GOODWILL AND INTANGIBLE ASSETS:
|
| | | | | | | | |
| | December 31, 2017 | | March 31, 2017 |
Accrued purchase consideration | | $ | — |
| | $ | 5,880 |
|
Liabilities of non-qualified retirement plan | | 14,111 |
| | 12,716 |
|
Other accrued expenses | | 39,888 |
| | 41,265 |
|
Other accrued expenses | | $ | 53,999 |
| | $ | 59,861 |
|
7. GOODWILL:
The following table summarizes Goodwill activity, by segment, for the nine months endedDecember 31, 20172018 (dollars in thousands): was as follows: |
| | | | | | | | | | | | | | | | |
| | Marketing Services | | Audience Solutions | | Connectivity | | Total |
Balance at March 31, 2017 | | $ | 118,890 |
| | $ | 273,448 |
| | $ | 200,393 |
| | $ | 592,731 |
|
Arbor adjustment | | — |
| | — |
| | (21 | ) | | (21 | ) |
Change in foreign currency translation adjustment | | 82 |
| | — |
| | 35 |
| | 117 |
|
Balance at December 31, 2017 | | $ | 118,972 |
| | $ | 273,448 |
| | $ | 200,407 |
| | $ | 592,827 |
|
| | | | | | | | |
| | Total |
Balance at March 31, 2018 | | $ | 203,639 |
Reallocation from AMS | | 1,377 |
Change in foreign currency translation adjustment | | (345) |
Balance at December 31, 2018 | | $ | 204,671 |
Goodwill by component included in each segmentgeography as of December 31, 20172018 was:
| | | | | | | | |
| | Total |
U.S. | | $ | 201,449 |
APAC | | 3,222 |
Balance at December 31, 2018 | | $ | 204,671 |
|
| | | | | | | | | | | | | | | | |
| | Marketing Services | | Audience Solutions | | Connectivity | | Total |
U.S. | | $ | 110,910 |
| | $ | 273,448 |
| | $ | 196,812 |
| | $ | 581,170 |
|
APAC | | 8,062 |
| | — |
| | 3,595 |
| | 11,657 |
|
Balance at December 31, 2017 | | $ | 118,972 |
| | $ | 273,448 |
| | $ | 200,407 |
| | $ | 592,827 |
|
The amounts allocated to intangible assets from acquisitions include developed technology, customer relationships, trade names, and publisher relationships. Amortization lives for those intangibles range from two years to six years. The following table shows the amortization activity of intangible assets (dollars in thousands): | | | | | | | | | | | | | | | | |
| | December 31, 2018 | | March 31, 2018 | | |
Developed technology, gross (Software) | | $ | 54,000 | | $ | 54,000 | | |
Accumulated amortization | | (48,989) | | (43,383) | | |
Net developed technology | | $ | 5,011 | | $ | 10,617 | | |
| | | | | | |
Customer relationship/Trade name, gross (Other assets, net) | | $ | 35,800 | | $ | 35,800 | | |
Accumulated amortization | | (24,774) | | (20,400) | | |
Net customer/trade name | | $ | 11,026 | | $ | 15,400 | | |
| | | | | | |
Publisher relationship, gross (Other assets, net) | | $ | 23,800 | | $ | 23,800 | | |
Accumulated amortization | | (8,264) | | (5,289) | | |
Net publisher relationship | | $ | 15,536 | | $ | 18,511 | | |
| | | | | | |
Total intangible assets, gross | | $ | 113,600 | | $ | 113,600 | | |
Total accumulated amortization | | (82,027) | | (69,072) | | |
Total intangible assets, net | | $ | 31,573 | | $ | 44,528 | | |
Total amortization expense related to intangible assets for the nine months ended December 31, 2018 and 2017 was $13.0 million and $18.0 million, respectively. The following table presents the estimated future amortization expenses related to purchased and other intangible assets. The amount for 2019 represents the remaining three months ending March 31, 2019. All other periods represent fiscal years ending March 31 (dollars in thousands): 8.
| | | | | |
Fiscal Year: | |
2019 | $ | 2,981 |
2020 | 11,925 |
2021 | 8,083 |
2022 | 5,150 |
2023 | 3,434 |
| $ | 31,573 |
9. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows (dollars in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2018 | | March 31, 2018 |
| | | | |
Leasehold improvements | | 16,920 | | 15,635 |
Data processing equipment | | 35,727 | | 39,938 |
Office furniture and other equipment | | 6,135 | | 6,780 |
| | 58,782 | | 62,353 |
Less accumulated depreciation and amortization | | 34,195 | | 30,013 |
| | $ | 24,587 | | $ | 32,340 |
| | | | |
Depreciation expense on property and equipment was $10.7 million and $8.9 million for the nine months ended December 31, 2018 and 2017, respectively. Depreciation expense for the nine months ended December 31, 2018
included $2.0 million of accelerated depreciation expense resulting from adjusting the remaining lives of certain data processing equipment.
10. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
|
| | | | | | | | |
| | December 31, 2017 | | March 31, 2017 |
Term loan credit agreement | | $ | — |
| | $ | 155,000 |
|
Revolving credit borrowings | | 230,000 |
| | 70,000 |
|
Other debt | | 3,881 |
| | 5,612 |
|
Total long-term debt | | 233,881 |
| | 230,612 |
|
| | | | |
Less current installments | | 1,837 |
| | 39,819 |
|
Less deferred debt financing costs | | 4,101 |
| | 1,552 |
|
Long-term debt, excluding current installments and deferred debt financing costs | | $ | 227,943 |
| | $ | 189,241 |
|
| | | | | | | | |
| | March 31, 2018 |
Revolving credit borrowings | | $ | 230,000 |
Other debt | | 3,293 |
Total long-term debt | | 233,293 |
| | |
Less current installments | | 1,583 |
Less deferred debt financing costs | | 3,873 |
Long-term debt, excluding current installments and deferred debt financing costs | | $ | 227,837 |
On June 20, 2017,The sale of AMS was completed on October 1, 2018. At the closing of the transaction, the Company entered into a Sixth Amendedapplied $230.5 million of proceeds from the sale to repay outstanding Company debt and Restated Credit Agreement (the "restated credit agreement") as part of refinancing its prior credit agreement. On that day, the Company used an initial draw of $230 million to pay off the outstanding $225 million term and revolving loan balances, with interest, along with $4.0 million in fees related to the restated credit agreement. The fees are being amortized over the term of the agreement.interest.
The Company's restated credit agreement provides for (1) revolving credit facility borrowings consisting of revolving loans, letters of credit participation, and swing-line loans (the “revolving loans”) in an aggregate amount of $600 million and (2) a provision allowing the Company to request an increase of the aggregate amount of the revolving loans in an amount not to exceed $150 million. The restated credit agreement is secured by the accounts receivable of the Company and its domestic subsidiaries, as well as by the outstanding stock of certain subsidiaries of the Company. The restated credit agreement contains customary representations, warranties, affirmative and negative covenants, and default and acceleration provisions. The restated credit agreement matures, and is fully due and payable, on June 20, 2022 and allows for prepayments before maturity.
The revolving loan borrowings bear interest at LIBOR or at an alternative base rate plus a credit spread. At December 31, 2017, the revolving loan borrowing bears interest at LIBOR plus a credit spread of 2%. The weighted-average interest rate on revolving credit borrowings at December 31, 2017 was 3.6%. There were no material outstanding letters of credit at December 31, 2017 or March 31, 2017.
Under the terms of the restated credit agreement, the Company is required to maintain certain debt-to-cash flow and interest coverage ratios, among other restrictions. At December 31, 2017, the Company was in compliance with these covenants and restrictions.
9.11. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Trade accounts receivable are presented net of allowances for doubtful accounts, returns and credits of $6.3$3.4 million at December 31, 20172018 and $6.1$3.1 million at March 31, 2017.2018.
10. SEGMENT INFORMATION:
The Company reports segment information consistent with the way management internally disaggregates its operations to assess performance and to allocate resources.
Revenues and cost of revenue are generally directly attributed to the segments. Certain revenue contracts are allocated among the segments based on the relative value of the underlying products and services. Cost of revenue, excluding non-cash stock compensation expense and purchased intangible asset amortization, is directly charged in most cases and allocated in certain cases based upon proportional usage.
Operating expenses, excluding non-cash stock compensation expense and purchased intangible asset amortization, are attributed to the segment groups as follows:
Research and development expenses are primarily directly recorded to each segment group based on identified products supported.
Sales and marketing expenses are primarily directly recorded to each segment group based on products supported and sold.
General and administrative expenses are generally not allocated to the segments unless directly attributable.
Gains, losses and other items, net are not allocated to the segment groups.
We do not track our assets by operating segments. Consequently, it is not practical to show assets by operating segment.
The following table presents information by business segment (dollars in thousands):
|
| | | | | | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Revenues: | | | | | | | | |
Marketing Services | | $ | 94,457 |
| | $ | 101,177 |
| | $ | 280,093 |
| | $ | 316,571 |
|
Audience Solutions | | 84,436 |
| | 83,399 |
| | 238,984 |
| | 235,669 |
|
Connectivity | | 55,978 |
| | 38,736 |
| | 153,548 |
| | 103,140 |
|
Total segment revenues | | $ | 234,871 |
| | $ | 223,312 |
| | $ | 672,625 |
| | $ | 655,380 |
|
| | | | | | | | |
Gross profit(1): | | |
| | |
| | |
| | |
|
Marketing Services | | $ | 35,798 |
| | $ | 37,494 |
| | $ | 101,476 |
| | $ | 109,440 |
|
Audience Solutions | | 52,821 |
| | 53,120 |
| | 148,352 |
| | 143,030 |
|
Connectivity | | 37,914 |
| | 23,091 |
| | 100,730 |
| | 60,509 |
|
Total segment gross profit | | $ | 126,533 |
| | $ | 113,705 |
| | $ | 350,558 |
| | $ | 312,979 |
|
| | | | | | | | |
Income from operations(1): | | |
| | |
| | |
| | |
|
Marketing Services | | $ | 22,063 |
| | $ | 21,127 |
| | $ | 63,721 |
| | $ | 61,109 |
|
Audience Solutions | | 33,112 |
| | 34,572 |
| | 91,151 |
| | 89,640 |
|
Connectivity | | 6,808 |
| | 1,877 |
| | 12,475 |
| | 3,831 |
|
Total segment income from operations | | $ | 61,983 |
| | $ | 57,576 |
| | $ | 167,347 |
| | $ | 154,580 |
|
(1) Gross profit and income from operations reflect only the direct and allocable controllable costs of each segment and do not include allocations of corporate expenses (primarily general and administrative expenses) and gains, losses, and other items, net. Additionally, segment gross profit and income from operations do not include non-cash stock compensation expense and purchased intangible asset amortization.
The following table reconciles total segment gross profit to gross profit and total operating segment income from operations to income from operations (dollars in thousands):
|
| | | | | | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Total segment gross profit | | $ | 126,533 |
| | $ | 113,705 |
| | $ | 350,558 |
| | $ | 312,979 |
|
| | | | | | | | |
Less: | | | | | | | | |
Purchased intangible asset amortization | | 5,971 |
| | 4,621 |
| | 17,958 |
| | 12,588 |
|
Non-cash stock compensation | | 1,611 |
| | 2,240 |
| | 4,927 |
| | 4,403 |
|
Gross profit | | $ | 118,951 |
| | $ | 106,844 |
| | $ | 327,673 |
| | $ | 295,988 |
|
| | | | | | | | |
Total segment income from operations | | $ | 61,983 |
| | $ | 57,576 |
| | $ | 167,347 |
| | $ | 154,580 |
|
| | | | | | | | |
Less: | | | | | | | | |
Corporate expenses (principally general and administrative) | | 23,862 |
| | 24,184 |
| | 75,582 |
| | 75,342 |
|
Separation and transformation costs included in general and administrative | | 5,214 |
| | 4,118 |
| | 17,775 |
| | 5,573 |
|
Gains, losses and other items, net | | (41 | ) | | 2,111 |
| | 3,521 |
| | 2,725 |
|
Purchased intangible asset amortization | | 5,971 |
| | 4,621 |
| | 17,958 |
| | 12,588 |
|
Non-cash stock compensation | | 15,919 |
| | 13,427 |
| | 46,707 |
| | 33,955 |
|
Income from operations | | $ | 11,058 |
| | $ | 9,115 |
| | $ | 5,804 |
| | $ | 24,397 |
|
11.12. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:
The following table summarizes the restructuring activity for the nine months ended December 31, 20172018 (dollars in thousands):
| | | | | | | | | | Associate-related reserves | | Lease accruals | | Total |
| | Associate-related reserves | | Lease accruals | | Total | |
March 31, 2017 | | $ | 2,400 |
| | $ | 4,308 |
| | $ | 6,708 |
| |
March 31, 2018 | | March 31, 2018 | | $ | 541 | | $ | 5,288 | | $ | 5,829 |
Restructuring charges and adjustments | | 1,476 |
| | 2,068 |
| | 3,544 |
| Restructuring charges and adjustments | | 3,952 | | 1,582 | | 5,534 |
Payments | | (2,842 | ) | | (1,187 | ) | | (4,029 | ) | Payments | | (1,363) | | (878) | | (2,241) |
December 31, 2017 | | $ | 1,034 |
| | $ | 5,189 |
| | $ | 6,223 |
| |
December 31, 2018 | | December 31, 2018 | | $ | 3,130 | | $ | 5,992 | | $ | 9,122 |
The above balances are included in other accrued expenses and other liabilities on the condensed consolidated balance sheet.sheets.
Restructuring Plans
In the nine months ended December 31, 2017,2018, the Company recorded a total of $3.5$5.5 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The fiscal year 2019 expense included restructuring plans primarily for associates in the United States and China of $3.9 million, lease accruals and adjustments of $0.8 million, and leasehold improvement write-offs of $0.8 million. Of the associate related accruals of $3.9 million, $2.8 million remained accrued at December 31, 2018. The associate-related costs are expected to be paid out in fiscal 2019 and fiscal 2020.
In fiscal 2018, the Company recorded a total of $2.8 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The expense included severance and other associate-related charges of $1.5$0.2 million, and lease accruals and adjustments of $1.0 million, and leasehold improvement write-offs of $1.1$2.6 million.
The associate-related accruals of $1.5$0.2 million relate to the termination of associates in the United States. Of the amount accrued, $0.3 million remained accrued as of December 31, 2017. These costs are expected to bewere paid out in fiscal 2018.
2019. The lease accruals and adjustments of $1.0$2.6 million result from the Company's exit from certain leased office facilities. Of the amount accrued, together with the deferred rent credits of $1.4 million related to the space, $2.1 million remained accrued as of December 31, 2017.
In fiscal 2017, the Company recorded a total of $8.9$6.5 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The expense included severance and other associate-related charges of $3.8 million,
lease accruals and adjustments of $3.0 million, and leasehold improvement write-offs of $2.1 million. Of the associate-related accruals of $3.8 million, $0.2 million remained accrued as of December 31, 2017. These costs are expected to be paid out in fiscal 2018. The lease accruals and adjustments of $3.0 million resulted from the Company's exit from certain leased office facilities ($1.5 million) and adjustments to estimates related to the fiscal 2015 lease accruals ($1.5 million). Of the amount accrued for fiscal 2017 lease accruals, $2.3 million remained accrued as of December 31, 2017.
In fiscal 2016,2015, the Company recorded a total of $12.0$9.2 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The expense included severance and other associate-related charges of $8.6 million, lease termination charges and accruals of $3.0 million, and leasehold improvement write-offs of $0.4 million. Of the associate-related accruals of $8.6 million, $0.2 million remained accrued as of December 31, 2017. These amounts are expected to be paid out in fiscal 2018. The lease termination charges and accruals of $3.0 million were fully paid during fiscal 2016.
In fiscal 2015, the Company recorded a total of $21.8 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The expense included severance and other associate-related charges of $13.3$2.6 million, lease accruals of $6.5$4.7 million, and the write-off of leasehold improvements of $2.0 million. Of the associate-related accruals of $13.3$2.6 million, $0.3 million remained accrued as of December 31, 2017.2018. These amounts are expected to be paid out in fiscal 2018. Of the lease accruals of $6.5 million, $0.8 million remained accrued as of December 31, 2017.2019.
With respect to the fiscalfiscals 2015, 2017, 2018, and 20182019 lease accruals described above, the Company intends to sublease the facilities to the extent possible. The liabilities will be satisfied over the remainder of the leased properties' terms, which continue through November 2025. Of the total amount accrued, $6.0 million remained accrued as of December 31, 2018. Actual sublease receipts may differ from the estimates originally made by
the Company. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liabilities, which would impact net earnings (loss) in the period the adjustment is recorded.
Gains, Losses and Other Items
Gains, losses and other items for each of the periods presented are as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | For the nine months ended | | |
| | December 31, | | | | December 31, | | |
| | 2018 | | 2017 | | 2018 | | 2017 |
Restructuring plan charges and adjustments | | $ | 5,043 | | $ | (765) | | $ | 5,534 | | $ | 2,066 |
| | | | | | | | |
| | | | | | | | |
Other | | — | | (23) | | — | | (24) |
| | $ | 5,043 | | $ | (788) | | $ | 5,534 | | $ | 2,042 |
|
| | | | | | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Restructuring plan charges and adjustments | | $ | (18 | ) | | $ | 899 |
| | $ | 3,545 |
| | $ | 2,107 |
|
Gain on disposition of Impact email business | | — |
| | (155 | ) | | — |
| | (784 | ) |
Arbor and Circulate acquisition-related costs | | — |
| | 1,365 |
| | — |
| | 1,365 |
|
Other | | (23 | ) | | 2 |
| | (24 | ) | | 36 |
|
| | $ | (41 | ) | | $ | 2,111 |
| | $ | 3,521 |
| | $ | 2,724 |
|
12.13. COMMITMENTS AND CONTINGENCIES:
Legal Matters
The Company is involved in various claims and legal proceedings. Management routinely assesses the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. The Company records accruals for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. These accruals are reflected in the Company’s condensed consolidated financial statements. In management’s opinion, the Company has made appropriate and adequate accruals for these matters, and management believes the probability of a material loss beyond the amounts accrued to be remote. However, the ultimate liability for these matters is uncertain, and if accruals are not adequate, an adverse outcome could have a material effect on the Company’s consolidated financial condition or results of operations. The Company maintains insurance coverage above certain limits. There are currently no matters pending against the Company or its subsidiaries for which the potential exposure is considered material to the Company’s condensed consolidated financial statements.
Commitments
The Company leases data processing equipment, office furniturespace and equipment land and office space under noncancellable operating leases. The Company has a future commitment for lease payments over the next 237 years of $84.5$50.2 million.
In connection with the Impact email disposition during fiscal 2017, the Company assigned a facility lease to the buyer of the business. The Company guaranteed the facility lease as required by the asset disposition agreement. Should the assignee default, the Company would be required to perform under the terms of the facility lease, which continues through September 2021. At December 31, 2017, the Company’s maximum potential future rent payments under this guarantee totaled $2.3 million.
13.14. INCOME TAX:
On December 22, 2017, the United States (“U.S.”) enacted significant changes to U.S. tax law following the passage of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). The Tax Act included significant changes to existing tax law, including a permanent reduction to the U.S. federal corporate income tax rate from 35% to 21%, a one-time repatriation tax on deferred foreign income (“Transition Tax”), and numerous other changes to business-related deductions.
The permanent reduction to the U.S. federal corporate income tax rate from 35% to 21% is effective January 1, 2018 (the “Effective Date”). Because the Effective Date does not fall on the first day of our fiscal year, we are required to apply a blended tax rate for the entire fiscal year by applying a prorated percentage of the number of
days before and after the Effective Date. As a result of the Tax Act, we have determined that our U.S. federal statutory corporate income tax rate will be 31.5% for the fiscal year ending March 31, 2018.
We recorded a $20.3 million benefit for the remeasurement of net deferred tax liabilities, which was included in income tax expense (benefit) in the Company's Condensed Consolidated Statements of Operations. We remeasured our deferred taxes to reflect the reduced Federal tax rate that will apply when these deferred taxes are settled or realized in future periods. To calculate the remeasurement of deferred taxes we estimated the periods during which the existing deferred taxes will be settled or realized. The remeasurement of deferred taxes included in our condensed consolidated financial statements will be subject to further revisions if our current estimates are different from our actual future operating results.
Given the Company's aggregate deficit related to foreign earnings and profits, we have determined that the Company will not incur a Transition Tax liability.
On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”) which provides guidance on accounting for the tax effects of the Tax Act. The SEC staff (the “Staff”) recognized that a registrant’s review of certain income tax effects of the Tax Act may be incomplete at the time financial statements are issued for the reporting period that includes the enactment date, including interim periods therein. If a company does not have the necessary information available, prepared or analyzed for certain income tax effects of the Tax Act, SAB 118 allows a company to report provisional numbers and adjust those amounts during the measurement period not to extend beyond one year. The adjustments to net deferred tax liabilities are provisional amounts estimated based on information available as of December 31, 2017. These amounts are subject to change as we obtain information necessary to complete the calculations. We will recognize any changes to the provisional amounts as we refine our estimates of the cumulative temporary differences, including those related to immediate deduction for qualified property, and our interpretations of the application of the Tax Act.
We continue to review the anticipated impacts of the global intangible low taxed income (“GILTI”) and base erosion anti-abuse tax (“BEAT”) on the Company, which are not effective until fiscal year 2019. The Company has not recorded any impact associated with either GILTI or BEAT in the tax rate for the third quarter of fiscal year 2018.
Within the calculation of its annual effective tax rate the Company has used assumptions and estimates that may change as a result of future guidance, interpretation, and rule-making from the Internal Revenue Service, the SEC, and the FASB and/or various other taxing jurisdictions. For example, the Company anticipates that the U.S. state jurisdictions will continue to determine and announce their conformity to the Tax Act, which could have an impact on the annual effective tax rate.
In determining the quarterly provision for income taxes, the Company makes its best estimate of the effective income tax rate expected to be applicable for the full fiscal year. The estimated effective income tax rate for the current fiscal year is impacted by nondeductiblethe reduction in the U.S. federal corporate income tax rate (discussed below), non-deductible stock-based compensation, state income taxes, research tax credits, and losses in foreign jurisdictions.jurisdictions, and recording of a valuation allowance on deferred taxes. State income taxes are influenced by the geographic and legal entity mix of the Company’sCompany's U.S. income as well as the diversity of rules among the states. The Company does not record a tax benefit for certain foreign losses due to uncertainty of future utilization.
On December 22, 2017, the U.S. enacted significant tax law changes following the passage of H.R. 1, "An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 "the Tax Act") (previously known as "The Tax Cuts and Jobs Act"). The Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21%, among other provisions. We believe we properly estimated our federal and state income tax liabilities for the impacts of the Tax Act, including provisional amounts under SAB No. 118 related to the rate change, the impact of increased bonus depreciation, and the effects on executive compensation deductions. During the third quarter ended December 31, 2018, we finalized our analysis of the impact of the Tax Act and did not change our provisional amounts. Any impacts to our income tax expense as a result of adopting ASU 2016–09 duringfuture technical amendments, interpretations, or regulations issued by the first quarterDepartment of the current fiscal year, all excess tax benefits and deficiencies from stock–based compensation are recognized as income tax benefit and expenseTreasury or Internal Revenue Service will be recorded in the Company’s Condensed Consolidated Statement of Operations in the reporting period in which they occur. For the three months and nine months ended December 31, 2017, the Company recognized discrete income tax expense of $0.1 million and benefit of $1.9 million, respectively, related to net excess tax benefits and deficiencies.such additional guidance is issued.
14.15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
Cash and cash equivalents, trade receivables, unbilled and notes receivable, short-term borrowings and trade payables - The carrying amount approximates fair value because of the short maturity of these instruments.
Long-term debt - The interest rate on the revolving credit agreement is adjusted for changes in market rates and therefore the carrying value approximates fair value. The estimated fair value of other long-term debt was
determined based upon the present value of the expected cash flows considering expected maturities and using interest rates currently available to the Company for long-term borrowings with similar terms. At December 31, 2017, the estimated fair value of long-term debt approximates its carrying value.
Under applicable accounting standards financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company assigned assets and liabilities to the hierarchy in the accounting standards, which is Level 1 - quoted prices in active markets for identical assets or liabilities, Level 2 - significant other observable inputs and Level 3 - significant unobservable inputs.
The following table presents the balances of assets measured at fair value as of December 31, 20172018 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
Other current assets | | $ | 13,706 | | $ | — | | $ | — | | $ | 13,706 |
Total assets | | $ | 13,706 | | $ | — | | $ | — | | $ | 13,706 |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
Other current assets | | $ | 14,111 |
| | $ | — |
| | $ | — |
| | $ | 14,111 |
|
Total assets | | $ | 14,111 |
| | $ | — |
| | $ | — |
| | $ | 14,111 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We begin Management’s Discussion and Analysis of Financial Condition and Results of Operations with an overview of our operating segments, summary financial results and notable events. This overview is followed by a summary of our critical accounting policies and estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results. We then provide a more detailed analysis of our results of operations and financial condition.
Introduction and Overview
On September 20, 2018, we implemented a holding company reorganization, as a result of which Acxiom Holdings, Inc. became the successor issuer to Acxiom Corporation. On October 1, 2018, we changed our name to LiveRamp Holdings, Inc. ("LiveRamp"). References to "we", "us", "our" or the "Company" for events that occurred prior to September 20, 2018 refer to Acxiom Corporation and its subsidiaries; for events that occurred from September 20, 2018 to October 1, 2018, to Acxiom Holdings, Inc. and its subsidiaries; and after October 1, 2018, to LiveRamp Holdings, Inc. and its subsidiaries.
LiveRamp is a global technology and enablement services company with a vision to transformpower a world where connected data into value for everyone. Through a simple, open approach to connecting systemsmakes every experience exceptional. LiveRamp provides the identity platform leveraged by brands and data, we provide the data foundation for the world’s best marketers. By making it safe and easy to activate, validate, enhance, and unify data, we provide marketers with the abilitytheir partners to deliver relevant messages at scale and tie those messages back to actual results. Ourinnovative products and servicesexceptional experiences. LiveRamp IdentityLink connects people, data, and applications across the digital and physical world to enable true people-based, marketing, allowing our clients to generate higher return on investment and drive better omnichannel customer experiences.marketing.
AcxiomLiveRamp is a Delaware corporation foundedheadquartered in 1969 in Conway, Arkansas.San Francisco, California. Our common stock is listed on the NASDAQ Global Select MarketNew York Stock Exchange under the symbol “ACXM.“RAMP.” We serve a global client base from locations in the United States, Europe, and the Asia-Pacific (“APAC”) region. Our direct client list includes many of the world’s largest and best-known brands across most major industry verticals, including but not limited to financial, insurance and investment services, retail, automotive, retail, telecommunications, high tech, consumer packaged goods, healthcare, travel, entertainment, non-profit, and government. Through our extensive reseller and partnership network, we serve thousands of additional companies, establishing LiveRamp as a foundational and neutral enabler of the customer experience economy.
Operating Segments
During the first quarter of fiscal 2019, the Company realigned its portfolio into two distinct business segments: LiveRamp, the identity infrastructure for powering exceptional customer experiences, and Acxiom Marketing Solutions ("AMS"), the leading provider of services for creating a unified approach to data-driven marketing. This realignment allowed the Company to best meet client needs in a rapidly evolving marketplace, and to create a strong foundation for continued growth and enhance value for shareholders.
This structure configured the Company's three previous segments into two, aligning key Audience Solutions’ assets to each. All identity assets including IdentityLink, AbiliTec® intellectual property and the Company's TV integrations were consolidated under LiveRamp. The remaining Audience Solutions’ lines of business for data and data services were combined with Marketing Services to create AMS.
On July 2, 2018, the Company entered into a definitive agreement to sell its AMS business to The Interpublic Group of Companies, Inc. (“IPG”) for $2.3 billion in cash. As required regulatory approvals were being sought and received, the Company solicited and received shareholder approval for the transaction. Shareholder approval was received on September 20, 2018, and the Company began reporting the results of operations, cash flows, and the balance sheet amounts pertaining to AMS as a component of discontinued operations in the condensed consolidated financial statements as of the second quarter of fiscal 2019. Prior to the discontinued operations classification, the AMS business was included in the AMS segment in the Company’s segment results.
The sale was completed on October 1, 2018. At the closing of the transaction, the Company received total consideration of $2.3 billion ($2.3 billion stated sales price less closing adjustments, transaction costs and other items of $49.0 million). Additionally, the Company applied $230.5 million of proceeds from the sale to repay outstanding Company debt and interest. The Company reported a gain of $1.7 billion on the sale, which is included in earnings from discontinued operations, net of tax, in the condensed consolidated statements of operations.
As a result of the organizational realignment, and subsequent sale of AMS, we now operate as one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker. While we have offerings in multiple market segments, our chief operating decision maker evaluates our financial information and resources and assesses the performance of these resources on a consolidated basis. Since we operate as one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.
Sources of Revenues
LiveRamp recognizes revenue from the following sources: (i) subscription revenue, which consists of subscription fees from clients accessing our IdentityLink platform; and (ii) marketplace and other revenue, which primarily consists of revenue generated from data owners as well as certain publishers and addressable TV providers in the form of revenue-sharing arrangements. Our operating segments provide management with a comprehensive viewsubscription pricing is tiered based on data volume supported by our platform. The majority of our key businesses basedsubscription revenue is derived from subscriptions that are one year in duration and invoiced on how we managea monthly basis, although some of our operations and measure results. Additional information related to our operating segments and geographic information is contained in Note 10 - Segment Information of the Notes to Condensed Consolidated Financial Statements.clients are entering into multi-year subscriptions that are invoiced annually.
ConnectivityIdentityLink
As shown in the illustration below,IdentityLink™ is our Connectivity segment enables our clients to build an omnichannel view of the consumercategory leading software-as-a-service (SaaS) identity platform that connects people, data, and activate that understandingdevices across the marketing ecosystem.
Through integrations with more than 550 leadingphysical and digital marketing platforms and data providers, we have become a key point of entry into the digital ecosystem, helping our clients eliminate data silos and unlock greater value from the marketing tools they use every day. We provide a foundational identity resolution layer enabling our clients to identify and reach consumers across channels and measure the impact of marketing on sales, using the marketing platform of their choice.
Today, our primary Connectivity offering is LiveRamp IdentityLink, an identity resolution service that ties data back to real people and makes it possible to onboard that data forworld, powering privacy-compliant, people-based marketing initiatives across digital channels.that allows consumers to better connect with the brands and products they love. Leveraging AbiliTec and the LiveRamp deterministic identity graph, IdentityLink first resolves a client’s first-data (first-, second-,
and third-party exposure, and transaction data or third-party) to persistent anonymous consumer identifiers that represent real people in a privacy-safe way.way that protects consumer privacy. This omnichannel view of the consumer can then be onboardeddelivered to and between any of the 550 plus650 partners in our ecosystem through a process called "data onboarding" in order to support targeting, personalization and measurement use cases.cases.
|
| | | | | | | |
Targeting | Personalization | Measurement |
|
| |
Example | Example | Example |
Clients can deploy targeted ads to known customers by using IdentityLink to upload known data from first-, second-, and third-party data sources, resolve it to an omnichannel privacy-safeprivacy-compliant link with IdentityLink,and then onboard to one of 550+650 LiveRamp partners to deploy targeted ads to known customers.partners. | Clients can deliver highly relevant content the moment viewers visit their website landing page, no login required. Leveraging IdentityLink, clients can resolve customer segment data to devices and digital IDs, onboard that data to a personalization platform and provide one-to-one experiences without compromising user privacy. | Clients can connect exposure data with first- and third-party purchase data across channels by resolving all customer devices back to the customers to which they belong. Then, clients can onboard that data to a measurement platform to clearly establish cause, effect and impact. |
Consumer privacy and data protection are at the center of how we design our products and services. Accordingly, IdentityLink operates in an Acxioma SafeHaven® certified environment with technical, operational, and personnel controls designed to ensure our clients’ data is kept private and secure.
IdentityLink is sold to brands and the companies brandswith which they partner to execute their marketing, including marketing technology providers, data providers, publishers and agencies.data providers.
•IdentityLink for Brands and Agencies. IdentityLink allows brands and their agencies to execute people-based marketing by creating an omnichannel understandingview of the consumer and activating that understandingfor use across their choice of best-of-breed digital marketing platforms.
•IdentityLink for Marketing Technology Providers. Platforms and Publishers. IdentityLink provides marketing technology providers and digital publishers with the ability to offer people-based targeting, measurement and personalization within their platforms. This adds value for brands by increasing reach, as well as the speed at which they can activate their marketing data.
•IdentityLink for Data Owners. IdentityLink allows data owners to easily connect their data to the digital ecosystem and better monetize it. Data can be distributed directly to clients or made available through the IdentityLink Data Store feature. This adds value for brands as it allows them to augment their understanding of consumers, and increase both the extent of their reach to and depth of their understanding of customers and prospects.
IdentityLinkWe charge for Publishers. IdentityLink allows publishers to offer people-based marketing on their properties. This adds value for brands by providing direct access to their customers and prospects in the publisher’s premium inventory.
Our Connectivity revenue consists primarily of monthly recurring subscription fees sold on an annual subscription basis. To a lesser extent, we generate revenue fromOur subscription pricing is based primarily on data providers and certain digital publishers in the form of revenue-sharing agreements.volume supported by our platform.
Audience Solutions (“AS”)
Our AS segment helps clients validate the accuracy of their data, enhance it with additional insight, and keep it up to date, enabling clients to reach desired audiences with highly relevant messages. Leveraging our recognition and data assets, clients can identify, segment, and differentiate their audiences for more effective marketing and superior customer experiences. AS offerings include InfoBase, our large consumer data store that serves as the basis for Acxiom’s consumer demographics products, and AbiliTec, our patented identity resolution technology that assists our clients in reconciling and managing variations of customer identity over time and across multiple channels.
IdentityLink Data Store
As we have scaled the LiveRamp network and technology, we have found additional ways to leverage our platform, deliver more than 1,500 demographic, socio-economicvalue to clients and lifestylecreate incremental revenue streams. Leveraging LiveRamp’s common identity system and broad integration network, the IdentityLink Data Store is a data elements and several thousand predictive models, our InfoBase products provide marketers with the ability to identify and reach the rightmarketplace that seamlessly connects data owners’ audience with the right message across both traditional and digital channels. Through partnerships with over 100 online publishers and digital marketing platforms, including Facebook, Google, Twitter, 4INFO, AOL, eBay and MSN, marketers can use InfoBase data to create and target specific audiences. Data can be accessed directly or through the Acxiom Audience Cloud, a web-based, self-service tool that makes it easy to build and distribute third-party custom data segments.
AbiliTec. As shown in the illustration below, AbiliTec helps brands recognize individuals and households using a number of different input variables and connects identities online and offline.
By identifying and linking multiple identifiers and data elements back to a persistent ID, our clients are able to create a single view of the customer, which allows them to perform more effective audience targeting and deliver better, more relevant customer experiences.
Our AS revenue includes licensing fees, which are typically in the form of recurring monthly billings, as well as transactional revenue based on volume or one-time usage. In addition, AS generates digital data revenue from certain digital publishers and addressable television providers in the form of revenue sharing agreements. Our Marketing Database clients are a significant channel for our AS offerings.
Marketing Services (“MS”)
Our MS segment helps clients unify data at the individual level in a privacy-safe environment, so they can execute people-based marketing campaigns, tie back to real results, and drive a continual cycle of optimization. We help architect the foundation for data-driven marketing by delivering solutions that integrate customer and prospect data across the enterprise, thereby enabling our clients to establish a single view of the customer. We also support our clients in navigating the complexities of consumer privacy regulation, making it easy and safe for them to use innovative technology, maintain choice in channels and media, and stay agile in this competitive era of the consumer. These services allow our clients to generate higher return on marketing investments and, at the same time, drive better, more relevant customer experiences.
The MS segment includes the following service offerings: Marketing Database Services and Strategy and Analytics. The MS segment also included Impact Email Platform and Services until the disposition of the business in August 2016.
Marketing Database Services. Our Marketing Database offering provides solutions that unify consumer data across an enterprise, enabling clients to execute relevant, people-based marketing and activate data across the marketing ecosystem. Our consumer marketing databases, which we design, build, and manage for our clients, make it possible for our clientsThe IdentityLink Data Store allows data owners to collect and analyze information from all sources, thereby increasing customer acquisition, retention, and loyalty. Through our growing partner network, clients are able to integrateeasily monetize their data with best-of-breed marketing solutions while respecting and protecting consumer privacy.
Marketing Database Services are generally provided under long-term contracts. Our revenue consists primarily of recurring monthly billings, and to a lesser extent, other volume and variable based billings.
Strategy and Analytics. Our Strategy and Analytics offering consists of marketing strategists and data scientists who leverage industry knowledge and advanced analytics to assist our clients with identifying growth opportunities, addressing marketing data and technology needs, and adopting best practices. In addition, we help our clients identify and address their data privacy and governance requirements.
Strategy and Analytics revenue consists primarily of project-based fees.
Impact Email Platform and Services. Until the August 2016 disposition, Acxiom Impact™ provided email and cross-channel data-driven marketing solutions for enterprise marketers, including a proprietary marketing platform and agency services.
Acxiom ImpactTM revenue consisted of (1) volume-based fees for the use of the Impact email platform and (2) project-based and retainer-based fees for associated agency services.
Summary
Together, our products and services form the “power grid” for data, the critical foundation for people-based marketing that brands need to engage consumers across today’s highly fragmented landscape of channels and devices.
We provide integrations with the largest numberhundreds of marketing platforms and publishers with a single contract. At the same time, the Data Store provides a single gateway where data buyers, including platforms and publishers, in addition to brands and their agencies, can access high-quality third-party data from more than 150 data owners, supporting all industries and encompassing all types of data. Data providers in the digital marketing ecosystem, enabling our clientsinclude sources and
brands exclusive to innovate through their preferred choice of technology,LiveRamp, emerging platforms with access to previously unavailable deterministic data, and services providers. Our industry-leading identity resolutiondata partnerships enabled by IdentityLink. LiveRamp thoroughly vets all data sources to ensure any data listed on the Data Store is privacy safe and sourced ethically.
We generate revenue from the IdentityLink Data Store through revenue-sharing arrangements with data owners that are monetizing their data assets power best-in-class consumer identification and linking across channels and devices. And,on our integrated services offering providesmarketplace. This revenue is typically transactional in nature, tied to data volume purchased on the expertise required to manage large sets of data legally, ethically, securely, and in a way that protects consumer privacy.Data Store.
Summary Results and Notable Events
On July 2, 2018, the Company entered into a definitive agreement to sell its Acxiom Marketing Solutions business (“AMS”) to The Interpublic Group of Companies, Inc. (“IPG”) for $2.3 billion in cash. As required regulatory approvals were being sought and received, the Company solicited and received shareholder approval for the transaction. Shareholder approval was received on September 20, 2018, and the Company began reporting the results of operations, cash flows, and the balance sheet amounts pertaining to AMS as a component of discontinued operations in the condensed consolidated financial statements as of the second quarter of fiscal 2019. Prior to the discontinued operations classification, the AMS business was included in the AMS segment in the Company’s segment results.
The sale was completed on October 1, 2018. At the closing of the transaction, the Company received total consideration of $2.3 billion ($2.3 billion stated sales price less closing adjustments, transaction costs and other items of $49.0 million). Additionally, the Company applied $230.5 million of proceeds from the sale to repay outstanding Company debt and interest. The Company reported a gain of $1.7 billion on the sale, which is included in earnings from discontinued operations, net of tax.
On November 13, 2018, the Company commenced a Dutch auction tender offer to purchase up to $500 million in value of shares of its common stock . On December 13, 2018, the Company accepted for purchase 11,235,955 shares of its common stock at a price of $44.50 per share, for an aggregate cost of $503.4 million, including fees and expenses. These shares represented approximately 14.2% of the shares outstanding.
A financial summary of the quarter ended December 31, 20172018 is presented below:
•Revenues were $234.9$80.0 million, a 5.2%35.4% increase from $223.3$59.1 million in the same quarter a year ago.
•Cost of revenue was $115.9$34.8 million, a 0.5% decrease42.0% increase from $116.5$24.5 million in the same quarter a year ago.
•Gross margin increaseddecreased to 50.6%56.5% from 47.8%58.5% in the same quarter a year ago.
•Total operating expenses were $107.9$93.4 million, a 10.4%49.9% increase from $97.7$62.3 million in the same quarter a year ago.
•Cost of revenue and operating expenses for the quarters ended December 31, 20172018 and 20162017 include the following items:
| |
◦ | Non-cash stock compensation of $15.9 million and $13.4 million, respectively (cost of revenue and operating expenses) |
| |
◦ | Purchased intangible asset amortization of $6.0 million and $4.6 million, respectively (cost of revenue) |
| |
◦ | Separation and transformation costs of $5.2 million and $4.1 million, respectively (operating expenses) |
| |
◦ | Restructuring charges and other adjustments of $0.0 million and $2.1 million, respectively (operating expenses) |
◦Non-cash stock compensation of $26.1 million and $13.3 million, respectively (cost of revenue and operating expenses)
◦Purchased intangible asset amortization of $3.4 million and $6.0 million, respectively (cost of revenue)
◦Separation and transformation costs of $0.7 million and $5.2 million, respectively (operating expenses)
◦Restructuring charges of $5.0 million and benefit of $0.8 million, respectively (gains, losses and other)
•Net earnings increased to $22.9loss from continuing operations was $15.3 million, or $0.28a loss of $0.20 per diluted share, compared to net earnings of $1.1$2.5 million, or $0.01$0.03 per diluted share in the same quarter a year ago. The increase is primarily due to recent changes asprior year quarter included a result of the Tax Act, including a $20.3 million one-time benefit for the remeasurement of net deferred tax liabilities.liabilities related to changes in the U.S. federal tax law.
•Net cash provided byused in operating activities of $43.6was $10.9 million a $5.3 million decrease compared to $48.9net cash provided of $14.1 million in the same quarter a year ago.
The Company repurchased 0.7 million shares of its common stock for $19.7 million under the Company's common stock repurchase program.
This summary highlights financial results as well as other significant events and transactions of the Company during the quarter ended December 31, 2017.2018. However, this summary is not intended to be a full discussion of the Company’s results. This summary should be read in conjunction with the following discussion of Results of
Operations and Capital Resources and Liquidity and with the Company’s condensed consolidated financial statements and footnotes accompanying this report.
Results of Operations
A summary of selected financial information for each of the periods reported is presented below (dollars in thousands, except per share amounts):
| | | | For the three months ended | | For the nine months ended | | For the three months ended | | | For the nine months ended | |
| | December 31, | | December 31, | | December 31, | | | December 31, | |
| | | | | | % | | | | | | % | | | % | | | % |
| | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change |
Revenues | | $ | 234,871 |
| | $ | 223,312 |
| | 5 |
| | $ | 672,625 |
| | $ | 655,380 |
| | 3 |
| Revenues | | $ | 80,021 | | $ | 59,121 | | 35 | | $ | 207,304 | | $ | 159,891 | | 30 |
Cost of revenue | | 115,920 |
| | 116,468 |
| | (1 | ) | | 344,952 |
| | 359,392 |
| | (4 | ) | Cost of revenue | | 34,838 | | 24,526 | | 42 | | 82,958 | | 72,596 | | 14 |
Gross profit | | 118,951 |
| | 106,844 |
| | 11 |
| | 327,673 |
| | 295,988 |
| | 11 |
| Gross profit | | 45,183 | | 34,595 | | 31 | | 124,346 | | 87,295 | | 42 |
Total operating expenses | | 107,893 |
| | 97,729 |
| | 10 |
| | 321,869 |
| | 271,591 |
| | 19 |
| Total operating expenses | | 93,394 | | 62,284 | | 50 | | 240,358 | | 192,936 | | 25 |
Income from operations | | 11,058 |
| | 9,115 |
| | 21 |
| | 5,804 |
| | 24,397 |
| | (76 | ) | |
Loss from operations | | Loss from operations | | (48,211) | | (27,689) | | 74 | | (116,012) | | (105,641) | | 10 |
Net earnings | | 22,941 |
| | 1,073 |
| | 2,038 |
| | 18,305 |
| | 12,189 |
| | 50 |
| Net earnings | | $ | 1,056,400 | | $ | 22,941 | | 4,505 | | $ | 1,074,008 | | $ | 18,305 | | 5,767 |
Diluted earnings per share | | $ | 0.28 |
| | $ | 0.01 |
| | 2,700 |
| | $ | 0.22 |
| | $ | 0.15 |
| | 47 |
| Diluted earnings per share | | $ | 13.65 | | $ | 0.03 | | 4,771 | | $ | 13.90 | | $ | 0.23 | | 5,898 |
Revenues
The Company's revenues by reporting segment for each of the periods reported is presented below (dollars in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | December 31, | | December 31, |
| | | | | | % | | | | | | % |
Revenues | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Marketing Services | | $ | 94,457 |
| | $ | 101,177 |
| | (7 | ) | | $ | 280,093 |
| | $ | 316,571 |
| | (12 | ) |
Audience Solutions | | 84,436 |
| | 83,399 |
| | 1 |
| | 238,984 |
| | 235,669 |
| | 1 |
|
Connectivity | | 55,978 |
| | 38,736 |
| | 45 |
| | 153,548 |
| | 103,140 |
| | 49 |
|
Total revenues | | $ | 234,871 |
| | $ | 223,312 |
| | 5 |
| | $ | 672,625 |
| | $ | 655,380 |
| | 3 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | | | For the nine months ended | | | | |
| | December 31, | | | | | | December 31, | | | | |
| | | | | | % | | | | | | % |
| | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change |
Subscription | | $ | 65,003 | | $ | 45,789 | | 42 | | $ | 171,184 | | $ | 125,157 | | 37 |
Marketplace and Other | | 15,018 | | 13,332 | | 13 | | 36,120 | | 34,734 | | 4 |
Total revenues | | $ | 80,021 | | $ | 59,121 | | 35 | | $ | 207,304 | | $ | 159,891 | | 30 |
Total revenues were $234.9 million, an increase of 5.2%, or $11.6 million, from $223.3 million in the same quarter a year ago. Strong revenue growth in Connectivity ($17.2 million) was partially offset by a decline in MS of $6.7 million due to non-recurring transactions in the prior year of $4.8 million as well as volume and contract reductions. The impact of exchange rates was positive by approximately $1.5 million.
Total revenues were $672.6 million, an increase of 2.6%, or $17.2 million for the nine months ended December 31, 2017. Strong revenue growth in Connectivity ($50.4 million) was partially offset by items totaling $22.8 million: the disposition of the Acxiom Impact business ($20.4 million) and the transition of the Australia operations to a Connectivity focused business ($2.4 million reduction in MS and AS).
MS revenue for the quarter ended December 31, 20172018 was $94.5$80.0 million, a $6.7$20.9 million, or 6.6%, decrease compared to the same quarter a year ago. On a geographic basis, U.S. MS revenue decreased $5.3 million, or 5.7%, due to non-recurring transactions in the prior year of $4.8 million and volume and contract reductions. International MS revenue decreased $1.4 million, or 16.8%. By line of business, Marketing Database revenue decreased $6.8 million (U.S. $4.5 million, Europe $1.1 million and APAC $0.6 million), while Strategy and Analytics was flat quarter over quarter.
MS revenue for the nine months ended December 31, 2017 was $280.1 million, a $36.5 million, or 11.5%, decrease compared to the same period a year ago. On a geographic basis, U.S. MS revenue decreased $33.8 million, or 11.5%, due to the sale of Acxiom Impact ($20.4 million) and other volume and contract reductions. International MS revenue decreased $2.7 million, or 11.4%. By line of business, Marketing Database revenue decreased $13.3 million (U.S. $9.9 million, Europe $2.7 million and APAC $0.7 million), Strategy and Analytics revenue declined $2.6 million (primarily U.S.) and Impact declined due to the sale of Acxiom Impact.
AS revenue for the quarter ended December 31, 2017 was $84.4 million, a $1.0 million, or 1.2%, increase compared to the same quarter a year ago. On a geographic basis, U.S. AS revenue increased $0.2 million, or 0.2%,
due to increases of $1.3 million in Consumer Data and Recognition, offset by a reduction in Digital Data business. International AS revenue increased $0.9 million, or 9.4%, primarily from Europe Digital Data. By line of business, AS revenue growth in Recognition ($1.2 million) and Global Data Sales ($1.1 million) was offset by a reduction in Digital Data ($1.2 million) through our publisher and digital partner network. As the Digital Data business model evolves, some revenue sharing arrangements will convert to license arrangements and certain publishers will decide to seek alternative data relationships. In fact, one significant publisher relationship recently converted to a license-based arrangement. As a result, we would expect more significant revenue declines in our fiscal 2018 fourth quarter. These trends may continue into fiscal 2019.
AS revenue for the nine months ended December 31, 2017 was $239.0 million, a $3.3 million, or 1.4%, increase compared to the same period a year ago. On a geographic basis, U.S. AS revenue increased $2.3 million, or 1.1%, due to an increase of $8.3 million in Digital Data business offset by decreases in Consumer Data and Recognition. International AS revenue increased $1.1 million, or 4.3%, primarily in Europe. By line of business, AS revenue growth in Digital Data ($11.7 million), through our publisher and digital partner network, was offset by declines in Consumer Data ($8.9 million) and Recognition ($1.6 million). As the Digital Data business model evolves, some revenue sharing arrangements will convert to license arrangements and certain publishers will decide to seek alternative data relationships.
Connectivity revenue for the quarter ended December 31, 2017 was $56.0 million, a $17.2 million, or 44.5%35.4%, increase compared to the same quarter a year ago. The increase was due to LiveRamp growth.Subscription growth of $19.2 million, or 42.0%, primarily due to new logo deals and upsell to existing customers, and Marketplace and Other growth of $1.7 million, or 13.4%. Marketplace and Other revenue growth was negatively impacted from a revenue-sharing arrangement related to a lost customer. On a geographic basis, U.S. Connectivity revenue increased $14.6$21.2 million, or 40.4%40.2%, from the same quarter a year ago. International Connectivity revenue increased $2.6decreased $0.2 million, or 100.2%.3.8%, from the same quarter a year ago. Again, International revenue was negatively impacted by the lost customer.
ConnectivityTotal revenue for the nine months ended December 31, 20172018 was $153.5$207.3 million, a $50.4$47.4 million, or 48.9%29.7%, increase compared to the same period a year ago. The increase was due to LiveRamp growth.Subscription growth of $46.0 million, or 36.8%, primarily due to new logo deals and upsell to existing customers, and Marketplace and Other growth of $1.4 million, or 4.0%. Marketplace and Other revenue growth was negatively impacted from a revenue-sharing arrangement related to a lost customer. On a geographic basis, U.S. Connectivity revenue increased $44.7$46.1 million, or 46.7%32.0%, from the same period a year ago. International Connectivity revenue increased $5.7$1.4 million, or 76.6%.8.5%, from the same period a year ago.
Cost of revenue and Gross profit
The Company’s cost of revenue and gross profit for each of the periods reported is presented below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | | | For the nine months ended | | | | |
| | December 31, | | | | | | December 31, | | | | |
| | | | | | % | | | | | | % |
| | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change |
Cost of revenue | | $ | 34,838 | | $ | 24,526 | | (1) | | $ | 82,958 | | $ | 72,596 | | 14 |
Gross profit | | $ | 45,183 | | $ | 34,595 | | 31 | | $ | 124,346 | | $ | 87,295 | | 42 |
Gross margin % | | 56.5 | % | | 58.5 | % | | (4) | | 60.0 | % | | 54.6 | % | | 10 |
|
| | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | December 31, | | December 31, |
| | | | | | % | | | | | | % |
| | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
Cost of revenue | | $ | 115,920 |
| | $ | 116,468 |
| | (1 | ) | | $ | 344,952 |
| | $ | 359,392 |
| | (4 | ) |
Gross profit | | $ | 118,951 |
| | $ | 106,844 |
| | 11 |
| | $ | 327,673 |
| | $ | 295,988 |
| | 11 |
|
Gross margin % | | 50.6 |
| | 47.8 |
| | 6 |
| | 48.7 |
| | 45.2 |
| | 8 |
|
Cost of revenue: Includes all direct costs of sales such as dataincluding Identity Graph costs, cloud and other third-partyhosting costs, directly associated with revenue. Cost of revenue also includes expenses for each of the Company’s operations functions including client services, account management, agency, strategy and analytics, IT data acquisition,security and product operations.operations functions. Finally, cost of revenue includes amortization of internally developed software and other acquisition related intangibles.
Cost of revenue was $115.9$34.8 million for the quarter ended December 31, 2017,2018, a $0.5$10.3 million, or 0.5%42.0%, decreaseincrease from the same quarter a year ago. Gross margins decreased to 56.5% compared to 58.5% in the same quarter of the prior year. The gross margin decrease is due primarily to increased Identity Graph data and security costs, as well as accelerated depreciation, and costs associated with the Company's migration to a new cloud based IT infrastructure. U.S. gross margins decreased to 57.6% in the current year from 61.2% in the prior year. International gross margins increased to 50.6%42.4% from 36.7%.
Cost of revenue was $83.0 million for the nine months ended December 31, 2018, a $10.4 million, or 14.3%, increase from the same period a year ago. Gross margins increased to 60.0% compared to 47.8%54.6% in the prior year. The gross margin increase is due primarily to the Connectivity revenue increases and MS cost efficiencies.increase. U.S. gross margins increased to 51.7%62.0% in the current year from 49.0%57.1% in the prior year again due to the Connectivity revenue growth and MS efficiencies.growth. International gross margins increased to 40.3%37.4% from 35.8%32.0%.
Cost of revenue was $345.0 million for the nine months ended December 31, 2017, a $14.4 million, or 4.0%, decrease from the same period a year ago, due primarily to the disposition of Acxiom Impact ($18.2 million). Gross margins increased to 48.7% compared to 45.2% in the prior year. The gross margin increase is due to the Connectivity revenue increases and MS cost efficiencies. U.S. gross margins increased to 50.0% in the current year from 46.3% for the same reasons. International gross margins increased to 35.2% from 32.5%.
Operating Expenses
The Company’s operating expenses for each of the periods reported is presented below (dollars in thousands):
| | | | For the three months ended | | For the nine months ended | | For the three months ended | | | For the nine months ended | |
| | December 31, | | December 31, | | December 31, | | | December 31, | |
| | | | | | % | | | | | | % | | | % | | | % |
Operating expenses | | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | Operating expenses | | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change |
Research and development | | $ | 23,318 |
| | $ | 20,950 |
| | 11 |
| | $ | 70,894 |
| | $ | 58,631 |
| | 21 |
| Research and development | | $ | 20,469 | | $ | 14,311 | | 43 | | 54,379 | | 44,750 | | 22 |
Sales and marketing | | 53,730 |
| | 43,048 |
| | 25 |
| | 152,288 |
| | 118,243 |
| | 29 |
| Sales and marketing | | 40,054 | | 27,832 | | 44 | | 109,317 | | 77,904 | | 40 |
General and administrative | | 30,886 |
| | 31,620 |
| | (2 | ) | | 95,166 |
| | 91,993 |
| | 3 |
| General and administrative | | 27,828 | | 20,929 | | 33 | | 71,128 | | 68,240 | | 4 |
Gains, losses and other items, net | | (41 | ) | | 2,111 |
| | (102 | ) | | 3,521 |
| | 2,724 |
| | 29 |
| Gains, losses and other items, net | | 5,043 | | (788) | | (740) | | 5,534 | | 2,042 | | 171 |
Total operating expenses | | $ | 107,893 |
| | $ | 97,729 |
| | 10 |
| | $ | 321,869 |
| | $ | 271,591 |
| | 19 |
| Total operating expenses | | $ | 93,394 | | $ | 62,284 | | 50 | | 240,358 | | 192,936 | | 25 |
| | | | | | | | | | | | | | | | | | | | | | | | |
Research and development (“R&D”): Includes operating expenses for the Company’s engineering and product/project management functions supporting research, new development, and related product enhancement.
R&D expenses were $23.3$20.5 million for the quarter ended December 31, 2017,2018, an increase of $2.4$6.2 million, or 11.3%43.0%, compared to the same quarter a year ago, and are 9.9%25.6% of total revenues compared to 9.4%24.2% in the same quarter of the prior year. The increase is due primarily to non-cash stock compensation of $0.6 million, and Connectivity and AS investments of $1.9 million and $0.4 million, respectively. Thean increase in non-cash stock compensation is largely related to the Arborof $2.7 million, and Circulate acquisitions.ongoing investment in LiveRamp products.
R&D expenses were $70.9$54.4 million for the nine months ended December 31, 2017,2018, an increase of $12.3$9.6 million, or 20.9%21.5%, compared to the same period a year ago, and are 10.5%26.2% of total revenues compared to 8.9%28.0% in the prior year. The increase is due primarily to non-cash stock compensation of $4.0 million, and Connectivity and AS investments of $8.8 million and $1.6 million, respectively, offset partially by a decrease in MS of $2.8 million related mostly to the U.S. Impact disposition. Thean increase in non-cash stockstock-based compensation is largely related to the Arborof $3.5 million, and Circulate acquisitions.ongoing investment in LiveRamp products.
Sales and marketing (“S&M”): Includes operating expenses for the Company’s sales, marketing, and product marketing functions.
S&M expenses were $53.7$40.1 million for the quarter ended December 31, 2017,2018, an increase of $10.7$12.2 million, or 24.8%43.9%, compared to the same quarter a year ago, and are 22.9%50.1% of total revenues compared to 19.3%47.1% in the same quarter of the prior year. The increase is due to primarily toan increase in non-cash stockstock-based compensation of $3.9$3.2 million, (largelyprimarily related to the ArborPDP acquisition, other incentive-based compensation, and Circulate acquisitions), and Connectivity investments of $8.3 million. The increases were partially offset by a decrease in MS ($2.5 million) due primarilyheadcount to lower variable compensation.support revenue growth initiatives.
S&M expenses were $152.3$109.3 million for the nine months ended December 31, 2017,2018, an increase of $34.0$31.4 million, or 28.8%40.3%, compared to the same period a year ago, and are 22.6%52.7% of total revenues compared to 18.0%48.7% in the prior
year. The increase is due to primarily toan increase in non-cash stockstock-based compensation of $11.9$11.8 million, (largelyprimarily related to the ArborPDP acquisition, other incentive-based compensation, and Circulate acquisitions), and Connectivity investments of $23.6 million, corporate marketing of $4.2 million, and AS investments of $2.2 million. The increases were partially offset by a decrease in MS ($7.8 million) due primarilyheadcount to lower variable compensation.support revenue growth initiatives.
General and administrative (G&A): Represents operating expenses for all corporate functions, includingthe Company's finance, human resources, legal, corporate IT, and the corporate office.administrative functions.
G&A expenses were $30.9$27.8 million for the quarter ended December 31, 2017, a decrease2018, an increase of $0.7$6.9 million, or 2.3%33.0%, compared to the same quarter a year ago, and are 13.2%34.8% of total revenues compared to 14.2%35.4% in the same quarter of the prior year. Current quarter expenses included $0.7 million of expenses related to business separation costs compared to $5.2 million in the same quarter of the prior year. The decreaseprior year costs were primarily related to AMS separation planning and readiness activities. Additionally, G&A expenses included $9.6 million of non-cash stock-based compensation compared to $3.2 million in the same quarter of the prior year. The current period increase is due primarily to a decreasePSU conversions to RSUs at 200% on the date of the AMS disposition, new LiveRamp leadership equity grants in non-cash stock compensationthe quarter, and award modifications (vesting terms modified to end of $1.5 million, incentive compensation accruals, and other cost savings offset by a $1.1 milliontransition term) for transition associates. The remaining increase in separation and transformation costs.G&A expenses is primarily headcount related to support business growth.
G&A expenses were $95.2$71.1 million for the nine months ended December 31, 2017,2018, an increase of $3.2$2.9 million, or 3.4%4.2%, compared to the same period a year ago, and are 14.1%34.3% of total revenues compared to 14.0%42.7% in the prior
year. Current period expenses included $2.8 million of expenses related to business separation costs compared to $17.8 million in the prior year. The prior year costs were primarily related to separation planning and readiness activities. Additionally, G&A expenses included $15.7 million of non-cash stock-based compensation compared to $8.9 million in the prior year. The current period increase is due primarily to a $12.2 millionPSU conversions to RSUs at 200% on the date of the AMS disposition, new LiveRamp leadership equity grants, and award modifications for transition associates. The remaining increase in separation and transformation costs offset partially by a decrease in non-cash stock compensation of $4.5 million, incentive compensation accruals, and other cost savings. Prior year non-cash stock compensation costs were impacted by adjustmentsG&A expenses is primarily headcount related to increase expected performance levels for certain performance based awards.support business growth.
Gains, losses, and other items, net: Represents restructuring costs and other adjustments.
Gains, losses and other items, net of $0.0$5.0 million for the quarter ended December 31, 2017 decreased $2.22018 increased $5.8 million compared to the same quarter a year ago. The current quarter included restructuring charges (primarily severance and lease reserves). Gains, losses and other items, net of $3.5$5.5 million for the nine months ended December 31, 20172018 increased $0.8$3.5 million compared to the same period a year ago. The current year includes a $2.1 million charge related to the restructuring of the Redwood City, California lease and $1.5 million in severance and other associate-related charges.
IncomeLoss from Operations and Profit MarginsOperating Margin
The Company’s income from operations, as well as operating margin by segment, for each of the periods reported is presented below (dollars in thousands):
|
| | | | | | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | December 31, | | December 31, |
| | 2017 | | 2016 | | 2017 | | 2016 |
Operating income and margin: | | | | | | | | |
Marketing Services | | $ | 22,063 |
| | $ | 21,127 |
| | $ | 63,721 |
| | $ | 61,109 |
|
| | 23.4 | % | | 20.9 | % | | 22.7 | % | | 19.3 | % |
Audience Solutions | | 33,112 |
| | 34,572 |
| | 91,151 |
| | 89,640 |
|
| | 39.2 | % | | 41.5 | % | | 38.1 | % | | 38.0 | % |
Connectivity | | 6,808 |
| | 1,877 |
| | 12,475 |
| | 3,831 |
|
| | 12.2 | % | | 4.8 | % | | 8.1 | % | | 3.7 | % |
Less: | | |
| | |
| | |
| | |
|
Corporate expenses | | 23,862 |
| | 24,184 |
| | 75,582 |
| | 75,342 |
|
Purchased intangible asset amortization | | 5,971 |
| | 4,621 |
| | 17,958 |
| | 12,588 |
|
Non-cash stock compensation | | 15,919 |
| | 13,427 |
| | 46,707 |
| | 33,955 |
|
Restructuring charges | | (41 | ) | | 2,111 |
| | 3,521 |
| | 2,725 |
|
Separation and transformation costs | | 5,214 |
| | 4,118 |
| | 17,775 |
| | 5,573 |
|
Income from operations | | $ | 11,058 |
| | $ | 9,115 |
| | $ | 5,804 |
| | $ | 24,397 |
|
Total operating margin | | 4.7 | % | | 4.1 | % | | 0.9 | % | | 3.7 | % |
IncomeLoss from operations was $11.1$48.2 million for the quarter ended December 31, 20172018 compared to $9.1$27.7 million for the same quarter a year ago. Operating margin was 4.7%a negative 60.2% compared to 4.1%a negative 46.8%. The increase in income from operations of $1.9 million was due primarily to the increase in Connectivity income from operations, offset partially by increases in non-cash stock compensation, largely related to the Arbor and Circulate acquisitions, and separation and transformation costs.
IncomeLoss from operations was $5.8$116.0 million for the nine months ended December 31, 20172018 compared to $24.4$105.6 million for the same period a year ago. Operating margin was 0.9%a negative 56.0% compared to 3.7%. The decrease of $18.6 million was due primarily to increases in non-cash stock compensation, largely related to the Arbor and Circulate acquisitions, and separation and transformation costs, offset partially by increases in operating segments' income from operations.
MS income from operations was $22.1 million, a 23.4% margin, for the quarter ended December 31, 2017 compared to $21.1 million, a 20.9% margin, for the same quarter a year ago. U.S. margins increased to 25.8% in the current quarter from 22.2% due to S&M cost reductions. International operating margins decreased to a negative 7.5% from 6.6% due to the revenue decrease.
MS income from operations was $63.7 million, a 22.7% margin, for the nine months ended December 31, 2017 compared to $61.1 million, a 19.3% margin, for the same period a year ago. U.S. margins increased to 24.9% in the
current period from 20.2% due to R&D and S&M cost reductions, including R&D reductions related to the Impact disposition. International operating margins decreased to a negative 4.2% from 8.3%66.1%.
ASOther Income and Income Taxes
Other income from operations was $33.1 million, a 39.2% margin, for the quarter ended December 31, 2017 compared to $34.6 million, a 41.5% margin, for the same quarter a year ago. U.S. margins decreased to 39.8% in the current quarter from 42.9% due to flat revenue and investments in S&M and R&D. International operating margins increased to 34.8% from 30.2%.
AS income from operations was $91.2 million, a 38.1% margin, for the nine months ended December 31, 2017 compared to $89.6 million, a 38.0% margin, for the same period a year ago. U.S. margins decreased to 39.6% in the current period from 39.7% due to the increase in gross profit offset by investments in S&M and R&D. International operating margins increased to 26.3% from 23.5%.
Connectivity income from operations was $6.8 million, a 12.2% margin, for the quarter ended December 31, 2017 compared to $1.9 million, a 4.8% margin, for the same quarter a year ago. A $14.8 million increase in gross profit was partially offset by R&D and S&M investments.
Connectivity income from operations was $12.5 million, an 8.1% margin, for the nine months ended December 31, 2017 compared to $3.8 million, a 3.7% margin, for the same period a year ago. A $40.2 million increase in gross profit was partially offset by R&D and S&M investments.
Corporate expenses were $23.9$10.4 million for the quarter ended December 31, 20172018 compared to $24.2 million for the same quarter a year ago, and are 10.2% of total revenues compared to 10.8% in the prior year.
Corporate expenses were $75.6 million for the nine months ended December 31, 2017 compared to $75.3 million for the same period a year ago, and are 11.2% of total revenues compared to 11.5% in the prior year.
Other Expense, Income Taxes and Other Items
Interest expense was $2.6 million for the quarter ended December 31, 2017 compared to $1.7 million for the same quarter a year ago. The increase is primarily related to $70 million of borrowings in the third quarter of fiscal year 2017 related to the Arbor and Circulate acquisitions and an increase in the average rate of approximately 96 basis points.
Interest expense was $7.4 million for the nine months ended December 31, 2017 compared to $5.2 million for the same period a year ago. The increase is primarily related to $70 million of borrowings in the third quarter of fiscal year 2017 related to the Arbor and Circulate acquisitions and an increase in the average rate of approximately 81 basis points. On June 20, 2017, the Company refinanced its debt facility to consist of a $600 million revolving credit facility, of which $230 million was outstanding at December 31, 2017.
Other income was $0.4 million for the quarter ended December 31, 2017 compared to $0.0 million for the same quarter a year ago. Other expenseincome was $0.1$10.5 million for the nine months ended December 31, 20172018 compared to other income of $0.1 million for the same period a year ago. Other income and expense primarily consists of foreign currency transaction gains and losses in each period reported. The current year to date period includes $0.7 million for accelerated deferred debt costsinterest income related to invested cash proceeds from the debt refinancing.sale of AMS.
Income tax benefit was $14.0$22.5 million on pretax incomeloss of $8.9$37.8 million for the quarter ended December 31, 20172018 compared to income tax expensebenefit of $6.3$29.8 million on pretax incomeloss of $7.4$27.3 million for the same quarter last year. The decrease in the year-over-year effective tax raterates for the quarter ended December 31, 2017 is primarily attributable to the $20.3 million discrete benefit for the remeasurement of net deferred tax liabilities as a result of the Tax Act. In addition, the effective tax rate for the quarter ended December 31, 2017 reflects the Tax Act's permanent reduction in the U.S. federal corporate income tax rate. The effective tax rate for the current quarter was alsoboth periods were impacted by nondeductible share-basednon-deductible stock-based compensation related to the Arbor and Circulate acquisitions. During the quarter ended December 31, 2018, the Company recognized a discrete tax benefit of $1.8 million related to net excess tax benefits from stock-based compensation compared to $0.1 million discrete tax charge related to shortfalls for the same quarter last year.
Income tax benefit was $20.0$21.3 million on pretax loss of $1.7$105.5 million for the nine months ended December 31, 20172018 compared to income tax expensebenefit of $7.1$55.0 million on pretax incomeloss of $19.3$105.5 million for the same period last year. The increase in the year-over-year effective tax raterates for the nine months ended December 31, 2017 is primarily attributable to the $20.3 million discrete benefit for the remeasurement of net deferred tax liabilities as a result of the Tax Act. In addition, the effective tax rate for the nine months ended December 31, 2017 reflects the Tax Act's permanent reduction in the U.S. federal corporate income tax rate. The effective tax rate for the nine months ended
December 31, 2017 wasboth periods were impacted by nondeductible share-basednon-deductible stock-based compensation related to the Arbor and Circulate acquisitions. In the nine months ended December 31, 2017,2018, the Company also recognized a discrete tax
expense of $4.2 million in connection with establishing a valuation allowance against its deferred tax benefitsassets. During the nine months ended December 31, 2018, the Company recognized a discrete tax benefit of $1.9$3.6 million related to net excess tax benefits from share-based compensation. Duringstock-based compensation compared to $1.3 million for the same period last year.
The three and nine monthsmonth periods ended December 31, 2016, the Company recorded a $4.1 million income tax benefit related to the disposition of the Acxiom Impact business.
As a result of2018 were also impacted by the Tax Act, we have determined that ourAct's permanent reduction in the U.S. federal statutory corporate income tax rate will be 31.5%rate. In addition, the three and nine month periods ended December 31, 2017 included a $24.2 million one-time tax benefit for the fiscal year ending March 31, 2018,remeasurement of net deferred tax liabilities. We remeasured our deferred taxes to reflect the reduced Federal tax rate that will apply when these deferred taxes are settled or realized in future periods.
Discontinued Operations
Summary results of operations of AMS are segregated and we expectincluded in earnings from discontinued operations, net of tax, in the U.S. federal statutory rate to be 21%Company's condensed consolidated statements of operations for fiscal years beginning after March 31, 2018.the periods presented below (dollars in thousands):
Over the last three quarters, Acxiom has undergone a comprehensive review of its businesses to drive cleaner lines of sight, clearer accountabilities and to maximize its strategic flexibility. Following this review, the Company intends to reorganize its business and actively explore options to further strengthen Acxiom Marketing Solutions, a business unit combining MS and lines of business from AS, and deliver greater value to its clients. These options may include a strategic partnership, acquisition, tax-free merger, joint venture, tax-free spin-off, sale or other potential strategic combinations. | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | For the nine months ended | | |
| | December 31, | | | | December 31, | | |
| | 2018 | | 2017 | | 2018 | | 2017 |
Revenues | | $ | — | | $ | 175,750 | | $ | 332,185 | | $ | 512,734 |
Cost of revenue | | 24,677 | | 91,394 | | 213,512 | | 272,356 |
Gross profit | | (24,677) | | 84,356 | | 118,673 | | 240,378 |
Operating expenses: | | | | | | | | |
Research and development | | 6,703 | | 9,007 | | 21,621 | | 26,144 |
Sales and marketing | | 18,110 | | 25,898 | | 60,743 | | 74,384 |
General and administrative | | 27,767 | | 9,957 | | 72,150 | | 26,926 |
Gains, losses and other items, net | | (1,658,667) | | 747 | | (1,656,014) | | 1,479 |
Total operating expenses | | (1,606,087) | | 45,609 | | (1,501,500) | | 128,933 |
Income from discontinued operations | | 1,581,410 | | 38,747 | | 1,620,173 | | 111,445 |
Interest expense | | — | | (2,566) | | (5,702) | | (7,432) |
Other, net | | 74 | | (13) | | 97 | | (176) |
Earnings from discontinued operations before income taxes | | 1,581,484 | | 36,168 | | 1,614,568 | | 103,837 |
Income taxes | | 509,823 | | 15,761 | | 456,301 | | 34,986 |
Earnings from discontinued operations, net of tax | | $ | 1,071,661 | | $ | 20,407 | | $ | 1,158,267 | | $ | 68,851 |
Capital Resources and Liquidity
Working Capital and Cash Flow
Working capital at December 31, 20172018 totaled $209.4 million,$1.105 billion, a $71.0$961.3 million increase when compared to $138.3$144.0 million at March 31, 2017,2018, due primarily to the debt refinancing, asnet cash received in the amended credit agreement does not require periodic principal debt service,sale of AMS. Current assets and a decrease in accrued payroll.current liabilities held for sale at March 31, 2018 are excluded from working capital.
The Company’s cash is primarily located in the United States. Approximately $18.3$7.5 million of the total cash balance of $177.8 million,$1.547 billion, or approximately 10.3%0.5%, is located outside of the United States. ��The Company has no current plans to repatriate this cash to the United States.
Accounts receivable days sales outstanding was 6183 days at December 31, 20172018 compared to 5778 days at March 31, 2017,2018, and is calculated as follows (dollars in thousands):
| | | | December 31, 2017 | | March 31, 2017 | | December 31, 2018 | | March 31, 2018 |
Numerator – trade accounts receivable, net | | $ | 155,634 |
| | $ | 142,768 |
| Numerator – trade accounts receivable, net | | $ | 71,906 | | $ | 52,047 |
Denominator: | | |
| | |
| Denominator: | |
Quarter revenue | | 234,871 |
| | 224,867 |
| Quarter revenue | | 80,021 | | 60,210 |
Number of days in quarter | | 92 |
| | 90 |
| Number of days in quarter | | 92 | | 90 |
Average daily revenue | | $ | 2,553 |
| | $ | 2,499 |
| Average daily revenue | | $ | 870 | | $ | 669 |
Days sales outstanding | | 61 |
| | 57 |
| Days sales outstanding | | 83 | | 78 |
Net cash provided byused in operating activities was $76.4$40.3 million for the nine months ended December 31, 2017,2018, compared to $85.2$4.8 million in the same period a year ago. The $8.8$35.6 million decrease resulted primarily from unfavorable changes in working capital.
Investing activities used cash of $34.9$7.8 million during the nine months ended December 31, 20172018 compared to $162.1$4.0 million in the same period a year ago,ago. The year over year change is primarily due primarily to the $137.4collection of the $4.0 million of net cash paid innote receivable from the Arbor and Circulate acquisitionsImpact sale in the prior year. Investing activities also consisted ofincluded capital expenditures ($27.0of $4.0 million compared to $30.1($5.2 million in the prior period)year), capitalization of software ($10.3of $1.3 million compared to $11.2($1.7 million in the prior period)year), net cash received in the dispositionand payments for investments of the U.S. Impact business$2.5 million ($4.0 million compared to $17.01.0 million in the prior period), and $1.0 million in the current year for a long-term investment.year).
Financing activities used cash of $35.1$820.6 million during the nine months ended December 31, 20172018 compared to cash provided of $26.7$35.1 million in the same period a year ago. ProceedsThe year over year change is primarily due to the payoff of the revolver debt of $230.0 million, and the acquisition of treasury shares from the tender offer of $503.4 million (11.2 million shares). The prior period included the debt refinancing which consisted of the payment of the prior debt of $226.2 million plus the fees related to the debt refinancing of $230.0 million were used to pay off the outstanding $225 million term and revolving loan balances, with interest, along with $4.0 million in fees related tooffset by the restated credit agreement. Other financingproceeds from the new debt of $230.0 million. Financing activities consistedalso included the acquisition of treasury stock purchasespursuant to the board of $39.4directors' approved stock repurchase plan of $64.1 million (1.6(2.3 million shares of the Company's common stock pursuant to the board of directors' approved stock repurchase plan) compared to $30.5$39.4 million in the prior period (1.3year, and sale of common stock, net of stock acquired for withholding taxes of $19.5 million shares). Financing activities(net cash provided of $5.1 million in the prior year included proceeds from debtyear).
Net cash provided by discontinued operations was $2.3 billion in the current period compared to $50.6 million in the prior year. The increase is due to the net cash received in the sale of $70.0 million to partially fund the Arbor and Circulate acquisitions.AMS.
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded, most recently on July 28, 2016October 25, 2018 (see Note 23 - Earnings Per Share). On that date, the board of directors authorized a $500 million increase to the existing common stock repurchase program. Under the modified common stock repurchase program, the Company may purchase up to $400.0 million$1.0 billion of its common stock through the period ending June 30, 2018. December 31, 2020.
During the nine months ended December 31, 2017,2018, the Company repurchased 1.62.3 million shares of its common stock for $39.4 million.$64.1 million under the stock repurchase program. Through December 31, 2017,2018, the Company had repurchased a total of 18.422.4 million shares of its stock for $325.2 million, leaving remaining capacity of $74.8$438.7 million under the stock repurchase program.program, leaving remaining capacity of $561.3 million.
On October 25, 2018, the board of directors authorized a Dutch auction tender offer to purchase shares of its outstanding common stock at an initial aggregate purchase price not to exceed $500 million, plus up to 2% of the Company's outstanding shares of common stock in accordance with the rules and regulations of the SEC. On December 13, 2018, the Company accepted for purchase 11,235,955 shares of its common stock at a price of $44.50 per share, for an aggregate cost of $503.4 million, including fees and expenses. These shares represented approximately 14.2% of the shares outstanding.
Credit and Debt Facilities
See Note 8 “Long-Term Debt” of the Notes to Condensed Consolidated Financial Statements for further details related to the Company’s amended and restated credit agreement.
Based on our current expectations, we believe our liquidity and capital resources will be sufficient to operate our business. However, we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions. The amount, nature, and timing of any capital market transactions will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature, and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Off-Balance Sheet Items and Commitments
In connection with the Acxiom Impact disposition, the Company assigned a facility lease to the buyer of the business. The Company guaranteed the facility lease as required by the asset disposition agreement. Should the assignee default, the Company would be required to perform under the terms of the facility lease, which continues through September 2021. At December 31, 2017, the Company's maximum potential future rent payments subject to this guarantee totaled $2.3 million.
There were no material outstanding letters of credit at December 31, 2017 or March 31, 2017.
Contractual Commitments
The following table presents the Company’s contractual cash obligations, exclusive of interest, and purchase commitments at December 31, 2017.2018. The table does not include the future payment of liabilities related to uncertain tax positions of $5.1$17.5 million as the Company is not able to predict the periods in which the payments will be made. The amounts for 20182019 represent the remaining three months ending March 31, 2018.2019. All other periods represent fiscal years ending March 31 (dollars in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the years ending March 31, | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating leases | | $ | 3,077 | | $ | 12,024 | | $ | 11,264 | | $ | 10,913 | | $ | 5,159 | | $ | 7,767 | | $ | 50,204 |
| | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the years ending March 31, |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
Revolving credit borrowings | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 230,000 |
| | $ | 230,000 |
|
Other debt | | 588 |
| | 1,583 |
| | 1,362 |
| | 348 |
| | — |
| | — |
| | 3,881 |
|
Total long-term debt | | 588 |
| | 1,583 |
| | 1,362 |
| | 348 |
| | — |
| | 230,000 |
| | 233,881 |
|
Operating leases | | 5,113 |
| | 19,447 |
| | 14,537 |
| | 14,181 |
| | 13,839 |
| | 17,393 |
| | 84,510 |
|
Total contractual cash obligations | | $ | 5,701 |
| | $ | 21,030 |
| | $ | 15,899 |
| | $ | 14,529 |
| | $ | 13,839 |
| | $ | 247,393 |
| | $ | 318,391 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the years ending March 31, |
|
| 2018 |
| 2019 |
| 2020 |
| 2021 |
| 2022 |
| Thereafter |
| Total |
Total purchase commitments |
| $ | 13,080 |
|
| $ | 22,149 |
|
| $ | 16,096 |
|
| $ | 8,262 |
|
| $ | 1,284 |
|
| $ | 338 |
|
| $ | 61,209 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the years ending March 31, | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Purchase commitments | | $ | 6,999 | | $ | 12,892 | | $ | 9,861 | | $ | 4,073 | | $ | 3,212 | | $ | 1,575 | | $ | 38,612 |
Purchase commitments primarily include contractual commitments for the purchase of data and open purchase orders for equipment, paper, office supplies, construction and other items. Purchase commitments in some cases will be satisfied by entering into future operating leases, capital leases, or other financing arrangements, rather than payment of cash. The above commitments relating to long-term obligations do not include future payments of interest. The Company estimates future interest payments on debt for the remainder of fiscal 2018 of $2.7 million.data.
The following are contingencies or guarantees under which the Company could be required, in certain circumstances, to make cash payments as of December 31, 2017 (dollars in thousands):
|
| | | |
Lease guarantees | $ | 2,260 |
|
Surety bonds | $ | 405 |
|
While the Company does not have any other material contractual commitments for capital expenditures, certain levels of investments in facilities and computer equipment continue to be necessary to support the growth of the business. In some cases, the Company also licenses software and sells hardware to clients. Management believes that the Company’s existing available debt and cash flow from operations will be sufficient to meet the Company’s working capital and capital expenditure requirements for the foreseeable future. The Company also evaluates acquisitions from time to time, which may require up-front payments of cash.
For a description of certain risks that could have an impact on results of operations or financial condition, including liquidity and capital resources, see “Risk Factors” contained in Part I, Item 1A, of the Company’s 20172018 Annual Report.
Non-U.S. Operations
The Company has a presence in the United Kingdom, France, Germany, Poland, Australia, China, Singapore and Japan. Most of the Company’s exposure to exchange rate fluctuation is due to translation gains and losses as there are no material transactions that cause exchange rate impact. In general, each of the foreign locations is expected to fund its own operations and cash flows, although funds may be loaned or invested from the U.S. to the foreign subsidiaries subject to limitations in the Company’s revolving credit facility.subsidiaries. These advances are considered long-term investments, and any gain or loss resulting from changes in exchange rates as well as gains or losses resulting from translating the foreign financial statements into U.S. dollars are included in accumulated other comprehensive income. Exchange rate movements of foreign currencies may have an impact on the Company’s future costs or on future cash flows from foreign investments. The Company has not entered into any foreign currency forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
Critical Accounting Policies
We prepare our condensed consolidated financial statements in conformity with U.S. GAAP.GAAP as set forth in the FASB ASC and we consider the various staff accounting bulletins and other applicable guidance issued by the SEC. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The consolidated financial statements in the Company’s 20172018 Annual Report include a summary of significant accounting policies used in the preparation of Acxiom’sthe Company’s consolidated financial statements. In addition, the Management’s Discussion and Analysis filed as part of the 20172018 Annual Report contains a discussion of the policies that management has identified as the most critical because they require management’s use of complex and/or significant judgments. None of the Company’s critical accounting policies have materially changed since the date of the last annual report.report other than as described in the Accounting Pronouncements Adopted During the Current Year section of Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements.
Accounting Pronouncements Adopted During the Current Year
See “Accounting Pronouncements Adopted During the Current Year” under Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements for a discussion of certain accounting standards that have been issued and were adopted during the current fiscal year.
New Accounting Pronouncements Not Yet Adopted
See “Recent Accounting Pronouncements Not Yet Adopted” under Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements for a discussion of certain accounting standards that have been issued but not yet adopted.
Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. These statements, which are not statements of historical fact, may contain estimates, assumptions, projections and/or expectations regarding the Company’s financial position, results of operations, market position, product development, growth opportunities, economic conditions, and other similar forecasts and statements of expectation. Forward-looking statements are often identified by words or phrases such as “anticipate,” “estimate,” “plan,” “expect,” “believe,” “intend,” “foresee,” or the negative of these terms or other similar variations thereof. These forward-looking statements are not guarantees of future performance and are subject to a number of factors and uncertainties that could cause the Company’s actual results and experiences to differ materially from the anticipated results and expectations expressed in the forward-looking statements.
Forward-looking statements may include but are not limited to the following:
•management’s expectations about the macro economy;
•statements containing a projection of revenues, income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure, or other financial items;
•statements of the plans and objectives of management for future operations, including, but not limited to, those statements contained under the heading “Acxiom’s Growth“Growth Strategy” in Part I, Item 1 of the Company's 20172018 Annual Report on Form 10-K;
•statements of future economic performance, including, but not limited to, those statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 20172018 Annual Report on Form 10-K;
•statements containing any assumptions underlying or relating to any of the above statements; and
•statements containing a projection or estimateestimate.
Among the factors that may cause actual results and expectations to differ from anticipated results and expectations expressed in such forward-looking statements are the following:
•the risk factors described in Part I, “Item 1A. Risk Factors” included in the Company's 20172018 Annual Report and those described from time to time in our future reports filed with the SEC;
•the possibility that, in the event a change of control of the Company is sought, certain clients may attempt to invoke provisions in their contracts allowing for termination upon a change in control, which may result in a decline in revenue and profit;
the possibility that the integration of acquired businesses may not be as successful as planned;
•the possibility that the fair value of certain of our assets may not be equal to the carrying value of those assets now or in future time periods;
•the possibility that sales cycles may lengthen;
•the possibility that we will not be able to properly motivate our sales force or other associates;
•the possibility that we may not be able to attract and retain qualified technical and leadership associates, or that we may lose key associates to other organizations;
the possibility that we will not be able to continue to receive credit upon satisfactory terms and conditions;
•the possibility that competent, competitive products, technologies or services will be introduced into the marketplace by other companies;
•the possibility that there will be changes in consumer or business information industries and markets that negatively impact the Company;
•the possibility that we will not be able to protect proprietary information and technology or to obtain necessary licenses on commercially reasonable terms;
•the possibility that there will be changes in the legislative, accounting, regulatory and consumer environments affecting our business, including but not limited to litigation, legislation, regulations and customs impairing our ability to collect, manage, aggregate and use data;
•the possibility that data suppliers might withdraw data from us, leading to our inability to provide certain products and services;
•the possibility that data purchasers will reduce their reliance on us by developing and using their own, or alternative, sources of data generally or with respect to certain data elements or categories;
•the possibility that we may enter into short-term contracts, which would affect the predictability of our revenues;
•the possibility that the amount of ad hoc, volume-based and project work will not be as expected;
•the possibility that we may experience a loss of data center capacity or interruption of telecommunication links or power sources;
•the possibility that we may experience failures or breaches of our network and data security systems, leading to potential adverse publicity, negative customer reaction, or liability to third parties;
•the possibility that our clients may cancel or modify their agreements with us;
•the possibility that we will not successfully complete customer contract requirements on time or meet the service levels specified in the contracts, which may result in contract penalties or lost revenue;
•the possibility that we may experience processing errors that result in credits to customers, re-performance of services or payment of damages to customers;
•the possibility our performance may decline and we may lose advertisers and revenue if the use of "third-party cookies" or other tracking technology is rejected by Internet users, restricted or otherwise subject to unfavorable regulation, blocked or limited by technical changes on end users' devices, or our or our clients' ability to use data on our platform is otherwise restricted;
•general and global negative economic conditions; and
•our tax rate and other effects of the changes to U.S. federal tax law.law.
With respect to the provision of products or services outside our primary base of operations in the United States, all of the above factors apply, along with the difficulty of doing business in numerous sovereign jurisdictions due to differences in scale, competition, culture, laws and regulations.
Other factors are detailed from time to time in periodic reports and registration statements filed with the SEC. The Company believes that it has the product and technology offerings, facilities, associates and competitive and financial resources for continued business success, but future revenues, costs, margins and profits are all influenced by a number of factors, including those discussed above, all of which are inherently difficult to forecast.
In light of these risks, uncertainties and assumptions, the Company cautions readers not to place undue reliance on any forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information or otherwise.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We believe there have been no material changes in our market risk exposures for the nine months ended December 31, 2017,2018, as compared with those discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2017.2018.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer and President (our principal executive officer) and our President, Chief Financial Officer and Executive Vice PresidentMD of International (our principal financial and accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended). Based on this evaluation, our principal executive officer and our principal financial and accounting officer concluded that as of December 31, 2017,2018, our disclosure controls and procedures were effective.
(b) Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are currently no matters pending against the Company or its subsidiaries for which the potential exposure is considered material to the Company’s condensed consolidated financial statements.
Item 1A. Risk Factors
The risks described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 2017,2018 (the "2018 Form 10-K"), which was filed with the Securities and Exchange Commission on May 26, 2017,25, 2018, remain current in all material respects. ThoseThe risk factors in our 2018 Form 10-K do not identify all risks that we face. Our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. If any of the identified risks or others not specified in our SEC filings materialize, our business, financial condition, or results of operations could be materially adversely affected. In these circumstances, the market price of our common stock could decline.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)a.Not applicable.
(b)a.Not applicable.
(c)a.The table below provides information regarding purchases by AcxiomLiveRamp of its common stock during the periods indicated.
|
| | | | | | | | | | | | |
| | | | | | | | Maximum Number (or Approximate |
| | Total Number | | Average Price | | Total Number of Shares | | Dollar Value) of Shares that May Yet |
| | of Shares | | Paid | | Purchased as Part of Publicly | | Be Purchased Under the |
Period | | Purchased | | Per Share | | Announced Plans or Programs | | Plans or Programs |
October 2017 | | — |
| | n/a | | — |
| | $ | 94,474,907 |
|
November 2017 | | 339,883 |
| | 26.54 | | 339,883 |
| | 85,455,426 |
|
December 2017 | | 389,081 |
| | 27.36 | | 389,081 |
| | 74,809,780 |
|
Total | | 728,964 |
| | 26.98 | | 728,964 |
| | $ | 74,809,780 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Maximum Number (or Approximate |
| | Total Number | | Average Price | | Total Number of Shares | | Dollar Value) of Shares that May Yet |
| | of Shares | | Paid | | Purchased as Part of Publicly | | Be Purchased Under the |
Period | | Purchased | | Per Share | | Announced Plans or Programs | | Plans or Programs |
October 2018 | | — | | — | | — | | $ | 79,600,656 |
November 2018 | | 400,194 | | 45.81 | | 400,194 | | 61,259,714 |
December 2018 | | — | | — | | — | | 61,259,714 |
Total | | 400,194 | | — | | 400,194 | | N/A |
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded, most recently on July 28, 2016.October 25, 2018. Under the modified common stock repurchase program, the Company may purchase up to $400.0 million$1.0 billion of its common stock through the period ending June 30, 2018.December 31, 2020. Through December 31, 2017,2018, the Company had repurchased a total of 18.422.4 million shares of its stock for $325.2$438.7 million, leaving remaining capacity of $74.8$561.3 million under the stock repurchase program.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following exhibits are filed with this quarterly report:
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10.1 |
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10.2 |
| | Amended and Restated 2005 Equity Compensation Plan of Acxiom CorporationLiveRamp Holdings, Inc., as amended and restated on September 20, 2018, and as subsequently amended and restated on October 2, 2018 (previously filed on August 4, 2017,October 2, 2018, as Exhibit 10.199.1 to Acxiom Corporation’s Quarterly ReportLiveRamp Holdings, Inc.’s Amendment No.1 to registration statement on Form 10-Q,S-8, Registration No. 333-219839, and incorporated herein by reference) |
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10.331.1 |
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10.4 |
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10.5 |
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10.6 |
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10.7 |
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10.8 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101 |
| | The following financial information from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2017,2018, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at December 31, 2017,2018, and March 31, 2017,2018, (ii) Condensed Consolidated Statements of Operations for the Three Months ended December 31, 20172018 and 2016,2017, (iii) Condensed Consolidated Statements of Operations for the Nine Months ended December 31, 20172018 and 2016,2017, (iv) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months ended December 31, 20172018 and 2016,2017, (v) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Nine Months ended December 31, 20172018 and 2016,2017, (vi) Condensed Consolidated Statement of Equity for the Nine Months ended December 31, 2017,2018, (vii) Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 20172018 and 2016,2017, and (vi) the Notes to Condensed Consolidated Financial Statements, tagged in detail. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| | |
| LiveRamp Holdings, Inc. | |
| Acxiom Corporation | |
| | |
Dated: February 11, 2019 | | |
Dated: February 7, 2018 | | |
| | |
| By: | /s/ Warren C. Jenson |
| | (Signature) |
| | Warren C. Jenson |
| | President, Chief Financial Officer &and Executive Vice PresidentManaging Director of International |
| | (principal financial and accounting officer) |