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EX-32.2 - EXHIBIT 32.2 - LiveRamp Holdings, Inc.a2018q3exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - LiveRamp Holdings, Inc.a2018q3exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - LiveRamp Holdings, Inc.a2018q3exhibit312.htm
EX-31.1 - EXHIBIT 31.1 - LiveRamp Holdings, Inc.a2018q3exhibit311.htm
EX-10.8 - EXHIBIT 10.8 - LiveRamp Holdings, Inc.a2018q3exhibit108.htm
EX-10.7 - EXHIBIT 10.7 - LiveRamp Holdings, Inc.a2018q3exhibit107.htm
EX-10.6 - EXHIBIT 10.6 - LiveRamp Holdings, Inc.a2018q3exhibit106.htm
EX-10.5 - EXHIBIT 10.5 - LiveRamp Holdings, Inc.a2018q3exhibit105.htm
EX-10.4 - EXHIBIT 10.4 - LiveRamp Holdings, Inc.a2018q3exhibit104.htm
EX-10.3 - EXHIBIT 10.3 - LiveRamp Holdings, Inc.a2018q3exhibit103.htm
EX-10.2 - EXHIBIT 10.2 - LiveRamp Holdings, Inc.a2018q3exhibit102.htm
EX-10.1 - EXHIBIT 10.1 - LiveRamp Holdings, Inc.a2018q3exhibit101.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One) 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended December 31, 2017
 
OR 
[  ]
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
Acxiom Corporation
(Exact Name of Registrant as Specified in Its Charter)
 
DELAWARE
(State or Other Jurisdiction of
Incorporation or Organization)
71-0581897
(I.R.S. Employer
Identification No.)
 
 
301 E. Dave Ward Drive
Conway, Arkansas
(Address of Principal Executive Offices)
72032
(Zip Code)
 
 
(501) 342-1000
(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. 
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, 2018 was 79,100,637.




ACXIOM CORPORATION AND SUBSIDIARIES
INDEX
REPORT ON FORM 10-Q
December 31, 2017
 
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2


PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
 
 
December 31,
2017
 
March 31,
2017
ASSETS
 
(Unaudited)
 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
177,807

 
$
170,343

Trade accounts receivable, net
 
155,634

 
142,768

Refundable income taxes
 
6,365

 
7,098

Other current assets
 
42,357

 
48,310

Total current assets
 
382,163

 
368,519

 
 
 
 
 
Property and equipment, net of accumulated depreciation and amortization
 
153,039

 
155,974

Software, net of accumulated amortization
 
37,489

 
47,638

Goodwill
 
592,827

 
592,731

Purchased software licenses, net of accumulated amortization
 
7,775

 
7,972

Deferred income taxes
 
9,621

 
10,261

Other assets, net
 
43,576

 
51,443

 
 
$
1,226,490

 
$
1,234,538

LIABILITIES AND EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Current installments of long-term debt
 
$
1,837

 
$
39,819

Trade accounts payable
 
46,211

 
40,208

Accrued payroll and related expenses
 
36,592

 
53,238

Other accrued expenses
 
53,999

 
59,861

Deferred revenue
 
34,169

 
37,087

Total current liabilities
 
172,808

 
230,213

 
 
 
 
 
Long-term debt
 
227,943

 
189,241

Deferred income taxes
 
34,300

 
58,374

Other liabilities
 
17,328

 
17,730

Commitments and contingencies
 


 


Equity:
 
 

 
 

Common stock
 
13,552

 
13,288

Additional paid-in capital
 
1,216,565

 
1,154,429

Retained earnings
 
623,156

 
602,609

Accumulated other comprehensive income
 
9,826

 
7,999

Treasury stock, at cost
 
(1,088,988
)
 
(1,039,345
)
Total equity
 
774,111

 
738,980

 
 
$
1,226,490

 
$
1,234,538

 
See accompanying notes to condensed consolidated financial statements.


3


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
 
For the three months ended
 
 
December 31,
 
 
2017
 
2016
Revenues
 
$
234,871

 
$
223,312

Cost of revenue
 
115,920

 
116,468

Gross profit
 
118,951

 
106,844

Operating expenses:
 
 
 
 
Research and development
 
23,318

 
20,950

Sales and marketing
 
53,730

 
43,048

General and administrative
 
30,886

 
31,620

Gains, losses and other items, net
 
(41
)
 
2,111

Total operating expenses
 
107,893

 
97,729

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

Income taxes (benefit)
 
(14,030
)
 
6,334

Net earnings
 
$
22,941

 
$
1,073

 
 
 
 
 
Basic earnings per share
 
$
0.29

 
$
0.01

 
 
 
 
 
Diluted earnings per share
 
$
0.28

 
$
0.01

 

See accompanying notes to condensed consolidated financial statements.


4


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
 
 
 
For the nine months ended
 
 
December 31,
 
 
2017
 
2016
Revenues
 
$
672,625

 
$
655,380

Cost of revenue
 
344,952

 
359,392

Gross profit
 
327,673

 
295,988

Operating expenses:
 
 
 
 
Research and development
 
70,894

 
58,631

Sales and marketing
 
152,288

 
118,243

General and administrative
 
95,166

 
91,993

Gains, losses and other items, net
 
3,521

 
2,724

Total operating expenses
 
321,869

 
271,591

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

Income taxes (benefit)
 
(19,994
)
 
7,099

Net earnings
 
$
18,305

 
$
12,189

 
 
 
 
 
Basic earnings per share
 
$
0.23

 
$
0.16

 
 
 
 
 
Diluted earnings per share
 
$
0.22

 
$
0.15

 
See accompanying notes to condensed consolidated financial statements.


5


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
 
 
 
For the three months ended
 
 
December 31,
 
 
2017
 
2016
Net earnings
 
$
22,941

 
$
1,073

Other comprehensive income:
 
 
 
 
Change in foreign currency translation adjustment
 
416

 
(1,340
)
Unrealized gain on interest rate swap
 

 
21

Other comprehensive income
 
416

 
(1,319
)
Comprehensive income
 
$
23,357

 
$
(246
)
 
See accompanying notes to condensed consolidated financial statements.


6


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
 
 
 
For the nine months ended
 
 
December 31,
 
 
2017
 
2016
Net earnings
 
$
18,305

 
$
12,189

Other comprehensive income (loss):
 
 
 
 
Change in foreign currency translation adjustment
 
1,827

 
(2,410
)
Unrealized gain on interest rate swap
 

 
117

Other comprehensive income (loss)
 
1,827

 
(2,293
)
Comprehensive income
 
$
20,132

 
$
9,896

 
See accompanying notes to condensed consolidated financial statements.


7


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
NINE MONTHS ENDED DECEMBER 31, 2017
(Unaudited)
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
Common Stock
 
Additional
 
 
 
other
 
Treasury Stock
 
 
 
 
Number
 
 
 
paid-in
 
Retained
 
comprehensive
 
Number
 
 
 
Total 
 
 
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

Employee stock awards, benefit plans and other issuances
 
805,768

 
80

 
15,229

 

 

 
(389,912
)
 
(10,202
)
 
$
5,107

Non-cash stock-based compensation
 
487,385

 
49

 
46,658

 

 

 

 

 
$
46,707

Restricted stock units vested
 
1,351,652

 
135

 
(135
)
 

 

 

 

 
$

Acquisition of treasury stock
 

 

 

 

 

 
(1,588,964
)
 
(39,441
)
 
$
(39,441
)
Comprehensive income:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 


Foreign currency translation
 

 

 

 

 
1,827

 

 

 
$
1,827

Net earnings
 

 

 

 
18,305

 

 

 

 
$
18,305

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

 
See accompanying notes to condensed consolidated financial statements


8


ACXIOM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
 
For the nine months ended
 
 
December 31,
 
 
2017
 
2016
Cash flows from operating activities:
 
 
 
 
Net earnings
 
$
18,305

 
$
12,189

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
63,719

 
61,097

Loss (gain) on disposal or impairment of assets
 
2,646

 
(520
)
Accelerated deferred debt costs
 
720

 

Deferred income taxes
 
(20,451
)
 
(1,982
)
Non-cash stock compensation expense
 
46,707

 
33,955

Changes in operating assets and liabilities:
 
 
 
 

Accounts receivable, net
 
(11,432
)
 
(6,161
)
Other assets
 
(1,277
)
 
8,653

Accounts payable and other liabilities
 
(18,232
)
 
(11,819
)
Deferred revenue
 
(4,314
)
 
(10,247
)
Net cash provided by operating activities
 
76,391

 
85,165

 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Capitalized software development costs
 
(10,332
)
 
(11,171
)
Capital expenditures
 
(26,950
)
 
(30,096
)
Data acquisition costs
 
(621
)
 
(463
)
Equity investments
 
(1,000
)
 

Net cash received from disposition
 
4,000

 
16,988

Net cash paid in acquisitions
 

 
(137,383
)
Net cash used in investing activities
 
(34,903
)
 
(162,125
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Proceeds from debt
 
230,000

 
70,000

Payments of debt
 
(226,732
)
 
(24,173
)
Fees for debt refinancing
 
(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

Acquisition of treasury stock
 
(39,441
)
 
(30,542
)
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

 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.

9


ACXIOM CORPORATION 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

 


See accompanying notes to condensed consolidated financial statements.




10



ACXIOM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
1.    BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
 
These condensed consolidated financial statements have been prepared by Acxiom Corporation (“Registrant,” “Acxiom,” we, us or the “Company”), 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 19 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, 2017 (“2017 Annual Report”), as filed with the Commission on May 26, 2017.  This quarterly report and the accompanying condensed consolidated financial statements should be read in connection with the 2017 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.
 
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 2017 Annual Report.
 
Accounting Pronouncements Adopted During the Current Year
 
In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition 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 should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for the Company beginning in fiscal 2019, with early adoptions permitted. We adopted the standard in the current fiscal year, on a prospective basis, and do not expect the adoption of this guidance to 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, the FASB issued ASU No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which is intended to improve the accounting for stock-based payment transactions as part of the FASB's simplification initiative. The ASU changes five aspects of the accounting for stock-based payment award transactions that will affect public companies,

11


including: (1) accounting for income taxes; (2) classification of excess tax benefits on 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 benefits 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 forfeitures or to account for them as they occur.
We adopted ASU No. 2016-09 during the current fiscal year, which required us to reflect any adjustments as of April 1, 2017. We elected to account 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.
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 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 of short-term leases. For lessees, leases will continue to be classified as either operating or finance 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. 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. Earlier adoption is permitted. In the financial statements in which 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. 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 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 principle 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 required 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 and is continuing assessment as we complete

12


implementation design activities. We plan to adopt Topic 606 in the first quarter of fiscal 2019 pursuant to the aforementioned adoption method (ii), and we do not believe there will be a material impact to our revenues upon adoption. We are continuing to evaluate the impact to our revenues related to our pending adoption of Topic 606 and our preliminary assessments are subject to change. We are also continuing to evaluate the provisions of Topic 606 related to costs of obtaining customer contracts.

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.    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
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
Basic earnings per share:
 
 
 
 

 
 
 
 

Net earnings
 
$
22,941

 
$
1,073

 
$
18,305

 
$
12,189

 
 
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
 
79,043

 
77,507

 
78,983

 
77,475


 
 

 
 

 
 

 
 

Basic earnings per share
 
$
0.29

 
$
0.01

 
$
0.23

 
$
0.16

 
 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 

 
 

 
 

 
 

Basic weighted-average shares outstanding
 
79,043

 
77,507

 
78,983

 
77,475

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

Diluted weighted-average shares outstanding
 
81,869

 
79,851

 
81,594

 
79,494


 
 

 
 

 
 

 
 

Diluted earnings per share
 
$
0.28

 
$
0.01

 
$
0.22

 
$
0.15

 
Options and 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 earnings 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,
 
 
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.  Under the modified common stock repurchase program, the Company may purchase up to $400.0 million of its common stock through the period ending June 30, 2018. During the nine months ended December 31, 2017, the Company repurchased 1.6 million shares of its common stock for $39.4 million.  Through December 31, 2017, the Company had repurchased a total

13


of 18.4 million shares of its stock for $325.2 million, leaving remaining capacity of $74.8 million under the stock repurchase program.
 
Accumulated Other Comprehensive Income
 
Accumulated other comprehensive income accumulated balances of $9.8 million and $8.0 million at December 31, 2017 and March 31, 2017, respectively, reflect accumulated foreign currency translation adjustments.
 
3.    SHARE-BASED COMPENSATION:
 
Share-based Compensation Plans
The Company has stock option and equity compensation plans for which a total of 34.5 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, there were a total of 6.2 million shares available for future grants under the plans.

During the quarter ended June 30, 2017, the Board voted to amend the Amended and Restated 2005 Equity Compensation Plan to increase the number of shares available under the plan from 28.4 million shares to 32.9 million shares, bringing the total number of shares reserved for issuance since inception of the plans from 30.0 million shares at March 31, 2017 to 34.5 million shares at December 31, 2017. That amendment received shareholder approval at the August 8, 2017 annual shareholders' meeting.
 
Stock Option Activity
Stock option activity for the nine months ended December 31, 2017 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, 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’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.  This amount changes based upon changes in the fair market value of Acxiom’s common stock.

A summary of stock options outstanding and exercisable as of December 31, 2017 was:
 
 
 
 
 
 
Options outstanding
 
Options exercisable
Range of
 
 
 
Weighted-average
 
Weighted-average
 
 
 
Weighted-average
exercise price
 
Options
 
remaining
 
exercise price
 
Options
 
exercise price
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

$
10.00

 
 
$
19.99

 
1,262,595

 
4.9 years
 
$
14.94

 
1,076,909

 
$
14.47

$
20.00

 
 
$
24.99

 
744,684

 
6.6 years
 
$
21.31

 
539,098

 
$
21.33

$
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

 

14


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 million in total over the next four years.
 
Performance Stock Option Unit Activity
Performance stock option unit 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
 
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
 

 
$

 

 
$

 
Of the performance stock option units outstanding at March 31, 2017, 183,322 reached maturity of the relevant performance period at March 31, 2017.  During 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.
 
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 million in total over the next four years.
 
Stock Appreciation Right ("SAR") Activity
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
 

 
$

 

 
$

 
All of the SAR units outstanding at March 31, 2017 reached maturity of the relevant performance period on March 31, 2017. The units achieved a 100% performance attainment level. However, application of the vesting multiplier resulted in zero shares granted and cancellation of all the units during the quarter ended June 30, 2017.
 
Restricted Stock Unit Activity
During the nine months ended December 31, 2017, the Company granted time-vesting restricted stock units covering 1,687,416 shares of common stock with a fair value at the date of grant of $44.2 million. Of the restricted stock units granted in the current period, 358,812 vest in equal annual increments over four years, 106,571 vest in equal annual increments over three years, 1,008,851 vest 25% at the one-year anniversary and 75% in equal quarterly increments over the subsequent three years, 174,368 vest 50% at the one-year anniversary and 50% in equal quarterly increments over the following year, and 38,814 vest in one year. Grant date fair value of these units is equal to the quoted market price for the shares on the date of grant. 
 

15


Non-vested time-vesting restricted stock unit activity for the nine months ended December 31, 2017 was:
 
 
 
 
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

During the nine months ended December 31, 2017, the Company granted performance-based restricted stock units covering 425,880 shares of common stock having a fair value at the date of grant of $11.2 million.  Of the performance-based restricted stock units granted in the current period, 221,746 units - having a fair value at the date of grant of $6.2 million, determined using a Monte Carlo simulation model - vest subject to attainment of performance criteria established by the compensation committee of the board of directors (“compensation committee”) and continuous employment through the vesting date.  The 221,746 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.

Non-vested performance-based restricted stock unit activity for the nine months ended December 31, 2017 was:
 
 
 
 
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
 

16


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 million for the three months ending March 31, 2018, $36.0 million in fiscal 2019, $24.6 million in fiscal 2020, $11.7 million in fiscal 2021, and $2.0 million in fiscal 2022.

Other Performance Unit Activity
Other performance-based stock unit activity for the nine months ended December 31, 2017 was: 
 
 
 
 
Weighted-average
 
 
 
 
 
 
fair value per
 
Weighted-average
 
 
Number
 
share at grant
 
remaining contractual
 
 
of shares
 
date
 
term (in years)
Outstanding at March 31, 2017
 
597,193

 
$
4.14

 
0.30
Vested
 
(24,573
)
 
$
2.94

 
 
Forfeited or canceled
 
(461,509
)
 
$
3.92

 
 
Outstanding at December 31, 2017
 
111,111

 
$
5.33

 
0.25
 
Of the other performance-based stock units outstanding at March 31, 2017, 201,464 reached maturity of the relevant performance period on March 31, 2017. 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% reduction in shares granted, in the first quarter of fiscal 2019.

Total expense related to other performance units for the nine months ended December 31, 2017 and 2016 was $0.1 million and $0.7 million, respectively.  Future expense for these performance units is expected to be approximately $0.1 million over the next three months ending March 31, 2018.

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 following the date of close, subject to the Arbor key employees' continued employment through each monthly vesting date.  At each vesting date, 1/30th of the $38.3 million holdback consideration vests and is settled in shares of Company common stock.  The number of shares is based on the then-current market price of the Company common stock.
 
Total expense related to the Holdback Agreement for the nine months ended December 31, 2017 was approximately $11.5 million.  

17


 
4.    DISPOSITION:
 
Disposition of Impact email business
 
In fiscal 2017, the Company completed the sale 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.  Prior to the disposition, the Impact email business was included 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.
 
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.    OTHER CURRENT AND NONCURRENT ASSETS:
 
Other current assets consist of the following (dollars in thousands): 
 
 
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
Acquired intangible assets, net
 
$
36,183

 
$
43,884

Deferred data acquisition costs
 
982

 
1,116

Other miscellaneous noncurrent assets
 
6,411

 
6,443

Noncurrent assets
 
$
43,576

 
$
51,443

  
6.    OTHER ACCRUED EXPENSES:
 
Other accrued expenses consist of the following (dollars in thousands):
 
 
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




18



7.    GOODWILL:
 
The following table summarizes Goodwill activity, by segment, for the nine months ended December 31, 2017 (dollars in thousands):
 
 
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

 
Goodwill by component included in each segment as of December 31, 2017 was: 
 
 
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

  
8.    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

 
On June 20, 2017, the Company entered into a Sixth Amended 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.

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.  
 

19


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.    ALLOWANCE FOR DOUBTFUL ACCOUNTS:
 
Trade accounts receivable are presented net of allowances for doubtful accounts, returns and credits of $6.3 million at December 31, 2017 and $6.1 million at March 31, 2017.
 

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.


20


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

  

21



11.    RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:
 
The following table summarizes the restructuring activity for the nine months ended December 31, 2017 (dollars in thousands): 
 
 
Associate-related
reserves
 
Lease
accruals
 
Total
March 31, 2017
 
$
2,400

 
$
4,308

 
$
6,708

Restructuring charges and adjustments
 
1,476

 
2,068

 
3,544

Payments
 
(2,842
)
 
(1,187
)
 
(4,029
)
December 31, 2017
 
$
1,034

 
$
5,189

 
$
6,223

 
The above balances are included in other accrued expenses and other liabilities on the condensed consolidated balance sheet.
 
Restructuring Plans
 
In the nine months ended December 31, 2017, the Company recorded a total of $3.5 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 $1.5 million, lease accruals and adjustments of $1.0 million, and leasehold improvement write-offs of $1.1 million.

The associate-related accruals of $1.5 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 be paid out in fiscal 2018.

The lease accruals and adjustments of $1.0 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 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, the Company recorded a total of $12.0 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 million, lease accruals of $6.5 million, and the write-off of leasehold improvements of $2.0 million.  Of the associate-related accruals of $13.3 million, $0.3 million remained accrued as of December 31, 2017.  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.

With respect to the fiscal 2015, 2017, and 2018 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. Actual sublease receipts may differ from the estimates originally made by

22


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,
 
 
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.     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 furniture and equipment, land and office space under noncancellable operating leases.  The Company has a future commitment for lease payments over the next 23 years of $84.5 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.    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

23


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 nondeductible stock-based compensation, state income taxes, research tax credits, and losses in foreign jurisdictions.  State income taxes are influenced by the geographic and legal entity mix of the Company’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.

As a result of adopting ASU 2016–09 during the first quarter of the current fiscal year, all excess tax benefits and deficiencies from stock–based compensation are recognized as income tax benefit and expense 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. 

14.    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

24



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, 2017 (dollars in thousands): 
 
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
 
Other current assets
 
$
14,111

 
$

 
$

 
$
14,111

Total assets
 
$
14,111

 
$

 
$

 
$
14,111



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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

Acxiom Corporation is a global technology and enablement services company with a vision to transform data into value for everyone. Through a simple, open approach to connecting systems 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 ability to deliver relevant messages at scale and tie those messages back to actual results. Our products and services enable people-based marketing, allowing our clients to generate higher return on investment and drive better omnichannel customer experiences.
 
Acxiom is a Delaware corporation founded in 1969 in Conway, Arkansas. Our common stock is listed on the NASDAQ Global Select Market under the symbol “ACXM.” We serve a global client base from locations in the United States, Europe, and the Asia-Pacific (“APAC”) region. Our 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, automotive, retail, telecommunications, high tech, healthcare, travel, entertainment, non-profit, and government.
 
Operating Segments

Our operating segments provide management with a comprehensive view of our key businesses based on how we manage 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.
 
Connectivity
 
As shown in the illustration below, our Connectivity segment enables our clients to build an omnichannel view of the consumer and activate that understanding across the marketing ecosystem.

acxm20170331x10k001a03.jpg
 
Through integrations with more than 550 leading 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 for people-based marketing initiatives across digital channels. Leveraging AbiliTec and the LiveRamp identity graph, IdentityLink first resolves a client’s first-, second-,

26


and third-party exposure, and transaction data to persistent anonymous consumer identifiers that represent real people in a privacy-safe way. This omnichannel view of the consumer can then be onboarded to and between any of the 550 plus partners in our ecosystem to support targeting, personalization and measurement use cases.
Targeting
Personalization
Measurement
acxm20170331x10k002a06.jpg

acxm20170331x10k003a03.jpg

acxm20170331x10k004a07.jpg
Example
Example
Example
Clients can upload known data from first-, second-, and third-party data sources, resolve it to an omnichannel privacy-safe link with IdentityLink, then onboard to one of 550+ LiveRamp partners to deploy targeted ads to known customers.
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.
 
IdentityLink operates in an Acxiom 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 brands partner to execute their marketing, including marketing technology providers, data providers, publishers and agencies.

IdentityLink for Brands and Agencies. IdentityLink allows brands and their agencies to execute people-based marketing by creating an omnichannel understanding of the consumer and activating that understanding across their choice of best-of-breed digital marketing platforms.

IdentityLink for Marketing Technology Providers. IdentityLink provides marketing technology providers 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 their reach to and understanding of customers and prospects.

IdentityLink 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 basis. To a lesser extent, we generate revenue from data providers and certain digital publishers in the form of revenue-sharing agreements.


27


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.
 
InfoBase. With more than 1,500 demographic, socio-economic and lifestyle data elements and several thousand predictive models, our InfoBase products provide marketers with the ability to identify and reach the right 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.

acxm20170331x10k005a03.jpg
 
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.
 

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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 clients to collect and analyze information from all sources, thereby increasing customer acquisition, retention, and loyalty. Through our growing partner network, clients are able to integrate 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 number of marketing platforms and data providers in the digital marketing ecosystem, enabling our clients to innovate through their preferred choice of technology, data, and services providers. Our industry-leading identity resolution and data assets power best-in-class consumer identification and linking across channels and devices. And, our integrated services offering provides the expertise required to manage large sets of data legally, ethically, securely, and in a way that protects consumer privacy.
 

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Summary Results and Notable Events
 
A summary of the quarter ended December 31, 2017 is presented below:
Revenues were $234.9 million, a 5.2% increase from $223.3 million in the same quarter a year ago.
Cost of revenue was $115.9 million, a 0.5% decrease from $116.5 million in the same quarter a year ago.
Gross margin increased to 50.6% from 47.8% in the same quarter a year ago.
Total operating expenses were $107.9 million, a 10.4% increase from $97.7 million in the same quarter a year ago.
Cost of revenue and operating expenses for the quarters ended December 31, 2017 and 2016 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)
Net earnings increased to $22.9 million or $0.28 per diluted share compared to net earnings of $1.1 million or $0.01 per diluted share in the same quarter a year ago. The increase is primarily due to recent changes as a result of the Tax Act, including a $20.3 million one-time benefit for the remeasurement of net deferred tax liabilities.
Net cash provided by operating activities of $43.6 million, a $5.3 million decrease compared to $48.9 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.  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.


30


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
 
 
December 31,
 
December 31,
 
 
 
 
 
 
%
 
 
 
 
 
%
 
 
2017
 
2016
    
 Change
    
2017
    
2016
    
 Change
Revenues
 
$
234,871

 
$
223,312

 
5

 
$
672,625

 
$
655,380

 
3

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

Total operating expenses
 
107,893

 
97,729

 
10

 
321,869

 
271,591

 
19

Income from operations
 
11,058

 
9,115

 
21

 
5,804

 
24,397

 
(76
)
Net earnings
 
22,941

 
1,073

 
2,038

 
18,305

 
12,189

 
50

Diluted earnings per share
&