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| ACXM > SEC Filings for ACXM > Form 10-Q/A on 20-Feb-2013 | All Recent SEC Filings |
20-Feb-2013
Quarterly Report
Introduction and Overview
Acxiom is a recognized leader in marketing technology and services that enable marketers to successfully manage audiences, personalize consumer experiences and create profitable customer relationships. Our superior industry-focused, consultative approach combines consumer data and analytics, databases, data integration and consulting solutions for personalized, multichannel marketing strategies. Acxiom leverages over 40 years of experience of data management to deliver high-performance, highly secure, reliable information management services. Founded in 1969, Acxiom is headquartered in Little Rock, Arkansas, USA and serves clients around the world from locations in the United States, Europe, South America and the Asia-Pacific region.
During the quarter ended December 31, 2011, the Company announced the sale of its background screening unit, Acxiom Information Security Systems (AISS). The sale was completed in the quarter ended March 31, 2012. As a result, AISS results for the prior year are presented as discontinued operations in the condensed consolidated statement of operations. Revenue and expenses related to discontinued operations are netted and presented on one line, net of tax, in the statement of operations.
As we complete the third quarter of fiscal 2013, our Company has completed the transition to a new executive leadership team. During fiscal 2012 we named a new chief executive officer, a new chief financial officer, and a new chief revenue officer. During the first quarter of fiscal 2013 we named a new chief product and engineering officer. During fiscal 2012 we also announced plans to significantly accelerate investment in product development in fiscal 2013, which management believes will help drive revenue growth later in fiscal 2014 and beyond.
Highlights of the quarter ended December 31, 2012 are identified below.
· Revenue of $273.1 million, a 2.8% decrease from $280.9 million in the same quarter a year ago.
· Total operating expenses of $246.2 million, a 7.2% decrease from $265.4 million in the same quarter a year ago. The prior-year quarter included $15.1 million in impairment charges and adjustments related to the Brazil operations.
· Income from operations of $26.9 million, representing a 9.8% operating margin, compared to $15.5 million, a 5.5% operating margin, in the same quarter a year ago.
· Pre-tax earnings from continuing operations of $24.3 million, compared to $11.5 million in the same quarter a year ago.
· Diluted earnings per share attributable to Acxiom stockholders of $0.19 compared to $0.10 in the same quarter a year ago. The Brazil impairment charges and adjustments in the prior quarter reduced diluted earnings per share attributable to Acxiom stockholders by $0.12.
· Operating cash flow was $38.5 million compared to $82.5 million in the same quarter a year ago.
· The Company paid $18.3 million to acquire common shares as part of a common stock repurchase program.
The highlights above are intended to identify to the reader an overview of the financial results, as well as some of the more significant events and transactions of the Company during the fiscal quarter ended December 31, 2012. However, these highlights are not intended to be a full discussion of the Company's results for the quarter. These highlights should be read in conjunction with the following discussion of Results of Operations and Capital Resources and Liquidity and with the Company's 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 millions, except per share amounts):
For the quarter ended For the nine months ended
December 31 December 31
2012 2011 % Change 2012 2011 % Change
Revenues $ 273.1 $ 280.9 (3 %) $ 822.2 $ 843.4 (3 %)
Total operating costs
and expenses 246.2 265.4 (7 %) 739.7 780.1 (5 %)
Income from
operations $ 26.9 $ 15.5 73 % $ 82.5 $ 63.3 30 %
Diluted earnings per
share attributable to
Acxiom stockholders $ 0.19 $ 0.10 90 % $ 0.58 $ 0.39 49 %
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Revenues
The following table presents the Company's revenue for each of the periods
reported (dollars in millions):
For the quarter ended For the nine months ended
December 31 December 31
2012 2011 % Change 2012 2011 % Change
Marketing and data
services $ 190.1 $ 187.5 1 % $ 570.3 $ 568.3 0 %
IT Infrastructure
management services 69.9 77.2 (9 %) 210.3 223.9 (6 %)
Other services 13.1 16.2 (20 %) 41.6 51.2 (19 %)
Total revenue $ 273.1 $ 280.9 (3 %) $ 822.2 $ 843.4 (3 %)
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Total revenue decreased 2.8%, or $7.8 million, to $273.1 million in the quarter ended December 31, 2012 from $280.9 million in the same quarter a year ago. For the nine months ended December 31, 2012 total revenue was $822.2 million, a $21.1 million, or 2.5%, decrease from $843.4 million during the same period a year ago. Revenue in the prior-year nine-month period included $1.3 million related to the disposed MENA operations. Excluding the impact of the MENA revenue and the impact of unfavorable foreign currency translation, revenue decreased 1.9% between the two comparable nine-month periods.
Marketing and data service (MDS) revenue for the quarter ended December 31, 2012 was $190.1 million, an increase of 1.4%, or $2.7 million, when compared to the same quarter a year ago. On a geographic basis, International MDS revenue decreased $3.2 million, or 9.6%, and U.S. MDS revenue increased $5.9 million, or 3.8%. International MDS revenue decreased $5.1 million in Europe and Australia, primarily the result of lower transaction volume and lost business. This decrease was offset by revenue increases in China and Brazil. The increase in U.S. MDS revenue was primarily attributable to increases from new projects with existing customers in the Insurance ($2.4 million), Information Management ($2.2 million), and Government ($0.9 million) industries. By line of business, MDS revenue increases in Marketing Management ($5.6 million or 7.6%), CDI Services ($2.0 million or 5.9%), and Consulting ($1.0 million or 9.2%) were partially offset by declines in Consumer Insights ($3.8 million or 7.1%) and Agency Services ($2.1 million or 13.0%). Consumer Insights revenue was impacted by lower project activity in Europe and Australia. Agency Services revenue was impacted by the loss of a client.
MDS revenue for the nine months ended December 31, 2012 was $570.3 million, or flat when compared to the same period a year ago. On a geographic basis, International MDS revenue decreased $11.1 million, or 11.6%, and U.S. MDS revenue increased $13.0 million, or 2.8%. Excluding the impact of unfavorable foreign currency translation, International MDS revenue decreased $7.8 million, primarily the result of lower transaction volume and lost business in Europe and Australia. The increase in U.S. MDS revenue was primarily attributable to increases from new business revenue and one-time projects in the Retail ($8.6 million), Technology ($7.3 million), and Insurance ($5.8 million) industries, partially offset by a decrease in the Healthcare industry of $10.3 million due to expiration of a large contract. By line of business, MDS revenue increases in Marketing Management and Consulting ($10.1 million, or 3.9%) were offset by decreases in CDI Services and Consumer Insights ($7.5 million, or 2.9%). CDI Services and Marketing Management revenues were impacted by the expiration of a large Healthcare industry contract. Consumer Insights revenue was impacted by decreases in Europe and Australia.
IT Infrastructure management services (IM) revenue for the quarter ended December 31, 2012 was $69.9 million, a $7.3 million, or 9.4%, decrease compared to $77.2 million in the same quarter a year ago. The IM revenue decrease results primarily from the loss of a large contract during the prior-year quarter ($5.2 million) and a decline in one-time projects from existing customers.
IM revenue for the nine months ended December 31, 2012 was $210.3 million, a $13.7 million, or 6.1%, decrease compared to $223.9 million in the same period a year ago. The IM revenue decrease results primarily from the loss of a large contract during the third quarter of fiscal 2012 ($15.5 million), partially offset by revenue increases with existing clients.
Other services revenue for the quarter ended December 31, 2012 was $13.1 million, a $3.1 million, or 19.7%, decrease compared to $16.2 million in the same quarter a year ago. Revenue from the U.S. e-mail fulfillment operations decreased $2.2 million in the quarter due to lower project revenue with existing customers as well as the wind-down of an e-mail contract. The Company completed transitioning Risk customers to a third-party partner as part of the plan to exit this business. As a result, revenue from the Risk business decreased $1.8 million in the quarter.
Other services revenue for the nine months ended December 31, 2012 was $41.6 million, a $9.6 million, or 18.5%, decrease compared to $51.2 million in the same period a year ago. Excluding the impact of the MENA disposal, revenue decreased approximately $8.3 million during the period. Revenue from the U.S. e-mail fulfillment operations decreased $3.7 million in the period due to lower project revenue with existing customers as well as the wind-down of an e-mail contract. During the third quarter, the Company completed the transition of Risk customers to a third-party partner as part of the plan to exit this business. As a result, revenue from the Risk business decreased $4.1 million in the nine-month period.
Operating Costs and Expenses
The following table presents the Company's operating costs and expenses for each
of the periods presented (dollars in millions):
For the quarter ended For the nine months ended
December 31 December 31
2012 2011 % Change 2012 2011 % Change
Cost of revenue $ 209.0 $ 213.9 (2 %) $ 628.2 $ 649.7 (3 %)
Selling, general and
administrative 37.3 36.4 3 % 111.4 112.6 (1 %)
Impairment of
goodwill and other
intangibles - 17.8 (100 %) - 17.8 (100 %)
Gains, losses and
other items, net, (0.1 ) (2.7 ) 95 % 0.1 - -
Total operations
costs and expenses $ 246.2 $ 265.4 (7 %) $ 739.7 $ 780.1 (5 %)
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Cost of revenue for the quarter ended December 31, 2012 was $209.0 million, a $4.9 million, or 2.3%, decrease from $213.9 million in the same quarter a year ago. Gross margins decreased from 23.8% to 23.5% in the two comparable periods. Margins in the fiscal 2013 quarter benefited from improving IM margins. These benefits were offset by higher costs of delivery and investments in data in the U.S. MDS business. U.S. gross margins decreased from 24.7% to 24.5%. International gross margins decreased from 18.5% to 16.6% on declining revenue.
Cost of revenue for the nine months ended December 31, 2012 was $628.2 million, a $21.5 million, or 3.3%, decrease from $649.7 million in the same period a year ago. Gross margins increased from 23.0% to 23.6% in the two comparable periods. Margins in the fiscal 2013 period benefited from improving IM margins and international cost reduction actions taken during the fourth quarter of fiscal 2012. These benefits were offset by higher costs of delivery and investments in data in the U.S. MDS business. U.S. gross margins increased from 24.6% to 24.8% due to IM margin improvements, and international gross margins improved to 15.6% from 13.2% on declining revenue due to the cost reduction actions in international markets.
Selling, general and administrative expense for the quarter ended December 31, 2012 was $37.3 million, a $1.0 million, or 2.7%, increase from the same quarter a year ago. As a percent of total revenue, these expenses were 13.7% this year compared to 12.9% in the prior-year period. Selling, general and administrative expense for the nine months ended December 31, 2012 was $111.4 million, a $1.2 million, or 1.0%, decrease from $112.6 million in the same period a year ago. As a percent of total revenue, these expenses were 13.5% this year compared to 13.3% in the prior-year period. In the current periods, higher incentive and non-cash compensation costs, as well as higher litigation costs in Brazil, were offset by lower selling expenses resulting from U.S. and international cost reductions and lower commissions.
In the prior quarter ended December 31, 2011, both the impairment of goodwill and other intangibles of $17.8 million and the credit to gains, losses and other items, net of $2.7 million relate primarily to the Company's Brazil operations. The result of management's reassessment of the fair value of Brazil operations indicated an impairment of goodwill and other intangibles. In addition, the $2.6 million earn-out liability relating to the Brazil acquisition was reduced to zero during the prior-year quarter as there was no future expectation of an earn-out payment. In the prior year-to-date period, the $2.6 million gain is offset by a $2.5 million net loss attributed to the MENA disposition.
Operating Profit and Profit Margins
The following table presents the Company's operating profit (income from
operations) and profit margin by segment for each of the periods presented
(dollars in thousands):
For the quarter ended For the nine months ended
December 31 December 31
2012 2011 2012 2011
Operating profit and profit margin:
Marketing and data services $ 17,971 $ 21,388 $ 59,277 $ 65,726
9.5 % 11.4 % 10.4 % 11.6 %
IT Infrastructure management services $ 9,622 $ 9,795 $ 26,973 $ 19,133
13.8 % 12.7 % 12.8 % 8.5 %
Other services $ (821 ) $ (533 ) $ (3,654 ) $ (3,745 )
(6.3 %) (3.3 %) (8.8 %) (7.3 %)
Corporate $ 126 $ (15,132 ) $ (66 ) $ (17,841 )
Total operating profit $ 26,898 $ 15,518 $ 82,530 $ 63,273
Total operating profit margin 9.8 % 5.5 % 10.0 % 7.5 %
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MDS operating profit for the quarter ended December 31, 2012 was $18.0 million, a 9.5% margin, compared to $21.4 million, an 11.4% margin, in the same quarter a year ago. Margins in the U.S. declined from 14.1% in fiscal 2012 to 12.2% in fiscal 2013 while international losses increased from $0.3 million in fiscal 2012 to $1.6 million in fiscal 2013. The U.S. margin decrease resulted primarily from additional personnel and data costs required to support new investment initiatives and business implementations as well as higher incentive compensation. International margins were impacted by lower revenues in Europe and Australia.
MDS operating profit for the nine months ended December 31, 2012 was $59.3 million, a 10.4% margin, compared to $65.7 million, an 11.6% margin, in the same period a year ago. Margins in the U.S. declined from 15.7% in fiscal 2012 to 13.3% in fiscal 2013 while international losses decreased from $8.5 million in fiscal 2012 to $5.1 million in fiscal 2013. The U.S. margin decrease was primarily due to additional personnel and data costs required to support new investment initiatives and business implementations as well as increased incentive compensation in the current-year period. International margins benefited from cost reduction actions in all operations.
IM operating profit for the quarter ended December 31, 2012 was $9.6 million, a 13.8% margin, compared to $9.8 million, a 12.7% margin, in the same period a year ago. IM operating profit for the nine months ended December 31, 2012 was $27.0 million, a 12.8% margin, compared to $19.1 million, an 8.5% margin, in the same period a year ago. IM margins benefitted primarily from ongoing efficiency improvements.
Other services operating loss for the quarter ended December 31, 2012 was $0.8 million, a negative 6.3% margin, compared to $0.5 million, a negative 3.3% margin, in the same period a year ago. Other services operating losses were impacted by revenue decreases in both the U.S. Risk and e-mail fulfillment operations. Other services operating loss for the nine months ended December 31, 2012 was $3.7 million, a negative 8.8% margin, compared to $3.7 million, a negative 7.3% margin, in the same period a year ago. A $1.0 million improvement in operations from the disposition of the MENA operation was offset by a decline in the U.S. Risk business resulting from the transition and wind-down of the business.
Corporate loss from operations of $15.1 million and $17.8 million in the quarter and nine months ended December 31, 2012, respectively, consist of items reported as impairment of goodwill and other intangibles and gains, losses, and other items, net on the condensed consolidated statement of operations and are described above.
Other Expense, Income Taxes and Other Items Interest expense was $3.2 million for the quarter ended December 31, 2012 compared to $3.9 million in the same period a year ago. The decrease primarily relates to a reduction in outstanding borrowing under the Company's term loan. The average term loan balance declined approximately $30 million between the two periods presented. The average interest rate remained relatively flat. Interest on other debt, such as capital leases, also decreased.
Interest expense was $9.7 million for the nine months ended December 31, 2012 compared to $14.1 million in the same period a year ago. The decrease primarily relates to a reduction in outstanding borrowing under the Company's term loan. The average term loan balance declined approximately $65 million between the two periods presented. The average interest rate decreased approximately 15 basis points. Interest on other debt, such as capital leases, also decreased.
Other income (expense) was $0.6 million for the quarter ended December 31, 2012 compared to ($0.1) million in the same period a year ago. Other expense was approximately zero for the nine months ended December 31, 2012 compared to $1.2 million in the same period a year ago. Other income (expense) is primarily due to foreign currency gains and losses.
The effective tax rate for the quarter ended December 31, 2012 was 40.5% compared to 84.1% for the same period a year ago. The effective tax rate for the nine months ended December 31, 2012 was 39.5% compared to 52.6% for the same period a year ago. Excluding the impact of the Brazil impairment charge, the prior quarter rate was 40%. Excluding the impact of the Brazil impairment charge and the MENA disposal loss, the prior nine-month period rate was 40%. Each fiscal period tax rate was impacted by losses in foreign jurisdictions. The Company does not record the tax benefit of certain of those losses due to uncertainty of future benefit.
In accordance with accounting standards, the Company has not recorded any effects of the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013, since the law was not enacted before the end of the fiscal period covered by this report. The impact of this law will be recorded by the Company in the fourth quarter. The Company anticipates the impact of this law will lower tax expense for the full year by approximately $1.0 million, principally due to retroactive reinstatement of the research and experimentation tax credit.
Discontinued operations in the quarter and nine months ended December 31, 2011 are the results of operations of AISS, net of tax. The AISS disposal was completed in the quarter ended March 31, 2012.
Gains and losses attributable to noncontrolling interest include the noncontrolling interest in the Company's Brazilian subsidiary for each period presented, and the noncontrolling interest in the MENA operation during the prior nine-month period.
Capital Resources and Liquidity
Working Capital and Cash Flow
Working capital at December 31, 2012 totaled $225.5 million compared to $206.4
million at March 31, 2012. Total current assets decreased $35.5 million. The
decrease primarily resulted from a decrease in cash and cash equivalents of
$43.4 million (related to increases in incentive compensation payments, income
tax payments, capital expenditures, payments of debt and the acquisition of
Company stock pursuant to the board of directors' approved stock repurchase
plan), offset by a $13.1 million increase in trade accounts receivable, net
(primarily related to an increase in days sales outstanding from 54 days at
March 31, 2012 to 61 days at December 31, 2012). Current liabilities decreased
$54.6 million due primarily to decreases in trade accounts payable of $11.2
million, accrued payroll and related expenses of $7.8 million, deferred revenue
of $12.6 million, and income taxes of $13.2 million.
The Company's cash is primarily located in the United States. Approximately $11.6 million of the total cash balance of $186.2 million, or approximately 6%, is located outside the United States. The Company has no current plans to repatriate this cash to the United States.
Accounts receivable days sales outstanding was 61 days at December 31, 2012 compared to 54 days at March 31, 2012, and is calculated as follows (dollars in thousands):
December 31, March 31,
2012 2012
Numerator - trade accounts receivable, net $ 182,457 $ 169,446
Denominator:
Quarter revenue 273,102 287,255
Number of days in quarter 92 91
Average daily revenue $ 2,969 $ 3,157
Days sales outstanding 61 54
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Net cash provided by operating activities was $75.9 million in the nine months ended December 31, 2012 compared to $173.0 million in the same period a year ago. The change is primarily related to a $13.6 million reduction in depreciation and amortization and changes in operating assets and liabilities of $76.9 million. In the current-year period, incentive compensation payments were approximately $16 million greater than in the prior-year period, and income tax payments were $33.1 million greater than in the prior-year period including tax payments of approximately $17.5 million related to the gain on the disposition of AISS. In addition, the increase in days sales outstanding negatively impacted accounts receivable by approximately $20.0 million and decreased deferred revenue impacted cash flow by $27.0 million.
Investing activities used $41.6 million in cash during the nine months ended December 31, 2012 compared to $51.8 million in the prior year. The current-year activities include capital expenditures of $22.0 million, capitalization of data acquisition costs of $6.4 million, and capitalization of software development costs of $13.2 million.
Financing activities used $77.6 million in cash during the nine months ended December 31, 2012 compared to $181.6 million in the prior year. Financing activities include payments of debt, purchases of Company stock and sales of stock under options. Payments of debt of $19.8 million include capital lease and installment credit payments of $13.0 million and other debt payments of $6.8 million. The current period also includes payments of approximately $65.3 million for acquisition of the Company's stock pursuant to the board of directors' approved stock repurchase plan. The Company purchased 4.1 million shares at a cost of $62.7 million during the current period. In addition, $2.6 million was paid during the current period which was included in other accrued expenses as of March 31, 2012. Prior-year financing activities included term loan prepayments of $125.0 million.
Non-cash investing and financing activities included acquisition of property and equipment under capital leases and installment payment arrangements of $2.2 million in the nine months ended December 31, 2012, compared to $8.7 million in the same period last year. Future payments under these arrangements will be reflected as debt payments.
Credit and Debt Facilities
The Company's amended and restated credit agreement provides for (1) term loans
up to an aggregate principal amount of $600 million and (2) revolving credit
facility borrowings consisting of revolving loans, letter of credit
participations and swing-line loans up to an aggregate amount of $120 million.
The term loan is payable in quarterly installments of approximately $1.5 million each, through December 31, 2014, with a final payment of approximately $207.5 million due March 15, 2015. The revolving loan commitment expires March 15, 2014.
Revolving credit facility borrowings currently bear interest at LIBOR plus a credit spread, or at an alternative base rate or at the Federal Funds rate plus a credit spread, depending on the type of borrowing. The LIBOR credit spread is 2.75%. There were no revolving credit borrowings outstanding at December 31, 2012 or March 31, 2012. Term loan borrowings bear interest at LIBOR plus a credit spread of 3.00%. The weighted-average interest rate on term loan borrowings at December 31, 2012 was 3.7%. Outstanding letters of credit at December 31, 2012 were $2.2 million.
The term loan allows prepayments before maturity. The credit agreement is secured by the accounts receivable of Acxiom and its domestic subsidiaries, as well as by the outstanding stock of certain Acxiom subsidiaries.
Under the terms of the term loan, the Company is required to maintain certain debt-to-cash flow and debt service coverage ratios, among other restrictions. At December 31, 2012, the Company was in compliance with these covenants and restrictions. In addition, if certain financial ratios and other conditions are . . .
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