NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2018, 2017 AND 2016
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Description of Business -
Acxiom 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 omni-channel 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.
Basis of Presentation and Principles of Consolidation -
The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries, after elimination of all significant intercompany accounts and transactions. We have prepared the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) as set forth in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) and we consider the various staff accounting bulletins and other applicable guidance issued by the United States Securities and Exchange Commission ("SEC").
Use of Estimates -
In preparing Consolidated Financial Statements and related disclosures in conformity with GAAP and pursuant to the rules and regulations of the SEC, we must make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates are used in determining, among other items, the fair value of acquired assets and assumed liabilities, projected cash flows associated with recoverability of assets, restructuring and impairment accruals, litigation and facilities lease loss accruals, stock-based compensation, and the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions. Actual results may differ materially from these estimates.
Discontinued Operations -
Discontinued operations comprise those activities that have been disposed of during the period or which have been classified as held for sale at the end of the period, and represent a separate major line of business or geographical area that can be clearly distinguished for operational and financial reporting purposes. In fiscal 2016, the Company sold its IT Infrastructure Management business (“ITO”) and began reporting the results of operations, cash flows and the balance sheet amounts pertaining to ITO as a component of discontinued operations in the consolidated financial statements.
Unless otherwise indicated, information in the notes to the consolidated financial statements relates to continuing operations.
Significant Accounting Policies
Cash and Cash Equivalents -
The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. The Company has no restricted cash.
Revenue Recognition -
The Company’s policy follows the guidance from ASC 605,
Revenue Recognition
.
The Company provides marketing database services under long-term arrangements. These arrangements may require the Company to perform setup activities such as the design and build of a database, and may include other products and services purchased at the same time, or within close proximity of one another (referred to as multiple element arrangements). Each element within a multiple element arrangement is accounted for as a separate unit of accounting provided the following criteria are met: the delivered products or services have value to the customer on a standalone basis; and for an arrangement that includes a general right of return relative to the delivered products or services, delivery or performance of the undelivered product or service is considered probable and is substantially controlled by us. We consider a deliverable to have standalone value if the product or service is sold separately by us or another vendor or could be resold by the customer. Further, our revenue arrangements generally do not include a general right of return related to the delivered products. Where the aforementioned criteria for a separate unit of accounting are not met, the deliverable is combined with the undelivered element(s) and treated as a single unit of accounting for purposes of allocation of the arrangement consideration and revenue recognition.
For our multiple-element arrangements, we allocate revenue to each element based on a selling price hierarchy at the arrangement’s inception. The relative selling price for each unit of accounting in a multiple-element arrangement is established using vendor-specific objective evidence ("VSOE"), if available, third-party evidence ("TPE"), if available, or management’s best estimate of stand-alone selling price ("BESP"). The Company has neither VSOE nor TPE and therefore uses BESP. The total arrangement consideration is allocated to each separate unit of accounting for each of the deliverables using the relative selling prices of each unit based on the aforementioned selling price hierarchy. We limit the amount of revenue recognized for delivered elements to an amount that is not contingent upon future delivery of additional products or services or meeting any specified performance conditions.
The objective of BESP is to determine the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. Management’s BESP is determined by considering multiple factors including actual contractual selling prices when the item is sold on a stand-alone basis, as well as market conditions, competition, internal costs, profit objectives and pricing practices. As pricing and marketing strategies evolve, we may modify our pricing practices in the future, which could result in changes to BESP, or to the development of VSOE or TPE for individual products or services. As a result, future revenue recognition for multiple-element arrangements could differ from recognition in the current period. Our relative selling prices are analyzed on an annual basis or more frequently if we experience significant changes in selling prices.
Revenues are recognized when: (1) persuasive evidence of an arrangement exists; (2) we deliver the products and services; (3) the sale price is fixed or determinable; and (4) collection is reasonably assured. Revenues that are not recognized at the time of sale because the foregoing conditions are not met are recognized when those conditions are subsequently met. Where applicable, we reduce revenue for certain incentive programs where we can sufficiently estimate the effects of these items. In some cases, the arrangements also contain provisions requiring customer acceptance of the setup activities prior to commencement of the ongoing services arrangement. Up-front fees billed during the setup phase for these arrangements are deferred and setup costs that are direct and incremental to the contract are capitalized. Revenue recognition does not begin until after customer acceptance in cases where contracts contain acceptance provisions. Once the setup phase is complete and customer acceptance occurs, the Company recognizes revenue and the related costs for each element as delivered. In situations where the arrangement does not require customer acceptance before the Company begins providing services, revenue is recognized for each element as delivered and no costs are deferred.
The Company evaluates its marketing database arrangements to determine whether the arrangement contains a lease. If the arrangement is determined to contain a lease, applicable accounting standards require the Company to account for the lease component separately from the remaining components of the arrangement. In cases where
marketing database arrangements are determined to include a lease, the lease is evaluated to determine whether it is a capital lease or operating lease and accounted for accordingly. These lease revenues are not significant to the Company’s consolidated financial statements.
Sales of third-party software, hardware and certain other equipment are recognized when delivered. If such sales are part of a multiple-element arrangement, they are recognized as a separate element unless collection of the sales price is dependent upon delivery of other products or services. Additionally, the Company evaluates revenue from the sale of data, software, hardware and equipment in accordance with accounting standards to determine whether such revenue should be recognized on a gross or a net basis. All the factors in the accounting standards are considered with the primary factor being whether the Company is the primary obligor in the arrangement. “Out-of-pocket” expenses incurred by, and reimbursed to, the Company in connection with customer contracts are recorded as gross revenue.
The Company also performs services on a project basis outside of, or in addition to, the scope of long-term arrangements. The Company recognizes revenue from these services as the services are performed.
All taxes assessed on revenue-producing transactions described above are presented on a net basis, or excluded from revenues.
Revenues from the licensing of data are recognized upon delivery of the data to the customer. Revenue from the licensing of data to the customer in circumstances where the license agreement contains a volume cap is recognized in proportion to the total records to be delivered under the arrangement. Revenue from the sale of data on a per-record basis is recognized as the records are delivered.
Revenues from Connectivity services are primarily recorded as monthly recurring subscription fees, and from data providers and certain digital publishers in the form of revenue-sharing agreements.
Accounts Receivable
Accounts receivable includes amounts billed to customers as well as unbilled amounts recognized in accordance with the Company’s revenue recognition policies, as stated above. Unbilled amounts included in accounts receivable, which generally arise from the delivery of data and performance of services to customers in advance of billings, were
$11.6 million
at
March 31, 2018
and
$14.1 million
March 31, 2017
.
Accounts receivable are presented net of allowance for doubtful accounts. The Company evaluates its allowance for doubtful accounts based on a combination of factors at each reporting date. Each account or group of accounts is evaluated based on specific information known to management regarding each customer’s ability or inability to pay, as well as historical experience for each customer or group of customers, the length of time the receivable has been outstanding, and current economic conditions in the customer’s industry. Accounts receivable that are determined to be uncollectible are charged against the allowance for doubtful accounts.
A summary of the activity of the allowance for doubtful accounts, returns and credits is as follows (dollars in thousands):
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bad debts
|
|
|
|
Balance at
|
|
Additions
|
|
|
|
written off,
|
|
|
|
beginning
|
|
charged to
|
|
|
|
net of
|
|
Balance at
|
|
of
|
|
costs and
|
|
Other
|
|
amounts
|
|
end of
|
|
period
|
|
expenses
|
|
changes
|
|
recovered
|
|
period
|
2016:
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts, returns and credits
|
$
|
4,423
|
|
|
$
|
3,673
|
|
|
$
|
56
|
|
|
$
|
(890
|
)
|
|
$
|
7,262
|
|
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts, returns and credits
|
$
|
7,262
|
|
|
$
|
1,859
|
|
|
$
|
(372
|
)
|
|
$
|
(2,643
|
)
|
|
$
|
6,106
|
|
2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts, returns and credits
|
$
|
6,106
|
|
|
$
|
1,054
|
|
|
$
|
236
|
|
|
$
|
(564
|
)
|
|
$
|
6,832
|
|
Other fiscal 2018 changes in the table above result primarily from the effects of exchange rates.
Deferred Revenue
Deferred revenue consists of amounts billed in excess of revenue recognized. Deferred revenues are subsequently recorded as revenue when earned in accordance with the Company’s revenue recognition policies.
Property and Equipment -
Property and equipment are stated at cost. Depreciation and amortization are calculated on the straight-line method over the estimated useful lives of the assets as follows: buildings and improvements, up to
30
years; data processing equipment,
2
-
5
years, and office furniture and other equipment,
3
-
7
years.
Property held under capitalized lease arrangements is included in property and equipment, and the associated liabilities are included in long-term debt. Amortization of property under capitalized leases is included in depreciation and amortization expense. Property and equipment taken out of service and held for sale is recorded at the lower of depreciated cost or net realizable value and depreciation is ceased.
Leases -
Rent expense on operating leases is recorded on a straight-line basis over the term of the lease agreement.
Software, Purchased Software Licenses, and Research and Development Costs –
Costs of internally developed software are capitalized in accordance with ASC 350-40,
Internal Use Software
.
The standard generally requires that research and development costs incurred prior to the beginning of the application development stage of software products are charged to operations as such costs are incurred. Once the application development stage has begun, costs are capitalized until the software is available for general release. Costs of internally developed computer software are amortized on a straight-line basis over the remaining estimated economic life of the software product, generally
two
to
five years
(see Note 8 – Software Costs).
Costs of purchased software licenses are amortized on a straight-line basis over the estimated economic life of the license, generally not to exceed
five
years (see Note 8 – Software Costs).
Capitalized software, including both purchased and internally developed, is reviewed when facts and circumstances indicate the carrying amount may not be recoverable and, if necessary, the Company reduces the carrying value of each product to its fair value.
Business Combinations –
We apply the provisions of ASC 805,
Business Combinations
, in accounting for its acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed at the acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as any contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations.
Goodwill and Intangible Assets -
Goodwill is measured and tested for impairment on an annual basis in the first quarter of the Company's fiscal year in accordance with ASC 350,
Intangibles-Goodwill and Other
, or more frequently if indicators of impairment exist. In performing our goodwill impairment test, we first evaluate goodwill to determine if it is more likely than not that the occurrence of an event or change in circumstances has reduced the fair value of a reporting unit below its carrying value. The qualitative assessment requires that we consider events or circumstances that may include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, and changes in our stock price. If, after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of our reporting units is greater than the carrying amounts, then the two-step goodwill impairment test is not performed.
If the qualitative assessment indicates that the two-step quantitative analysis should be performed, we evaluate goodwill for impairment by comparing the fair value of each of our reporting units to its carrying value, including the associated goodwill. To determine the fair values, we use the equal weighting of the market approach based on comparable publicly traded companies in similar lines of businesses and the income approach based on estimated discounted future cash flows. Our cash flow assumptions consider historical forecasted revenue, operating costs and other relevant factors.
We completed our annual impairment test during the first quarter of fiscal
2018
. We determined, after performing a qualitative review of each reporting unit, that it is more likely than not that the fair value of each of our reporting units exceeds the respective carrying amounts. Accordingly, there was no indication of impairment, and the two-step quantitative goodwill impairment test was not performed. We did not recognize any goodwill impairment charges in fiscal 2017. During fiscal 2016, we recognized a
$5.4 million
goodwill impairment loss related to our APAC Audience Solutions segment and a
$0.5 million
goodwill impairment loss related to our Brazil operation.
We amortize intangible assets with finite lives over their estimated useful lives and review them for impairment whenever an impairment indicator exists. We continually monitor events and changes in circumstances that could indicate carrying amounts of our long-lived assets, including our intangible assets, may not be recoverable. When such events or changes in circumstances occur, we assess recoverability by determining whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. If the future undiscounted cash flows are less than the carrying amount of these assets, we recognize an impairment loss based on any excess of the carrying amount over the fair value of the assets. We did not recognize any intangible asset impairment charges in fiscal 2018, 2017, or 2016.
During fiscal 2018, our intangible assets were amortized over their estimated useful lives ranging from
two
years to
ten
years. Amortization is based on the pattern in which the economic benefits of the intangible asset will be consumed or on a straight-line basis when the consumption pattern is not apparent. The weighted average useful lives of our intangible assets were as follows:
|
|
|
|
|
|
Weighted Average Useful Life (years)
|
Developed technology
|
|
4
|
Customer relationships
|
|
6
|
Trade names
|
|
3
|
Publisher relationships
|
|
6
|
Impairment of Long-lived Assets -
Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers factors such as operating losses, declining outlooks, and business conditions when evaluating the necessity for an impairment analysis. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If such assets are impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
During fiscal 2016, in conjunction with the goodwill impairment tests noted above, the Company also tested certain other long-lived assets in the affected units for impairment. The Company recorded impairment charges of
$0.9 million
related to other long-lived assets, primarily property and equipment.
Fair Value of Financial Instruments -
We apply the provisions of ASC 820,
Fair Value Measurement
, to our assets and liabilities that we are required to measure at fair value pursuant to other accounting standards. The additional disclosure regarding our fair value measurements is included in Note 16.
Concentration of Credit Risk -
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of trade accounts, unbilled and notes receivable. The Company’s receivables are from a large number of customers. Accordingly, the Company’s credit risk is affected by general economic conditions. The Company maintains deposits in federally insured financial institutions more than federally insured limits. Management, however, believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Income Taxes -
The Company and its domestic subsidiaries file a consolidated federal income tax return. The Company’s foreign subsidiaries file separate income tax returns in the countries in which their operations are based.
The Company makes estimates and judgments in determining the provision for income taxes for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain deferred tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. Significant changes in these estimates may result in an increase or decrease to the tax provision in a subsequent period. The Company assesses the likelihood that it will be able to recover its deferred tax assets. If recovery is not likely, the Company increases the provision for taxes by recording a valuation allowance against the deferred tax assets that it estimates will not ultimately be recoverable. The Company believes that the deferred tax assets recorded on the consolidated balance sheets will be ultimately recovered. However, should a change occur in the Company’s ability to recover its deferred tax assets, its tax provision would increase in the period in which the Company determined that the recovery was not likely.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations. The Company recognizes liabilities for uncertain tax positions based on a two-step process pursuant to ASC 740,
Income Taxes
. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If the Company determines that a tax position will more likely than not be sustained on audit, the second step requires the Company to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company must determine the probability of various outcomes.
The Company re-evaluates these uncertain tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.
The Tax Act significantly changes U.S. corporate income tax laws by, among other things, reducing the U.S. federal corporate tax rate from 35% to 21%. Accordingly, the Company made a provisional remeasurement of its federal deferred tax assets and liabilities to reflect the lower tax rate enacted during the third quarter of fiscal 2018. See Note 13 - Income Taxes for additional information.
Foreign Currency -
The reporting currency of the Company is the U.S. dollar. The functional currency of our foreign operations generally is the applicable local currency for each foreign subsidiary. The balance sheets of the Company’s foreign subsidiaries are translated at period-end rates of exchange, and the statements of operations are translated at the average exchange rate for the period. The effects of foreign currency translation adjustments are included in accumulated other comprehensive income in the consolidated statements of stockholders’ equity and comprehensive income.
Advertising Expense -
Advertising costs are expensed as incurred. Advertising expense was approximately
$11.6 million
,
$9.3 million
and
$5.9 million
for the fiscal years ended
March 31, 2018
,
2017
and
2016
, respectively. Advertising expense is included in operating expenses in the consolidated statements of operations.
Guarantees -
The Company accounts for the guarantees of indebtedness of others under applicable accounting standards which require a guarantor to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. A guarantor is also required to make additional disclosures in its financial statements about obligations under certain guarantees issued. The Company’s liability for the fair value of guarantees is not material (see Note 11 – Commitments and Contingencies).
Legal Contingencies -
We are currently involved in various claims and legal proceedings. Quarterly, we review the status of each significant matter and assess our potential financial exposure. We accrue a liability for an estimated loss if the potential loss from any claim or legal proceeding is considered probable, and the amount can be reasonably estimated. Note 11, Commitments and Contingencies, provides additional information regarding certain of our legal contingencies.
Earnings (Loss) per Share -
A reconciliation of the numerator and denominator of basic and diluted earnings (loss) per share is shown below (in thousands, except per share amounts):
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|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Net earnings (loss) from continuing operations
|
$
|
23,480
|
|
|
$
|
4,108
|
|
|
$
|
(8,648
|
)
|
Earnings from discontinued operations, net of tax
|
—
|
|
|
—
|
|
|
15,351
|
|
Net earnings
|
$
|
23,480
|
|
|
$
|
4,108
|
|
|
$
|
6,703
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
78,891
|
|
|
77,609
|
|
|
77,616
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.30
|
|
|
$
|
0.05
|
|
|
$
|
(0.11
|
)
|
Discontinued operations
|
—
|
|
|
—
|
|
|
0.20
|
|
Net earnings
|
$
|
0.30
|
|
|
$
|
0.05
|
|
|
$
|
0.09
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Basic weighted-average shares outstanding
|
78,891
|
|
|
77,609
|
|
|
77,616
|
|
Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method
|
2,625
|
|
|
2,239
|
|
|
—
|
|
Diluted weighted-average shares outstanding
|
81,516
|
|
|
79,848
|
|
|
77,616
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.29
|
|
|
$
|
0.05
|
|
|
$
|
(0.11
|
)
|
Discontinued operations
|
—
|
|
|
—
|
|
|
0.20
|
|
Net earnings
|
$
|
0.29
|
|
|
$
|
0.05
|
|
|
$
|
0.09
|
|
Due to the net loss from continuing operations in fiscal
2016
, the dilutive effect of options, warrants and restricted stock units covering
1.5 million
shares of common stock was excluded from the earnings per share calculation since the impact on the calculation was anti-dilutive. Additional 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 (loss) per share because the effect was anti-dilutive are shown below (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Number of shares outstanding under options, warrants and restricted stock units
|
20
|
|
90
|
|
1,654
|
Range of exercise prices for options
|
$
|
32.85
|
|
-
|
$
|
32.85
|
|
|
$
|
27.77
|
|
-
|
$
|
32.85
|
|
|
$
|
17.49
|
|
-
|
$
|
62.06
|
|
Stock-based Compensation -
The Company records stock-based compensation expense according to the provisions of ASC Topic 718,
Compensation – Stock Compensation
. ASC Topic 718 requires all stock-based payments to employees, including grants of employee stock options, to be recognized in the statement of operations over the service period of the award based on their fair values. Under the provisions of ASC Topic 718, the Company determines the appropriate fair value model to be used for valuing stock-based payments and the amortization method for compensation cost.
The Company has stock option plans and equity compensation plans (collectively referred to as the “stock-based plans”) administered by the compensation committee (“compensation committee”) of the board of directors under which options and restricted stock units were outstanding as of
March 31, 2018
.
The Company’s equity compensation plan provides that all associates (employees, officers, directors, affiliates, independent contractors or consultants) are eligible to receive awards (grant of any option, stock appreciation right, restricted stock award, restricted stock unit award, performance award, performance share, performance unit,
qualified performance-based award, or other stock unit award) under the plan with the terms and conditions applicable to an award set forth in applicable grant documents.
Incentive stock option awards granted under the stock-based plans cannot be granted with an exercise price less than
100%
of the per-share market value of the Company’s shares at the date of grant and have a maximum duration of
ten years
from the date of grant. Board policy currently requires that nonqualified options also must be priced at or above the fair market value of the common stock at the time of grant with a maximum duration of
ten years
.
Restricted stock units may be issued under the equity compensation plan and represent the right to receive shares in the future by way of an award agreement which includes vesting provisions. Award agreements can further provide for forfeitures triggered by certain prohibited activities, such as breach of confidentiality. All restricted stock units will be expensed over the vesting period and adjusted for forfeitures as incurred. The vesting of some restricted stock units is subject to the Company’s achievement of certain performance criteria, as well as the individual remaining employed by the Company for a period of years.
The Company also has outstanding performance-based stock appreciation rights and performance-based stock units. These are expensed over the vesting period of the award.
The Company receives income tax deductions because of the exercise of nonqualified stock options and the vesting of other stock-based awards. These excess tax benefits and deficiencies are included as a component of income tax expense and reflected as an operating cash flow included in changes in operating assets and liabilities.
Restructuring –
The Company records costs associated with employee terminations and other exit activity in accordance with ASC 420,
Exit or Disposal Cost Obligations
, depending on whether the costs relate to exit or disposal activities under the accounting standards, or whether they are other post-employment termination benefits. Under applicable accounting standards for exit or disposal costs, the Company records employee termination benefits as an operating expense when the benefit arrangement is communicated to the employee and no significant future services are required. Under the accounting standards related to post employment termination benefits the Company records employee termination benefits when the termination benefits are probable and can be estimated. The Company recognizes the present value of facility lease termination obligations, net of estimated sublease income and other exit costs, when the Company has future payments with no future economic benefit or a commitment to pay the termination costs of a prior commitment. In future periods the Company will record accretion expense to increase the liability to an amount equal to the estimated future cash payments necessary to exit the leases. This requires judgment and management estimation to determine the expected time frame for securing a subtenant, the amount of sublease income to be received and the appropriate discount rate to calculate the present value of the future cash flows. Should actual lease exit costs differ from estimates, the Company may be required to adjust the restructuring charge which will impact net earnings in the period any adjustment is recorded.
Adoption of New Accounting Standards –
In January 2017, the FASB issued ASU 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 adoption of this guidance did not have a material impact on our 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 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, 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 our income tax provision 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 Consolidated Statements of Cash Flows for fiscal 2017 and 2016, respectively.
Recent Accounting Pronouncements Not Yet Adopted –
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 719): Scope of Modification Accounting" ("ASU 2017-09"). ASU 2017-09 clarifies when changes to the terms or conditions of a stock-based payment award must be accounted for as modifications. ASU 2017-09 will reduce diversity in practice and result in fewer changes to the terms of an award being accounted for as modifications. Under ASU 2017-09, an entity will not apply modification accounting to a stock-based payment award if the award's fair value, vesting conditions and classification as an equity or liability instrument are the same immediately before and after the change. ASU 2017-09 will be applied prospectively to awards modified on or after the adoption date. The guidance is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. ASU 2017-09 is effective for the Company beginning in fiscal 2019. The Company continues to evaluate the impact of the adoption of this guidance on its consolidated financial statements, but does not expect it to have a material impact.
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 except for 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. Subsequently, the FASB has issued various ASU's to provide further clarification around certain aspects of Topic 842. 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, with early adoption permitted. We will adopt the new standard on April 1, 2019 using the modified retrospective approach. The Company is continuing to evaluate the impact of the adoption of this guidance on its consolidated financial statements and related disclosures.
In May 2014, the FASB issued update ASU 2014-09, Revenue from Contracts with Customers (Topic 606) 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. Topic 606 supersedes nearly all existing revenue recognition guidance under 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 to which the entity expects to be entitled in exchange 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 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. Companies may adopt Topic 606 using a full retrospective or modified retrospective method. The Company adopted the standard on April 1, 2018 using the modified retrospective method.
During fiscal 2018, the Company completed its evaluation of Topic 606. Based on the evaluation, the Company does not expect it to have a material impact on its results of operations or cash flows in the periods after adoption. Most revenue streams will be recorded consistently under both the current standard and new standard; however, the Company noted the following impact:
Under the current standard, we expense costs related to the acquisition of revenue-generating contracts as incurred. Under the new standard, we will be required to capitalize incremental costs to acquire contracts and amortize them over the expected period of benefit, which we have determined as a range from two to five years.
At April 1, 2018, the Company expects to record the cumulative impact of Topic 606 through an increase in retained earnings of approximately
$12.5 million
rather than retrospectively adjusting prior periods. The cumulative adjustment will primarily relate to the capitalization of certain costs incremental to contract acquisition.
Topic 606 also requires expanded disclosure regarding the nature, timing, and uncertainty of revenue transactions, and costs incurred to obtain customer contracts. The Company has evaluated these disclosure requirements and incorporated the collection of relevant data into its reporting process. These disclosures will be reflected beginning in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018.
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. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:
The following table summarizes the restructuring activity included in gains, losses and other items, net in the consolidated statements of operations for the fiscal years ended
March 31, 2018
,
2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Associate-related
|
|
Lease
|
|
|
|
reserves
|
|
accruals
|
|
Total
|
March 31, 2015
|
$
|
7,211
|
|
|
$
|
5,228
|
|
|
$
|
12,439
|
|
Restructuring charges and adjustments
|
8,630
|
|
|
3,002
|
|
|
11,632
|
|
Payments
|
(12,986
|
)
|
|
(4,706
|
)
|
|
(17,692
|
)
|
March 31, 2016
|
$
|
2,855
|
|
|
$
|
3,524
|
|
|
$
|
6,379
|
|
Restructuring charges and adjustments
|
3,755
|
|
|
2,985
|
|
|
6,740
|
|
Payments
|
(4,210
|
)
|
|
(2,201
|
)
|
|
(6,411
|
)
|
March 31, 2017
|
$
|
2,400
|
|
|
$
|
4,308
|
|
|
$
|
6,708
|
|
Restructuring charges and adjustments
|
3,832
|
|
|
2,564
|
|
|
6,396
|
|
Payments
|
(3,481
|
)
|
|
(1,580
|
)
|
|
(5,061
|
)
|
March 31, 2018
|
$
|
2,751
|
|
|
$
|
5,292
|
|
|
$
|
8,043
|
|
Restructuring Plans
In fiscal 2018, the Company recorded a total of
$6.4 million
in restructuring charges and adjustments included in gains, losses and other items, net in the consolidated statement of operations. The expense included severance and other associate-related charges of
$3.8 million
, and lease accruals and adjustments of
$2.6 million
.
The associate-related accruals of
$3.8 million
related to the termination of associates in the United States and Europe. Of the amount accrued,
$2.2 million
remained accrued as of
March 31, 2018
. These costs are expected to be paid out in fiscal 2019. The lease accruals and adjustments of
$2.6 million
result from the Company's exit from certain leased office facilities.
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 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
. The associate-related accruals of
$3.8 million
were fully paid 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
).
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 consolidated statement of operations. The expense included severance and other associate-related charges of
$8.6 million
, Europe lease termination charges and accruals of
$3.0 million
, and leasehold improvement write offs of
$0.4 million
. The associate-related accruals of
$8.6 million
related to the termination of associates in the United States, Europe, Brazil and Australia. Of the amount accrued for 2016,
$0.2 million
remained accrued as of
March 31, 2018
. These costs are expected to be paid out in fiscal 2019. The Europe 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 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
March 31, 2018
. These amounts are expected to be paid out in fiscal 2019.
The fiscal 2015, 2017, and 2018 lease accruals described above relate to three floors, each vacated in a certain fiscal year, of one facility. Of the consolidated fiscal 2015, 2017, and 2018 facility lease restructuring charges of
$12.1 million
,
$5.3 million
remained accrued as of
March 31, 2018
. 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 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 years presented are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Restructuring plan charges and adjustments
|
$
|
6,396
|
|
|
$
|
6,740
|
|
|
$
|
11,632
|
|
Other restructuring charges
|
—
|
|
|
2,125
|
|
|
381
|
|
Write-off of accumulated foreign currency translation in Brazil
|
—
|
|
|
1,315
|
|
|
—
|
|
Gain on disposition of assets
|
—
|
|
|
(2,986
|
)
|
|
—
|
|
Acquisition-related costs
|
—
|
|
|
1,365
|
|
|
—
|
|
Other
|
(23
|
)
|
|
(186
|
)
|
|
119
|
|
|
$
|
6,373
|
|
|
$
|
8,373
|
|
|
$
|
12,132
|
|
3. ACQUISITIONS:
Pacific Data Partners
On February 14, 2018, the Company acquired all the outstanding units of Pacific Data Partners LLC ("PDP") in order to accelerate its ability to power people-based B2B marketing. The Company paid approximately
$4.5 million
in cash, net of
$0.5 million
funds held in escrow and
$0.2 million
cash acquired. The escrow funds are expected to be delivered to the PDP sellers one year from the acquisition date. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material. The results of operations of this acquisition are included in the Company's consolidated results beginning February 14, 2018.
The following table presents the purchase price allocation related to assets acquired and liabilities assumed (dollars in thousands):
|
|
|
|
|
|
|
|
February 14, 2018
|
Assets acquired:
|
|
|
Cash
|
|
$
|
228
|
|
Trade accounts receivable
|
|
224
|
|
Developed technology (Software, net)
|
|
2,000
|
|
Goodwill
|
|
3,260
|
|
Intangible assets (Other assets)
|
|
200
|
|
Total assets acquired
|
|
5,912
|
|
|
|
|
Accounts payable and accrued expenses
|
|
(706
|
)
|
Net assets acquired
|
|
5,206
|
|
Less:
|
|
|
Funds held in escrow
|
|
(500
|
)
|
Cash acquired
|
|
(228
|
)
|
Net cash paid
|
|
$
|
4,478
|
|
The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on calculations and valuations using management’s estimates and assumptions and were based on the information that was available as of the date of acquisition.
In connection with the PDP acquisition, the Company assumed the outstanding performance compensation plan under the 2018 Equity Compensation Plan of Pacific Data Partners, LLC ("PDP PSU plan"). Under the PDP PSU plan, performance compensation will be paid to plan participants in
four
annual increments based on attainment of
certain Connectivity B2B run rate revenue targets for the performance period covering April 1, 2018 to March 31, 2022. Each annual payout will be determined at the close of each fiscal year within the performance period, on a cumulative basis. The amount of each annual payout will be settled in shares of Company common stock. The number of shares of Company common stock issued to participants will be equal to
90%
of the annual payout divided by the volume weighted average stock price for the
20
trading days prior to, and ending on, the end of each annual performance period, plus,
10%
of the annual payout divided by the volume weighted average stock price for the
20
trading days prior to, and ending on, the date of the closing of the acquisition. Total performance attainment may result in combined payouts ranging from
$0.0 million
to
$65.0 million
.
The performance compensation paid under the PDP PSU plan will be recorded as non-cash stock-based compensation as it is attributable to post-combination service (see Note 12 - Stockholders' Equity). The non-cash stock-based compensation expense will be recognized over the requisite service and performance period based on expected attainment.
90%
of the performance compensation will be settleable in a number of shares calculated using a variable
20
-day stock price factor, determined in future periods, and will be classified as a liability-based equity award. As of each reporting date,
90%
of any recognized, but unpaid portions of the performance compensation plan will be recorded in other accrued expenses in the Consolidated Balance Sheet. The remaining 10% of the performance compensation will be classified as an equity-based equity award.
Through
March 31, 2018
, the Company recognized a total of
$2.0 million
in non-cash stock-based compensation expense in the consolidated statements of operations related to the PDP PSU plan.
Arbor and Circulate
The Company acquired all the outstanding shares of Arbor Technologies, Inc. (“Arbor”) and Circulate.com, Inc. (“Circulate”) on November 22, 2016 and November 29, 2016, respectively. Arbor and Circulate help publishers connect people-based data to the marketing ecosystem. Arbor and Circulate are included in the Connectivity segment, and increase the scale of the Company’s omni-channel identity graph and network. The Company has included the financial results of Arbor and Circulate in the consolidated financial statements from the dates of acquisition. The consideration paid for the outstanding shares and vested stock options was approximately
$137.4 million
, net of cash acquired of approximately
$9.5 million
. The consideration paid for unvested stock options had an estimated fair value of
$9.2 million
. These options are not part of the purchase price and will be expensed as non-cash stock compensation over the applicable vesting periods.
In connection with the Arbor acquisition, the Company agreed to pay
$38.3 million
to certain key employees (see “Consideration Holdback” in note 12). The consideration holdback is payable over
30
equal, monthly increments and is settleable in shares of Company common stock. The number of shares to be issued monthly will vary depending on the market price of the shares on the date of issuance and will be recorded as non-cash stock compensation expense as the shares are issued. The consideration holdback is not part of the purchase price as vesting is dependent on continued employment of the key employees.
Following the closing of Arbor, the Company granted new awards of restricted stock units to select employees of Arbor to induce them to accept employment with the Company (the “Arbor Inducement Awards”). The Arbor Inducement Awards had a grant date fair value of
$10.4 million
, and vest over
three years
with
34%
of the total vesting on the first anniversary of the closing date and
8.25%
vesting each three months thereafter, subject to the employee’s continued service through each vesting date. Following the closing of Circulate, the Company granted new awards of restricted stock units to select employees of Circulate to induce them to accept employment with the Company (the “Circulate Inducement Awards”). The Circulate Inducement Awards had a grant date fair value of
$10.0 million
. The Circulate Inducement Awards granted to certain key employees of Circulate vest over
two years
with
50%
of the total vesting on the first anniversary of the closing date and
12.5%
vesting each three months thereafter, subject to the employee’s continued service through each vesting date and vesting acceleration upon a qualifying termination as set forth in the applicable employee’s offer letter with the Company. The Circulate Inducement Awards granted to all other Circulate employees vest incrementally over
four years
with
25%
of the total vesting on the first anniversary date of the closing, and
25%
vesting each 12 months thereafter, subject to the employee’s continued service through each vesting date.
On November 29, 2016, the Company delivered
$5.9 million
of cash to an escrow agent according to the terms of the Circulate acquisition agreement. The cash was restricted as to withdrawal or use by the Company. The restricted cash was delivered to the Circulate sellers
one year
from the acquisition date, during fiscal 2018. The
principal escrow amount was owned by the Company until funds were delivered to the Circulate sellers. All interest and earnings on the principal escrow amount remain property of the Company.
The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of the acquisitions (dollars in thousands):
|
|
|
|
|
|
|
|
November 22 and November 29,
2016
|
Assets acquired:
|
|
|
Cash
|
|
$
|
9,495
|
|
Trade accounts receivable
|
|
3,352
|
|
Goodwill
|
|
105,670
|
|
Intangible assets (Other assets)
|
|
40,800
|
|
Other current and noncurrent assets
|
|
278
|
|
Total assets acquired
|
|
159,595
|
|
Deferred income taxes
|
|
(8,093
|
)
|
Accounts payable and accrued expenses
|
|
(4,623
|
)
|
Net assets acquired
|
|
146,879
|
|
Less:
|
|
|
Cash acquired
|
|
(9,495
|
)
|
Net cash paid
|
|
$
|
137,384
|
|
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is primarily attributed to development of future technology and products, development of future customer relationships, and the Arbor and Circulate assembled workforces. The Company allocated the goodwill to the reporting unit that was expected to benefit from the acquired goodwill. Goodwill is not deductible for U.S. income tax purposes.
The Company recognized the assets and liabilities acquired based on estimates of their acquisition date fair values. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of the estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgement. The Company believes that the information available at the date of acquisition provided a reasonable basis for estimating the fair values of the assets acquired and the liabilities assumed.
The amounts allocated to intangible assets in the table above included publisher relationships, developed technology, customer relationships, and trade name. Intangible assets will be amortized on a straight-line basis over the estimated useful lives of
1
to
6
years. The following table presents the components of intangible assets acquired and their estimated useful lives as of the acquisition date (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Useful life
|
|
Fair value
|
|
(in years)
|
Publisher relationships
|
$
|
23,800
|
|
|
6
|
Developed technology
|
9,300
|
|
|
2 to 4
|
Customer relationships
|
7,100
|
|
|
6
|
Trade name
|
600
|
|
|
1
|
Total intangible assets
|
$
|
40,800
|
|
|
|
The Company has omitted disclosures of revenue and net loss of the acquired companies from the acquisition dates of November 22, 2016 and November 29, 2016, respectively, to March 31, 2017 as the amounts are not material.
During the year ended March 31, 2017, the Company incurred
$1.4 million
of acquisition costs related to the Arbor and Circulate acquisitions, which are included in gains, losses, and other items, net on the consolidated statement of operations (see Note 2 - Restructuring, Impairment and Other Charges).
The unaudited pro forma financial information in the table below summarizes the combined results of operations for Acxiom, Arbor and Circulate for the purposes of unaudited pro forma financial information disclosure as if the companies were combined as of the beginning of fiscal 2016. The unaudited pro forma financial information for all periods presented included the business combination accounting effects resulting from these acquisitions, including amortization charges from acquired intangible assets, stock-based compensation charges for unvested restricted stock-based awards and stock options assumed, if any, and the related tax effects as though the aforementioned companies were combined as of the beginning of fiscal 2016. The unaudited pro forma financial information as presented below is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of fiscal 2016.
The unaudited pro forma financial information for the years ended March 31, 2017 and 2016, respectively, combined the historical results of Acxiom for the years ended March 31, 2017 and 2016 and the historical results of Arbor and Circulate for the years ended December 31, 2016 and 2015 (adjusted due to differences in reporting periods) and the effects of the pro forma adjustments listed above. The unaudited pro forma financial information was as follows (dollars in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Revenues
|
$
|
887,495
|
|
|
$
|
853,249
|
|
Net loss from continuing operations
|
$
|
(17,025
|
)
|
|
$
|
(38,903
|
)
|
Basic and diluted loss per share from continuing operations
|
$
|
(0.22
|
)
|
|
$
|
(0.30
|
)
|
Addressable Television Net Assets from Allant (“Allant”)
On December 1, 2015, the Company acquired certain addressable television net assets from The Allant Group, Inc. The acquisition provides the Company additional consumer insight capabilities that enable clients to more effectively reach their television channel customer base and audiences. The Company paid approximately
$5.4 million
in cash. The Company has omitted pro forma disclosures related to this acquisition as the pro forma effect of this acquisition is not material. The results of operation for the acquisition are included in the Company’s consolidated results beginning December 1, 2015.
The following table presents the purchase price allocation related to assets acquired and liabilities assumed (dollars in thousands):
|
|
|
|
|
|
|
|
December 1, 2015
|
Assets acquired:
|
|
|
Trade accounts receivable
|
|
$
|
499
|
|
Goodwill
|
|
1,377
|
|
Developed technology (Software)
|
|
2,700
|
|
Other intangible assets (Other assets, net)
|
|
1,400
|
|
Net assets acquired
|
|
5,976
|
|
Accounts payable
|
|
(590
|
)
|
Net cash paid
|
|
$
|
5,386
|
|
The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on calculations and valuations using management’s estimates and assumptions and were based on the information that was available as of the date of acquisition.
4. DISCONTINUED OPERATIONS AND DISPOSITIONS:
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%
per annum. The note was paid in full in fiscal 2018. 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. The Company recorded a gain on sale of
$0.3 million
, included in gains, losses and other items, net. The transaction also generated a
$4.3 million
income tax benefit.
Revenues and income (loss) from operations from the disposed Impact email business are shown below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
Revenues
|
|
$
|
20,375
|
|
|
$
|
60,199
|
|
Income (loss) from operations
|
|
$
|
(157
|
)
|
|
$
|
10,105
|
|
IT Infrastructure Management business (“ITO”)
On May 20, 2015, the Company announced it had entered into a definitive agreement to sell its ITO business to Charlesbank Capital Partners and M/C Partners. The sale was completed on July 31, 2015. Beginning in the first quarter of fiscal 2016, the Company began reporting the results of operations, cash flows, and the balance sheet amounts pertaining to ITO as a component of discontinued operations in the consolidated financial statements. Prior to the discontinued operations classification, the ITO business unit was included in the IT Infrastructure Management segment in the Company’s segment results.
At the closing of the transaction, the Company received total consideration of
$131.0 million
(
$140.0 million
stated sales price less closing adjustments and transaction costs of
$9.0 million
). In addition, the Company has the right to participate in distributions of the divested entity above a defined amount. The Company reported a gain of
$9.3 million
on the sale which is included in earnings from discontinued operations, net of tax.
On July 31, 2015, the Company applied
$55.0 million
of proceeds from the sale to repay outstanding Company indebtedness to comply with the Company’s existing credit agreement (see Note 10 – Long-Term Debt). The Company allocated interest expense associated with the
$55.0 million
repayment of Company indebtedness to the ITO discontinued operating business. Allocated interest expense was
$0.4 million
for the fiscal year ended March 31, 2016. We used the remaining proceeds from the sale to fund expansion of its common stock repurchase program and for general corporate purposes.
Summary results of operations of ITO for the fiscal year ended March 31, 2016 are segregated and included in earnings from discontinued operations, net of tax, in the consolidated statements of operations. The following table is a reconciliation of the major classes of line items constituting earnings from discontinued operations, net of tax (dollars in thousands):
|
|
|
|
|
|
2016
|
Major classes of line items constituting earnings from discontinued operations, net of tax:
|
|
Revenues
|
$
|
69,410
|
|
Cost of revenue
|
50,837
|
|
Gross profit
|
18,573
|
|
Operating expenses:
|
|
Sales and marketing
|
1,192
|
|
General and administrative
|
6,053
|
|
Gain on sale of discontinued operations
|
(9,349
|
)
|
Gains, losses and other items, net
|
367
|
|
Total operating expenses
|
(1,737
|
)
|
Earnings from discontinued operations
|
20,310
|
|
Interest expense
|
(681
|
)
|
Other, net
|
(230
|
)
|
Earnings from discontinued operations before income taxes
|
19,399
|
|
Income taxes
|
3,598
|
|
Earnings from discontinued operations, net of tax
|
$
|
15,801
|
|
ITO was a provider of managed hosting and cloud infrastructure services, optimized for mid-tier enterprises. The Company entered into certain agreements with ITO in which support services, including data center co-location services, will be provided from the Company to ITO, and from ITO to the Company. Additionally, the Company entered into certain other agreements with ITO to provide or receive leased office space. The terms of these agreements range from several months to the longest of which continues through July 2020. The agreements generally provide cancellation provisions, without penalty, at various times throughout the term.
Cash inflows and outflows related to the agreements are included in cash flows from operating activities in the consolidated statements of cash flows. Revenues and expenses related to the agreements are included in income (loss) from operations in the consolidated statements of operations. The related cash inflows and outflows and revenues and expenses for the periods reported are shown below (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Cash inflows
|
$
|
6,575
|
|
|
$
|
7,214
|
|
|
$
|
4,728
|
|
Cash outflows
|
$
|
1,976
|
|
|
$
|
4,140
|
|
|
$
|
4,165
|
|
Revenues
|
$
|
7,511
|
|
|
$
|
6,470
|
|
|
$
|
4,650
|
|
Expenses
|
$
|
1,770
|
|
|
$
|
3,284
|
|
|
$
|
4,617
|
|
5. OTHER CURRENT AND NONCURRENT ASSETS:
Other current assets consist of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
2018
|
|
2017
|
Prepaid expenses and other
|
$
|
27,594
|
|
|
$
|
25,714
|
|
Escrow deposit (see Note 3 - Acquisitions)
|
—
|
|
|
5,880
|
|
Note receivable (see Note 4 – Discontinued Operations and Dispositions)
|
—
|
|
|
4,000
|
|
Assets of non-qualified retirement plan (see Note 6 - Other Accrued Expenses)
|
13,551
|
|
|
12,716
|
|
Other current assets
|
$
|
41,145
|
|
|
$
|
48,310
|
|
Other noncurrent assets consist of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
2018
|
|
2017
|
Acquired intangible assets, net
|
$
|
33,922
|
|
|
$
|
43,884
|
|
Deferred data acquisition costs
|
1,036
|
|
|
1,116
|
|
Other miscellaneous noncurrent assets
|
6,510
|
|
|
6,443
|
|
Noncurrent assets
|
$
|
41,468
|
|
|
$
|
51,443
|
|
6. OTHER ACCRUED EXPENSES:
Other accrued expenses consist of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
2018
|
|
2017
|
Accrued purchase consideration (see Note 3 - Acquisitions)
|
$
|
—
|
|
|
$
|
5,880
|
|
Liabilities of non-qualified retirement plan (see Note 5 - Other Current and Noncurrent Assets)
|
13,551
|
|
|
12,716
|
|
Other accrued expenses
|
42,314
|
|
|
41,265
|
|
Other accrued expenses
|
$
|
55,865
|
|
|
$
|
59,861
|
|
7. GOODWILL AND INTANGIBLE ASSETS:
Goodwill by operating segment and activity for the years ended
March 31, 2018
and
2017
was as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
|
|
Audience
|
|
|
|
|
|
Services
|
|
Solutions
|
|
Connectivity
|
|
Total
|
Balance at March 31, 2016
|
$
|
124,586
|
|
|
$
|
273,430
|
|
|
$
|
94,729
|
|
|
$
|
492,745
|
|
Acquisitions of Arbor and Circulate (see note 3)
|
—
|
|
|
—
|
|
|
105,670
|
|
|
105,670
|
|
Impact email disposition (see note 4)
|
(5,684
|
)
|
|
—
|
|
|
—
|
|
|
(5,684
|
)
|
Allant purchase accounting adjustments
|
—
|
|
|
18
|
|
|
—
|
|
|
18
|
|
Change in foreign currency translation adjustment
|
(12
|
)
|
|
—
|
|
|
(6
|
)
|
|
(18
|
)
|
Balance at March 31, 2017
|
$
|
118,890
|
|
|
$
|
273,448
|
|
|
$
|
200,393
|
|
|
$
|
592,731
|
|
Acquisition of PDP (see note 3)
|
—
|
|
|
—
|
|
|
3,260
|
|
|
3,260
|
|
Arbor purchase accounting adjustments
|
—
|
|
|
—
|
|
|
(21
|
)
|
|
(21
|
)
|
Change in foreign currency translation adjustment
|
18
|
|
|
—
|
|
|
7
|
|
|
25
|
|
Balance at March 31, 2018
|
$
|
118,908
|
|
|
$
|
273,448
|
|
|
$
|
203,639
|
|
|
$
|
595,995
|
|
Year end balances in the table above are net of accumulated impairment losses of
$120.1 million
at
March 31, 2018
and
2017
, respectively.
Goodwill by component included in each operating segment as of
March 31, 2018
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
|
|
Audience
|
|
|
|
|
|
Services
|
|
Solutions
|
|
Connectivity
|
|
Total
|
U.S.
|
$
|
110,910
|
|
|
$
|
273,448
|
|
|
$
|
200,072
|
|
|
$
|
584,430
|
|
APAC
|
7,998
|
|
|
—
|
|
|
3,567
|
|
|
11,565
|
|
Balance at March 31, 2018
|
$
|
118,908
|
|
|
$
|
273,448
|
|
|
$
|
203,639
|
|
|
$
|
595,995
|
|
The amounts allocated to intangible assets from acquisitions include developed technology, customer relationships, trade names, and publisher relationships. Amortization lives for those intangibles range from
two
years to
ten
years. The following table shows the amortization activity of intangible assets (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Developed technology, gross (Software)
|
$
|
54,150
|
|
|
$
|
52,150
|
|
|
$
|
42,850
|
|
Accumulated amortization
|
(43,533
|
)
|
|
(29,775
|
)
|
|
(17,950
|
)
|
Net developed technology
|
$
|
10,617
|
|
|
$
|
22,375
|
|
|
$
|
24,900
|
|
|
|
|
|
|
|
Customer relationship/Trade name, gross (Other assets, net)
|
$
|
43,364
|
|
|
$
|
43,164
|
|
|
$
|
35,466
|
|
Accumulated amortization
|
(27,953
|
)
|
|
(21,702
|
)
|
|
(16,263
|
)
|
Net customer/trade name
|
$
|
15,411
|
|
|
$
|
21,462
|
|
|
$
|
19,203
|
|
|
|
|
|
|
|
Publisher relationship, gross (Other assets, net)
|
$
|
23,800
|
|
|
$
|
23,800
|
|
|
$
|
—
|
|
Accumulated amortization
|
(5,289
|
)
|
|
(1,378
|
)
|
|
—
|
|
Net publisher relationship
|
$
|
18,511
|
|
|
$
|
22,422
|
|
|
$
|
—
|
|
|
|
|
|
|
|
Total intangible assets, gross
|
$
|
121,314
|
|
|
$
|
119,114
|
|
|
$
|
78,316
|
|
Total accumulated amortization
|
(76,775
|
)
|
|
(52,855
|
)
|
|
(34,213
|
)
|
Total intangible assets, net
|
$
|
44,539
|
|
|
$
|
66,259
|
|
|
$
|
44,103
|
|
Intangible assets by operating segment as of
March 31, 2018
was (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
|
|
Audience
|
|
|
|
|
|
Services
|
|
Solutions
|
|
Connectivity
|
|
Total
|
Developed technology
|
—
|
|
|
600
|
|
|
10,017
|
|
|
10,617
|
|
Customer/Trade name
|
11
|
|
|
311
|
|
|
15,089
|
|
|
15,411
|
|
Publisher relationship
|
—
|
|
|
—
|
|
|
18,511
|
|
|
18,511
|
|
Balance at March 31, 2018
|
$
|
11
|
|
|
$
|
911
|
|
|
$
|
43,617
|
|
|
$
|
44,539
|
|
Total amortization expense related to intangible assets was
$23.9 million
,
$18.6 million
, and
$15.5 million
in fiscal
2018
,
2017
, and
2016
, respectively. As of
March 31, 2018
, estimated future amortization expenses related to purchases and other intangible assets were as follows (dollars in thousands):
|
|
|
|
|
Year ending March 31,
|
|
2019
|
$
|
15,980
|
|
2020
|
11,950
|
|
2021
|
8,025
|
|
2022
|
5,150
|
|
2023
|
3,434
|
|
|
$
|
44,539
|
|
8. SOFTWARE COSTS:
The Company recorded amortization expense related to internally developed computer software of
$28.4 million
,
$27.5 million
, and
$30.7 million
for fiscal
2018
,
2017
and
2016
, respectively, including
$13.8 million
,
$11.8 million
, and
$10.0 million
, respectively, related to internally developed software acquired as part of recent acquisitions (see Note 7 - Goodwill and Intangible Assets). Amortization expense in fiscal
2018
and fiscal
2016
also included
$1.0 million
and
$1.8 million
, respectively, of accelerated amortization expense resulting from adjusting the remaining estimated useful lives of certain capitalized software products which the Company no longer uses.
The Company recorded amortization expense related to purchased software licenses of
$1.7 million
,
$3.0 million
, and
$3.8 million
in fiscal
2018
,
2017
and
2016
, respectively.
9. PROPERTY AND EQUIPMENT:
Property and equipment, some of which has been pledged as collateral for long-term debt, is summarized as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
2018
|
|
2017
|
Land
|
$
|
5,398
|
|
|
$
|
5,398
|
|
Buildings and improvements
|
195,609
|
|
|
189,666
|
|
Data processing equipment
|
262,254
|
|
|
249,131
|
|
Office furniture and other equipment
|
28,005
|
|
|
32,086
|
|
|
491,266
|
|
|
476,281
|
|
Less accumulated depreciation and amortization
|
334,733
|
|
|
320,307
|
|
|
$
|
156,533
|
|
|
$
|
155,974
|
|
Depreciation expense on property and equipment was
$43.5 million
,
$42.9 million
and
$40.6 million
for the fiscal years ended
March 31, 2018
,
2017
and
2016
, respectively.
10. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
2018
|
|
2017
|
Term loan credit agreement
|
$
|
—
|
|
|
$
|
155,000
|
|
Revolving credit borrowings
|
230,000
|
|
|
70,000
|
|
Other debt and long-term liabilities
|
3,293
|
|
|
5,612
|
|
Total long-term debt
|
233,293
|
|
|
230,612
|
|
Less current installments
|
1,583
|
|
|
39,819
|
|
Less deferred debt financing costs
|
3,873
|
|
|
1,552
|
|
Long-term debt, excluding current installments and deferred debt financing costs
|
$
|
227,837
|
|
|
$
|
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, and fund
$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.
The revolving loan borrowings bear interest at
LIBOR
or at an alternative base rate plus a credit spread. At
March 31, 2018
, the revolving loan borrowing bears interest at LIBOR plus a credit spread of
2%
. The weighted-average interest rate on revolving credit borrowings at
March 31, 2018
was
3.9%
. There were no material outstanding letters of credit at
March 31, 2018
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
March 31, 2018
, the Company was in compliance with these covenants and restrictions.
The Company’s future obligations, excluding interest, under its long-term debt at
March 31, 2018
are as follows (dollars in thousands):
|
|
|
|
|
Year ending March 31,
|
|
2019
|
$
|
1,583
|
|
2020
|
1,362
|
|
2021
|
348
|
|
2022
|
—
|
|
2023
|
230,000
|
|
|
$
|
233,293
|
|
11. 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 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 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
22
years of
$84.0 million
.
Total rental expense on operating leases was
$15.9 million
,
$15.9 million
, and
$17.1 million
for the fiscal years ended
March 31, 2018
,
2017
and
2016
, respectively. Future minimum lease payments under all noncancellable operating leases for the five years ending
March 31, 2023
, are as follows:
2019
,
$16.5 million
;
2020
,
$15.9 million
;
2021
,
$15.5 million
;
2022
,
$15.1 million
; and
2023
,
$8.7 million
.
In connection with the Impact email disposition during fiscal 2017 (see Note 4 – Discontinued Operations and Dispositions), 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 runs through September 2021. At
March 31, 2018
, the Company’s maximum potential future rent payments under this guarantee totaled
$2.1 million
.
12. STOCKHOLDERS’ EQUITY:
The Company has authorized
200 million
shares of
$0.10
par value common stock and
1 million
shares of
$1.00
par value preferred stock. The board of directors of the Company may designate the relative rights and preferences of the preferred stock when and if issued. Such rights and preferences could include liquidation preferences, redemption rights, voting rights and dividends, and the shares could be issued in multiple series with different rights and preferences. The Company currently has no plans for the issuance of any shares of preferred stock.
At
March 31, 2018
, the Company had outstanding
4,942
warrants to purchase shares of its common stock. The outstanding warrants carry an exercise price of
$13.24
and expire March 17, 2019.
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded, most recently on
March 30, 2018
. Under the modified common stock repurchase program, the Company may purchase up to
$500 million
of its common stock through the period ending
December 31, 2019
. During the fiscal year ended
March 31, 2018
, the Company repurchased
3.3 million
shares of its common stock for
$88.9 million
. During the fiscal year ended
March 31, 2017
, the Company repurchased
1.3 million
shares of its common stock for
$30.5 million
. During the fiscal year ended
March 31, 2016
, the Company repurchased
2.6 million
shares of its common stock for
$52.8 million
. Through
March 31, 2018
, the Company has repurchased
20.1 million
shares of its stock for
$374.6 million
, leaving remaining capacity of
$125.4 million
under the stock repurchase program.
The Company paid no dividends on its common stock for any of the years reported.
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. At
March 31, 2018
, there were a total of
6.6 million
shares available for future grants under the plans.
Stock Option Activity of Continuing Operations
In fiscal
2017
, as part of the Company’s acquisition of Arbor (see Note 3 - Acquisitions), the Company issued
285,339
replacement stock options having a per share weighted-average fair value and exercise price of
$25.85
and
$1.27
, respectively, to Arbor employees who had outstanding unvested stock options to purchase Arbor stock. The fair value of the replacement options was determined using a customized
binomial lattice
model with the following assumptions: dividend yield of
0.0%
since Acxiom is currently not paying dividends and there are no plans to pay dividends; risk-free interest rates from
2.24%
to
2.32%
, based on the rate of U.S. Treasury securities with a term equal to the remaining term of each option; remaining terms of each option from
8.6
to
9.9
years; expected volatility of
38%
, based on both the historical volatility of Acxiom stock, as well as the implied volatility of traded Acxiom options; and a suboptimal exercise multiple of
1.4
, based on actual historical exercise activity of Acxiom options.
The number of shares and exercise price of each replacement option were determined by converting Arbor options into equivalent Acxiom options by multiplying the number of shares subject to Arbor options by the exchange ratio of
.41998
and by dividing the exercise price for each Arbor option by the exchange ratio of
.41998
. Once the value of each replacement option was determined, the total fair value of
$7.4 million
, net of any forfeitures, will be expensed by the Company over the remaining vesting period of each option.
Also in fiscal
2017
, as part of the Company’s acquisition of Circulate, the Company issued
73,164
replacement stock options having a per share weighted-average fair value and exercise price of
$24.80
and
$2.30
, respectively, to Circulate employees who had outstanding unvested stock options to purchase Circulate stock. The total fair value of
$1.8 million
, net of any forfeitures, will be expensed by the Company over the remaining vesting period of each option.
In fiscal 2016, the Company granted
445,785
stock options, having a per-share weighted-average fair value of
$6.48
. This valuation was determined using a customized
binomial lattice
approach with the following weighted-average assumptions: dividend yield of
0.0%
since Acxiom is currently not paying dividends and there are no plans to pay dividends; risk-free interest rate of
2.2%
, based on the rate of U.S. Treasury securities with a term equal to the life of the options; expected option life of
4.5
years, an output of the lattice model; expected volatility of
40%
, based on both the historical volatility of Acxiom stock, as well as the implied volatility of traded Acxiom options; and a suboptimal exercise multiple of
1.4
, determined using actual historical exercise activity of Acxiom options.
Stock option activity during the year ended
March 31, 2018
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
|
(661,931
|
)
|
|
$
|
13.89
|
|
|
|
|
$
|
8,568
|
|
Forfeited or cancelled
|
(105,494
|
)
|
|
$
|
20.25
|
|
|
|
|
|
|
Outstanding at March 31, 2018
|
2,565,287
|
|
|
$
|
13.61
|
|
|
5.5
|
|
$
|
23,538
|
|
Exercisable at March 31, 2018
|
1,995,309
|
|
|
$
|
13.60
|
|
|
5.0
|
|
$
|
18,382
|
|
The aggregate intrinsic value for options exercised in fiscal
2018
,
2017
, and
2016
was
$8.6 million
,
$9.8 million
, and
$10.7 million
, respectively. The aggregate intrinsic value at period end represents 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
March 31, 2018
. This amount changes based upon changes in the fair market value of Acxiom’s stock.
A summary of stock options outstanding and exercisable as of
March 31, 2018
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
|
|
|
619,749
|
|
|
6.1 years
|
|
$
|
1.68
|
|
|
434,021
|
|
|
$
|
1.79
|
|
$
|
10.00
|
|
—
|
$
|
19.99
|
|
|
1,229,616
|
|
|
4.7 years
|
|
$
|
14.96
|
|
|
1,043,930
|
|
|
$
|
14.47
|
|
$
|
20.00
|
|
—
|
$
|
24.99
|
|
|
696,370
|
|
|
6.6 years
|
|
$
|
21.31
|
|
|
497,806
|
|
|
$
|
21.32
|
|
$
|
25.00
|
|
—
|
$
|
32.85
|
|
|
19,552
|
|
|
5.6 years
|
|
$
|
32.85
|
|
|
19,552
|
|
|
$
|
32.85
|
|
|
|
|
|
2,565,287
|
|
|
5.5 years
|
|
$
|
13.61
|
|
|
1,995,309
|
|
|
$
|
13.60
|
|
Total expense related to stock options was approximately
$5.0 million
in fiscal
2018
,
$6.9 million
in fiscal
2017
, and
$9.8 million
in fiscal
2016
. Of the fiscal
2018
,
2017
and
2016
expense,
$1.1 million
,
$4.3 million
and
$6.7 million
, respectively, relates to LiveRamp replacement stock options. Of the fiscal
2018
expense,
$2.7 million
relates to Arbor and Circulate replacement stock options. Future expense for all options is expected to be approximately
$6.2 million
in total over the next
three
years.
Performance Stock Option Unit Activity
In fiscal 2017, the Company granted
633,604
performance-based stock option units with a fair value at the date of grant of
$4.9 million
, determined using a Monte Carlo simulation model. All the units granted in fiscal 2017 vest and become exercisable in three equal tranches, each being subject to attainment of performance criteria and a subsequent service period established by the compensation committee of the board of directors (“compensation committee”). Each of the three tranches may vest in a number of stock options, from
zero
to
300%
of the initial award, each having a weighted-average exercise price of
$21.40
, based on the attainment of certain revenue growth and operating margin targets for the years ending March 31, 2017, 2018, and 2019 respectively. Each tranche is subject to a service period following the respective performance periods, such that each tranche will cliff vest in
two
separate
50%
increments over
two
years beginning with the compensation committee meeting that immediately follows the end of the respective performance period.
Performance stock option unit activity during the year ended
March 31, 2018
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
|
|
|
2.1
|
|
|
|
Performance units converted to options
|
(183,322
|
)
|
|
$
|
21.41
|
|
|
|
|
|
Forfeited or cancelled
|
(42,397
|
)
|
|
$
|
21.32
|
|
|
|
|
|
Outstanding at March 31, 2018
|
329,404
|
|
|
$
|
21.42
|
|
|
1.6
|
|
|
$
|
446
|
|
Exercisable at March 31, 2018
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Of the performance stock option units outstanding at
March 31, 2018
,
164,702
reached maturity of the relevant performance period at
March 31, 2018
. The units are expected to vest at an approximate
0%
attainment level during the subsequent service period, resulting in cancellation of the units.
Total expense related to performance stock option units was
$0.5 million
in fiscal
2018
and
$1.3 million
in fiscal
2017
. Future expense for these performance stock option units is expected to be approximately
$1.5 million
over the next
three
years.
Stock Appreciation Right (“SAR”) Activity
During fiscal 2015, the Company granted
245,404
performance-based SARs with a fair value at the date of grant of
$0.5 million
and having an exercise price of
$40
. All of the performance-based SARs granted in fiscal 2015 vest subject to attainment of performance criteria established by the compensation committee. The SAR units 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 fiscal 2018.
SAR activity during the year ended
March 31, 2018
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 cancelled
|
(245,404
|
)
|
|
$
|
40.00
|
|
|
|
|
|
Outstanding at March 31, 2018
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Exercisable at March 31, 2018
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
Total expense related to SARs in fiscal
2017
and
2016
was approximately
$0.2 million
in each period.
Restricted Stock Unit Activity
Non-vested time-vesting restricted stock units activity during the year ended
March 31, 2018
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
Weighted-average
|
|
|
|
fair value per
|
|
remaining
|
|
Number
|
|
share at grant
|
|
contractual
|
|
of shares
|
|
date
|
|
term (in years)
|
Outstanding at March 31, 2017
|
3,307,577
|
|
|
$
|
22.57
|
|
|
2.45
|
Granted
|
1,794,915
|
|
|
$
|
26.22
|
|
|
|
Vested
|
(1,236,644
|
)
|
|
$
|
22.58
|
|
|
|
Forfeited or cancelled
|
(416,847
|
)
|
|
$
|
23.54
|
|
|
|
Outstanding at March 31, 2018
|
3,449,001
|
|
|
$
|
24.35
|
|
|
2.32
|
During fiscal
2018
, the Company granted time-vesting restricted stock units covering
1,794,915
shares of common stock with a fair value at the date of grant of
$47.1 million
. Of the restricted stock units granted in the current period,
1,463,285
vest over
four
years,
106,571
vest over
three
years,
174,368
vest over
two
years, and
50,691
vest over
one
year.
During fiscal
2017
, the Company granted time-vesting restricted stock units covering
2,309,183
shares of common stock with a fair value at the date of grant of
$55.4 million
, of which units covering
768,710
shares, with a fair value at grant date of
$20.0 million
, were granted to former Arbor and Circulate employees subsequent to the acquisitions (see Note 3 - Acquisitions). Of the restricted stock units granted in the current period,
1,454,340
vest in equal annual increments over
four
years,
398,079
partially cliff vest at the one-year anniversary and then over equal quarterly increments during the subsequent two years,
408,534
partially cliff vest at the one-year anniversary and then over equal quarterly increments during the subsequent year, and
48,230
vest in
one
year.
During fiscal
2016
, the Company granted time-vesting restricted stock units covering
1,427,561
shares of common stock with a fair value at the date of grant of
$27.0 million
. Of the restricted stock units granted in the current period,
1,041,572
vest in equal annual increments over
four
years,
70,799
vest in equal annual increments over
two
years,
72,650
vest in
one
year, and
242,540
vest in equal quarterly increments starting
15 months
after the date of grant.
Valuation of time-vesting restricted stock units for all periods presented is equal to the quoted market price for the shares on the date of grant. The total fair value of time-vesting restricted stock units vested in fiscal
2018
,
2017
, and
2016
was
$52.1 million
,
$23.1 million
, and
$17.6 million
, respectively and is measured as the quoted market price of the Company’s common stock on the vesting date for the number of shares vested.
Non-vested performance-based restricted stock units activity during the year ended
March 31, 2018
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
|
|
Weighted-average
|
|
|
|
fair value per
|
|
remaining
|
|
Number
|
|
share at
|
|
contractual
|
|
of shares
|
|
grant date
|
|
term (in years)
|
Outstanding at March 31, 2017
|
732,711
|
|
|
$
|
20.89
|
|
|
1.13
|
Granted
|
425,880
|
|
|
$
|
26.24
|
|
|
|
Additional earned performance shares
|
359,206
|
|
|
$
|
18.96
|
|
|
|
Vested
|
(781,622
|
)
|
|
$
|
19.00
|
|
|
|
Forfeited or cancelled
|
(53,412
|
)
|
|
$
|
22.64
|
|
|
|
Outstanding at March 31, 2018
|
682,763
|
|
|
$
|
25.23
|
|
|
1.54
|
During fiscal 2018, 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 fiscal 2018,
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. The first tranche reaching maturity at March 31, 2018 achieved an approximate
53%
attainment. As a result, approximately
18,868
shares will vest and approximately
16,551
shares will be cancelled during the first quarter of fiscal 2019.
During fiscal
2017
, the Company granted performance-based restricted stock units covering
263,835
shares of common stock with a fair value at the date of grant of
$6.6 million
, determined using a Monte Carlo simulation model. Of the performance-based restricted stock units granted in fiscal 2017,
9,416
units represent award modifications that included
14,349
corresponding cancelled units. The remaining
254,419
performance-based restricted stock units, having a fair value at the date of grant of
$6.3 million
, vest subject to attainment of performance criteria established by the compensation committee. Those 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 of the board of directors for the period from April 1, 2016 to March 31, 2019.
During fiscal
2016
, the Company granted performance-based restricted stock units covering
367,807
shares of common stock with a fair value at the date of grant of
$6.8 million
. All the performance-based restricted stock units granted in fiscal
2017
vest subject to attainment of performance criteria established by the compensation committee. The units granted in the current period may vest in a number of shares from
zero
to
200%
of the award, based on the attainment of an earnings-per-share target for fiscal 2018, with a modifier based on the total shareholder return of Acxiom common stock compared to total shareholder return of a group of peer companies established by the compensation committee for the period from April 1, 2015 to March 31, 2018. The value of the performance-based restricted stock units is determined using a Monte Carlo simulation model.
During fiscal 2018,
781,622
performance-based restricted stock units vested. Of the fiscal 2018 performance-based restricted stock units vested,
252,760
related to a performance period ended March 31, 2017. During fiscal 2018,
157,985
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
are included in additional earned performance shares referenced in the table above. Of the fiscal 2018 performance-based restricted stock units vested,
528,862
related to a performance period ended March 31, 2018.
264,431
units vested at
200%
attainment level based on performance results approved by the compensation committee, resulting in issuance of
528,862
shares of common stock, of which
264,431
are included in the additional earned performance shares referenced in the table above. There were
no
performance-based restricted stock units vested in fiscal 2017 and 2016.
The expense related to restricted stock in fiscal
2018
,
2017
, and
2016
was
$39.1 million
,
$33.3 million
, and
$19.4 million
, respectively. Future expense for restricted stock units is expected to be approximately
$35.0 million
in fiscal
2019
,
$25.2 million
in fiscal
2020
,
$13.1 million
in fiscal
2021
and
$2.5 million
in fiscal
2022
.
Other Performance Unit Activity
During fiscal 2016, the Company granted
323,080
performance-based units, having a fair value at the date of grant of
$0.9 million
. These performance-based units vest subject to attainment of performance criteria established by the compensation committee. The units may vest in a number of units up to
100%
of the award, based on the attainment of certain Company common stock share price targets for the period from July 1, 2015 to June 30, 2017. At March 31, 2017,
284,618
of these performance-based units remained outstanding. The units 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 and cancellation of
260,045
units during fiscal 2018.
During fiscal 2015, the Company granted
312,575
performance-based units with a fair value at the date of grant of
$1.6 million
. All the other performance-based units granted in fiscal 2015 vest subject to attainment of performance criteria established by the compensation committee.
Of the units granted in fiscal 2015,
201,464
may vest in a number of units up to
100%
of the award, based on the attainment of certain revenue targets for the period from April 1, 2014 to March 31, 2017. These performance-based stock units reached maturity of the relevant performance period on March 31, 2017. The units achieved
100%
performance attainment level. However, application of the share price adjustment factor resulted in zero shares granted and cancellation of all the units during fiscal 2018.
The remaining
111,111
units granted in fiscal 2015 may vest in a number of units up to
100%
of the award, based on the attainment of certain revenue targets for the period from April 1, 2015 to March 31, 2018. These performance-based stock units reached maturity of the relevant performance period on March 31, 2018. The units achieved
100%
performance attainment level. However, application of the share price factor resulted in an approximate
59%
reduction in shares granted, in the first quarter of fiscal 2019.
Other performance unit activity during the year ended
March 31, 2018
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
Weighted-average
|
|
|
|
fair value per
|
|
remaining
|
|
Number
|
|
share at
|
|
contractual
|
|
of shares
|
|
grant date
|
|
term (in years)
|
Outstanding at March 31, 2017
|
597,193
|
|
|
$
|
4.14
|
|
|
1.30
|
|
Vested
|
(24,573
|
)
|
|
$
|
2.94
|
|
|
|
Forfeited or cancelled
|
(461,509
|
)
|
|
$
|
3.92
|
|
|
|
Outstanding at March 31, 2018
|
111,111
|
|
|
$
|
5.33
|
|
|
—
|
|
The expense related to other performance units in fiscal
2018
,
2017
and
2016
was
$0.3 million
,
$1.0 million
, and
$0.9
, respectively. There is no future expense related to the units outstanding at 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 will vest 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 will vest and be settled in shares of Company common stock. The number of shares will be based on the then current market price of the Company common stock.
Total expense related to the Holdback Agreement was approximately
$15.3 million
and
$5.1 million
in fiscal 2018 and 2017, respectively. As a result,
578,071
and
184,214
shares were issued to the Arbor key employees in fiscal 2018 and fiscal 2017, respectively. Future expense for consideration holdback is expected to be approximately
$15.3 million
in fiscal
2019
and
$2.6 million
in fiscal
2020
.
Pacific Data Partners Assumed Performance Plan
In connection with the PDP acquisition in fiscal 2018, the Company assumed the outstanding performance compensation plan under the 2018 Equity Compensation Plan of Pacific Data Partners, LLC ("PDP PSU plan"). Under the PDP PSU plan, performance compensation will be paid to plan participants in
four
annual increments based on attainment of certain Connectivity B2B run rate revenue targets for the performance period covering April 1, 2018 to March 31, 2022. Each annual payout will be determined at the close of each fiscal year within the performance period, on a cumulative basis. The amount of each annual payout will be settled in shares of Company common stock. The number of shares of Company common stock issued to participants will be equal to
90%
of the annual payout divided by the volume weighted average stock price for the
20
trading days prior to, and ending on, the end of each annual performance period, plus,
10%
of the annual payout divided by the volume weighted average stock price for the
20
trading days prior to, and ending on, the date of the closing of the acquisition. Total performance attainment may result in combined payouts ranging from
zero
to
$65.0 million
.
The performance compensation paid under the PDP PSU plan will be recorded as non-cash stock-based compensation since it is attributable to post-combination service. The non-cash stock-based compensation expense will be recognized over the requisite service and performance period based on expected attainment.
90%
of the performance compensation will be settleable in a number of shares calculated using a variable 20-day stock price factor, determined in future periods, and will be classified as a liability-based equity award. As of each reporting date,
90%
of any recognized, but unpaid portions of the performance compensation plan will be recorded in other accrued expenses in the Consolidated Balance Sheet. The remaining
10%
of the performance compensation will be classified as an equity-based equity award.
Through
March 31, 2018
, the Company recognized a total of
$2.0 million
in non-cash stock-based compensation expense in the consolidated statements of operations related to the PDP PSU plan. Future expense for the PDP PSU plan is expected to be approximately
$15.8 million
in fiscal
2019
,
$15.7 million
in fiscal
2020
,
$15.8 million
in fiscal
2021
, and
$15.7 million
in fiscal
2022
, based on expectations of full attainment. At
March 31, 2018
, the recognized, but unpaid, portion balance in other accrued expenses in the Consolidated Balance Sheet was
$1.2 million
.
Qualified Employee Stock Purchase Plan
In addition to the share-based plans, the Company maintains a qualified employee stock purchase plan (“ESPP”) that permits substantially all employees to purchase shares of common stock at a discount from the market price. At
March 31, 2018
, there were approximately
0.6 million
shares available for issuance under the ESPP.
During the combined fiscal years of
2018
,
2017
, and
2016
,
275,980
shares were purchased under the plan. The total expense to the Company, representing the discount to the market price, for fiscal
2018
,
2017
and
2016
was approximately
$0.4 million
,
$0.4 million
, and
$0.2 million
, respectively.
Accumulated Other Comprehensive Income
The accumulated balances for each component of other comprehensive income was (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
March 31,
|
|
2018
|
|
2017
|
Foreign currency translation
|
$
|
10,767
|
|
|
$
|
7,999
|
|
|
$
|
10,767
|
|
|
$
|
7,999
|
|
13. INCOME TAXES:
Total income tax expense (benefit) was allocated as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Earnings (loss) from continuing operations
|
$
|
(22,771
|
)
|
|
$
|
4,534
|
|
|
$
|
(11,632
|
)
|
Earnings from discontinued operations
|
—
|
|
|
—
|
|
|
3,598
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Tax shortfall (excess tax benefits) from share-based compensation
|
—
|
|
|
(2,183
|
)
|
|
293
|
|
|
$
|
(22,771
|
)
|
|
$
|
2,351
|
|
|
$
|
(7,741
|
)
|
Income tax expense (benefit) attributable to earnings (loss) from continuing operations consists of (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Current:
|
|
|
|
|
|
U.S. Federal
|
$
|
(6,334
|
)
|
|
$
|
9,778
|
|
|
$
|
(2,410
|
)
|
Non-U.S.
|
616
|
|
|
472
|
|
|
535
|
|
State
|
(79
|
)
|
|
3,102
|
|
|
1,907
|
|
|
(5,797
|
)
|
|
13,352
|
|
|
32
|
|
Deferred:
|
|
|
|
|
|
|
|
|
U.S. Federal
|
(19,113
|
)
|
|
(3,680
|
)
|
|
(3,789
|
)
|
Non-U.S.
|
549
|
|
|
405
|
|
|
(3,220
|
)
|
State
|
1,590
|
|
|
(5,543
|
)
|
|
(4,655
|
)
|
|
(16,974
|
)
|
|
(8,818
|
)
|
|
(11,664
|
)
|
Total
|
$
|
(22,771
|
)
|
|
$
|
4,534
|
|
|
$
|
(11,632
|
)
|
Earnings (loss) before income tax attributable to U.S. and non-U.S. continuing operations consists of (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
U.S.
|
$
|
(2,552
|
)
|
|
$
|
7,936
|
|
|
$
|
(6,952
|
)
|
Non-U.S.
|
3,261
|
|
|
706
|
|
|
(13,328
|
)
|
Total
|
$
|
709
|
|
|
$
|
8,642
|
|
|
$
|
(20,280
|
)
|
Earnings (loss) before income taxes, as shown above, are based on the location of the entity to which such earnings (loss) are attributable. However, since such earnings (loss) may be subject to taxation in more than one country, the income tax provision shown above as U.S. or non-U.S. may not correspond to the earnings (loss) shown above.
Below is a reconciliation of expected income tax expense (benefit) computed by applying the blended U.S. federal statutory rate of
31.5%
for fiscal 2018, and the U.S. federal statutory rate of 35.0% for fiscal 2017 and fiscal 2016, respectively, to earnings (loss) before income taxes to actual income tax expense (benefit) from continuing operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Computed expected income tax (benefit)
|
$
|
223
|
|
|
$
|
3,025
|
|
|
$
|
(7,098
|
)
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
1,203
|
|
|
(1,586
|
)
|
|
(1,796
|
)
|
Research and other tax credits
|
(5,015
|
)
|
|
(2,285
|
)
|
|
(4,027
|
)
|
Effect of federal rate change on deferred taxes
|
(24,565
|
)
|
|
—
|
|
|
—
|
|
Nondeductible expenses
|
1,028
|
|
|
1,156
|
|
|
661
|
|
Acxiom Impact disposition
|
—
|
|
|
(4,502
|
)
|
|
—
|
|
Stock-based compensation
|
3,590
|
|
|
3,308
|
|
|
1,857
|
|
Non-U.S. subsidiaries taxed at other rates
|
246
|
|
|
614
|
|
|
2,468
|
|
Adjustment to valuation allowances
|
—
|
|
|
2,896
|
|
|
(3,585
|
)
|
Acquisitions costs
|
—
|
|
|
478
|
|
|
—
|
|
Foreign income inclusion
|
84
|
|
|
473
|
|
|
—
|
|
Other, net
|
435
|
|
|
957
|
|
|
(112
|
)
|
|
$
|
(22,771
|
)
|
|
$
|
4,534
|
|
|
$
|
(11,632
|
)
|
On December 22, 2017, the U.S. enacted significant tax law changes following the passage of H.R.1, “An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018” (the “Tax Act”) (previously known as “The Tax Cuts and Jobs Act”). The Tax Act 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% became effective January 1, 2018 (the “Effective Date”). Because the Effective Date did not fall on the first day of our fiscal year, we are required to apply a blended tax rate for the entire fiscal year based on a weighted daily average rate. As a result of the Tax Act, our U.S. federal statutory corporate income tax rate is
31.5%
for the fiscal year ended March 31, 2018.
The Company recorded a
$24.6 million
benefit for the remeasurement of net deferred tax liabilities to reflect the reduced tax rate that will apply when these deferred taxes are settled or realized in future periods. While the Company was able to make a reasonable estimate of the impact of the reduction to the corporate tax rate, its rate may be affected by other analyses related to the Tax Act, including, but not limited to, the state tax effect of adjustments made to federal temporary differences. In addition, due to the complexity of the new global intangible low-taxed income ("GILTI") tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under GAAP, the Company is allowed to make an accounting policy choice to either (i) treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred, or (ii) factor
in such amounts into the measurement of deferred taxes. The Company has not made a policy decision regarding whether to record deferred taxes on GILTI. We will continue to analyze the full effects of the Tax Act on our consolidated financial statements and expect to complete our analysis by our quarter ending December 31, 2018.
In fiscal 2017, the Company incurred a tax loss on the Acxiom Impact disposition, resulting in a capital loss carryforward. Based on management’s assessment of realizability, a valuation allowance was established against the related deferred tax asset. The state income tax benefit resulting from the Acxiom Impact disposition, net of related valuation allowances, is reflected above in State income taxes, net of federal benefit.
Due to changes in management’s assessment of the realizability of deferred tax assets in certain foreign jurisdictions, the Company released
$3.6 million
in valuation allowances in fiscal 2016.
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at
March 31, 2018
and
2017
are presented below (dollars in thousands). In accordance with income tax accounting standards, as of
March 31, 2018
, the Company has not recognized deferred income taxes on approximately
$20.7 million
of undistributed earnings of foreign subsidiaries that are indefinitely reinvested outside the respective parent’s country. Calculation of the deferred income tax related to these earnings is not practicable.
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
Accrued expenses
|
$
|
6,681
|
|
|
$
|
9,517
|
|
Deferred revenue
|
491
|
|
|
1,837
|
|
Net operating loss carryforwards
|
51,068
|
|
|
50,414
|
|
Stock-based compensation
|
10,884
|
|
|
19,854
|
|
Nonqualified deferred compensation
|
3,217
|
|
|
4,672
|
|
Capital loss carryforward
|
2,099
|
|
|
3,414
|
|
Tax credit carryforwards
|
13,427
|
|
|
10,403
|
|
Other
|
234
|
|
|
(791
|
)
|
Total deferred tax assets
|
88,101
|
|
|
99,320
|
|
Less valuation allowance
|
(49,719
|
)
|
|
(47,074
|
)
|
Net deferred tax assets
|
38,382
|
|
|
52,246
|
|
Deferred tax liabilities:
|
|
|
|
|
|
Prepaid expenses
|
$
|
(4,111
|
)
|
|
$
|
(1,192
|
)
|
Capitalized software costs
|
(7,343
|
)
|
|
(11,582
|
)
|
Property and equipment
|
(4,837
|
)
|
|
(9,800
|
)
|
Intangible assets
|
(42,281
|
)
|
|
(77,785
|
)
|
Accrued expenses
|
(7,828
|
)
|
|
—
|
|
Total deferred tax liabilities
|
(66,400
|
)
|
|
(100,359
|
)
|
Net deferred tax liabilities
|
$
|
(28,018
|
)
|
|
$
|
(48,113
|
)
|
At March 31, 2018, the Company has net operating loss carryforwards of approximately
$21.5 million
and
$55.4 million
for U.S. federal and state income tax purposes, respectively. Of the net operating loss carryforwards,
$4.8 million
will not expire, and the remaining carryforwards expire in various amounts and will completely expire if not used by 2037. The Company has a capital loss carryforward of
$8.3 million
, which will expire if not used by 2022. The Company has foreign net operating loss carryforwards of approximately
$142.2 million
. Of this amount,
$141.6 million
do not have expiration dates. The remainder expires in various amounts and will completely expire if not used by 2027. The Company has federal and state credit carryforwards of
$7.5 million
and
$22.7 million
, respectively. Of the credit carryforwards,
$8.5 million
will not expire, and the remainder will expire in various amounts and will completely expire if not used by 2038.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income of the proper character during the periods in which those temporary differences become deductible.
Based upon the Company’s history of profitability and taxable income and the reversal of taxable temporary differences in the U.S., management believes that apart from the U.S. federal capital loss carryforward and various carryforwards in certain states it is more likely than not the Company will realize the benefits of the deductible temporary differences. The Company has established valuation allowances against
$0.9 million
of deferred tax assets related to the U.S. federal capital loss carryforward and
$4.0 million
of deferred tax assets related to loss carryforwards in the states where activity does not support the deferred tax asset.
Based upon the Company’s history of losses in certain non-U.S. jurisdictions, the Company has not recorded a benefit for current foreign losses in these jurisdictions. In addition, Management believes it is not more likely than not the Company will realize the benefits of certain foreign loss carryforwards and has established valuation allowances in the amount of
$44.8 million
against deferred tax assets in such jurisdictions.
No
valuation allowance has been established against deferred tax assets in non-U.S. jurisdictions in which historical profits and forecasted continuing profits exist. The earnings of subsidiaries in such jurisdictions and the differences in income taxes computed using the U.S. statutory tax rate and the effective tax rate in such jurisdictions are not significant.
The following table sets forth changes in the total gross unrecognized tax benefits for the fiscal years ended
March 31, 2018
,
2017
and
2016
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Balance at beginning of period
|
$
|
12,870
|
|
|
$
|
10,906
|
|
|
$
|
9,711
|
|
Increases related to prior year tax positions
|
1,134
|
|
|
307
|
|
|
1,717
|
|
Decreases related to prior year tax positions
|
(208
|
)
|
|
(466
|
)
|
|
(1,227
|
)
|
Increases related to current year tax positions
|
3,172
|
|
|
2,123
|
|
|
2,035
|
|
Settlements with taxing authorities
|
—
|
|
|
—
|
|
|
(1,330
|
)
|
Lapse of statute of limitations
|
(1,553
|
)
|
|
—
|
|
|
—
|
|
Balance at end of period
|
$
|
15,415
|
|
|
$
|
12,870
|
|
|
$
|
10,906
|
|
Gross unrecognized tax benefits as of March 31, 2018 was
$15.4 million
, of which up to
$12.5 million
would reduce the Company’s effective tax rate in future periods if and when realized. The Company reports accrued interest and penalties related to unrecognized tax benefits in income tax expense. The combined amount of accrued interest and penalties related to tax positions on tax returns was approximately
$0.5 million
as of March 31, 2018. There was no material change in accrued interest and penalties during fiscal 2018. The Company anticipates a reduction of
$2.3 million
of unrecognized tax benefits within the next 12 months, as a result of a lapse of the statute of limitations.
The Company files a consolidated U.S. federal income tax return and tax returns in various state and local jurisdictions. The Company’s subsidiaries also file tax returns in various foreign jurisdictions in which they operate. In the U.S., the statute of limitations for Internal Revenue Service examinations remains open for the Company’s federal income tax returns for fiscal years after 2014. The status of state and local and foreign tax examinations varies by jurisdiction. The Company does not anticipate any material adjustments to its financial statements resulting from tax examinations currently in progress.
14. RETIREMENT PLANS:
The Company has a qualified 401(k) retirement savings plan which covers substantially all U.S. employees. The Company also offers a supplemental nonqualified deferred compensation plan (“SNQDC Plan”) for certain highly-compensated employees. The Company matches
50%
of the first
6%
of employee’s annual aggregate contributions. The Company may also contribute additional amounts to the plans at the discretion of the board of directors.
Company contributions for the above plans amounted to approximately
$7.1 million
,
$6.5 million
, and
$6.1 million
in fiscal years
2018
,
2017
, and
2016
, respectively. Included in both other current assets and other accrued liabilities are the assets and liabilities of the SNQDC Plan in the amount of
$13.6 million
and
$12.7 million
at
March 31, 2018
and
2017
, respectively.
The Company has
one
small defined benefit pension plan covering certain employees in Germany. Both the projected benefit obligation and accumulated benefit obligation were
$0.4 million
as of
March 31, 2018
and
2017
, respectively. There were
no
plan assets as of either
March 31, 2018
or
March 31, 2017
, resulting in an excess of benefit obligations over plan assets of
$0.4 million
at
March 31, 2018
and
2017
, respectively.
15. FOREIGN OPERATIONS:
The Company attributes revenue to each geographic region based on the location of the Company’s operations. The following table shows financial information by geographic area for the years
2018
,
2017
and
2016
(dollars in thousands):
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
United States
|
$
|
834,635
|
|
|
$
|
807,387
|
|
|
$
|
770,043
|
|
Foreign
|
|
|
|
|
|
|
|
|
Europe
|
$
|
66,589
|
|
|
$
|
55,427
|
|
|
$
|
52,562
|
|
APAC
|
16,182
|
|
|
17,433
|
|
|
25,138
|
|
Other
|
—
|
|
|
—
|
|
|
2,345
|
|
All Foreign
|
$
|
82,771
|
|
|
$
|
72,860
|
|
|
$
|
80,045
|
|
|
$
|
917,406
|
|
|
$
|
880,247
|
|
|
$
|
850,088
|
|
Long-lived assets excluding financial instruments (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
2018
|
|
2017
|
United States
|
$
|
824,673
|
|
|
$
|
843,127
|
|
Foreign
|
|
|
|
|
|
Europe
|
$
|
8,990
|
|
|
$
|
9,096
|
|
APAC
|
15,245
|
|
|
13,796
|
|
All Foreign
|
$
|
24,235
|
|
|
$
|
22,892
|
|
|
$
|
848,908
|
|
|
$
|
866,019
|
|
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value.
Cash and cash equivalents, trade receivables, unbilled and notes receivable, short-term borrowings and trade payables - The carrying amount approximates fair value because of the short maturity of these instruments.
Long-term debt - The interest rate on the revolving credit agreement is adjusted for changes in market rates and therefore the carrying value approximates fair value. The estimated fair value of other long-term debt was determined based upon the present value of the expected cash flows considering expected maturities and using interest rates currently available to the Company for long-term borrowings with similar terms. At
March 31, 2018
, 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
March 31, 2018
and
2017
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2018
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Other current assets
|
$
|
13,551
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,551
|
|
Total assets
|
$
|
13,551
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,551
|
|
|
|
|
|
|
|
|
|
As of March 31, 2017
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Assets:
|
|
|
|
|
|
|
|
Other current assets
|
$
|
12,716
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,716
|
|
Total assets
|
$
|
12,716
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,716
|
|
17. SEGMENT INFORMATION:
The Company reports segment information consistent with the way management internally disaggregates its operations to assess performance and to allocate resources.
Revenues and cost of revenue are generally directly attributed to the segments. Certain revenue contracts are allocated among the segments based on the relative value of the underlying products and services. Cost of revenue, excluding non-cash stock compensation expense and purchased intangible asset amortization, is directly charged in most cases and allocated in certain cases based upon proportional usage.
Operating expenses, excluding non-cash stock compensation expense and purchased intangible asset amortization, are attributed to the segment groups as follows:
|
|
•
|
Research and development expenses are primarily directly recorded to each segment group based on identified products supported.
|
|
|
•
|
Sales and marketing expenses are primarily directly recorded to each segment group based on products supported and sold.
|
|
|
•
|
General and administrative expenses are generally not allocated to the segments unless directly attributable.
|
|
|
•
|
Gains, losses and other items, net are not allocated to the segment groups.
|
We do not track our assets by operating segments. Consequently, it is not practical to show assets by operating segment.
The following table presents information by business segment (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Revenues:
|
|
|
|
|
|
Marketing Services
|
$
|
379,047
|
|
|
$
|
410,840
|
|
|
$
|
449,772
|
|
Audience Solutions
|
327,358
|
|
|
322,065
|
|
|
297,846
|
|
Connectivity
|
211,001
|
|
|
147,342
|
|
|
102,470
|
|
Total segment revenues
|
$
|
917,406
|
|
|
$
|
880,247
|
|
|
$
|
850,088
|
|
Gross profit
(1)
:
|
|
|
|
|
|
|
|
|
Marketing Services
|
$
|
139,185
|
|
|
$
|
140,647
|
|
|
$
|
152,258
|
|
Audience Solutions
|
202,235
|
|
|
198,186
|
|
|
167,715
|
|
Connectivity
|
140,885
|
|
|
88,251
|
|
|
61,199
|
|
Total segment gross profit
|
$
|
482,305
|
|
|
$
|
427,084
|
|
|
$
|
381,172
|
|
Income from operations
(1)
:
|
|
|
|
|
|
|
|
|
Marketing Services
|
$
|
83,304
|
|
|
$
|
80,622
|
|
|
$
|
74,371
|
|
Audience Solutions
|
124,192
|
|
|
123,238
|
|
|
109,598
|
|
Connectivity
|
18,399
|
|
|
5,333
|
|
|
(3,298
|
)
|
Total segment income from operations
|
$
|
225,895
|
|
|
$
|
209,193
|
|
|
$
|
180,671
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
Marketing Services
|
$
|
6,885
|
|
|
$
|
7,549
|
|
|
$
|
9,988
|
|
Audience Solutions
|
12,553
|
|
|
13,286
|
|
|
12,909
|
|
Connectivity
|
28,772
|
|
|
21,906
|
|
|
19,932
|
|
Total depreciation and amortization
|
$
|
48,210
|
|
|
$
|
42,741
|
|
|
$
|
42,829
|
|
|
|
(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, 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 segment income from operations to income from operations (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
Total segment gross profit
|
$
|
482,305
|
|
|
$
|
427,084
|
|
|
$
|
381,172
|
|
Less:
|
|
|
|
|
|
Purchased intangible asset amortization
|
23,920
|
|
|
18,644
|
|
|
15,466
|
|
Non-cash stock compensation
|
6,416
|
|
|
5,879
|
|
|
2,150
|
|
Accelerated amortization
|
999
|
|
|
—
|
|
|
1,850
|
|
Gross profit
|
$
|
450,970
|
|
|
$
|
402,561
|
|
|
$
|
361,706
|
|
|
|
|
|
|
|
Total segment income from operations
|
$
|
225,895
|
|
|
$
|
209,193
|
|
|
$
|
180,671
|
|
Less:
|
|
|
|
|
|
Corporate expenses (principally general and administrative)
|
120,770
|
|
|
117,342
|
|
|
125,994
|
|
Gains, losses and other items, net
|
6,373
|
|
|
8,373
|
|
|
12,132
|
|
Impairment of goodwill and other
|
—
|
|
|
—
|
|
|
6,829
|
|
Purchased intangible asset amortization
|
23,920
|
|
|
18,644
|
|
|
15,466
|
|
Non-cash stock compensation
|
63,234
|
|
|
49,145
|
|
|
31,463
|
|
Accelerated amortization
|
999
|
|
|
—
|
|
|
1,850
|
|
Income (loss) from operations
|
$
|
10,599
|
|
|
$
|
15,689
|
|
|
$
|
(13,063
|
)
|
18. UNAUDITED SELECTED QUARTERLY FINANCIAL DATA:
The following tables contain selected unaudited statement of operations information for each quarter of 2018 and 2017. The following information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. Unaudited quarterly results are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
Quarter ended
|
|
Quarter ended
|
|
Quarter ended
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
March 31,
|
(dollars in thousands except per-share amounts)
|
2017
|
|
2017
|
|
2017
|
|
2018
|
Revenue
|
$
|
212,514
|
|
|
$
|
225,240
|
|
|
$
|
234,871
|
|
|
$
|
244,781
|
|
Gross profit
|
98,554
|
|
|
110,168
|
|
|
118,951
|
|
|
123,297
|
|
Income (loss) from operations
|
(5,707
|
)
|
|
453
|
|
|
11,058
|
|
|
4,795
|
|
Net earnings (loss)
|
(1,300
|
)
|
|
(3,336
|
)
|
|
22,941
|
|
|
5,175
|
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
(0.02
|
)
|
|
(0.04
|
)
|
|
0.29
|
|
|
0.07
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
(0.02
|
)
|
|
(0.04
|
)
|
|
0.28
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended
|
|
Quarter ended
|
|
Quarter ended
|
|
Quarter ended
|
|
June 30,
|
|
September 30,
|
|
December 31,
|
|
March 31,
|
(dollars in thousands except per-share amounts)
|
2016
|
|
2016
|
|
2016
|
|
2017
|
Revenue
|
$
|
214,801
|
|
|
$
|
217,267
|
|
|
$
|
223,312
|
|
|
$
|
224,867
|
|
Gross profit
|
91,982
|
|
|
97,162
|
|
|
106,844
|
|
|
106,573
|
|
Income (loss) from operations
|
8,162
|
|
|
7,120
|
|
|
9,115
|
|
|
(8,709
|
)
|
Net earnings (loss)
|
3,976
|
|
|
7,140
|
|
|
1,073
|
|
|
(8,081
|
)
|
Basic earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
0.05
|
|
|
0.09
|
|
|
0.01
|
|
|
(0.10
|
)
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
0.05
|
|
|
0.09
|
|
|
0.01
|
|
|
(0.10
|
)
|
Some earnings (loss) per share amounts may not add due to rounding.