Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
ACXM > SEC Filings for ACXM > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for ACXIOM CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ACXIOM CORP


8-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction and Overview

Acxiom is an enterprise data, analytics and software-as-a-service company. For over 40 years, Acxiom has been an innovator in harnessing the powerful potential of data to strengthen connections between people, businesses and their partners. We focus on creating better connections that enable better living for people and better results for the businesses who serve them.

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 current quarter ended June 30, 2013, the Company realigned its business segments to better reflect the way management assesses the business. The e-mail fulfillment business was moved from the Other services segment to the Marketing and data services segment. The Marketing and data services segment now includes the Company's global lines of business for Customer Data Integration (CDI), Consumer Insight Solutions, Marketing Management Services, E-mail Fulfillment Services, and Consulting and Agency Services. The IT Infrastructure management segment develops and delivers IT outsourcing and transformational solutions. The Other services segment now consists of the UK fulfillment business.

As announced in fiscal 2012 we continue to significantly invest in product innovation which management believes will help drive revenue growth later in fiscal 2014 and beyond. The Company has announced it intends to launch the Acxiom Audience Operating System on September 24, 2013. The Acxiom Audience Operating System is an innovative new technology that powers more effective marketing decisions through better data, valuable insights and powerful applications.

Highlights of the quarter ended June 30, 2013 are identified below.

Revenue of $266.2 million, a 2.0% decrease from $271.7 million in the same quarter a year ago.

Total operating expenses of $242.1 million, a 1.7% decrease from $246.2 million in the same quarter a year ago.

Income from operations of $24.1 million, representing a 9.0% operating margin, compared to $25.4 million, representing a 9.4% operating margin, in the same quarter a year ago.

Diluted earnings per share attributable to Acxiom stockholders of $0.17 in the quarter ended June 30, 2013 and in the same quarter a year ago.

Payments for software development and capital expenditures were $14.9 million, compared to $7.2 million in the same quarter a year ago.

The Company paid $16.1 million to acquire common shares as part of the Company's common stock repurchase program.

The highlights above are intended to identify to the reader some of the more significant events and transactions of the Company during the fiscal quarter ended June 30, 2013. 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 thousands, except per share amounts):
                                                              For the quarter ended
                                                                     June 30
                                                       2013          2012           % Change
Revenues                                             $ 266,193     $ 271,659              (2 %)
Total operating costs and expenses                     242,121       246,235              (2 %)
Income from operations                               $  24,072     $  25,424              (5 %)
Diluted earnings per share attributable to Acxiom
stockholders                                         $    0.17     $    0.17               -

Revenues
The following table presents the Company's revenue for each of the periods
reported (dollars in thousands):

                                                For the quarter ended
                                                       June 30
                                          2013          2012          % Change
Revenues
Marketing and data services             $ 187,793     $ 192,482             (2 %)
IT Infrastructure management services      69,385        70,290             (1 %)
Other services                              9,015         8,887              1 %
Total revenues                          $ 266,193     $ 271,659             (2 %)

Total revenue decreased 2.0%, or $5.5 million, to $266.2 million in the quarter ended June 30, 2013 from $271.7 million in the same quarter a year ago.

Marketing and data services (MDS) revenue for the quarter ended June 30, 2013 was $187.8 million, which is a decrease of $4.7 million, or 2.4%, when compared to $192.5 million in the same quarter a year ago. On a geographic basis, International MDS revenue decreased $1.6 million, or 6.3%, while U.S. MDS revenue decreased $3.1 million, or 1.8%, in the quarter ended June 30, 2013. International MDS revenue decreased $3.0 million primarily due to sales weakness in Europe and Australia. The decrease was partially offset by increases in China and Brazil. Approximately $2.6 million of the U.S. MDS decrease was related to lost business from an E-mail customer. Otherwise, decreases in the Financial Services ($1.4 million) and Information Services ($1.5 million) industries from volume and project reductions were offset by increases in the Insurance (up $0.9 million), Communications (up $0.7 million), Consumer Packaged Goods (up $0.5 million), and Entertainment (up $0.5 million) industries.

By line of business, MDS revenue declines resulted primarily from declines in Consumer Insights ($2.0 million or 4.3%) and E-mail and Agency services ($1.6 million or 8.1%). Consumer Insights was impacted by lower project activity in Europe and Australia and E-mail and Agency services were impacted by lost business.

IT Infrastructure Management (IM) revenue for the quarter ended June 30, 2013 was $69.4 million. This represents a $0.9 million, or 1.3%, decrease from the same quarter a year ago. IM revenue included approximately $1.1 million of termination fees from a customer that is winding down its contractual relationship with the Company. Excluding impact of the termination fee, the IM revenue decrease resulted from lower project revenue and lost business. The Company has recently received notifications of client contract terminations in IM in addition to those previously disclosed in its 2013 annual report. The Company expects to record fiscal 2014 revenue for IM customers that have given notice of termination of between $65 and $70 million, as many of these terminations are not effective immediately and there are termination penalties associated with some of them. However, these customer terminations will impact revenue in future periods as revenue from these contracts is expected to be negligible in fiscal 2015.

Other services (OS) revenue for the quarter ended June 30, 2013 was $9.0 million. This represents a slight increase from $8.9 million in the same quarter a year ago. Revenue from the UK fulfillment operation increased $2.1 million from new business. The Company has completed transition of all risk customers to a third-party partner as a part of the exit from that business. As a result, revenue from the risk business decreased $2.0 million in the quarter.


Operating Costs and Expenses
The following table presents the Company's operating costs and expenses for each
of the periods presented (dollars in thousands):
                                              For the quarter ended
                                                     June 30
                                        2013          2012         % Change
Cost of revenue                       $ 202,412     $ 209,311             (3 %)
Selling, general and administrative      39,709        36,764              8 %
Gains, losses and other items, net            -           160           (100 %)
Total operating costs and expenses    $ 242,121     $ 246,235             (2 %)

Cost of revenue was $202.4 million for the quarter ended June 30, 2013, a $6.9 million, or 3.3%, decrease when compared to the same quarter a year ago. Gross margins increased from 23.0% to 24.0% between the two comparable periods. Margins were impacted by a $2.1 million improvement in OS gross margins resulting from the Company's exit from the U.S. risk business. U.S. gross margins increased from 24.5% to 26.2% and International gross margins decreased from 11.9% to 8.3%. U.S. margins benefited from the OS margin increase and improving IM margins. U.S. MDS margins declined as investment spending (data and engineering) offset efficiency improvements. International margins were impacted by revenue declines in Europe and Australia.

Selling, general, and administrative (SG&A) expenses were $39.7 million for the quarter ended June 30, 2013, a $2.9 million, or 8.0%, increase when compared to the same quarter a year ago. As a percentage of total revenue, SG&A expenses were 14.9% compared to 13.5% a year ago. The increase primarily resulted from higher legal fees and other consulting expenses.

Operating Profit and Profit Margins
The following table presents the Company's operating profit margin by segment
for each of the periods presented (dollars in thousands):
                                          For the quarter ended
                                                 June 30
                                           2013             2012
Operating profit and profit margin:
Marketing and data services             $    12,657       $ 18,703
                                                6.7 %          9.7 %
IT Infrastructure management services   $    10,761       $  8,831
                                               15.5 %         12.6 %
Other services                          $       654       $ (1,950 )
                                                7.3 %        (21.9 %)
Corporate                               $         -       $   (160 )
Total operating profit                  $    24,072       $ 25,424
Total operating profit margin                   9.0 %          9.4 %

MDS income from operations was $12.7 million, a 6.7% margin, for the quarter ended June 30, 2013 compared to $18.7 million, a 9.7% margin, for the same quarter a year ago. Margins in the U.S. declined from 13.0% to 10.3% and International operating losses increased from $2.9 million to $4.1 million between the two comparable periods. The U.S. margin decrease primarily resulted from additional personnel and data costs required to support investment initiatives and higher levels of general and administrative costs in the current fiscal year. International operating losses primarily resulted from revenue reductions in Europe and Australia.

IM income from operations was $10.8 million, a 15.5% margin, for the quarter ended June 30, 2013 compared to $8.8 million, a 12.6% margin, for the same quarter a year ago. IM margins benefited from on-going efficiency improvements as well as termination fees in the current year.


OS income from operations was $0.7 million for the quarter ended June 30, 2013 compared to a loss of $2.0 million in the same quarter a year ago. The improvement resulted from the Company's exit from the risk business which lost $2.3 million in the prior year.

The Company is developing plans to create operating independence between its operating segments. As the Company executes these plans, it is likely to incur incremental expenses to create formal documentation of intercompany agreements and to separate IT and network operations, as well as incurring outside consulting and contractor costs. Additionally, the Company expects to incur additional expenses associated with the anticipated launch of the Acxiom Audience Operating System during the second quarter of fiscal 2014.

Other Expense, Income Taxes and Other Items Interest expense was $3.0 million for the quarter ended June 30, 2013 compared to $3.2 million for the same quarter a year ago. The Company's term loan interest expense declined slightly. The average term loan balance declined approximately $6.0 million and the average interest rate was relatively flat. Interest expense on other debt, such as capital leases, also declined.

Other income was $0.1 million for the quarter ended June 30, 2013 compared to other expense of $0.5 million in the same quarter a year ago. Other income and expense was primarily from foreign currency transaction gains and losses in both years.

The effective tax rate for the quarter ended June 30, 2013 was 38% compared to 39% for the same period a year ago. The current year effective tax rate was impacted by the retroactive reinstatement of the research and development tax credit effective January 1, 2013. Both period tax rates were 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.

Losses attributable to noncontrolling interest include the noncontrolling interest in the Company's Brazilian subsidiary for both periods presented.

Capital Resources and Liquidity

Working Capital and Cash Flow
Working capital at June 30, 2013 totaled $242.3 million, a $5.8 million increase when compared to $236.5 million at March 31, 2013. Total current assets decreased $24.3 million primarily from decreases in cash and cash equivalents of $15.3 million and refundable income taxes of $5.8 million. Current liabilities decreased $30.0 million primarily from decreases in accrued payroll and related expenses of $31.9 million.

The Company's cash is primarily located in the United States. Approximately $12.7 million of the total cash balance of $207.6 million, or approximately 6.1%, 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 55 days at June 30, 2013 compared to 52 days at March 31, 2013, and is calculated as follows (dollars in thousands):

                                             June 30,      March 31,
                                               2013           2013
Numerator - trade accounts receivable, net   $ 159,654     $  159,882
Denominator:
Quarter revenue                                266,193        277,131
Number of days in quarter                           91             90
Average daily revenue                        $   2,925     $    3,079
Days sales outstanding                              55             52

Net cash provided by operating activities was $16.8 million for the quarter ended June 30, 2013, compared to cash used by operating activities of $1.9 million in the same quarter a year ago. The increase primarily resulted from favorable working capital changes related to accounts receivable ($5.7 million), deferred revenue ($8.5 million), and accounts payable and other liabilities ($6.2 million), offset by a $5.8 million decrease in depreciation and amortization.


Investing activities used $16.8 million in cash during the quarter ended June 30, 2013 compared to $9.5 million in the same quarter a year ago. Current year investing activities include capital expenditures ($8.9 million), capitalization of software ($6.0 million), and data acquisition costs ($2.0 million). The increase from the prior year primarily results from a $2.3 million increase in capitalization of software and a $5.4 million increase in capital expenditures.

Financing activities used $15.3 million in cash during the quarter ended June 30, 2013. Financing activities include payments of debt of $4.9 million and acquisition of treasury stock of $16.1 million, offset by $5.8 million in proceeds from the sale of common stock. The payments of debt include capital lease and installment credit payments of $4.4 million and other debt payments of $0.5 million. The acquisition of treasury stock consists of payments of $16.1 million for 0.7 million shares of the Company's stock pursuant to the board of directors' approved stock repurchase plan. Under the Company's common stock repurchase program, the Company may purchase up to $200.0 million of its common stock through the period ending February 4, 2014. Through June 30, 2013, the Company has purchased a total of 11.1 million shares of its stock for $156.1 million, leaving remaining capacity of $43.9 million under the program.

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 prior-year quarter. 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 June 30, 2013 or March 31, 2013. Term loan borrowings bear interest at LIBOR plus a credit spread of 3.00%. The weighted-average interest rate on term loan borrowings at June 30, 2013 was 3.7%. Outstanding letters of credit at June 30, 2013 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 June 30, 2013, the Company was in compliance with these covenants and restrictions. In addition, if certain financial ratios and other conditions are not satisfied, the revolving credit facility limits the Company's ability to pay dividends in excess of $30 million in any fiscal year (plus additional amounts in certain circumstances).

On July 25, 2011, the Company entered into an interest rate swap agreement. The agreement provides for the Company to pay interest through January 27, 2014 at a fixed rate of 0.94% plus the applicable credit spread on $150.0 million notional amount, while receiving interest for the same period at the LIBOR rate on the same notional amount. The LIBOR rate as of June 30, 2013 was .28%. The swap was entered into as a cash flow hedge against LIBOR interest rate movements on the term loan. As of June 30, 2013, the hedge relationship qualified as an effective hedge under applicable accounting standards. Consequently, all changes in fair value of the derivative are deferred and recorded in other comprehensive income
(loss) until the related forecasted transaction is recognized in the consolidated statement of operations. The fair market value of the derivative was zero at inception and an unrealized loss of $0.6 million since inception is recorded in other comprehensive income (loss) with the offset recorded to other accrued expenses. The fair value of the interest rate swap agreement recorded in accumulated other comprehensive income (loss) may be recognized in the statement of operations if certain terms of the floating-rate debt change, if the floating-rate debt is extinguished or if the interest rate swap agreement is terminated prior to maturity. The Company has assessed the creditworthiness of the counterparty of the swap and concludes that no substantial risk of default exists as of June 30, 2013.

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 a certain building, the Company has entered into a 50/50 joint venture with a local real estate developer. The Company is guaranteeing a portion of the loan for the building. The guaranteed amount is collateralized by real property. In addition, in connection with the disposal of certain assets, the Company has guaranteed a lease for the buyer of the assets. These guarantees were made by the Company primarily to facilitate favorable financing terms for those third parties. Should the third parties default, the Company would be required to perform under these guarantees. At June 30, 2013 the Company's maximum potential future payments under these guarantees were $2.9 million.

Contractual Commitments
The following table presents Acxiom's contractual cash obligations, exclusive of
interest, and purchase commitments at June 30, 2013.  The table does not include
the future payment of gross unrealized tax benefit liabilities of $3.7 million
or the future payment, if any, against the Company's interest rate swap
liability of $0.6 million as the Company is not able to predict the periods in
which these payments will be made. The column for 2014 represents the nine
months ending March 31, 2014. All other columns represent fiscal years ending
March 31 (dollars in thousands).

                                                For the years ending March 31
                 2014          2015          2016          2017          2018         Thereafter        Total
Term loan      $   4,500     $ 212,000     $       -     $       -     $       -     $          -     $ 216,500
Capital
lease and
installment
payment
obligations        5,501         3,947           926         1,001         1,158            5,934        18,467
Other
long-term
debt               1,527         2,097         2,168         2,243         2,319            3,294        13,648
Total
long-term
obligations       11,528       218,044         3,094         3,244         3,477            9,228       248,615
Operating
lease
payments          16,460        18,709        15,889        15,640        13,835           52,013       132,546
Total
contractual
cash
obligations    $  27,988     $ 236,753     $  18,983     $  18,884     $  17,312     $     61,241     $ 381,161



                                                For the years ending March 31
                 2014          2015          2016          2017          2018         Thereafter        Total
Total
purchase
commitments    $  64,994     $  49,889     $  33,242     $  18,844     $   1,232     $      1,257     $ 169,458

Purchase commitments 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 and capital leases for the remainder of fiscal 2014 of $9.1 million.

The following are contingencies or guarantees under which the Company could be required, in certain circumstances, to make cash payments as of June 30, 2013 (dollars in thousands):

Loan guarantee                  $ 1,003
Lease guarantee                   1,890
Outstanding letters of credit     2,238
Surety bonds                        388

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 sells software and hardware to clients. In addition, new outsourcing or facilities management contracts frequently require substantial up-front capital expenditures to acquire or replace existing assets. 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.


To help accelerate the pace of product development, the Company has significantly increased the level of product investment. The Company expects to continue to increase investment spending, primarily for engineering and product management labor, capitalized software, and new data sources for at least the remainder of this fiscal year.

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 2013 Annual Report.

Non-U.S. Operations

The Company has a presence in the United Kingdom, France, Germany, Poland, Australia, China and Brazil. 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. These advances are considered to be 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 (loss). 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 consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. 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 . . .

  Add ACXM to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for ACXM - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.