UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
[X]☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended December 31, 2018 2019
OR
| | | | | |
[ ]☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ----- to -----
Commission file number 1-38669
| | | | | | | | |
LiveRamp Holdings, Inc. | | |
(Exact Name of Registrant as Specified in Its Charter) | | |
| | |
DELAWAREDelaware
(State or Other Jurisdiction of Incorporation or Organization) | | 83-1269307 (I.R.S. Employer Identification No.) |
| |
225225 Bush Street, Seventeenth Floor
San Francisco, CA (Address of Principal Executive Offices) | | 94104 (Zip Code) |
| |
(866) 352-3267 (Registrant's Telephone Number, Including Area Code) | | |
Securities registered pursuant to Section 12(b) of the Act: | | |
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock, $.10 Par Value | RAMP | New York Stock Exchange |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| | | | | |
Large accelerated filer [X] | Accelerated filer [ ] |
| |
Non-accelerated filer [ ] | Smaller reporting company [ ]☐ |
| |
(Do not check if a smaller reporting company) | Emerging growth company [ ]☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]☐ No [X]
The number of shares of common stock, $ 0.10 par value per share, outstanding as of February 6, 2019January 31, 2020 was 68,203,284.67,362,204.
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
INDEXTABLE OF CONTENTS
REPORT ON FORM 10-Q
December 31, 2018 2019
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | December 31, | | March 31, |
| | December 31, 2018 | | March 31, 2018 | | 2019 | | 2019 |
ASSETS | ASSETS | | | | | ASSETS | | (Unaudited) | | |
Current assets: | Current assets: | | Current assets: | | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 1,546,774 | | $ | 140,018 | Cash and cash equivalents | | $ | 767,200 | | | $ | 1,061,473 | |
Restricted cash | | Restricted cash | | 14,815 | | | — | |
Trade accounts receivable, net | Trade accounts receivable, net | | 71,906 | | 52,047 | Trade accounts receivable, net | | 87,709 | | | 78,563 | |
Refundable income taxes | Refundable income taxes | | — | | 9,977 | Refundable income taxes | | 17,129 | | | 7,890 | |
Other current assets | Other current assets | | 27,366 | | 20,173 | Other current assets | | 46,219 | | | 44,150 | |
Assets held for sale | | — | | 138,374 | |
Total current assets | Total current assets | | 1,646,046 | | 360,589 | Total current assets | | 933,072 | | | 1,192,076 | |
| | | | | | | | |
Property and equipment, net of accumulated depreciation and amortization | Property and equipment, net of accumulated depreciation and amortization | | 24,587 | | 32,340 | Property and equipment, net of accumulated depreciation and amortization | | 20,382 | | | 26,043 | |
Software, net of accumulated amortization | Software, net of accumulated amortization | | 8,027 | | 13,970 | Software, net of accumulated amortization | | 24,891 | | | 6,861 | |
Goodwill | Goodwill | | 204,671 | | 203,639 | Goodwill | | 297,780 | | | 204,656 | |
Deferred income taxes | Deferred income taxes | | 149 | | 10,703 | Deferred income taxes | | 36 | | | 35 | |
Deferred commissions, net | Deferred commissions, net | | 9,478 | | — | Deferred commissions, net | | 13,451 | | | 10,741 | |
Other assets, net | Other assets, net | | 34,560 | | 37,854 | Other assets, net | | 54,240 | | | 32,499 | |
Assets held for sale | | — | | 550,402 | |
| | $ | 1,927,518 | | $ | 1,209,497 | | $ | 1,343,852 | | | $ | 1,472,911 | |
LIABILITIES AND EQUITY | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | |
Current liabilities: | Current liabilities: | | Current liabilities: | | | | |
Current installments of long-term debt | | $ | — | | $ | 1,583 | |
Trade accounts payable | Trade accounts payable | | 25,125 | | 18,759 | Trade accounts payable | | $ | 34,417 | | | $ | 31,203 | |
Accrued payroll and related expenses | Accrued payroll and related expenses | | 13,960 | | 13,774 | Accrued payroll and related expenses | | 21,211 | | | 18,715 | |
Other accrued expenses | Other accrued expenses | | 55,135 | | 39,624 | Other accrued expenses | | 74,079 | | | 40,916 | |
Acquisition escrow payable | | Acquisition escrow payable | | 14,815 | | | — | |
Deferred revenue | Deferred revenue | | 2,929 | | 4,506 | Deferred revenue | | 4,553 | | | 4,284 | |
Income taxes payable | | 443,590 | | — | |
Liabilities held for sale | | — | | 100,353 | |
Total current liabilities | Total current liabilities | | 540,739 | | 178,599 | Total current liabilities | | 149,075 | | | 95,118 | |
| | | | | | | | |
Long-term debt | | — | | 227,837 | |
Deferred income taxes | Deferred income taxes | | 178 | | 40,243 | Deferred income taxes | | 1,505 | | | 39 | |
Other liabilities | Other liabilities | | 26,985 | | 10,016 | Other liabilities | | 50,731 | | | 46,922 | |
Other liabilities held for sale | | — | | 3,707 | |
| | | | | |
Commitments and contingencies | Commitments and contingencies | | Commitments and contingencies | | | | |
| | | | | |
Stockholders' equity: | Stockholders' equity: | | Stockholders' equity: | | | | |
Common stock | Common stock | | 14,084 | | 13,609 | Common stock | | 14,343 | | | 14,187 | |
Additional paid-in capital | Additional paid-in capital | | 1,366,221 | | 1,235,679 | Additional paid-in capital | | 1,479,018 | | | 1,406,813 | |
Retained earnings | Retained earnings | | 1,715,066 | | 628,331 | Retained earnings | | 1,549,223 | | | 1,669,605 | |
Accumulated other comprehensive income | Accumulated other comprehensive income | | 7,891 | | 10,767 | Accumulated other comprehensive income | | 6,776 | | | 7,801 | |
Treasury stock, at cost | Treasury stock, at cost | | (1,743,646) | | (1,139,291) | Treasury stock, at cost | | (1,906,819) | | | (1,767,574) | |
Total equity | | 1,359,616 | | 749,095 | |
Total stockholders' equity | | Total stockholders' equity | | 1,142,541 | | | 1,330,832 | |
| | $ | 1,927,518 | | $ | 1,209,497 | | $ | 1,343,852 | | | $ | 1,472,911 | |
See accompanying notes to condensed consolidated financial statements.
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
| | | For the three months ended | | | For the three months ended | |
| | December 31, | | | December 31, | |
| | 2018 | | 2017 | | 2019 | | 2018 |
Revenues | Revenues | | $ | 80,021 | | $ | 59,121 | Revenues | | $ | 102,217 | | | $ | 80,021 | |
Cost of revenue | Cost of revenue | | 34,838 | | 24,526 | Cost of revenue | | 37,966 | | | 34,838 | |
Gross profit | Gross profit | | 45,183 | | 34,595 | Gross profit | | 64,251 | | | 45,183 | |
Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | | |
Research and development | Research and development | | 20,469 | | 14,311 | Research and development | | 27,403 | | | 20,469 | |
Sales and marketing | Sales and marketing | | 40,054 | | 27,832 | Sales and marketing | | 51,993 | | | 40,054 | |
General and administrative | General and administrative | | 27,828 | | 20,929 | General and administrative | | 26,107 | | | 27,828 | |
Gains, losses and other items, net | Gains, losses and other items, net | | 5,043 | | (788) | Gains, losses and other items, net | | 233 | | | 5,043 | |
Total operating expenses | Total operating expenses | | 93,394 | | 62,284 | Total operating expenses | | 105,736 | | | 93,394 | |
Loss from operations | Loss from operations | | (48,211) | | (27,689) | Loss from operations | | (41,485) | | | (48,211) | |
| Total other income | Total other income | | 10,404 | | 432 | Total other income | | 3,158 | | | 10,404 | |
Loss from continuing operations before income taxes | Loss from continuing operations before income taxes | | (37,807) | | (27,257) | Loss from continuing operations before income taxes | | (38,327) | | | (37,807) | |
Income taxes (benefit) | Income taxes (benefit) | | (22,546) | | (29,791) | Income taxes (benefit) | | (287) | | | (22,546) | |
Net earnings (loss) from continuing operations | | (15,261) | | 2,534 | |
Net loss from continuing operations | | Net loss from continuing operations | | (38,040) | | | (15,261) | |
Earnings from discontinued operations, net of tax | Earnings from discontinued operations, net of tax | | 1,071,661 | | 20,407 | Earnings from discontinued operations, net of tax | | — | | | 1,071,661 | |
Net earnings | | $ | 1,056,400 | | $ | 22,941 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (38,040) | | | $ | 1,056,400 | |
| Basic earnings (loss) per share: | Basic earnings (loss) per share: | | Basic earnings (loss) per share: | |
Continuing operations | Continuing operations | | $ | (0.20) | | $ | 0.03 | Continuing operations | | $ | (0.56) | | | $ | (0.20) | |
Discontinued operations | Discontinued operations | | 13.85 | | 0.26 | Discontinued operations | | — | | | 13.85 | |
Net earnings | | $ | 13.65 | | $ | 0.29 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (0.56) | | | $ | 13.65 | |
| | | | | | | | | |
Diluted earnings (loss) per share: | Diluted earnings (loss) per share: | | Diluted earnings (loss) per share: | | |
Continuing operations | Continuing operations | | $ | (0.20) | | $ | 0.03 | Continuing operations | | $ | (0.56) | | | $ | (0.20) | |
Discontinued operations | Discontinued operations | | 13.85 | | 0.25 | Discontinued operations | | — | | | 13.85 | |
Net earnings | | $ | 13.65 | | $ | 0.28 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (0.56) | | | $ | 13.65 | |
See accompanying notes to condensed consolidated financial statements.
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
| | | For the nine months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | |
| | 2018 | | 2017 | | 2019 | | 2018 |
Revenues | Revenues | | $ | 207,304 | | $ | 159,891 | Revenues | | $ | 274,871 | | | $ | 207,304 | |
Cost of revenue | Cost of revenue | | 82,958 | | 72,596 | Cost of revenue | | 115,852 | | | 82,958 | |
Gross profit | Gross profit | | 124,346 | | 87,295 | Gross profit | | 159,019 | | | 124,346 | |
Operating expenses: | Operating expenses: | | | | | Operating expenses: | | | | |
Research and development | Research and development | | 54,379 | | 44,750 | Research and development | | 77,570 | | | 54,379 | |
Sales and marketing | Sales and marketing | | 109,317 | | 77,904 | Sales and marketing | | 140,341 | | | 109,317 | |
General and administrative | General and administrative | | 71,128 | | 68,240 | General and administrative | | 78,687 | | | 71,129 | |
Gains, losses and other items, net | Gains, losses and other items, net | | 5,534 | | 2,042 | Gains, losses and other items, net | | 2,554 | | | 5,533 | |
Total operating expenses | Total operating expenses | | 240,358 | | 192,936 | Total operating expenses | | 299,152 | | | 240,358 | |
Loss from operations | Loss from operations | | (116,012) | | (105,641) | Loss from operations | | (140,133) | | | (116,012) | |
| Total other income | Total other income | | 10,479 | | 115 | Total other income | | 13,820 | | | 10,479 | |
Loss from continuing operations before income taxes | Loss from continuing operations before income taxes | | (105,533) | | (105,526) | Loss from continuing operations before income taxes | | (126,313) | | | (105,533) | |
Income taxes (benefit) | Income taxes (benefit) | | (21,274) | | (54,980) | Income taxes (benefit) | | (5,931) | | | (21,274) | |
Net loss from continuing operations | Net loss from continuing operations | | (84,259) | | (50,546) | Net loss from continuing operations | | (120,382) | | | (84,259) | |
Earnings from discontinued operations, net of tax | Earnings from discontinued operations, net of tax | | 1,158,267 | | 68,851 | Earnings from discontinued operations, net of tax | | — | | | 1,158,267 | |
Net earnings | | $ | 1,074,008 | | $ | 18,305 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (120,382) | | | $ | 1,074,008 | |
| Basic earnings (loss) per share: | Basic earnings (loss) per share: | | Basic earnings (loss) per share: | |
Continuing operations | Continuing operations | | $ | (1.09) | | $ | (0.64) | Continuing operations | | $ | (1.77) | | | $ | (1.09) | |
Discontinued operations | Discontinued operations | | 14.99 | | 0.87 | Discontinued operations | | — | | | 14.99 | |
Net earnings | | $ | 13.90 | | $ | 0.23 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (1.77) | | | $ | 13.90 | |
| | | | | | | | | |
Diluted earnings (loss) per share: | Diluted earnings (loss) per share: | | Diluted earnings (loss) per share: | |
Continuing operations | Continuing operations | | $ | (1.09) | | $ | (0.64) | Continuing operations | | $ | (1.77) | | | $ | (1.09) | |
Discontinued operations | Discontinued operations | | 14.99 | | 0.87 | Discontinued operations | | — | | | 14.99 | |
Net earnings | | $ | 13.90 | | $ | 0.23 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (1.77) | | | $ | 13.90 | |
See accompanying notes to condensed consolidated financial statements.
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands)
| | | For the three months ended | | | For the three months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | | | December 31, | |
| | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Net earnings | | $ | 1,056,400 | | $ | 22,941 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (38,040) | | | $ | 1,056,400 | | | $ | (120,382) | | | $ | 1,074,008 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | | Other comprehensive income (loss): | |
Change in foreign currency translation adjustment | Change in foreign currency translation adjustment | | (2,301) | | 416 | Change in foreign currency translation adjustment | | 157 | | | (2,301) | | | (1,025) | | | (2,876) | |
| Comprehensive income | | $ | 1,054,099 | | $ | 23,357 | |
Comprehensive income (loss) | | Comprehensive income (loss) | | $ | (37,883) | | | $ | 1,054,099 | | | $ | (121,407) | | | $ | 1,071,132 | |
See accompanying notes to condensed consolidated financial statements.
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEEQUITY
THREE AND NINE MONTHS ENDED DECEMBER 31, 2019
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | |
| | For the nine months ended | | |
| | December 31, | | |
| | 2018 | | 2017 |
Net earnings | | $ | 1,074,008 | | $ | 18,305 |
Other comprehensive income (loss): | | | | |
Change in foreign currency translation adjustment | | (2,876) | | 1,827 |
| | | | |
Comprehensive income | | $ | 1,071,132 | | $ | 20,132 |
See accompanying notes to condensed consolidated financial statements.
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EQUITY
NINE MONTHS ENDED DECEMBER 31, 2018
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | |
| | Common Stock | | | | Additional | | | | other | | Treasury Stock | | | | |
| | Number | | | | paid-in | | Retained | | comprehensive | | Number | | | | Total |
| | of shares | | Amount | | Capital | | earnings | | income (loss) | | of shares | | Amount | | Equity |
Balances at March 31, 2018 | | 136,079,676 | | $ | 13,609 | | $ | 1,235,679 | | $ | 628,331 | | $ | 10,767 | | (58,304,917) | | $ | (1,139,291) | | $ | 749,095 |
Cumulative-effect adjustment from adoption of ASU 2014-09 | | — | | — | | — | | 12,727 | | — | | — | | — | | 12,727 |
Employee stock awards, benefit plans and other issuances | | 1,122,879 | | 112 | | 17,243 | | — | | — | | (953,523) | | (36,906) | | (19,551) |
Non-cash stock-based compensation | | 334,225 | | 33 | | 113,680 | | — | | — | | — | | — | | 113,713 |
Restricted stock units vested | | 3,300,959 | | 330 | | (330) | | — | | — | | — | | — | | — |
Warrant exercises | | — | | — | | (51) | | — | | — | | 3,488 | | 51 | | — |
Acquisition of treasury stock | | — | | — | | — | | — | | — | | (2,253,265) | | (64,107) | | (64,107) |
Acquisition of treasury stock from tender offer | | — | | — | | — | | — | | — | | (11,235,955) | | (503,393) | | (503,393) |
Comprehensive income: | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | — | | — | | — | | (2,876) | | — | | — | | (2,876) |
Net earnings | | — | | — | | — | | 1,074,008 | | — | | — | | — | | 1,074,008 |
Balances at December 31, 2018 | | 140,837,739 | | $ | 14,084 | | $ | 1,366,221 | | $ | 1,715,066 | | $ | 7,891 | | (72,744,172) | | $ | (1,743,646) | | $ | 1,359,616 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | |
| | Common Stock | | | | Additional | | | | other | | Treasury Stock | | | | |
| | Number | | | | paid-in | | Retained | | comprehensive | | Number | | | | Total |
For the three months ended December 31, 2019 | | of shares | | Amount | | Capital | | earnings | | income (loss) | | of shares | | Amount | | Equity |
Balances at September 30, 2019 | | 143,096,272 | | | $ | 14,310 | | | $ | 1,460,120 | | | $ | 1,587,263 | | | $ | 6,619 | | | (75,558,291) | | | $ | (1,881,954) | | | $ | 1,186,358 | |
Employee stock awards, benefit plans and other issuances | | 75,557 | | | 7 | | | 1,304 | | | — | | | — | | | (95,378) | | | (4,150) | | | (2,839) | |
Non-cash stock-based compensation | | 5,935 | | | 1 | | | 17,619 | | | — | | | — | | | — | | | — | | | 17,620 | |
Restricted stock units vested | | 250,082 | | | 25 | | | (25) | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | — | | | — | | | — | | | (423,953) | | | (20,715) | | | (20,715) | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | | — | | | — | | | 157 | | | — | | | — | | | 157 | |
Net loss | | — | | | — | | | — | | | (38,040) | | | — | | | — | | | — | | | (38,040) | |
Balances at December 31, 2019 | | 143,427,846 | | | $ | 14,343 | | | $ | 1,479,018 | | | $ | 1,549,223 | | | $ | 6,776 | | | (76,077,622) | | | $ | (1,906,819) | | | $ | 1,142,541 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
For the nine months ended December 31, 2019 | | | | | | | | | | | | | | | | |
Balances at March 31, 2019 | | 141,865,888 | | | $ | 14,187 | | | $ | 1,406,813 | | | $ | 1,669,605 | | | $ | 7,801 | | | (73,167,892) | | | $ | (1,767,574) | | | $ | 1,330,832 | |
Employee stock awards, benefit plans and other issuances | | 194,743 | | | 19 | | | 3,386 | | | — | | | — | | | (350,847) | | | (18,057) | | | (14,652) | |
Non-cash stock-based compensation | | 64,130 | | | 7 | | | 48,945 | | | — | | | — | | | — | | | — | | | 48,952 | |
Restricted stock units vested | | 884,235 | | | 88 | | | (88) | | | — | | | — | | | — | | | — | | | — | |
Liability-classified restricted stock units vested | | 418,850 | | | 42 | | | 17,662 | | | — | | | — | | | — | | | — | | | 17,704 | |
Acquisition-related replacement stock options | | — | | | — | | | 2,300 | | | — | | | — | | | — | | | — | | | 2,300 | |
Acquisition of treasury stock | | — | | | — | | | — | | | — | | | — | | | (2,558,883) | | | (121,188) | | | (121,188) | |
Comprehensive loss: | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | | — | | | — | | | (1,025) | | | — | | | — | | | (1,025) | |
Net loss | | — | | | — | | | — | | | (120,382) | | | — | | | — | | | — | | | (120,382) | |
Balances at December 31, 2019 | | 143,427,846 | | | $ | 14,343 | | | $ | 1,479,018 | | | $ | 1,549,223 | | | $ | 6,776 | | | (76,077,622) | | | $ | (1,906,819) | | | $ | 1,142,541 | |
See accompanying notes to condensed consolidated financial statements
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
THREE AND NINE MONTHS ENDED DECEMBER 31, 2018
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Accumulated | | | | | | |
| | Common Stock | | | | Additional | | | | other | | Treasury Stock | | | | |
| | Number | | | | paid-in | | Retained | | comprehensive | | Number | | | | Total |
For the three months ended December 31, 2018 | | of shares | | Amount | | Capital | | earnings | | income (loss) | | of shares | | Amount | | Equity |
Balances at September 30, 2018 | | 138,356,148 | | | $ | 13,836 | | | $ | 1,277,614 | | | $ | 658,666 | | | $ | 10,192 | | | (60,650,555) | | | $ | (1,199,630) | | | $ | 760,678 | |
| | | | | | | | | | | | | | | | |
Employee stock awards, benefit plans and other issuances | | 683,542 | | | 69 | | | 9,165 | | | — | | | — | | | (457,468) | | | (22,282) | | | (13,048) | |
Non-cash stock-based compensation | | 93,641 | | | 9 | | | 16,751 | | | — | | | — | | | — | | | — | | | 16,760 | |
Non-cash stock-based compensation from discontinued operations | | — | | | — | | | 62,861 | | | — | | | — | | | — | | | — | | | 62,861 | |
Restricted stock units vested | | 1,704,408 | | | 170 | | | (170) | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | — | | | — | | | — | | | (400,194) | | | (18,341) | | | (18,341) | |
Tender offer | | — | | | — | | | — | | | — | | | — | | | (11,235,955) | | | (503,393) | | | (503,393) | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | | — | | | — | | | (2,301) | | | — | | | — | | | (2,301) | |
Net earnings | | — | | | — | | | — | | | 1,056,400 | | | — | | | — | | | — | | | 1,056,400 | |
Balances at December 31, 2018 | | 140,837,739 | | | $ | 14,084 | | | $ | 1,366,221 | | | $ | 1,715,066 | | | $ | 7,891 | | | (72,744,172) | | | $ | (1,743,646) | | | $ | 1,359,616 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
For the nine months ended December 31, 2018 | | | | | | | | | | | | | | | | | |
Balances at March 31, 2018 | | 136,079,676 | | | $ | 13,609 | | | $ | 1,235,679 | | | $ | 628,331 | | | $ | 10,767 | | | (58,304,917) | | | $ | (1,139,291) | | | $ | 749,095 | |
Cumulative-effect adjustment from adoption of ASU 2014-09 | | — | | | — | | | — | | | 12,727 | | | — | | | — | | | — | | | 12,727 | |
Employee stock awards, benefit plans and other issuances | | 1,122,879 | | | 113 | | | 17,242 | | | — | | | — | | | (953,523) | | | (36,906) | | | (19,551) | |
Non-cash stock-based compensation | | 334,225 | | | 33 | | | 50,819 | | | — | | | — | | | — | | | — | | | 50,852 | |
Non-cash stock-based compensation from discontinued operations | | — | | | — | | | 62,861 | | | — | | | — | | | — | | | — | | | 62,861 | |
Restricted stock units vested | | 3,300,959 | | | 329 | | | (329) | | | — | | | — | | | — | | | — | | | — | |
Warrant exercises | | — | | | — | | | (51) | | | — | | | — | | | 3,488 | | | 51 | | | — | |
Acquisition of treasury stock | | — | | | — | | | — | | | — | | | — | | | (2,253,265) | | | (64,107) | | | (64,107) | |
Tender offer | | — | | | — | | | — | | | — | | | — | | | (11,235,955) | | | (503,393) | | | (503,393) | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | | |
Foreign currency translation | | — | | | — | | | — | | | — | | | (2,876) | | | — | | | — | | | (2,876) | |
Net earnings | | — | | | — | | | — | | | 1,074,008 | | | — | | | — | | | — | | | 1,074,008 | |
Balances at December 31, 2018 | | 140,837,739 | | | $ | 14,084 | | | $ | 1,366,221 | | | $ | 1,715,066 | | | $ | 7,891 | | | (72,744,172) | | | $ | (1,743,646) | | | $ | 1,359,616 | |
See accompanying notes to condensed consolidated financial statements
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| | | For the nine months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | |
| | 2018 | | 2017 | | 2019 | | 2018 |
Cash flows from operating activities: | Cash flows from operating activities: | | | | | Cash flows from operating activities: | | | | |
Net earnings | | $ | 1,074,008 | | $ | 18,305 | |
Earnings from discontinued operations, net of tax | | (1,158,267) | | (68,851) | |
Adjustments to reconcile net earnings to net cash used in operating activities: | | |
Net earnings (loss) | | Net earnings (loss) | | $ | (120,382) | | | $ | 1,074,008 | |
Earnings from discontinued operations | | Earnings from discontinued operations | | — | | | (1,158,267) | |
Non-cash operating activities: | | Non-cash operating activities: | |
Depreciation and amortization | Depreciation and amortization | | 25,274 | | 28,255 | Depreciation and amortization | | 27,958 | | | 25,274 | |
Loss on disposal or impairment of assets | | 3,345 | | 2,303 | |
Loss (gain) on disposal or impairment of assets | | Loss (gain) on disposal or impairment of assets | | (140) | | | 3,345 | |
Provision for doubtful accounts | Provision for doubtful accounts | | 1,259 | | 322 | Provision for doubtful accounts | | 3,683 | | | 1,259 | |
Accelerated deferred debt costs | | — | | 720 | |
Deferred income taxes | Deferred income taxes | | 20,723 | | (19,425) | Deferred income taxes | | 1,465 | | | 28,533 | |
Non-cash stock compensation expense | Non-cash stock compensation expense | | 61,547 | | 38,844 | Non-cash stock compensation expense | | 72,279 | | | 61,547 | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
Accounts receivable, net | | (35,011) | | (9,818) | |
Accounts receivable | | Accounts receivable | | (11,851) | | | (35,011) | |
Deferred commissions | Deferred commissions | | (3,035) | | — | Deferred commissions | | (2,710) | | | (3,035) | |
Other assets | Other assets | | 654 | | 2,365 | Other assets | | 2,404 | | | (4,887) | |
Accounts payable and other liabilities | Accounts payable and other liabilities | | (29,274) | | 1,786 | Accounts payable and other liabilities | | 12,597 | | | 18,504 | |
Income taxes | | Income taxes | | (13,423) | | | (50,047) | |
Deferred revenue | Deferred revenue | | (1,555) | | 439 | Deferred revenue | | (235) | | | (1,555) | |
Net cash used in operating activities | Net cash used in operating activities | | (40,332) | | (4,755) | Net cash used in operating activities | | (28,355) | | | (40,332) | |
Cash flows from investing activities: | | Cash flows from investing activities: | | | | |
Capitalized software | | Capitalized software | | — | | | (1,322) | |
Capital expenditures | | Capital expenditures | | (10,302) | | | (3,973) | |
Proceeds from sale of assets | | Proceeds from sale of assets | | 517 | | | — | |
Cash paid in acquisitions, net of cash received | | Cash paid in acquisitions, net of cash received | | (105,365) | | | — | |
Payments for investments | | Payments for investments | | — | | | (2,500) | |
Net cash used in investing activities | | Net cash used in investing activities | | (115,150) | | | (7,795) | |
Cash flows from financing activities: | | Cash flows from financing activities: | | | | |
Payments of debt | | Payments of debt | | — | | | (233,293) | |
Fees from debt refinancing | | Fees from debt refinancing | | — | | | (300) | |
Proceeds related to the issuance of common stock under stock and employee benefit plans | | Proceeds related to the issuance of common stock under stock and employee benefit plans | | 3,405 | | | 17,355 | |
Shares repurchased for tax withholdings upon vesting of stock-based awards | | Shares repurchased for tax withholdings upon vesting of stock-based awards | | (18,057) | | | (36,906) | |
Acquisition of treasury stock from tender offer | | Acquisition of treasury stock from tender offer | | — | | | | (503,393) | |
Acquisition of treasury stock | | Acquisition of treasury stock | | (121,188) | | | (64,107) | |
Net cash used in financing activities | | Net cash used in financing activities | | $ | (135,840) | | | $ | (820,644) | |
| Cash flows from investing activities: | | |
Capitalized software development costs | | (1,322) | | (1,720) | |
Capital expenditures | | (3,973) | | (5,249) | |
| Equity investments | | (2,500) | | (1,000) | |
Net cash received from disposition | | — | | 4,000 | |
| Net cash used in investing activities | | (7,795) | | (3,969) | |
| Cash flows from financing activities: | | |
Proceeds from debt | | — | | 230,000 | |
Payments of debt | | (233,293) | | (226,732) | |
Fees for debt refinancing | | (300) | | (4,001) | |
Sale of common stock | | 17,355 | | 15,309 | |
Shares repurchased for tax withholdings upon vesting of stock-based awards | | (36,906) | | (10,202) | |
Acquisition of treasury stock | | (64,107) | | (39,441) | |
Acquisition of treasury stock from tender offer | | (503,393) | | — | |
Net cash used in financing activities | | (820,644) | | (35,067) | |
Net cash used in continuing operations | | $ | (868,771) | | $ | (43,791) | |
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | |
| | For the nine months ended | | |
| | December 31, | | |
| | 2018 | | 2017 |
Cash flows from discontinued operations: | | | | |
From operating activities | | 40,980 | | 81,369 |
From investing activities | | 2,236,530 | | (30,934) |
| | | | |
Effect of exchange rate changes on cash | | (172) | | 175 |
Net cash provided by discontinued operations | | 2,277,338 | | 50,610 |
Net cash provided by continuing and discontinued operations | | 1,408,567 | | 6,819 |
| | | | |
Effect of exchange rate changes on cash | | (1,811) | | 868 |
| | | | |
Net change in cash and cash equivalents | | 1,406,756 | | 7,687 |
Cash and cash equivalents at beginning of period | | 140,018 | | 168,680 |
Cash and cash equivalents at end of period | | $ | 1,546,774 | | $ | 176,367 |
| | | | | | | | | | | | | | |
| | | | |
| | | | |
| | | | |
Supplemental cash flow information: | | | | |
Cash (received) during the period for: | | | | |
Income taxes | | (239) | | (362) |
| | | | |
Non-cash investing and financing activities: | | | | |
Leasehold improvements paid directly by lessor | | — | | 978 |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | |
| | For the nine months ended | | |
| | December 31, | | |
| | 2019 | | 2018 |
Cash flows from discontinued operations: | | | | |
From operating activities | | $ | — | | | $ | 40,980 | |
From investing activities | | — | | | 2,236,530 | |
Effect of exchange rate changes on cash | | — | | | (172) | |
Net cash provided by discontinued operations | | — | | | 2,277,338 | |
Effect of exchange rate changes on cash | | (113) | | | (1,811) | |
| | | | |
Net change in cash, cash equivalents and restricted cash | | (279,458) | | | 1,406,756 | |
Cash, cash equivalents and restricted cash at beginning of period | | 1,061,473 | | | 140,018 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 782,015 | | | $ | 1,546,774 | |
| | | | |
Supplemental cash flow information: | | | | |
Cash paid during the period for: | | | | |
Income taxes | | $ | 6,171 | | | $ | 666 | |
| | | | |
| | | | |
| | | | |
| | | | |
See accompanying notes to condensed consolidated financial statements.
LIVERAMP HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
On September 20, 2018, we implemented a holding company reorganization, as a result of which Acxiom Holdings, Inc. became the successor issuer to Acxiom Corporation. On October 1, 2018, we changed our name to LiveRamp Holdings, Inc. ("LiveRamp"). References to "we", "us", "our", "Registrant", or the "Company" for events that occurred prior to September 20, 2018 refer to Acxiom Corporation and its subsidiaries; for events that occurred from September 20, 2018 to October 1, 2018, to Acxiom Holdings, Inc. and its subsidiaries; and after October 1, 2018, to LiveRamp Holdings, Inc. and its subsidiaries.
These condensed consolidated financial statements have been prepared by LiveRamp Holdings, Inc. ("Registrant", "LiveRamp", "we", "us" or the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Registrant’s management, all adjustments necessary for a fair presentation of the results for the periods included have been made, and the disclosures are adequate to make the information presented not misleading. All such adjustments are of a normal recurring nature. Certain note information has been omitted because it has not changed significantly from that reflected in Notes 1 through 18 of the Notes to Consolidated Financial Statements filed as part of Item 8 of the Registrant’s annual report on Form 10-K for the fiscal year ended March 31, 20182019 (“20182019 Annual Report”), as filed with the SEC on May 25, 2018.28, 2019. This quarterly report and the accompanying condensed consolidated financial statements should be read in connection with the 20182019 Annual Report. The financial information contained in this quarterly report is not necessarily indicative of the results to be expected for any other period or for the full fiscal year ending March 31, 2019.2020.
Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”). Actual results could differ from those estimates. Certain of the accounting policies used in the preparation of these condensed consolidated financial statements are complex and require management to make judgments and/or significant estimates regarding amounts reported or disclosed in these financial statements. Additionally, the application of certain of these accounting policies is governed by complex accounting principles and their interpretation. A discussion of the Company’s significant accounting principles and their application is included in Note 1 of the Notes to Consolidated Financial Statements and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s 20182019 Annual Report.
Accounting Pronouncements Adopted During the Current Year
In MayJanuary 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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. We adopted the standard in the current fiscal year, and adoption of this guidance did not have a material impact on our condensed consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU No. 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 U.S. GAAP. The core principle of the new guidance is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted Topic 606 as of April 1, 2018 using the modified retrospective method. See Note 2 for further details.
Recent Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which eliminates step two from the goodwill impairment test. Under ASU 2017-04, an entity should recognize angoodwill impairment charge foris recognized based on step one of the amount bypreceding guidance, which calculates the carrying amountvalue in excess of athe reporting unit exceeds itsunit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.value. 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. In the first quarter of fiscal 2020, we early adopted ASU 2017-04. The Company doesstandard did not expecthave an impact to our qualitative assessment for goodwill impairment that we performed in the adoptionfirst quarter of this guidance to have a material impact on its condensed consolidated financial statements and related disclosures.fiscal 2020.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" ("ASU 2016-02"), as a comprehensive new standard that amendsamended various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. The new standard will requirerequires lessees to recognize a right-of-use asset and a lease liability on the balance sheet for all leases except short-term leases. For lessees, leases will continue to be classified as either operating or financing in the income statement. LessorThe Company adopted the updated guidance as of April 1, 2019 using a modified retrospective transition method. See Note 2 of these Notes to condensed consolidated financial statements for further details.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which simplifies the accounting is similarfor income taxes, eliminates certain exceptions to the current model but updatedgeneral principles in Topic 740 and clarifies and amends existing guidance to align with certain changes to the lessee model. Lessors will continue to classify leases as operating, direct financing or sales-type leases. Subsequently, the FASB has issued various ASU's to provide further clarification around aspects of Topic 842, including an alternative method that permits application of the new guidance at the beginning of adoption, recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, in addition to the method of applying the new guidance retrospectively to each prior reporting period presented.improve consistent application. ASU 2016-022019-12 is effective for annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently assessing the impact of this new standard on our condensed consolidated financial statements and does not expect the adoption will have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework”, which eliminates, modifies and adds disclosure requirements for fair value measurements. The update is effective for annual periods beginning after December 15, 2019 (fiscal 20202021 for the Company), including interim periods within those fiscal years, with early adoption permitted. We will adoptThe Company is currently assessing the impact of this 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 itsour condensed consolidated financial statements and related disclosures. We plandoes not expect the adoption will have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract" ("ASU 2018-15"). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract with the requirements for capitalizing implementation costs incurred to take advantagedevelop or obtain internal-use software. Previously, all implementation costs for a hosting arrangement that was a service contract were expensed when incurred.
CCAs, such as software as a service and other hosting arrangements, are evaluated for capitalized implementation costs in a similar manner as capitalized software development costs. If a CCA includes a software license, the software license element of the transition packagearrangement is accounted for in a manner consistent with the acquisition of practical expedients permittedother software licenses. If a CCA does not include a software license, the service element of the arrangement is accounted for as a service contract. ASU 2018-15 is effective for annual periods beginning after December 15, 2019 (fiscal 2021 for the Company), including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact of this new standard whichon our condensed consolidated financial statements and does not expect the adoption will allow ushave a material impact on our condensed consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments)" ("ASU 2016-13"). ASU 2016-13 introduces new methodology for accounting for credit losses on financial instruments. The guidance establishes a new forward-looking "expected loss model" that requires entities to carry forwardestimate current expected credit losses on accounts receivable and other financial instruments by using all practical and relevant information. ASU 2016-13 is effective for annual periods beginning after December 15, 2019 (fiscal 2021 for the historical lease classification, to not reassess whether any existing contracts are or contain leases and to not reassess initial direct costs for any existing leases. We also plan to make policy elections not to apply the balance sheet recognition requirements for qualifying short-term leases and not to separate non-lease components, as applicable, to our facility leases. We areCompany), including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing whether to elect the hindsight practical expedient to determineimpact of this new standard on our condensed consolidated financial statements and does not expect the reasonably certain lease term for existing leases.adoption will have a material impact on our condensed consolidated financial statements.
The Company does not anticipate that the adoption of any other recent accounting pronouncements will have a material impact on the Company's consolidated financial position, results of operations or cash flows.
2. TOPIC 606842 ADOPTION IMPACT AND REVENUE FROM CONTRACTS WITH CUSTOMERS:LEASES
On April 1, 2018, we2019, the Company adopted Topic 606the new lease guidance using thea modified retrospective transition method applied to those contracts which were not completedexisting leases as of April 1, 2018.2019. Results for reporting periods beginning after April 1, 2018March 31, 2019 are presented under Topic 606,the new guidance, while prior period comparative amounts are not adjusted and continue to be reported in accordance with our historic reporting under Topic 605.
Under Topic 606, revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those products or services.historical guidance. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. The Company determines revenue recognition throughapplied the following steps:new standard using the practical expedients permitted under the transition guidance where the Company:
•Identification of the contract,did not reassess whether any expired or existing contracts withcontain a customerlease;
•Identificationdid not reassess the classification of the performance obligations in the contractexisting leases; and
•Determination of the transaction price
•Allocation of the transaction price to the performance obligations in the contract
•Recognition of revenue when, or as, the Company satisfies a performance obligationdid not reassess initial direct costs for any existing leases.
The Company uses its incremental borrowing rate at commencement date in determining the present value of lease payments. The Company uses judgment in determining its incremental borrowing rate, which includes selecting a yield curve based on a hypothetical credit rating.
We recorded a netThe resulting impact, as of the adoption date, to the condensed consolidated balance sheet of applying the new guidance in fiscal 2020 was an increase to our opening retained earnings of $12.7 million,right-of-use assets included in other assets, net of tax, due$22.9 million, an increase to short-term lease liabilities included in other accrued expenses of $8.4 million, an increase to long-term lease liabilities included in other liabilities of $17.9 million, and a decrease to deferred rent included in other liabilities of $3.4 million. There was no impact to stockholders' equity or the cumulative impactcondensed consolidated statements of operations as a result of adopting Topic 606, with the impact primarily related to the capitalization of costs of obtaining customer contracts.new guidance.
The detailsCompany determines if an arrangement contains a lease or is a lease at inception, and whether lease and non-lease components are combined or not. Operating leases with a duration of the significant changesone year or less are excluded from right-of-use assets and quantitative impact of the changes are disclosed below.lease liabilities and related expense is recorded as incurred.
Costs of Obtaining Customer Contracts
The Company previously recognized commission payments made for obtaining a contract as an operating expense when incurred. Under Topic 606, the Company capitalizes incremental costs to acquire contracts and amortizes them over the expected period of benefit, which we have determined to be four years. As of December 31, 2018, the remaining unamortized contract2019, right-of-use assets included in other assets, net were $17.9 million, short-term lease liabilities included in other accrued expenses were $8.6 million, and long-term lease liabilities included in other liabilities were $12.6 million.
The Company leases its office facilities under non-cancellable operating leases that expire at various dates through fiscal 2025. Operating lease costs were $9.5$7.2 million and are included in deferred commissions, net, in the condensed consolidated balance sheet. Net capitalized costs of $3.0 million were recorded as a reduction to operating expense for the nine months ended December 31, 2018. No impairment was recognized for the nine months ended December 31, 2018.
Impacts on Financial Statements
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Balance Sheet | | Impact of changes in accounting policies | | | | |
| | As reported December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
Deferred income taxes | | 149 | | 2,256 | | 2,405 |
Deferred commissions, net | | 9,478 | | (9,478) | | — |
Others | | 1,917,891 | | — | | 1,917,891 |
Total assets | | $ | 1,927,518 | | $ | (7,222) | | $ | 1,920,296 |
| | | | | | |
| | | | | | |
| | | | | | |
Total liabilities | | 567,902 | | — | | 567,902 |
| | | | | | |
Retained earnings | | 1,715,066 | | (7,222) | | 1,707,844 |
Other equity | | (355,450) | | — | | (355,450) |
Total equity | | 1,359,616 | | (7,222) | | 1,352,394 |
Total liabilities and equity | | $ | 1,927,518 | | $ | (7,222) | | $ | 1,920,296 |
2019.
Future minimum payments under all operating leases (including operating leases with a duration of one year or less) as of December 31, 2019 are as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Operations | | Impact of changes in accounting policies | | | | |
| | As reported for the nine months ended December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
Revenues | | $ | 207,304 | | $ | — | | $ | 207,304 |
Cost of revenue | | 82,958 | | — | | 82,958 |
Gross profit | | $ | 124,346 | | $ | — | | $ | 124,346 |
| | | | | | |
Operating expenses: | | | | | | |
Sales and marketing | | $ | 109,317 | | $ | 3,035 | | $ | 112,352 |
Other operating expenses | | 131,041 | | — | | 131,041 |
Total operating expenses | | 240,358 | | 3,035 | | 243,393 |
| | | | | | |
Loss from operations | | (116,012) | | (3,035) | | (119,047) |
Total other income | | 10,479 | | — | | 10,479 |
Loss from continuing operations before income taxes | | (105,533) | | (3,035) | | (108,568) |
Income taxes (benefit) | | (21,274) | | (722) | | (21,996) |
Net loss from continuing operations | | $ | (84,259) | | $ | (2,313) | | $ | (86,572) |
| | | | | | | | |
Year | | Amount |
Fiscal 2020 | | $ | 2,725 | |
Fiscal 2021 | | 10,187 | |
Fiscal 2022 | | 9,147 | |
Fiscal 2023 | | 2,670 | |
Fiscal 2024 | | 725 | |
Thereafter | | 33 | |
Total undiscounted lease commitments | | 25,487 | |
Less: Interest | | 4,370 | |
Total discounted operating lease liabilities | | $ | 21,117 | |
Future minimum payments as of December 31, 2019 related to restructuring plans as a result of the Company's exit from certain leased office facilities (see Note 14) are: Fiscal 2020: $636; Fiscal 2021: $2,560; Fiscal 2022: $2,610; Fiscal 2023: $2,663; Fiscal 2024: $2,699; and Thereafter: $4,497.
Supplemental information related to operating leases is as follows (dollars in thousands):
| | | | | | | | |
| | Nine Months Ended |
| | December 31, 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flows used in operating leases | | $ | 6,483 | |
Weighted average remaining lease term | | 3.61 years |
Weighted average discount rate | | 5.0 | % |
As previously disclosed in our Fiscal 2019 Annual Report on Form 10-K and under the previous lease accounting standard, the future minimum payments under all operating leases as of March 31, 2019 was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the years ending March 31, | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Operating leases | | $ | 12,057 | | | $ | 11,253 | | | $ | 10,865 | | | $ | 5,160 | | | $ | 3,270 | | | $ | 4,497 | | | $ | 47,102 | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Comprehensive Income | | Impact of changes in accounting policies | | | | |
| | As reported for the nine months ended December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
Net earnings | | $ | 1,074,008 | | $ | (2,313) | | $ | 1,071,695 |
Other comprehensive loss: | | | | | | |
Change in foreign currency translation adjustment | | (2,876) | | — | | (2,876) |
Comprehensive income | | $ | 1,071,132 | | $ | (2,313) | | $ | 1,068,819 |
| | | | | | | | | | | | | | | | | | | | |
Condensed Consolidated Statement of Cash Flows | | Impact of changes in accounting policies | | | | |
| | As reported for the nine months ended December 31, 2018 | | Adjustments | | Balances without adoption of Topic 606 |
Net earnings | | $ | 1,074,008 | | $ | (2,313) | | $ | 1,071,695 |
Earnings from discontinued operations | | (1,158,267) | | — | | (1,158,267) |
Adjustments for: | | | | | | |
Deferred income taxes | | 20,723 | | (722) | | 20,001 |
Others | | 91,425 | | — | | 91,425 |
Changes in: | | | | | | |
Accounts receivable, net | | (35,011) | | — | | (35,011) |
Deferred commissions | | (3,035) | | 3,035 | | — |
Other assets | | 654 | | — | | 654 |
Accounts payable and other liabilities | | (29,274) | | — | | (29,274) |
Deferred revenue | | (1,555) | | — | | (1,555) |
Net cash from operating activities | | (40,332) | | — | | (40,332) |
Net cash from investing activities | | (7,795) | | — | | (7,795) |
Net cash from financing activities | | (820,644) | | — | | (820,644) |
Net cash from discontinued operations | | 2,277,338 | | — | | 2,277,338 |
Effect of exchange rate changes on cash | | (1,811) | | — | | (1,811) |
| | | | | | |
Net change in cash and cash equivalents | | 1,406,756 | | — | | 1,406,756 |
Cash and cash equivalents at beginning of period | | 140,018 | | — | | 140,018 |
Cash and cash equivalents at end of period | | $ | 1,546,774 | | $ | — | | $ | 1,546,774 |
3. REVENUE FROM CONTRACTS WITH CUSTOMERS:
Disaggregation of Revenue
In the following table, revenue is disaggregated by primary geographical market and major service offerings (dollars in thousands).
| | | For the nine months ended | | | For the nine months ended | |
| | | December 31, | | | December 31, | |
Primary Geographical Markets | Primary Geographical Markets | | 2018 | | 2017 | Primary Geographical Markets | | 2019 | | 2018 |
United States | United States | | $ | 189,997 | | $ | 143,937 | United States | | $ | 255,895 | | | $ | 189,997 | |
Europe | Europe | | 13,858 | | 12,916 | Europe | | 15,103 | | | 13,858 | |
APAC | APAC | | 3,449 | | 3,038 | APAC | | 3,873 | | | 3,449 | |
| | $ | 207,304 | | $ | 159,891 | | $ | 274,871 | | | $ | 207,304 | |
| | | | | | | | |
Major Offerings/Services | Major Offerings/Services | | | Major Offerings/Services | |
Subscription | Subscription | | 171,184 | | 125,157 | Subscription | | $ | 221,847 | | | $ | 171,184 | |
Marketplace and Other | Marketplace and Other | | 36,120 | | 34,734 | Marketplace and Other | | 53,024 | | | 36,120 | |
| | $ | 207,304 | | $ | 159,891 | | $ | 274,871 | | | $ | 207,304 | |
|
Transaction Price Allocated to the Remaining Performance Obligations
We have performance obligations associated with fixed commitments in customer contracts for future services that have not yet been recognized in our condensed consolidated financial statements. The amount of fixed revenue not yet recognized was $335.1$344.4 million as of December 31, 2018.2019. Additionally, the amount to be recognized over the next twelve months was $200.4 million. The Company expects to recognize revenue on substantially all of these remaining performance obligations by March 31, 2021 with the balance recognized thereafter.2024.
3.4. EARNINGS (LOSS) PER SHARE AND STOCKHOLDERS’ EQUITY:
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):
| | | For the three months ended | | | For the nine months ended | | | For the three months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Basic earnings per share: | | | | | | | | | |
Net earnings (loss) from continuing operations | | $ | (15,261) | | $ | 2,534 | | $ | (84,259) | | $ | (50,546) | |
Basic earnings (loss) per share: | | Basic earnings (loss) per share: | | | | | | | | |
Net loss from continuing operations | | Net loss from continuing operations | | $ | (38,040) | | | $ | (15,261) | | | $ | (120,382) | | | $ | (84,259) | |
Earnings from discontinued operations, net of tax | Earnings from discontinued operations, net of tax | | 1,071,661 | | 20,407 | | 1,158,267 | | 68,851 | Earnings from discontinued operations, net of tax | | — | | | 1,071,661 | | | — | | | 1,158,267 | |
Net earnings | | $ | 1,056,400 | | $ | 22,941 | | $ | 1,074,008 | | $ | 18,305 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (38,040) | | | $ | 1,056,400 | | | $ | (120,382) | | | $ | 1,074,008 | |
| Basic weighted-average shares outstanding | Basic weighted-average shares outstanding | | 77,398 | | 79,043 | | 77,260 | | 78,983 | Basic weighted-average shares outstanding | | 67,473 | | | 77,398 | | | 68,021 | | | 77,260 | |
| | | | |
Continuing operations | Continuing operations | | $ | (0.20) | | $ | 0.03 | | $ | (1.09) | | $ | (0.64) | Continuing operations | | $ | (0.56) | | | $ | (0.20) | | | $ | (1.77) | | | $ | (1.09) | |
Discontinued operations | Discontinued operations | | 13.85 | | 0.26 | | 14.99 | | 0.87 | Discontinued operations | | — | | | 13.85 | | | — | | | 14.99 | |
Basic earnings per share | | $ | 13.65 | | $ | 0.29 | | $ | 13.90 | | $ | 0.23 | |
Basic earnings (loss) per share | | Basic earnings (loss) per share | | $ | (0.56) | | | $ | 13.65 | | | $ | (1.77) | | | $ | 13.90 | |
| Diluted earnings per share: | | |
Diluted earnings (loss) per share: | | Diluted earnings (loss) per share: | |
Basic weighted-average shares outstanding | Basic weighted-average shares outstanding | | 77,398 | | 79,043 | | 77,260 | | 78,983 | Basic weighted-average shares outstanding | | 67,473 | | | 77,398 | | | 68,021 | | | 77,260 | |
Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method | Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method | | — | | 2,826 | | — | | — | Dilutive effect of common stock options, warrants, and restricted stock as computed under the treasury stock method | | — | | | — | | | — | | | — | |
Diluted weighted-average shares outstanding | Diluted weighted-average shares outstanding | | 77,398 | | 81,869 | | 77,260 | | 78,983 | Diluted weighted-average shares outstanding | | 67,473 | | | 77,398 | | | 68,021 | | | 77,260 | |
| | | | | | | | | | | | | | | | | | |
Continuing operations | Continuing operations | | $ | (0.20) | | $ | 0.03 | | $ | (1.09) | | $ | (0.64) | Continuing operations | | $ | (0.56) | | | $ | (0.20) | | | $ | (1.77) | | | $ | (1.09) | |
Discontinued operations | Discontinued operations | | 13.85 | | 0.25 | | 14.99 | | 0.87 | Discontinued operations | | — | | | 13.85 | | | — | | | 14.99 | |
Diluted earnings per share | | $ | 13.65 | | $ | 0.28 | | $ | 13.90 | | $ | 0.23 | |
Diluted earnings (loss) per share | | Diluted earnings (loss) per share | | $ | (0.56) | | | $ | 13.65 | | | $ | (1.77) | | | $ | 13.90 | |
Due to the net loss from continuing operations during the three and nine months ended December 31, 2019 and 2018, the dilutive effect of options, warrants, and restricted stock units covering 3.3 million shares of common stock was excluded from the diluted loss per share calculation since the impact on the calculation was anti-dilutive. Due to the net loss from continuing operations during the nine months ended December 31, 2018 and 2017, respectively, the dilutive effect of options, warrants and restricted stockThese anti-dilutive units covering 3.5 million and 2.6 million shares of common stock, respectively, was excluded from the diluted loss per share calculation since the impact on the calculation was anti-dilutive. are shown below (shares in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | For the nine months ended | | |
| | December 31, | | | | December 31, | | |
| | 2019 | | 2018 | | 2019 | | 2018 |
Number of shares outstanding under options, warrants and restricted stock units plans | | 2,483 | | | 3,276 | | | 2,551 | | | 3,458 | |
Additional options, warrants to purchase shares of common stock, and restricted
Restricted stock units that were outstanding during the periods presented but were not included in the computation of diluted loss per share because the effect was anti-dilutive are shown below (shares in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | For the nine months ended | | |
| | December 31, | | | | December 31, | | |
| | 2018 | | 2017 | | 2018 | | 2017 |
Number of shares outstanding under options, warrants and restricted stock units plans | | 22 | | 97 | | 235 | | 89 |
Range of exercise prices for options | | N/A | | $32.85 | | N/A | | $32.85 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | For the nine months ended | | |
| | December 31, | | | | December 31, | | |
| | 2019 | | 2018 | | 2019 | | 2018 |
Number of shares outstanding under restricted stock units plans | | 961 | | | 22 | | | 732 | | | 235 | |
Stockholders’ Equity
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded, most recently on October 25, 2018. On that date, the board of directors authorized a $500 million increase to the existing common stock repurchase program. Under the modified common stock repurchase program, the Company may purchase up to $1$1.0 billion of its common stock through the period ending December 31, 2020.
During the nine months ended December 31, 2018,2019, the Company repurchased 2.32.6 million shares of its common stock for $64.1$121.2 million under the stock repurchase program. Through December 31, 2018,2019, the Company had repurchased a total of 22.425.1 million shares of its stock for $438.7$570.2 million under the stock repurchase program, leaving remaining capacity of $561.3$429.8 million.
On October 25, 2018, the board of directors authorized a Dutch auction tender offer (the "Offer") to purchase shares of its outstanding common stock at an initial aggregate purchase price not to exceed $500 million, plus up to 2% of the Company's outstanding shares of common stock in accordance with the rules and regulations of the SEC. On December 13, 2018, the Company accepted for purchase 11,235,955 shares of its common stock at a price of $44.50 per share, for an aggregate cost of $503.4 million, including fees and expenses. These shares represented approximately 14.2% of the shares outstanding.
Accumulated Other Comprehensive Income
Accumulated other comprehensive income accumulated balances of $7.9$6.8 million and $10.8$7.8 million at December 31, 20182019 and March 31, 2018,2019, respectively, reflect accumulated foreign currency translation adjustments.
4. DISPOSITION:5. ACQUISITIONS:
Data Plus Math
On July 2, 2018,2019, the Company entered intoclosed its merger with Data Plus Math Corporation ("DPM"), a definitive agreementmedia measurement company that works with brands, agencies, cable operators, streaming TV services and networks to selltie cross-screen ad exposure with real-world outcomes. The Company has included the financial results of DPM in the condensed consolidated financial statements from the acquisition date. The acquisition date fair value of the consideration transferred for DPM was approximately $118.0 million, which consisted of the following (dollars in thousands):
| | | | | | | | |
| | |
Cash, net of $0.4 million cash acquired | | $ | 100,886 | |
Restricted cash held in escrow | | 14,815 | |
Fair value of replacement stock options considered a component of purchase price | | 2,300 | |
Total fair value of consideration transferred | | $ | 118,001 | |
On the acquisition date, the Company delivered $14.8 million of cash to an escrow agent according to the terms of the purchase agreement. The principal escrow amount is owned by the Company until funds are delivered to the DPM sellers one year from the acquisition date. All interest and earnings on the principal escrow amount remain the property of the Company.
The total fair value of the replacement stock options issued was $7.4 million of which $2.3 million was allocated to the purchase consideration and $5.1 million was allocated to future services and will be expensed over the future requisite service periods (see Note 7).
In connection with the DPM acquisition, the Company agreed to pay $24.7 million to certain key employees (see "Consideration Holdback" in Note 7). The consideration holdback is payable in 3 equal, annual increments, based on the anniversary dates of the acquisition, and is payable in shares of Company common stock. The number of shares to be issued annually will vary depending on the market price of the shares on the date of issuance. The consideration holdback is not part of the purchase price, as vesting is dependent on continued employment of the key employees. It will be recorded as non-cash stock-based compensation expense over the three-year earning period.
The following table summarizes the preliminary estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (dollars in thousands):
| | | | | | | | |
| | July 2, 2019 |
Assets acquired: | | |
Cash | | $ | 438 | |
Trade accounts receivable | | 957 | |
Goodwill | | 89,942 | |
Intangible assets (Other assets) | | 35,000 | |
Other current and noncurrent assets | | 1,186 | |
Total assets acquired | | 127,523 | |
Deferred income taxes | | (6,357) | |
Accounts payable and accrued expenses | | (2,727) | |
Net assets acquired | | 118,439 | |
Less: | | |
Cash acquired | | (438) | |
Net purchase price allocated | | 118,001 | |
Less: | | |
Fair value of replacement stock options considered a component of purchase price | | (2,300) | |
Net cash paid in acquisition | | $ | 115,701 | |
The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The goodwill balance is not deductible for U.S. income tax purposes. The Company initially recognized the assets and liabilities acquired based on its preliminary estimates of their fair values as of the acquisition date. As additional information becomes known concerning the acquired assets and assumed liabilities, management may make adjustments to the opening balance sheet of the acquired company up to the end of the measurement period, which is not longer than a one-year period following the acquisition date. 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 judgment. As of December 31, 2019, the Company has not completed its fair value analysis and calculation in sufficient detail necessary to arrive at the final estimate of the fair value. The fair values currently assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on the information that was available as of the date of the acquisition. The Company expects to finalize the valuation as soon as practical.
The amounts allocated to intangible assets in the table above included developed technology, data supply relationships, customer relationships, and trademarks. Intangible assets will be amortized on a straight-line basis over the estimated useful lives. 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) |
Developed technology | | $ | 23,000 | | | 4 |
Data supply relationships | | 7,000 | | | 4 |
Customer relationships | | 4,000 | | | 4 |
Trademarks | | 1,000 | | | 2 |
Total intangible assets | | $ | 35,000 | | | |
The Company has omitted disclosures of revenue and net loss of the acquired company from the acquisition date to December 31, 2019 as the amounts are not material.
The pro forma financial information in the table below summarizes the combined results of operations for LiveRamp and DPM for the purposes of pro forma financial information disclosures as if the companies were combined as of the beginning of fiscal 2019. The 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 (certain of which are preliminary), 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 2019. The 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 2019.
The pro forma financial information for the three months ended December 31, 2018 combined the historical results of LiveRamp for the three months ended December 31, 2018 and the historical results of DPM for the three months ended September 30, 2018 (adjusted due to differences in reporting periods) and the effects of the pro forma adjustments listed above. The pro forma financial information for the nine months ended December 31, 2019 and 2018, respectively, combined the historical results of LiveRamp for the nine months ended December 31, 2019 and 2018, and the historical results of DPM for the six months ended June 30, 2019 and the nine months ended September 30, 2018 (adjusted due to differences in reporting periods) and the effects of the pro forma adjustments listed above. The pro forma financial information was as follows (dollars in thousands, except per share data):
| | | | | | | | | | | | | | | | | | | | | | |
| | | | For the three months ended | | For the nine months ended | | |
| | | | December 31, | | December 31, | | |
| | | | 2018 | | 2019 | | 2018 |
Revenues | | | | $ | 80,458 | | | $ | 277,063 | | | $ | 207,813 | |
Net earnings (loss) | | | | $ | 1,053,849 | | | $ | (132,279) | | | $ | 1,064,413 | |
Basic earnings (loss) per share | | | | $ | 13.62 | | | $ | (1.94) | | | $ | 13.78 | |
Diluted earnings (loss) per share | | | | $ | 13.62 | | | $ | (1.94) | | | $ | 13.78 | |
Faktor
On April 2, 2019, the Company acquired all of the outstanding shares of Faktor B. V. ("Faktor"). Faktor is a global consent management platform that allows consumers to control how their data is collected, used, and transferred for usage to another party. Faktor's platform provides individuals with notice and choice on websites and mobile apps and allows them to opt-in or opt-out via a visible banner on the page. The Company paid approximately $4.5 million in cash for the acquired shares. 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 for the acquisition are included in the Company's condensed consolidated results beginning April 2, 2019.
The following table presents the purchase price allocation related to assets acquired and liabilities assumed (dollars in thousands):
| | | | | | | | |
| | April 2, 2019 |
Assets acquired: | | |
Cash | | $ | 35 | |
Trade accounts receivable | | 63 | |
Goodwill | | 3,110 | |
Intangible assets (Other assets) | | 1,700 | |
Other current and noncurrent assets | | 126 | |
Total assets acquired | | 5,034 | |
Deferred income taxes | | (194) | |
Accounts payable and accrued expenses | | (326) | |
Net assets acquired | | 4,514 | |
Less: | | |
Cash acquired | | (35) | |
Net cash paid | | $ | 4,479 | |
The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on preliminary calculations and valuations using management's estimates and assumptions and were based on the information that was available as of the date of acquisition. The Company expects to finalize the valuation as soon as practical.
6. DISCONTINUED OPERATIONS:
Acxiom Marketing Solutions ("AMS") business (“AMS”)
During fiscal 2019, the Company completed the sale of its AMS business to The Interpublic Group of Companies, Inc. (“IPG”) for $2.3 billion in cash. As required regulatory approvals were being sought and received,The business qualified for treatment as discontinued operations during fiscal 2019. Accordingly, the Company solicited and received shareholder approval for the transaction. Shareholder approval was received on September 20, 2018,results of operations, cash flows and the Company began reporting the financial informationbalance sheet amounts pertaining to AMS, for all periods reported, have been classified as a component of discontinued operations in the condensed consolidated financial statements as of the second quarter of fiscal 2019. Prior to the discontinued operations classification, the AMS business was included in the AMS segment in the Company’s segment results.statements.
The sale was completed on October 1, 2018. At the closing of the transaction, the Company received total consideration of $2.3 billion ($2.3 billion stated sales price less closing adjustments and transaction costs of $49.0 million). Additionally, the Company applied $230.5 million of proceeds from the sale to repay outstanding Company debt and interest. The Company reported a gain of $1.7 billion on the sale, which is included in earnings from discontinued operations, net of tax.
Summary resultsResults of operations of AMS for the three and nine months ended December 31, 2018 and 2017, respectively, are segregated and included in earnings from discontinued operations, net of tax, in the condensed consolidated statements of operations.
The following is a reconciliation of the major classes of line items constituting earnings from discontinued operations, net of tax (dollars in thousands):
| | | | For the three months ended | | | For the nine months ended | | | | | | | | | | | | | | | | | |
| | December 31, | | | December 31, | | | | For the three months ended | | | For the nine months ended |
| | 2018 | | 2017 | | 2018 | | 2017 | | | December 31, 2018 | |
Revenues | Revenues | | $ | — | | $ | 175,750 | | $ | 332,185 | | $ | 512,734 | Revenues | | | $ | — | | | | $ | 332,185 | |
Cost of revenue | Cost of revenue | | 24,677 | | 91,394 | | 213,512 | | 272,356 | Cost of revenue | | | 24,677 | | | | 213,512 | |
Gross profit | Gross profit | | (24,677) | | 84,356 | | 118,673 | | 240,378 | Gross profit | | | (24,677) | | | | 118,673 | |
Operating expenses: | Operating expenses: | | | | | | | | | Operating expenses: | | | | | | |
Research and development | Research and development | | 6,703 | | 9,007 | | 21,621 | | 26,144 | Research and development | | | 6,703 | | | | 21,621 | |
Sales and marketing | Sales and marketing | | 18,110 | | 25,898 | | 60,743 | | 74,384 | Sales and marketing | | | 18,110 | | | | 60,743 | |
General and administrative | General and administrative | | 27,767 | | 9,957 | | 72,150 | | 26,926 | General and administrative | | | 27,767 | | | | 72,150 | |
Gains, losses and other items, net | Gains, losses and other items, net | | (1,658,667) | | 747 | | (1,656,014) | | 1,479 | Gains, losses and other items, net | | | (1,658,667) | | | | (1,656,014) | |
Total operating expenses | Total operating expenses | | (1,606,087) | | 45,609 | | (1,501,500) | | 128,933 | Total operating expenses | | | (1,606,087) | | | | (1,501,500) | |
Income from discontinued operations | Income from discontinued operations | | 1,581,410 | | 38,747 | | 1,620,173 | | 111,445 | Income from discontinued operations | | | 1,581,410 | | | | 1,620,173 | |
Interest expense | Interest expense | | — | | (2,566) | | (5,702) | | (7,432) | Interest expense | | | — | | | | (5,702) | |
Other, net | Other, net | | 74 | | (13) | | 97 | | (176) | Other, net | | | 74 | | | | 97 | |
Earnings from discontinued operations before income taxes | Earnings from discontinued operations before income taxes | | 1,581,484 | | 36,168 | | 1,614,568 | | 103,837 | Earnings from discontinued operations before income taxes | | | 1,581,484 | | | | 1,614,568 | |
Income taxes | Income taxes | | 509,823 | | 15,761 | | 456,301 | | 34,986 | Income taxes | | | 509,823 | | | | 456,301 | |
Earnings from discontinued operations, net of tax | Earnings from discontinued operations, net of tax | | $ | 1,071,661 | | $ | 20,407 | | $ | 1,158,267 | | $ | 68,851 | Earnings from discontinued operations, net of tax | | | $ | 1,071,661 | | | | $ | 1,158,267 | |
| | | | | | | | | | | | | | | |
Substantially all of the interest expense was allocated to discontinued operations.
The carrying amounts of the major classes of assets and liabilities of AMS are segregated and included in assets and liabilities held for sale in the condensed consolidated balance sheets. The following is a reconciliation of the assets and liabilities held for sale (dollars in thousands):
| | | | | | | | |
| | March 31, 2018 |
| | (Unaudited) |
Cash and cash equivalents | | $ | 2,261 |
Trade accounts receivable, net | | 115,141 |
Other current assets | | 20,972 |
Property and equipment, net | | 124,193 |
Software, net | | 21,014 |
Goodwill | | 392,356 |
Purchased software licenses, net | | 7,502 |
Deferred income taxes | | 1,522 |
Other assets, net | | 3,815 |
Assets held for sale | | $ | 688,776 |
| | |
Trade accounts payable | | 27,929 |
Accrued payroll and related expenses | | 28,725 |
Other accrued expenses | | 16,241 |
Deferred revenue | | 27,214 |
Income taxes payable | | 244 |
Other liabilities | | 3,707 |
Liabilities held for sale | | $ | 104,060 |
The Company entered into certain agreements with AMS in which services will be provided from the Company to AMS, and from AMS to the Company. The terms of these agreements are primarily 60 months from the date of sale.
Cash inflows and outflows related to the agreements are included in cash flows from operating activities in the condensed consolidated statements of cash flows. Revenues and costsexpenses related to the agreements are included in loss from operations in the condensed consolidated statementsstatement of operations. The related cash inflows and outflows and revenues and costs for the threenine months ended December 31, 20182019 was (dollars in thousands):
| | | | | | | | |
| | |
| | For the threenine months ended December 31, 20182019 |
Cash inflows | | $ | 9,41737,150 | |
Cash outflows | | $ | 5218,381 | |
| | |
Revenues | | $ | 11,83239,494 | |
Costs | | $ | 4,1765,216 | |
The revenues includeamount includes approximately $4.5$15.5 million incrementalof revenue from AMS's resale of LiveRamp services to its customers. These amounts were also reported in the prior year as LiveRamp revenues in previous periods.
the condensed consolidated statement of operations.
5.7. STOCK-BASED COMPENSATION:
Stock-based Compensation Plans
The Company has stock option and equity compensation plans for which a total of 42.3 million shares of the Company’s common stock have been reserved for issuance since the inception of the plans. At December 31, 2018,2019, there were a total of 12.310.3 million shares available for future grants under the plans.
During the quarter ended September 30, 2018, the Board voted to amend the Amended and Restated 2005 EquityStock-based Compensation Plan to increase the number of shares available under the plan from 32.9 million shares to 37.9 million shares, bringing the total number of shares reserved for issuance since inception of all plans from 37.3 million shares at June 30, 2018 to 42.3 million shares beginning in the quarter ended September 30, 2018. The amendment received shareholder approval at the September 20, 2018 annual shareholders' meeting.Expense
Stock-based Compensation Expense
The Company's stock-based compensation activity for the nine months ended December 31, 2018,2019, by award type, was (dollars in millions):
| | | For the nine months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | |
| | 2018 | | 2017 | | 2019 | | 2018 |
Stock options | Stock options | | $ | 2.6 | | $ | 4.0 | Stock options | | $ | 2.8 | | | $ | 2.6 | |
Performance stock options | | 0.2 | | 0.9 | |
| Restricted stock units | Restricted stock units | | 34.6 | | 21.6 | Restricted stock units | | 40.5 | | | 34.6 | |
Arbor acquisition consideration holdback | Arbor acquisition consideration holdback | | 11.5 | | 11.5 | Arbor acquisition consideration holdback | | 2.6 | | | 11.5 | |
Pacific Data Partners assumed performance plan | | 11.8 | | — | |
DPM acquisition consideration holdback | | DPM acquisition consideration holdback | | 4.1 | | | — | |
PDP assumed performance plan | | PDP assumed performance plan | | 21.4 | | | 11.8 | |
Other non-employee stock-based compensation | Other non-employee stock-based compensation | | 0.9 | | 0.9 | Other non-employee stock-based compensation | | 0.9 | | | 0.9 | |
Total non-cash stock-based compensation included in the condensed consolidated statements of operations | Total non-cash stock-based compensation included in the condensed consolidated statements of operations | | 61.6 | | 38.9 | Total non-cash stock-based compensation included in the condensed consolidated statements of operations | | 72.3 | | | 61.6 | |
Less expense related to liability-based equity awards | Less expense related to liability-based equity awards | | (10.8) | | — | Less expense related to liability-based equity awards | | (23.3) | | | (10.8) | |
Stock-based compensation of discontinued operations | Stock-based compensation of discontinued operations | | 62.9 | | 7.8 | Stock-based compensation of discontinued operations | | — | | | 62.9 | |
Total non-cash stock-based compensation included in the condensed consolidated statement of equity | | $ | 113.7 | | $ | 46.7 | |
Total non-cash stock-based compensation included in the condensed consolidated statements of equity | | Total non-cash stock-based compensation included in the condensed consolidated statements of equity | | $ | 49.0 | | | $ | 113.7 | |
The effect of stock-based compensation expense on income, by financial statement line item, was (dollars in millions):
| | | | | | | | | | | | | | |
| | For the nine months ended | | |
| | December 31, | | |
| | 2019 | | 2018 |
Cost of revenue | | $ | 2.8 | | | $ | 2.6 | |
Research and development | | 17.3 | | | 14.0 | |
Sales and marketing | | 34.4 | | | 29.2 | |
General and administrative | | 17.8 | | | 15.8 | |
Total non-cash stock-based compensation included in the condensed consolidated statements of operations | | $ | 72.3 | | | $ | 61.6 | |
The following table provides the expected future expense for all of the Company's outstanding equity awards at December 31, 2019, by award type. The amount for 2020 represents the remaining three months ending March 31, 2020. All other periods represent fiscal years ending March 31 (dollars in millions).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | During the year ended: | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Total |
Stock options | | $ | 0.9 | | | $ | 2.3 | | | $ | 1.1 | | | $ | 0.3 | | | $ | — | | | $ | 4.6 | |
Restricted stock units | | 14.4 | | | 49.9 | | | 38.5 | | | 22.8 | | | 3.7 | | | 129.3 | |
DPM acquisition consideration holdback | | 2.1 | | | 8.3 | | | 8.2 | | | 2.1 | | | — | | | 20.7 | |
PDP assumed performance plan | | 6.5 | | | 19.4 | | | — | | | — | | | — | | | 25.9 | |
| | $ | 23.9 | | | $ | 79.9 | | | $ | 47.8 | | | $ | 25.2 | | | $ | 3.7 | | | $ | 180.5 | |
Stock Option Activity
In connection with the acquisition of Continuing OperationsDPM, the Company replaced all outstanding stock options held by DPM associates immediately prior to the acquisition with options to acquire shares of LiveRamp common stock having substantially the same terms and conditions as were applicable under the original options. In total, the Company issued 162,481 replacement options at a weighted-average exercise price of $1.64 per share. The acquisition-date fair value of the replacement stock options was $7.4 million and was determined using a binomial lattice model with the following assumptions: dividend yield of 0.0% since LiveRamp is currently not paying dividends and there are no plans to pay dividends; risk-free interest rates from 1.86% to 1.96%, 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 7.33 years to 9.55 years; expected volatility of 45.00% considering the implied volatility of publicly traded LiveRamp options and historical volatility of LiveRamp stock.
Of the total replacement options issued, 48,619 were fully vested and required no post-combination employee service. The remaining replacement options had components of both pre-combination and post-combination service requirements. As a result, $2.3 million of the acquisition-date fair value of the replacement options was calculated and identified as consideration transferred in the DPM acquisition. The remaining $5.1 million acquisition-date fair value is considered future compensation costs and will be recognized as stock-based compensation cost over the remaining service period.
Stock option activity for the nine months ended December 31, 20182019 was:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted-average | | |
| | | | Weighted-average | | remaining | | Aggregate |
| | Number of | | exercise price | | contractual term | | Intrinsic value |
| | shares | | per share | | (in years) | | (in thousands) |
Outstanding at March 31, 2018 | | 2,456,184 | | $ | 13.30 | | | | |
| | | | | | | | |
Exercised | | (870,453) | | $ | 11.22 | | | | $ | 27,517 |
Forfeited or canceled | | (25,591) | | $ | 18.64 | | | | |
Outstanding at December 31, 2018 | | 1,560,140 | | $ | 14.37 | | 4.8 | | $ | 37,850 |
Exercisable at December 31, 2018 | | 1,378,721 | | $ | 15.27 | | 4.5 | | $ | 32,210 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted-average | | |
| | | | Weighted-average | | remaining | | Aggregate |
| | Number of | | exercise price | | contractual term | | Intrinsic value |
| | shares | | per share | | (in years) | | (in thousands) |
Outstanding at March 31, 2019 | | 1,374,430 | | | $ | 14.81 | | | | | |
DPM replacement stock options issued | | 162,481 | | | $ | 1.64 | | | | | |
Exercised | | (134,509) | | | $ | 5.73 | | | | | $ | 5,468 | |
Forfeited or canceled | | (8,138) | | | $ | 5.13 | | | | | |
Outstanding at December 31, 2019 | | 1,394,264 | | | $ | 14.21 | | | 3.9 | | $ | 47,212 | |
Exercisable at December 31, 2019 | | 1,281,248 | | | $ | 15.31 | | | 3.6 | | $ | 41,973 | |
The aggregate intrinsic value at period end represents the total pre-tax intrinsic value (the difference between LiveRamp’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 holdersthey exercised their options on December 31, 2018.2019. This amount changes based upon changes in the fair market value of LiveRamp’s common stock.
A summary of stock options outstanding and exercisable as of December 31, 20182019 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 | | 304,455 | | 5.3 years | | $ | 1.45 | | 192,111 | | $ | 1.46 |
$ | 10.00 | | — | | $ | 19.99 | | 732,241 | | 3.9 years | | $ | 14.78 | | 662,833 | | $ | 14.50 |
$ | 20.00 | | — | | $ | 24.99 | | 523,444 | | 5.8 years | | $ | 21.31 | | 523,444 | | $ | 21.31 |
| | | | | | | | | | | | | | |
| | | | | | 1,560,140 | | 4.8 years | | $ | 14.37 | | 1,378,388 | | $ | 15.27 |
Future expense for these options is expected to be approximately $3.4 million in total over the next three years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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 | | | 264,245 | | | 5.8 years | | $ | 1.60 | | | 151,229 | | | $ | 1.52 | |
$ | 10.00 | | | — | | | $ | 19.99 | | | 709,672 | | | 2.8 years | | $ | 14.69 | | | 709,672 | | | $ | 14.69 | |
$ | 20.00 | | | — | | | $ | 24.99 | | | 420,347 | | | 4.6 years | | $ | 21.32 | | | 420,347 | | | $ | 21.32 | |
| | | | | | | | | | | | | | |
| | | | | | 1,394,264 | | | 3.9 years | | $ | 14.21 | | | 1,281,248 | | | $ | 15.31 | |
Performance Stock Option Unit Activity of Continuing Operations
Performance stock option unit activity for the nine months ended December 31, 20182019 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, 2018 | | 322,823 | | $ | 21.42 | | | | |
| | | | | | | | |
| | | | | | | | |
Forfeited or canceled | | (187,885) | | $ | 21.41 | | | | |
Outstanding at December 31, 2018 | | 134,938 | | $ | 21.44 | | 1.4 | | $ | 2,320 |
Exercisable at December 31, 2018 | | — | | $ | — | | — | | $ | — |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 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, 2019 | | 130,154 | | | $ | 21.44 | | | | | |
| | | | | | | | |
| | | | | | | | |
Forfeited or canceled | | (130,154) | | | $ | 21.44 | | | | | |
Outstanding at December 31, 2019 | | — | | | $ | — | | | | | $ | — | |
Exercisable at December 31, 2019 | | — | | | $ | — | | | — | | | $ | — | |
Of theThe performance stock option units outstanding at March 31, 2018, 161,4122019 reached maturity of the relevant performance period at March 31, 2018.2019. The units attained a 0% attainment level. As a result, they were canceledlevel, resulting in cancellation of the units in the current fiscal year.
Future expense for these performance stock option units is expected to be approximately $0.6 million in total over the next three years.
Restricted Stock Unit Activity Related to Disposition of AMS
Performance-based Restricted Stock Unit Conversions
In conjunction with the disposition of AMS, together with the change-in-control guidelines of the Company's 2005 Equity Compensation Plan, the Company converted its outstanding TSR-based performance restricted stock units ("PSUs") to time-vesting restricted stock units ("RSUs"). On the conversion date, the performance period was truncated and attainment measured, resulting in conversion of the PSUs to RSUs at a 200% conversion rate. Each converted RSU held by an AMS associate was vested immediately. The remaining converted RSUs will cliff vest on the same date as the original PSU performance period maturity date.
Share activity related to these conversions was:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Continuing Operations | | Discontinued Operations | | Total Continuing and Discontinued Operations |
TSR-based performance restricted stock units converted to time-based restricted stock units, by fiscal year granted: | | Original Performance Maturity Date: | | | | | | |
Fiscal 2017 PSU | | 3/31/2019 | | (168,939) | | (45,657) | | (214,596) |
Fiscal 2018 PSU | | 3/31/2020 | | (153,233) | | (32,545) | | (185,778) |
Fiscal 2019 PSU | | 3/31/2021 | | (186,539) | | (30,188) | | (216,727) |
Totals | | | | (508,711) | | (108,390) | | (617,101) |
| | | | | | | | |
Time-based restricted stock units converted from TSR-based performance restricted stock units | | RSU Cliff Vest Date (Continuing Ops Only): | | | | | | |
Fiscal 2017 PSU | | 3/31/2019 | | 337,878 | | 91,314 | | 429,192 |
Fiscal 2018 PSU | | 3/31/2020 | | 306,466 | | 65,090 | | 371,556 |
Fiscal 2019 PSU | | 3/31/2021 | | 373,078 | | 60,376 | | 433,454 |
Totals | | | | 1,017,422 | | 216,780 | | 1,234,202 |
The Company recognized both incremental and accelerated compensation costs in the condensed consolidated statement of operations related to the PSU conversions. The impact on compensation costs was (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Continuing Operations | | Discontinued Operations | | Total Continuing and Discontinued Operations |
Incremental compensation costs | | $ | 7,179 | | $ | 1,599 | | $ | 8,778 |
Accelerated compensation costs of original grant date fair value related to immediate vesting of converted PSUs of AMS associates | | $ | — | | $ | 1,607 | | $ | 1,607 |
AMS Restricted Stock Unit Accelerations
In conjunction with the disposition of AMS, the Company accelerated the vesting of substantially all outstanding time-vesting restricted stock units of AMS associates to the date of disposition, including converted PSU shares, resulting in the release of restricted stock units covering 1,187,344 shares of common stock. The Company recognized $54.0 million of compensation costs related to the accelerated vesting and release of these units which is included in net earnings from discontinued operations, net of tax in the condensed consolidated statement of operations. Of the $54.0 million compensation costs, $27.0 million represented incremental compensation cost and $27.0 million represented accelerated original grant date fair value compensation cost.
Restricted Stock Unit Activity
During the nine months ended December 31, 2018,2019, the Company granted time-vesting restricted stock units covering 1,877,8741,388,507 shares of common stock withand having a fair value at the date of grant of $63.2$72.9 million. OfAll of the restricted stock units granted in the current period 197,115 vest in equal annual increments over four years, 1,272,337 vest 25% at the one-year anniversary and 75% in equal quarterly increments over the subsequent three years, 330,415 vest 50% at the two-year anniversary and 50% in equal annual increments over the subsequent two years, and 78,007 vest over one year.years. Grant date fair value of these units is equal to the quoted market price for the shares on the date of grant. Included in the restricted stock units granted in the current fiscal year were units related to the DPM acquisition. Following the closing of the DPM acquisition, the Company granted new awards of restricted stock units covering 155,346 shares of common stock to select employees to induce them to accept employment with the Company (the "DPM inducement awards"). The DPM inducement awards had a grant date fair value of $7.3 million.
Time-vesting restricted stock unit activity for the nine months ended December 31, 20182019 was:
| | | Weighted-average | | | Weighted-average | |
| | fair value per | | Weighted-average | | fair value per | | Weighted-average |
| | Number | | share at grant | | remaining contractual | | Number | | share at grant | | remaining contractual |
| | of shares | | date | | term (in years) | | of shares | | date | | term (in years) |
Outstanding at March 31, 2018 | | 2,702,497 | | $ | 24.60 | | 2.34 | |
Outstanding at March 31, 2019 | | Outstanding at March 31, 2019 | | 3,054,750 | | | $ | 30.91 | | | 2.47 |
Granted | Granted | | 1,877,874 | | $ | 33.66 | | Granted | | 1,388,507 | | | $ | 52.51 | | |
Vested | Vested | | (1,363,871) | | $ | 24.60 | | Vested | | (506,732) | | | $ | 28.73 | | |
Forfeited or canceled | Forfeited or canceled | | (265,878) | | $ | 25.39 | | Forfeited or canceled | | (330,752) | | | $ | 37.34 | | |
PSUs converted to RSUs in conjunction with AMS disposition | | 1,017,422 | | $ | 21.21 | | |
Outstanding at December 31, 2018 | | 3,968,044 | | $ | 27.97 | | 2.37 | |
Outstanding at December 31, 2019 | | Outstanding at December 31, 2019 | | 3,605,773 | | | $ | 38.94 | | | 2.37 |
The total fair value of time-vesting restricted stock units vested for the nine months ended December 31, 20182019 was $54.4$24.2 million and is measured as the quoted market price of the Company's common stock on the vesting date for the number of shares vested.
During the nine months ended December 31, 2018,2019, the Company granted performance-based restricted stock units in two separate plans, covering 516,954202,818 shares of common stock having a fair value at the date of grant of $21.1$12.3 million. The grants were made under two separate performance plans. Under the first performance plan, units covering 186,53960,844 shares of common stock were granted having a fair value at the date of grant of $5.8$4.4 million, determined using a Monte Carlo simulation model. The units vest subject to attainment of market conditions established by the compensation committee of the board of directors (“compensation committee”) and continuous employment through the vesting date. The 186,53960,844 units may vest in a number of shares from 25%0% to 200% of the award, based on the total shareholder return of LiveRamp common stock compared to total shareholder return of a group of peer companies established by the compensation committeeRussell 2000 market index for the period from April 1, 20182019 to March 31, 2021. All of these awards were converted to RSUs at the time of the AMS disposition.2022. Under the second performance plan, units covering 330,415141,974 shares of common stock were granted having a fair value at the date of grant of $15.3$7.9 million equal to the quoted market price for the shares on the date of grant. The units vest subject to attainment of performance criteria established by the compensation committee of the board of directors. 59,480 units may vest in three equal annual increments in a number of shares from 0% to 200% of the award, based on attainment of year-over-year revenue growth targets for each annual period from April 1, 2019 to March 31, 2022. The remaining 82,494 units may vest in a number of shares from zero0% to 200% of the award, based on the attainment of the Company's three-year revenue compound annual growth and margin targets. rate target for the period from April 1, 2019 to March 31, 2022.
Non-vested performance-based restricted stock unit activity for the nine months ended December 31, 20182019 was:
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted-average | | |
| | | | fair value per | | Weighted-average |
| | Number | | share at grant | | remaining contractual |
| | of shares | | date | | term (in years) |
Outstanding at March 31, 2018 | | 561,018 | | $ | 25.68 | | 2.53 |
Granted | | 516,954 | | $ | 40.82 | | |
Additional earned performance shares | | 176 | | $ | 23.89 | | |
Vested | | (61,330) | | $ | 24.22 | | |
Forfeited or canceled | | (129,501) | | $ | 25.15 | | |
PSUs converted to RSUs in conjunction with AMS disposition | | (508,711) | | $ | 28.08 | | |
Outstanding at December 31, 2018 | | 378,606 | | $ | 43.55 | | 3.45 |
Future expense for restricted stock units is expected to be approximately $12.5 million for the three months ending March 31, 2019, $42.5 million in fiscal 2020, $27.9 million in fiscal 2021, $15.6 million in fiscal 2022, and $4.2 million in fiscal 2023.
Other Performance Unit Activity
Other performance-based stock unit activity for the nine months ended December 31, 2018 was:
| | | | | | | | | | | | | | | | | | | | |
| | | | Weighted-average | | |
| | | | fair value per | | Weighted-average |
| | Number | | share at grant | | remaining contractual |
| | of shares | | date | | term (in years) |
Outstanding at March 31, 2018 | | 111,111 | | $ | 5.33 | | - |
Vested | | (45,364) | | $ | 5.33 | | |
Forfeited or canceled | | (65,747) | | $ | 5.33 | | |
Outstanding at December 31, 2018 | | — | | $ | — | | - |
The 111,111 performance-based units outstanding at March 31, 2018 reached maturity of the relevant performance period on March 31, 2018. The units achieved a 100% performance attainment level. However, application of the share price adjustment factor resulted in a 59% reduction in shares vested in the current fiscal quarter.
During the nine months ended December 31, 2018, shares having a fair value of approximately $36.9 million were withheld from the units vested and exercised in the tables above. The withheld shares represented the value of employee payroll tax withholding for taxable stock-based compensation awards. The $36.9 million fair value resulted in the return of 953,523 shares to treasury stock and is included in shares repurchased for tax withholding upon vesting of stock-based awards in the condensed consolidated statements of cash flows.
Stock-based Compensation Expense Related to Discontinued Operations
Total stock-based compensation expense related to discontinued operations for the nine months ended December 31, 2018 and 2017 was $62.9 million and $7.8 million, respectively and is included in non-cash stock-based compensation in the condensed consolidated statement of equity. | | | | | | | | | | | | | | | | | | | | |
| | | | Weighted-average | | |
| | | | fair value per | | Weighted-average |
| | Number | | share at grant | | remaining contractual |
| | of shares | | date | | term (in years) |
Outstanding at March 31, 2019 | | 394,188 | | | $ | 43.88 | | | 3.23 |
Granted | | 202,818 | | | $ | 60.65 | | | |
| | | | | | |
| | | | | | |
Forfeited or canceled | | (49,443) | | | $ | 33.91 | | | |
Outstanding at December 31, 2019 | | 547,563 | | | $ | 50.99 | | | 2.49 |
Consideration Holdback
As part of the Company's acquisition of DPM in the current fiscal year, $24.7 million of the acquisition consideration otherwise payable with respect to shares of DPM 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 Holdback Agreement specifies that the consideration holdback will vest in 3 equal annual increments on the anniversary of the closing date. Vesting is subject to the DPM key employees' continued employment through each annual vesting date and will be settled in shares of Company common stock. Through December 31, 2019, the Company has recognized a total of $4.1 million related to the DPM consideration holdback. At December 31, 2019, the recognized, but unpaid, balance related to the DPM consideration holdback in other accrued expenses in the condensed consolidated balance sheet was $4.1 million.
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 Holdback Agreement specifies the payment of the consideration in monthly installments using LiveRamp shares over a thirty month period. Total expense relatedthirty-month period, ending in the quarter ended June 30, 2019. As of June 30, 2019, the Company had met its full obligation for the consideration holdback due to the Holdback Agreements for the nine months ended December 31, 2018 and 2017 was $11.5 million in each period.Arbor key employees. Through December 31, 2018,2019, the Company had recognized a total of $31.9$38.3 million expense related to the Holdback Agreements. Future expense related to the Holdback Agreements is expected to be approximately $6.4 million over the next
two fiscal quarters.
Pacific Data Partners ("PDP")PDP Assumed Performance Plan
In connection with the fiscal 2018 acquisition of PDP, the Company assumed the outstanding performance compensation plan under the PDP 2018 Equity Compensation Plan of Pacific Data Partners, LLC ("PDP PSU plan"). Total expense relatedDuring the current fiscal year, the year-one performance payout under the plan was finalized resulting in a $19.7 million payout to the plan participants. On the settlement date, a total of 465,389 shares of Company common stock was delivered to the PDP PSU plan forparticipants to settle the nine months ended December 31, 2018 was $11.8 million. year-one performance payout obligation, of which 418,850 shares represented the liability-classified portion of the award.
Through December 31, 2018,2019, the Company has recognized a total of $13.8$39.1 million related to the PDP PSU plan. Future expense is expected to be approximately $3.9 million in fiscal 2019, $15.8 million in fiscal 2020, $15.8 million in fiscal 2021, and $15.7 million in fiscal 2022, based on expectations of full attainment. At December 31, 2018,2019, the recognized, but unpaid, balance related to the PDP PSU plan in other accrued expenses in the condensed consolidated balance sheet was $12.4$17.5 million.
6.8. OTHER CURRENT AND NONCURRENT ASSETS:
Other current assets consist of the following (dollars in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2018 | | March 31, 2018 |
Prepaid expenses and other | | $ | 13,660 | | $ | 6,622 |
Assets of non-qualified retirement plan | | 13,706 | | 13,551 |
Other current assets | | $ | 27,366 | | $ | 20,173 |
| | | | | | | | | | | | | | |
| | December 31, 2019 | | March 31, 2019 |
Prepaid expenses and other | | $ | 12,628 | | | $ | 9,058 | |
Post-closing receivable from IPG | | 17,625 | | | 17,625 | |
Interest receivable | | 1,080 | | | 2,497 | |
Assets of non-qualified retirement plan | | 14,886 | | | 14,970 | |
Other current assets | | $ | 46,219 | | | $ | 44,150 | |
Other noncurrent assets consist of the following (dollars in thousands):
| | | December 31, 2018 | | March 31, 2018 | | December 31, 2019 | | March 31, 2019 |
Acquired intangible assets, net | Acquired intangible assets, net | | $ | 26,562 | | $ | 33,922 | Acquired intangible assets, net | | $ | 27,702 | | | $ | 24,217 | |
Right of use asset | | Right of use asset | | 17,947 | | | — | |
Other miscellaneous noncurrent assets | Other miscellaneous noncurrent assets | | 7,998 | | 3,932 | Other miscellaneous noncurrent assets | | 8,591 | | | 8,282 | |
Other assets, net | Other assets, net | | $ | 34,560 | | $ | 37,854 | Other assets, net | | $ | 54,240 | | | $ | 32,499 | |
7.9. OTHER ACCRUED EXPENSES:
Other accrued expenses consist of the following (dollars in thousands):
| | | December 31, 2018 | | March 31, 2018 | | December 31, 2019 | | March 31, 2019 |
Liabilities of non-qualified retirement plan | Liabilities of non-qualified retirement plan | | 13,706 | | 13,551 | Liabilities of non-qualified retirement plan | | $ | 14,886 | | | $ | 14,970 | |
Short-term lease liabilities | | Short-term lease liabilities | | 8,550 | | | — | |
PDP performance plan liability (see Note 7) | | PDP performance plan liability (see Note 7) | | 17,481 | | | — | |
DPM consideration holdback (see Note 7) | | DPM consideration holdback (see Note 7) | | 4,123 | | | — | |
Other miscellaneous accrued expenses | Other miscellaneous accrued expenses | | 41,429 | | 26,073 | Other miscellaneous accrued expenses | | 29,039 | | | 25,946 | |
Other accrued expenses | Other accrued expenses | | $ | 55,135 | | $ | 39,624 | Other accrued expenses | | $ | 74,079 | | | $ | 40,916 | |
8.10. PROPERTY AND EQUIPMENT:
Property and equipment is summarized as follows (dollars in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2019 | | March 31, 2019 | |
| | | | |
Leasehold improvements | | $ | 24,964 | | | $ | 20,097 | |
Data processing equipment | | 9,552 | | | 37,678 | |
Office furniture and other equipment | | 9,003 | | | 7,077 | |
| | 43,519 | | | 64,852 | |
Less accumulated depreciation and amortization | | 23,137 | | | 38,809 | |
| | $ | 20,382 | | | $ | 26,043 | |
| | | | |
Depreciation expense on property and equipment was $12.8 million and $10.7 million for the nine months ended December 31, 2019 and 2018, respectively. Depreciation expense for the nine months ended December 31, 2019 and 2018 included $3.6 million and $2.0 million, respectively, of accelerated depreciation expense associated with the reduced useful life of certain IT equipment in connection with the Company's migration to a cloud-based data center solution.
11. GOODWILL AND INTANGIBLE ASSETS:
Goodwill for the nine months ended December 31, 20182019 (dollars in thousands) was as follows:
| | | | | | | | |
| | Total |
Balance at March 31, 2018 2019 | | $ | 203,639204,656 | |
Reallocation from AMS Acquisition of Faktor | | 1,3773,110 | |
Acquisition of DPM | | 89,942 | |
Change in foreign currency translation adjustment | | (345)72 | |
Balance at December 31, 20182019 | | $ | 204,671297,780 | |
Goodwill by geography as of December 31, 20182019 was:
| | | | | | | | |
| | Total |
U.S. | | $ | 201,449294,563 | |
APAC | | 3,217 | | 3,222 |
Balance at December 31, 20182019 | | $ | 204,671297,780 | |
The amounts allocated to intangible assets from acquisitions include developed technology, customer relationships, trade names, and publisher relationships. Amortization lives for those intangibles range from two years to six years. The following table shows the amortization activity of intangible assets (dollars in thousands):
| | | December 31, 2018 | | March 31, 2018 | | | December 31, 2019 | | March 31, 2019 | |
Developed technology, gross (Software) | Developed technology, gross (Software) | | $ | 54,000 | | $ | 54,000 | | Developed technology, gross (Software) | | $ | 78,500 | | | $ | 54,000 | | |
Accumulated amortization | Accumulated amortization | | (48,989) | | (43,383) | | Accumulated amortization | | (54,796) | | | (49,625) | | |
Net developed technology | Net developed technology | | $ | 5,011 | | $ | 10,617 | | Net developed technology | | $ | 23,704 | | | $ | 4,375 | | |
| Customer relationship/Trade name, gross (Other assets, net) | Customer relationship/Trade name, gross (Other assets, net) | | $ | 35,800 | | $ | 35,800 | | Customer relationship/Trade name, gross (Other assets, net) | | $ | 41,000 | | | $ | 35,800 | | |
Accumulated amortization | Accumulated amortization | | (24,774) | | (20,400) | | Accumulated amortization | | (30,992) | | | (26,128) | | |
Net customer/trade name | Net customer/trade name | | $ | 11,026 | | $ | 15,400 | | Net customer/trade name | | $ | 10,008 | | | $ | 9,672 | | |
| Publisher relationship, gross (Other assets, net) | Publisher relationship, gross (Other assets, net) | | $ | 23,800 | | $ | 23,800 | | Publisher relationship, gross (Other assets, net) | | $ | 30,800 | | | $ | 23,800 | | |
Accumulated amortization | Accumulated amortization | | (8,264) | | (5,289) | | Accumulated amortization | | (13,106) | | | (9,255) | | |
Net publisher relationship | Net publisher relationship | | $ | 15,536 | | $ | 18,511 | | Net publisher relationship | | $ | 17,694 | | | $ | 14,545 | | |
| Total intangible assets, gross | Total intangible assets, gross | | $ | 113,600 | | $ | 113,600 | | Total intangible assets, gross | | $ | 150,300 | | | $ | 113,600 | | |
Total accumulated amortization | Total accumulated amortization | | (82,027) | | (69,072) | | Total accumulated amortization | | (98,894) | | | (85,008) | | |
Total intangible assets, net | Total intangible assets, net | | $ | 31,573 | | $ | 44,528 | | Total intangible assets, net | | $ | 51,406 | | | $ | 28,592 | | |
Total amortization expense related to intangible assets for the nine months ended December 31, 2019 and 2018 and 2017 was $13.0$13.9 million and $18.0$13.0 million, respectively. The following table presents the estimated future amortization expenses related to purchased and other intangible assets. The amount for 20192020 represents the remaining three months ending March 31, 2019.2020. All other periods represent fiscal years ending March 31 (dollars in thousands):
| Fiscal Year: | Fiscal Year: | | Fiscal Year: | |
2019 | $ | 2,981 | |
2020 | 2020 | 11,925 | 2020 | | $ | 5,356 | |
2021 | 2021 | 8,083 | 2021 | | 17,650 | |
2022 | 2022 | 5,150 | 2022 | | 14,342 | |
2023 | 2023 | 3,434 | 2023 | | 11,933 | |
2024 | | 2024 | | 2,125 | |
| | $ | 31,573 | |
| | | $ | 51,406 | |
9. PROPERTY AND EQUIPMENT:
12. SOFTWARE:
Property and equipmentSoftware is summarized as follows (dollars in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2018 | | March 31, 2018 |
| | | | |
Leasehold improvements | | 16,920 | | 15,635 |
Data processing equipment | | 35,727 | | 39,938 |
Office furniture and other equipment | | 6,135 | | 6,780 |
| | 58,782 | | 62,353 |
Less accumulated depreciation and amortization | | 34,195 | | 30,013 |
| | $ | 24,587 | | $ | 32,340 |
| | | | |
| | | | | | | | | | | | | | |
| | December 31, 2019 | | March 31, 2019 |
Internally developed computer software | | $ | 51,525 | | | $ | 51,525 | |
Acquired developed technology | | 78,500 | | | 54,000 | |
| | 130,025 | | | 105,525 | |
Less accumulated amortization | | 105,134 | | | 98,664 | |
| | $ | 24,891 | | | $ | 6,861 | |
Depreciation
Amortization expense on property and equipment was $10.7$6.5 million and $8.9$7.3 million for the nine months ended December 31, 2019 and 2018, respectively, including $5.2 million and 2017, respectively. Depreciation expense for the nine months ended December 31, 2018
included $2.0$5.6 million, respectively, related to acquired developed technology as part of accelerated depreciation expense resulting from adjusting the remaining lives of certain data processing equipment.recent acquisitions.
10. LONG-TERM DEBT:
Long-term debt consists of the following (dollars in thousands):
| | | | | | | | |
| | March 31, 2018 |
Revolving credit borrowings | | $ | 230,000 |
Other debt | | 3,293 |
Total long-term debt | | 233,293 |
| | |
Less current installments | | 1,583 |
Less deferred debt financing costs | | 3,873 |
Long-term debt, excluding current installments and deferred debt financing costs | | $ | 227,837 |
The sale of AMS was completed on October 1, 2018. At the closing of the transaction, the Company applied $230.5 million of proceeds from the sale to repay outstanding Company debt and interest.
11.13. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Trade accounts receivable are presented net of allowances for doubtful accounts, returns and credits of $3.4$4.2 million at December 31, 20182019 and $3.1$3.0 million at March 31, 2018.2019.
12.14. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES:
The following table summarizes the restructuring activity for the nine months ended December 31, 20182019 (dollars in thousands):
| | | Associate-related reserves | | Lease accruals | | Total | | Associate-related reserves | | Lease accruals | | Total |
March 31, 2018 | | $ | 541 | | $ | 5,288 | | $ | 5,829 | |
March 31, 2019 | | March 31, 2019 | | $ | 4,595 | | | $ | 5,688 | | | $ | 10,283 | |
Restructuring charges and adjustments | Restructuring charges and adjustments | | 3,952 | | 1,582 | | 5,534 | Restructuring charges and adjustments | | 1,970 | | | (80) | | | 1,890 | |
Payments | Payments | | (1,363) | | (878) | | (2,241) | Payments | | (6,039) | | | (614) | | | (6,653) | |
December 31, 2018 | | $ | 3,130 | | $ | 5,992 | | $ | 9,122 | |
December 31, 2019 | | December 31, 2019 | | $ | 526 | | | $ | 4,994 | | | $ | 5,520 | |
The above balances are included in other accrued expenses and other liabilities on the condensed consolidated balance sheets.
Restructuring Plans
In the nine months ended December 31, 2018,2019, the Company recorded a total of $5.5$1.9 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The current year expense included severance and other associate-related charges in APAC of $0.2 million, adjustments to fiscal year2019 restructuring plans for associates in the United States of $1.8 million, and lease accruals and adjustments of -$0.1 million.
In fiscal 2019, the Company recorded a total of $7.7 million in restructuring charges and adjustments included in gains, losses and other items, net in the consolidated statement of operations. The fiscal 2019 expense included restructuring plans primarily for associates in the United States and ChinaAPAC of $3.9$6.1 million, lease accruals and adjustments of $0.8 million, and leasehold improvement write-offs of $0.8 million. Of the associate relatedtotal fiscal 2019 plans associate-related accruals, of $3.9 million, $2.8$0.3 million remained accrued at December 31, 2018.2019. The associate-related costs are expected to be paid out in fiscal 2019 and fiscal 2020.
In fiscal 2018, the Company recorded a total of $2.8$2.7 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The expense included severance and other associate-related charges of $0.2 million, and lease accruals and adjustments of $2.6$2.5 million. The associate-related accruals of $0.2 million were paid out in fiscal 2019. The lease accruals and adjustments of $2.6$2.5 million result from the Company's exit from certain leased office facilities.
In fiscal 2017, the Company recorded a total of $6.5$3.0 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The expense included
lease accruals and adjustments of $3.0 million and leasehold improvement write-offs of $2.1 million. The lease accruals and adjustments of $3.0 million resultedresulting 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 2015, the Company recorded a total of $9.2$9.3 million in restructuring charges and adjustments included in gains, losses and other items, net in the condensed consolidated statement of operations. The expense included severance and other associate-related charges of $2.6 million, lease accruals of $4.7 million, and the write-off of leasehold improvements of $2.0 million. Of the associate-related accruals of $2.6 million, $0.3$0.2 million remained accrued as of December 31, 2018.2019. These amounts are expected to be paid out in fiscal 2019.2021.
With respect to the fiscalsfiscal 2015, 2017, 2018, 2019, and 20192020 lease accruals and adjustments described above, the Company intends to subleasecontinue subleasing the facilities to the extent possible. The liabilities will be satisfied over the remainder of the leased properties' terms, which continue through November 2025. Of the total amount accrued, $6.0$5.0 million remained accrued as of December 31, 2018.2019. Actual sublease receipts may differ from the estimates originally made by the Company. Any future changes in the estimates or in the actual sublease income could require future adjustments to the liabilities, which would impact net earnings (loss) in the period the adjustment is recorded.
Gains, Losses and Other Items
Gains, losses and other items for each of the periods presented are as follows (dollars in thousands):
| | | For the three months ended | | | For the nine months ended | | | For the three months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | 2018 | | 2017 | | 2018 | | 2017 | | 2019 | | 2018 | | 2019 | | 2018 |
Restructuring plan charges and adjustments | Restructuring plan charges and adjustments | | $ | 5,043 | | $ | (765) | | $ | 5,534 | | $ | 2,066 | Restructuring plan charges and adjustments | | $ | 233 | | | $ | 5,043 | | | $ | 1,890 | | | $ | 5,533 | |
| Other | Other | | — | | (23) | | — | | (24) | Other | | — | | | — | | | 664 | | | — | |
| | $ | 5,043 | | $ | (788) | | $ | 5,534 | | $ | 2,042 | | $ | 233 | | | $ | 5,043 | | | $ | 2,554 | | | $ | 5,533 | |
13.15. COMMITMENTS AND CONTINGENCIES:
Legal Matters
The Company is involved in various claims and legal proceedings. Management routinely assesses the likelihood of adverse judgments or outcomes to these matters, as well as ranges of probable losses, to the extent losses are reasonably estimable. The Company records accruals for these matters to the extent that management concludes a loss is probable and the financial impact, should an adverse outcome occur, is reasonably estimable. These accruals are reflected in the Company’s condensed consolidated financial statements. In management’s opinion, the Company has made appropriate and adequate accruals for these matters, and management believes the probability of a material loss beyond the amounts accrued to be remote. However, the ultimate liability for these matters is uncertain, and if accruals are not adequate, an adverse outcome could have a material effect on the Company’s consolidated financial condition or results of operations. The Company maintains insurance coverage above certain limits. There are currently no matters pending against the Company or its subsidiaries for which the potential exposure is considered material to the Company’s condensed consolidated financial statements.
Commitments
The Company leases office space and equipment under noncancellable operating leases. The Company has a future commitment for lease payments over the next 7 years of $50.2 million.
16. INCOME TAX:
In determining the quarterly provision for income taxes, the Company makesapplies its best estimate of theestimated annual effective income tax rate expected to be applicableits year-to-date pretax income or loss and adjusts for discrete tax items in the full fiscal year.period. The estimated annual effective income tax rate for the current fiscal year is impactedprimarily driven by the reduction in the U.S.valuation allowance, with a lesser impact attributable to federal corporate income tax rate (discussed below), non-deductible stock-based compensation, state income taxes, research tax credits and the benefit of certain state tax losses, offset by income tax expenses in profitable foreign jurisdictions. Realization of the Company's net deferred tax assets is dependent upon its generation of sufficient taxable income of the proper character in future years in appropriate tax jurisdictions to obtain benefit from the reversal of temporary differences and recordingnet operating loss carryforwards. During the nine months ended December 31, 2019, the Company released a portion of its valuation allowance in connection with deferred tax liabilities associated with DPM acquired intangibles (see Note 5). As of December 31, 2019, the Company continues to maintain a full valuation allowance on its net deferred taxes. State income taxes are influenced by the geographic and legal entity mix of the Company's U.S. income as well as the diversity of rules among the states. The Company does not record a tax benefit forassets except in certain foreign losses due to uncertainty of future utilization.
On December 22, 2017, the U.S. enacted significant tax law changes following the passage of H.R. 1, "An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 "the Tax Act") (previously known as "The Tax Cuts and Jobs Act"). The Tax Act reduced the U.S. federal corporate income tax rate from 35% to 21%, among other provisions. We believe we properly estimated our federal and state income tax liabilities for the impacts of the Tax Act, including provisional amounts under SAB No. 118 related to the rate change, the impact of increased bonus depreciation, and the effects on executive compensation deductions. During the third quarter ended December 31, 2018, we finalized our analysis of the impact of the Tax Act and did not change our provisional amounts. Any impacts to our income tax expense as a result of future technical amendments, interpretations, or regulations issued by the Department of Treasury or Internal Revenue Service will be recorded in the period in which such additional guidance is issued. jurisdictions.
15.17. 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.
Under applicable accounting standards financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. The Company assigned assets and liabilities to the hierarchy in the accounting standards, which is Level 1 - quoted prices in active markets for identical assets or liabilities, Level 2 - significant other observable inputs and Level 3 - significant unobservable inputs.
The following table presents the balances of assets measured at fair value as of December 31, 20182019 (dollars in thousands):
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | Assets: | | | | | | | | | Assets: | | | | | | | | |
Other current assets | Other current assets | | $ | 13,706 | | $ | — | | $ | — | | $ | 13,706 | Other current assets | | $ | 14,886 | | | $ | — | | | $ | — | | | $ | 14,886 | |
Total assets | Total assets | | $ | 13,706 | | $ | — | | $ | — | | $ | 13,706 | Total assets | | $ | 14,886 | | | $ | — | | | $ | — | | | $ | 14,886 | |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction and Overview
On September 20, 2018, we implemented a holding company reorganization, as a result of which Acxiom Holdings, Inc. became the successor issuer to Acxiom Corporation. On October 1, 2018, we changed our name to LiveRamp Holdings, Inc. ("LiveRamp"). References to "we", "us", "our" or the "Company" for events that occurred prior to September 20, 2018 refer to Acxiom Corporation and its subsidiaries; for events that occurred from September 20, 2018 to October 1, 2018, to Acxiom Holdings, Inc. and its subsidiaries; and after October 1, 2018, to LiveRamp Holdings, Inc. and its subsidiaries.
LiveRamp is a global technology company with a vision to power a world where connectedof becoming the trusted platform that makes all customer data makes every experience exceptional. LiveRamp provides the identityaccessible and meaningful. We provide an enterprise customer management platform leveraged by brands and their partnersthat helps organizations better leverage customer data to deliver innovative products and exceptionalmeaningful experiences. Powered by its core capabilities in data accessibility, identity, connectivity and data stewardship, LiveRamp IdentityLink connectsmakes it safe and easy to connect the world's data, people data, and applications across the digital and physical world to enable true people-based, omnichannel marketing.applications.
LiveRamp is a Delaware corporation headquartered in San Francisco, California. Our common stock is listed on the New York Stock Exchange under the symbol “RAMP.” We serve a global client base from locations in the United States, Europe, and the Asia-Pacific (“APAC”) region. Our direct client list includes many of the world’s largest and best-known brands across most major industry verticals, including but not limited to financial, insurance and investment services, retail, automotive, telecommunications, high tech, consumer packaged goods, healthcare, travel, entertainment, non-profit, and government. Through our extensive reseller and partnership network, we serve thousands of additional companies, establishing LiveRamp as a foundational and neutral enabler of the customer experience economy.
Operating SegmentsSegment
During the first quarter of fiscal 2019, the Company realigned its portfolio into two distinct business segments: LiveRamp, the identity infrastructure for powering exceptional customer experiences, and Acxiom Marketing Solutions ("AMS"), the leading provider of services for creating a unified approach to data-driven marketing. This realignment allowed the Company to best meet client needs in a rapidly evolving marketplace, and to create a strong foundation for continued growth and enhance value for shareholders.
This structure configured the Company's three previous segments into two, aligning key Audience Solutions’ assets to each. All identity assets including IdentityLink, AbiliTec® intellectual property and the Company's TV integrations were consolidated under LiveRamp. The remaining Audience Solutions’ lines of business for data and data services were combined with Marketing Services to create AMS.
On July 2, 2018, the Company entered into a definitive agreement to sell its AMS business to The Interpublic Group of Companies, Inc. (“IPG”) for $2.3 billion in cash. As required regulatory approvals were being sought and received, the Company solicited and received shareholder approval for the transaction. Shareholder approval was received on September 20, 2018, and the Company began reporting the results of operations, cash flows, and the balance sheet amounts pertaining to AMS as a component of discontinued operations in the condensed consolidated financial statements as of the second quarter of fiscal 2019. Prior to the discontinued operations classification, the AMS business was included in the AMS segment in the Company’s segment results.
The sale was completed on October 1, 2018. At the closing of the transaction, the Company received total consideration of $2.3 billion ($2.3 billion stated sales price less closing adjustments, transaction costs and other items of $49.0 million). Additionally, the Company applied $230.5 million of proceeds from the sale to repay outstanding Company debt and interest. The Company reported a gain of $1.7 billion on the sale, which is included in earnings from discontinued operations, net of tax, in the condensed consolidated statements of operations.
As a result of the organizational realignment, and subsequent sale of AMS, we now operateoperates as one operating segment. Operating segments areAn operating segment is defined as componentsa component of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker. While we have offerings in multiple market segments, ourOur chief operating decision maker evaluates our financial information and resources and assesses the performance of these resources on a consolidated basis. Since we operate as one operating segment, all required financial segment information can be found in the condensed consolidated financial statements.
Sources of Revenues
LiveRamp recognizes revenue from the following sources: (i) subscription revenue, which consists primarily of subscription fees from clients accessing our IdentityLink platform; and (ii) marketplace and other revenue, which primarily consists of revenuerevenue-sharing fees generated from data owners as well astransactions through our Data Store platform, and transactional usage-based revenue from arrangements with certain publishers and addressable TV providers in the form of revenue-sharing arrangements.providers. Our platform subscription pricing is tiered based on data volume supported by our platform.
The majority of our subscription revenue is derived from subscriptions that are one year in duration and invoiced on a monthly basis, although some of our clients are entering into multi-year subscriptions that are invoiced annually.subscriptions.
IdentityLinkThe LiveRamp Platform
IdentityLink™ is our categoryAs depicted in the graphic below, we power the industry’s leading software-as-a-service (SaaS) identity platform that connects people,enterprise customer management platform. We enable organizations to access and leverage data and devicesmore effectively across the physical and digital world, powering privacy-compliant, people-based marketing that allows consumersapplications they use to better connectinteract with their customers. A core component of our platform is the brands and products they love. Leveraging the LiveRampomnichannel, deterministic identity graph IdentityLink firstthat sits at its center. Leveraging this knowledgebase, the LiveRamp platform resolves a client’scustomer’s data (first-, second-, or third-party) to consumer identifiers that represent real people in a way that protects consumer privacy. This omnichannel view of the consumer can then be delivered toactivated across any of the 650550 plus partners in our ecosystem through a process called "data onboarding" in order to support targeting,a variety of people-based marketing solutions, including:
•Onboarding. We enable customers to leverage their first-party data in the digital and TV ecosystems through a safe and secure data matching process called data onboarding. Our technology ingests a customer’s first-party data, removes all offline data (personally identifiable information or "PII"), and replaces them with de-identified IDs called IdentityLinks, a true people-based identifier. IdentityLinks can then be distributed through direct integrations to the top platforms in the digital ecosystem, including leading DMPs and DSPs, publishers and social networks, personalization tools, and measurement use casesconnected TV services..
•Identity Resolution. We provide enterprise-level identity resolution with accuracy, reach, privacy, flexibility and scale. Our identity resolution capabilities are built from two complementary graphs, combining offline data and online data and providing the highest level of accuracy while still being privacy compliant. LiveRamp technology for PII gives brands and platforms the ability to connect and update what they know about consumers, resolving PII across enterprise databases and systems to deliver better customer experiences in a privacy-conscious manner. Our digital identity graph associates anonymous device IDs, cookie IDs and other online customer IDs from premium publishers, platforms or data providers, around an IdentityLink. This allows marketers to perform the personalized segmentation, targeting, and measurement use cases that require a consistent view of the user in non-identifiable spaces.
•Data Networks. We enable the search, discovery and distribution of data, with access to trusted industry leading third-party data globally. The LiveRamp platform allows users to organize, group and access customer data, connected via IdentityLink, to benefit from better campaign targeting and audience intelligence. Our platform also provides the tools for data providers to manage the organization, access, and operation of their data and services available across platforms, publishers, agencies, brands, and data companies. Providers and buyers can also choose to leverage our neutral data marketplace (see below for discussion on Data Store), featuring 180 providers across all verticals and data types.
| | | | | | | | |
Targeting | Personalization | Measurement |
| | |
Example | Example | Example |
Clients can deploy targeted ads to known customers by using IdentityLink to upload data from first-, second-, and third-party data sources, resolve it to an omnichannel privacy-compliant link and then onboard to one of 650 LiveRamp partners. •Measurement & Analytics. We power highly accurate and complete measurement with the measurement vendors and partners our customers use. Our platform allows customers to combine disparate data files (typically ad exposure and customer events, like transactions), replacing customer identifiers with IdentityLinks. Customers then can use that aggregated view of each consumer for measurement of reach and frequency, sales lift, closed loop offline to online conversion and cross-channel attribution. | Clients can deliver highly relevant content the moment viewers visit their website landing page, no login required. Leveraging IdentityLink, clients can resolve customer segment data to devices and digital IDs, onboard that data to a personalization platform and provide one-to-one experiences without compromising user privacy. | Clients can connect exposure data with first- and third-party purchase data across channels by resolving all customer devices back to the customers to which they belong. Then, clients can onboard that data to a measurement platform to clearly establish cause, effect and impact. |
•Analytics Environments. We also help enable in-house data science analytics, providing an end-to-end customized measurement solution designed for marketers looking to create an omnichannel view of their customer journey. Leveraging our identity graph, we help organizations control and aggregate all their customer data to interrogate, explore, analyze and report within our data science environment, that powers the deep functionality of a data lake.
•Consent Management. Our Consent Management Platform ("CMP") empowers consumers to maintain their privacy while facilitating business for brands and publishers.Our CMP informs website visitors about the data being collected on them and how it will be used. We provide the tools to give consumers control and choice over their personal data, publishers the solutions to operate sustainable business models, and brands the ability to advertise more relevantly and effectively.
Consumer privacy and data protection, what we call Data Ethics, are at the center of how we design our products and services. Accordingly, IdentityLinkthe LiveRamp platform operates in a SafeHaven® certified environment with technical, operational, and personnel controls designed to ensurekeep our clients’customers’ data is kept private and secure.
IdentityLink isOur solutions are sold to brandsenterprise marketers and the companies with which they partner with to execute their marketing, including agencies, marketing technology providers, publishers and data providers. Today, we work with over 770 direct customers world-wide, including approximately 21% of the Fortune 500, and serve thousands of additional customers indirectly through our reseller partnership arrangements.
•IdentityLink for Brands and Agencies.IdentityLink allows We work with over 400 of the largest brands and their agencies toin the world, helping them execute people-based marketing by creating an omnichannel viewomni-channel understanding of the consumer and activating for usethat understanding across their choice of best-of-breed digital marketing platforms.
•IdentityLink for Platforms and Publishers. IdentityLink providesMarketing Technology Providers. We provide marketing technology providers and digital publishers with the abilityidentity foundation required to offer people-based targeting, measurement and personalization within their platforms. This adds value for brands by increasing reach, as well as the speed at which they can activate their marketing data.
•IdentityLinkPublishers. We enable publishers of any size to offer people-based marketing on their properties. This adds value for brands by providing direct access to their customers and prospects in the publisher's premium inventory.
•Data Owners.IdentityLink allows Leveraging our vast network of integrations, we allow data owners to easily connect their data to the digital ecosystem and better monetize it.their own data. Data can be distributed directly to clients or made available through the IdentityLinkLiveRamp Data Storefeature. This adds value for brands as it allows them to augment their understanding of consumers and increase both the extent of their reach toagainst and depth of their understanding of customers and prospects.
We generally charge for IdentityLink on an annual subscription basis. Our subscription pricing is based primarily on data volume supported by our platform.
IdentityLink Data Store
As we have scaled the LiveRamp network and technology, we have found additional ways to leverage our platform, deliver more value to clients and create incremental revenue streams. Leveraging LiveRamp’sour common identity system and broad integration network, the IdentityLinkLiveRamp Data Store is a data marketplace that seamlessly connects data owners’ audience data across the marketing ecosystem. The IdentityLink Data Store allows data owners to easily monetize their data across hundreds of marketing platforms and publishers with a single contract. At the same time, the Data Store provides a single gateway where data buyers, including platforms and publishers, in addition to brands and their agencies, can access high-quality third-party data from more than 150180 data owners, supporting all industries and encompassing all types of data. Data providers include sources and
brands exclusive to LiveRamp, emerging platforms with access to previously unavailable deterministic data, and data partnerships enabled by IdentityLink. LiveRamp thoroughly vets all data sources to ensure any data listed on the Data Store is privacy safe and sourced ethically.our platform.
We primarily generate revenue from the IdentityLink Data Store through revenue-sharing arrangements with data owners that are monetizing their data assets on our marketplace. This revenue is typically transactional in nature, tied to data volume purchased on the Data Store.
Summary Results and Notable Events
On July 2, 2018, the Company entered into a definitive agreement to sell its Acxiom Marketing Solutions business (“AMS”) to The Interpublic Group of Companies, Inc. (“IPG”) for $2.3 billion in cash. As required regulatory approvals were being sought and received, the Company solicited and received shareholder approval for the transaction. Shareholder approval was received on September 20, 2018, and the Company began reporting the results of operations, cash flows, and the balance sheet amounts pertaining to AMS as a component of discontinued operations in the condensed consolidated financial statements as of the second quarter of fiscal 2019. Prior to the discontinued operations classification, the AMS business was included in the AMS segment in the Company’s segment results.
The sale was completed on October 1, 2018. At the closing of the transaction, the Company received total consideration of $2.3 billion ($2.3 billion stated sales price less closing adjustments, transaction costs and other items of $49.0 million). Additionally, the Company applied $230.5 million of proceeds from the sale to repay outstanding Company debt and interest. The Company reported a gain of $1.7 billion on the sale, which is included in earnings from discontinued operations, net of tax.
On November 13, 2018, the Company commenced a Dutch auction tender offer to purchase up to $500 million in value of shares of its common stock . On December 13, 2018, the Company accepted for purchase 11,235,955 shares of its common stock at a price of $44.50 per share, for an aggregate cost of $503.4 million, including fees and expenses. These shares represented approximately 14.2% of the shares outstanding.
A financial summary of the quarter ended December 31, 20182019 is presented below:
•Revenues were $80.0$102.2 million, a 35.4%27.7% increase from $59.1$80.0 million in the same quarter a year ago.
•Cost of revenue was $34.8$38.0 million, a 42.0%9.0% increase from $24.5$34.8 million in the same quarter a year ago.
•Gross margin decreasedincreased to 56.5%62.9% from 58.5%56.5% in the same quarter a year ago.
•Total operating expenses were $93.4$105.7 million, a 49.9%13.2% increase from $62.3$93.4 million in the same quarter a year ago.
•Cost of revenue and operating expenses for the quarters ended December 31, 20182019 and 20172018 include the following items:
◦Non-cash stock compensation of $26.1$30.3 million and $13.3$26.1 million, respectively (cost of revenue and operating expenses)
◦Purchased intangible asset amortization of $3.4$5.4 million and $6.0$3.4 million, respectively (cost of revenue)
◦Separation Accelerated depreciation of $2.0 million in fiscal 2019 (cost of revenue and transformation costs of $0.7 million and $5.2 million, respectively (operatingoperating expenses)
◦Restructuring and merger charges of $5.0$0.2 million and benefit of $0.8$5.0 million, respectively (gains, losses and other)
◦Separation and transformation costs of $0.7 million in fiscal 2019 (operating expenses)
•Net loss from continuing operations was $15.3$38.0 million, a loss of $0.20$0.56 per diluted share, compared to a net earningsloss from continuing operations of $2.5$15.3 million, or $0.03$0.20 per diluted share in the same quarter a year ago. The prior year quarter included a one-time benefit for the remeasurement of net deferred tax liabilities related to changes in the U.S. federal tax law.
•Net cash used inprovided by operating activities was $10.9$15.8 million compared to net cash providedused of $14.1$10.9 million in the same quarter a year ago.
•The Company repurchased 0.4 million shares of its common stock for $20.7 million under the Company's common stock repurchase program.
This summary highlights financial results as well as other significant events and transactions of the Company during the quarter ended December 31, 2018.2019. However, this summary is not intended to be a full discussion of the Company’s results. This summary should be read in conjunction with the following discussion of Results of
Operations and Capital Resources and Liquidity and with the Company’s condensed consolidated financial statements and footnotes accompanying this report.
Results of Operations
A summary of selected financial information for each of the periods reported is presented below (dollars in thousands, except per share amounts):
| | | For the three months ended | | | For the nine months ended | | | For the three months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | | % | | | % | | | % | | | % |
| | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Revenues | Revenues | | $ | 80,021 | | $ | 59,121 | | 35 | | $ | 207,304 | | $ | 159,891 | | 30 | Revenues | | $ | 102,217 | | | $ | 80,021 | | | 28 | | | $ | 274,871 | | | $ | 207,304 | | | 33 | |
Cost of revenue | Cost of revenue | | 34,838 | | 24,526 | | 42 | | 82,958 | | 72,596 | | 14 | Cost of revenue | | 37,966 | | | 34,838 | | | 9 | | | 115,852 | | | 82,958 | | | 40 | |
Gross profit | Gross profit | | 45,183 | | 34,595 | | 31 | | 124,346 | | 87,295 | | 42 | Gross profit | | 64,251 | | | 45,183 | | | 42 | | | 159,019 | | | 124,346 | | | 28 | |
Total operating expenses | Total operating expenses | | 93,394 | | 62,284 | | 50 | | 240,358 | | 192,936 | | 25 | Total operating expenses | | 105,736 | | | 93,394 | | | 13 | | | 299,152 | | | 240,358 | | | 24 | |
Loss from operations | Loss from operations | | (48,211) | | (27,689) | | 74 | | (116,012) | | (105,641) | | 10 | Loss from operations | | (41,485) | | | (48,211) | | | (14) | | | (140,133) | | | (116,012) | | | 21 | |
Net earnings | | $ | 1,056,400 | | $ | 22,941 | | 4,505 | | $ | 1,074,008 | | $ | 18,305 | | 5,767 | |
Diluted earnings per share | | $ | 13.65 | | $ | 0.03 | | 4,771 | | $ | 13.90 | | $ | 0.23 | | 5,898 | |
Net earnings (loss) | | Net earnings (loss) | | $ | (38,040) | | | $ | 1,056,400 | | | (104) | | | $ | (120,382) | | | $ | 1,074,008 | | | (111) | |
Diluted earnings (loss) per share: | | Diluted earnings (loss) per share: | | $ | (0.56) | | | $ | 13.65 | | | (104) | | | $ | (1.77) | | | $ | 13.90 | | | (113) | |
Revenues
The Company's revenues for each of the periods reported is presented below (dollars in thousands):
| | | For the three months ended | | | For the nine months ended | | | For the three months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | | % | | | % | | | % | | | % |
| | | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Subscription | Subscription | | $ | 65,003 | | $ | 45,789 | | 42 | | $ | 171,184 | | $ | 125,157 | | 37 | Subscription | | $ | 81,554 | | | $ | 65,003 | | | 25 | | | $ | 221,847 | | | $ | 171,184 | | | 30 | |
Marketplace and Other | Marketplace and Other | | 15,018 | | 13,332 | | 13 | | 36,120 | | 34,734 | | 4 | Marketplace and Other | | 20,663 | | | 15,018 | | | 38 | | | 53,024 | | | 36,120 | | | 47 | |
Total revenues | Total revenues | | $ | 80,021 | | $ | 59,121 | | 35 | | $ | 207,304 | | $ | 159,891 | | 30 | Total revenues | | $ | 102,217 | | | $ | 80,021 | | | 28 | | | $ | 274,871 | | | $ | 207,304 | | | 33 | |
Total revenue for the quarter ended December 31, 20182019 was $80.0$102.2 million, a $20.9$22.2 million or 35.4%27.7%, increase compared to the same quarter a year ago. The increase was due to Subscription growth of $19.2$16.6 million, or 42.0%25.5%, primarily due to new logo deals and upsell to existing customers, and Marketplace and Other growth of $1.7$5.6 million, or 13.4%. Marketplace37.6% primarily due to Data store and Other revenue growth was negatively impacted from a revenue-sharing arrangement related to a lost customer.TV growth. On a geographic basis, U.S. revenue increased $21.2$21.6 million, or 40.2%29.3%, from the same quarter a year ago. International revenue decreased $0.2increased $0.6 million, or 3.8%9.0%, from the same quarter a year ago. Again, International revenue was negatively impacted by the lost customer.
Total revenue for the nine months ended December 31, 20182019 was $207.3$274.9 million, a $47.4$67.6 million, or 29.7%32.6%, increase compared to the same period a year ago. The increase was due to Subscription growth of $46.0$50.7 million, or 36.8%29.6%, primarily due to new logo deals and upsell to existing customers, and Marketplace and Other growth of $1.4$16.9 million, or 4.0%46.8%. Marketplace and Other revenue growth was negatively impacted in the amount of $4.6 million from a revenue-sharing arrangement related to a lost customer.On a geographic basis, U.S. revenue increased $46.1$65.9 million, or 32.0%34.7%, from the same period a year ago. International revenue increased $1.4$1.7 million, or 8.5%, from9.7%. Again, both U.S and International revenue was negatively impacted by the same period a year ago.lost customer.
Cost of revenue and Gross profit
The Company’s cost of revenue and gross profit for each of the periods reported is presented below (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | | | For the nine months ended | | | | |
| | December 31, | | | | | | December 31, | | | | |
| | | | | | % | | | | | | % |
| | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change |
Cost of revenue | | $ | 34,838 | | $ | 24,526 | | (1) | | $ | 82,958 | | $ | 72,596 | | 14 |
Gross profit | | $ | 45,183 | | $ | 34,595 | | 31 | | $ | 124,346 | | $ | 87,295 | | 42 |
Gross margin % | | 56.5 | % | | 58.5 | % | | (4) | | 60.0 | % | | 54.6 | % | | 10 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | | | | | For the nine months ended | | | | |
| | December 31, | | | | | | December 31, | | | | |
| | | | | | % | | | | | | % |
| | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Cost of revenue | | $ | 37,966 | | | $ | 34,838 | | | 9 | | | $ | 115,852 | | | $ | 82,958 | | | 40 | |
Gross profit | | $ | 64,251 | | | $ | 45,183 | | | 42 | | | $ | 159,019 | | | $ | 124,346 | | | 28 | |
Gross margin | | 62.9 | % | | 56.5 | % | | 11 | | | 57.9 | % | | 60.0 | % | | (4) | |
Cost of revenue: Includes allthird-party direct costs of sales including Identity Graph costs,and cloud and hosting costs, as well as costs of IT, security and product operations functions. Finally, costCost of revenue also includes amortization of internally developed software and other acquisition related intangibles.
Cost of revenue was $34.8$38.0 million for the quarter ended December 31, 2018,2019, a $10.3$3.1 million, or 42.0%9.0%, increase from the same quarter a year ago. Gross margins decreasedincreased to 56.5%62.9% compared to 58.5%56.5% in the same quarter of the prior year. The gross margin decreaseincrease is due primarily to increased Identity Graph datadecreased identity graph and security costs, as well as accelerated depreciation in the prior year, offset partially by increases in hosting and costs associated with the Company's migration to a new cloud based IT infrastructure.TV direct costs. U.S. gross margins decreasedincreased to 57.6%64.2% in the current year from 61.2%57.6% in the prior year. International gross margins increased to 42.4%44.9% from 36.7%42.4%.
Cost of revenue was $83.0$115.9 million for the nine months ended December 31, 2018,2019, a $10.4$32.9 million, or 14.3%39.7%, increase from the same period a year ago. Gross margins increaseddecreased to 60.0%57.9% compared to 54.6%60.0% in the prior year.year period. The gross margin increasedecrease is due primarily to the revenue increase.increased hosting and security costs, as well as accelerated depreciation. U.S. gross margins increaseddecreased to 62.0%59.3% in the current year from 57.1%62.0% in the prior year due to revenue growth.year. International gross margins increased to 37.4%38.2% from 32.0%37.4%.
Operating Expenses
The Company’s operating expenses for each of the periods reported is presented below (dollars in thousands):
| | | For the three months ended | | | For the nine months ended | | | For the three months ended | | | For the nine months ended | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | | % | | | % | | | % | | | % |
Operating expenses | Operating expenses | | 2018 | | 2017 | | Change | | 2018 | | 2017 | | Change | Operating expenses | | 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Research and development | Research and development | | $ | 20,469 | | $ | 14,311 | | 43 | | 54,379 | | 44,750 | | 22 | Research and development | | $ | 27,403 | | | $ | 20,469 | | | 34 | | | $ | 77,570 | | | $ | 54,379 | | | 43 | |
Sales and marketing | Sales and marketing | | 40,054 | | 27,832 | | 44 | | 109,317 | | 77,904 | | 40 | Sales and marketing | | 51,993 | | | 40,054 | | | 30 | | | 140,341 | | | 109,317 | | | 28 | |
General and administrative | General and administrative | | 27,828 | | 20,929 | | 33 | | 71,128 | | 68,240 | | 4 | General and administrative | | 26,107 | | | 27,828 | | | (6) | | | 78,687 | | | 71,129 | | | 11 | |
Gains, losses and other items, net | Gains, losses and other items, net | | 5,043 | | (788) | | (740) | | 5,534 | | 2,042 | | 171 | Gains, losses and other items, net | | 233 | | | 5,043 | | | (95) | | | 2,554 | | | 5,533 | | | (54) | |
Total operating expenses | Total operating expenses | | $ | 93,394 | | $ | 62,284 | | 50 | | 240,358 | | 192,936 | | 25 | Total operating expenses | | $ | 105,736 | | | $ | 93,394 | | | 13 | | | $ | 299,152 | | | $ | 240,358 | | | 24 | |
|
Research and development (“R&D”): Includes operating expenses for the Company’s engineering and product/project management functions supporting research, new development, and related product enhancement.
R&D expenses were $20.5$27.4 million for the quarter ended December 31, 2018,2019, an increase of $6.2$6.9 million, or 43.0%,33.9% compared to the same quarter a year ago, and are 25.6%26.8% of total revenues compared to 24.2%25.6% in the same quarter of the prior year. The increase is primarily due to an increase in non-cash stockstock-based compensation expense of $2.7$0.6 million, and ongoing investment in LiveRamp products.
R&D expenses were $54.4$77.6 million for the nine months ended December 31, 2018,2019, an increase of $9.6$23.2 million, or 21.5%42.6%, compared to the same period a year ago, and are 26.2%28.2% of total revenues compared to 28.0%26.2% in the prior year. The increase is due primarily to an increase in non-cash stock-based compensation of $3.5$3.3 million, and ongoing investment in LiveRamp products.
Sales and marketing (“S&M”): Includes operating expenses for the Company’s sales, marketing, and product marketing functions.
S&M expenses were $40.1$52.0 million for the quarter ended December 31, 2018,2019, an increase of $12.2$11.9 million, or 43.9%29.8%, compared to the same quarter a year ago, and are 50.1%50.9% of total revenues compared to 47.1%50.1% in the same quarter of the prior year. Current quarter expenses included $15.7 million of non-cash stock-based compensation expense compared to $9.5 million in the prior year. The increase in stock-based compensation is primarily due to performance-based awards based on expected levels and timing of performance. The additional increase in S&M expenses is due to an increase in non-cash stock-based compensation of $3.2 million, primarily related to the PDP acquisition, other incentive-based compensation, andincreased headcount to support revenue growth initiatives.initiatives and increased bad debt expense on growing revenue levels.
S&M expenses were $109.3$140.3 million for the nine months ended December 31, 2018,2019, an increase of $31.4$31.0 million, or 40.3%28.4%, compared to the same period a year ago, and are 52.7%51.1% of total revenues compared to 48.7%52.7% in the prior
year. Current year expenses included $34.3 million of non-cash stock-based compensation expense compared to $29.2 million in the prior year. The increase in S&M expenses is due to an increase in non-cash stock-based compensation of $11.8 million, primarily related to the PDP acquisition, other incentive-based compensation, andincreased headcount to support revenue growth initiatives.initiatives and increased bad debt expense on growing revenue levels.
General and administrative (G&A): Represents operating expenses for all the Company's finance, human resources, legal, corporate IT, and theother corporate administrative functions.
G&A expenses were $27.8$26.1 million for the quarter ended December 31, 2018, an increase2019, a decrease of $6.9$1.7 million, or 33.0%,6.2% compared to the same quarter a year ago, and are 34.8%25.5% of total revenues compared to 35.4%34.8% in the same quarter of the prior year. Current quarterG&A expenses included $0.7$7.1 million of expenses related to business separation costsnon-cash stock-based compensation compared to $5.2$9.6 million in the same quarter of the prior year. The prior year costs were primarily related to AMS separation planning and readiness activities. Additionally, G&A expenses included $9.6 million of non-cash stock-based compensation compared to $3.2 million in the same quarter of the prior year. The current period increase isincluded performance awards adjustments due to PSU conversions to RSUs at 200% on the datesale of the AMS disposition, new LiveRamp leadership equity grants in the quarter, and award modifications (vesting terms modified to end of transition term)(revised vesting terms) for transition associates. The remaining increasenon-cash stock based compensation decrease in G&A expenses is primarilypartially offset by an increase in headcount related to support business growth.
G&A expenses were $71.1$78.9 million for the nine months ended December 31, 2018,2019, an increase of $2.9$7.6 million, or 4.2%10.6%, compared to the same period a year ago, and are 34.3%28.6% of total revenues compared to 42.7%34.3% in the prior year. Current period expenses included $2.8 million of expenses related to business separation costs compared to $17.8 million in the prior year. The prior year costs were primarily related to separation planning and readiness activities. Additionally, G&A expenses included $15.7$17.8 million of non-cash stock-based compensation compared to $8.9$15.7 million in the same period of the prior year. The currentprior year period increase is due to PSU conversions to RSUs at 200% on the date of the AMS disposition, new LiveRamp leadership equity grants,also included $2.8 million in separation and award modifications for transition associates.transformation costs. The remaining increase in G&A expenses is primarily headcount related to support business growth.
Gains, losses, and other items, net: Represents restructuring costs and other adjustments.
Gains, losses and other items, net of $5.0$0.2 million for the quarter ended December 31, 2018 increased $5.82019 decreased $4.8 million compared to the same quarter a year ago. The current quarter included restructuring charges (primarily severance and lease reserves). Gains, losses and other items, net of $5.5$2.6 million for the nine months ended December 31, 2018 increased $3.52019 decreased $3.0 million compared to the same period a year ago.
Loss from Operations and Operating Margin
Loss from operations was $48.2$41.5 million for the quarter ended December 31, 20182019 compared to $27.7$48.2 million for the same quarter a year ago. Operating margin was a negative 60.2%40.6% compared to a negative 46.8%60.2%.
Loss from operations was $116.0$140.1 million for the nine months ended December 31, 20182019 compared to $105.6$116.0 million for the same period a year ago. Operating margin was a negative 56.0%51.0% compared to a negative 66.1%56.0%.
Other Income and Income Taxes
Other income was $10.4$3.2 million for the quarter ended December 31, 20182019 compared to of $0.4$10.4 million for the same quarter a year ago. Other income was $10.5$13.8 million for the nine months ended December 31, 20182019 compared to $0.1$10.5 million for the same period a year ago. Other income is primarily consists of interest income related to invested cash proceeds from the sale of AMS.AMS in October 2018.
Income tax benefit was $0.3 million on a pretax loss of $38.3 million for the quarter ended December 31, 2019 compared to income tax benefit of $22.5 million on a pretax loss of $37.8 million for the quarter ended December 31, 2018 compared to income tax benefit of $29.8 million on pretax loss of $27.3 million for the same quarter last year. The effective tax ratesExcept for both periods were impacted by non-deductible stock-based compensation related to the Arbor and Circulate acquisitions. During the quarter ended December 31, 2018, the Company recognized a discretecertain states, no income tax benefit of $1.8 million related to net excess tax benefits from stock-based compensation compared to $0.1 million discrete tax charge related to shortfallswas recorded for the same quarter last year. current year pretax losses due to uncertainty of realization of our deferred taxes.
Income tax benefit was $21.3$5.9 million on a pretax loss of $105.5$126.3 million for the nine months ended December 31, 20182019 compared to income tax benefit of $55.0$21.3 million on a pretax loss of $105.5 million for the same period last year. Except for certain states, no income tax benefit was recorded for the current year pretax losses due to uncertainty of realization of our deferred taxes. The effective tax rates for both periods were impacted by non-deductible stock-based compensation relatedcurrent year benefit was primarily due to the Arbor and Circulate acquisitions. In the nine months ended December 31, 2018, the Company recognized a discrete tax
expense of $4.2$4.9 million valuation allowance release in connection with establishing a valuation allowance against its deferred tax assets. During the nine months ended December 31, 2018, the Company recognized a discrete tax benefit of $3.6 million related to net excess tax benefits from stock-based compensation compared to $1.3 million for the same period last year.
The three and nine month periods ended December 31, 2018 were also impacted by the Tax Act's permanent reduction in the U.S. federal corporate income tax rate. In addition, the three and nine month periods ended December 31, 2017 included a $24.2 million one-time tax benefit for the remeasurement of net deferred tax liabilities. We remeasured our deferred taxes to reflect the reduced Federal tax rate that will apply when these deferred taxes are settled or realized in future periods. liabilities associated with DPM acquired intangibles.
Discontinued Operations
Summary results of operations of AMS are segregated and included in earnings from discontinued operations, net of tax, in the Company's condensed consolidated statements of operations for the periodsperiod presented below (dollars in thousands):
| | | For the three months ended | | | For the nine months ended | | |
| | December 31, | | | December 31, | | | | | | | | | | | | | | | | | |
| | 2018 | | 2017 | | 2018 | | 2017 | | | | For the three months ended December 31, 2018 | | | For the nine months ended December 31, 2018 |
Revenues | Revenues | | $ | — | | $ | 175,750 | | $ | 332,185 | | $ | 512,734 | Revenues | | | $ | — | | | | $ | 332,185 | |
Cost of revenue | Cost of revenue | | 24,677 | | 91,394 | | 213,512 | | 272,356 | Cost of revenue | | | 24,677 | | | | 213,512 | |
Gross profit | Gross profit | | (24,677) | | 84,356 | | 118,673 | | 240,378 | Gross profit | | | (24,677) | | | | 118,673 | |
Operating expenses: | Operating expenses: | | | | | | | | | Operating expenses: | | | | | | |
Research and development | Research and development | | 6,703 | | 9,007 | | 21,621 | | 26,144 | Research and development | | | 6,703 | | | | 21,621 | |
Sales and marketing | Sales and marketing | | 18,110 | | 25,898 | | 60,743 | | 74,384 | Sales and marketing | | | 18,110 | | | | 60,743 | |
General and administrative | General and administrative | | 27,767 | | 9,957 | | 72,150 | | 26,926 | General and administrative | | | 27,767 | | | | 72,150 | |
Gains, losses and other items, net | Gains, losses and other items, net | | (1,658,667) | | 747 | | (1,656,014) | | 1,479 | Gains, losses and other items, net | | | (1,658,667) | | | | (1,656,014) | |
Total operating expenses | Total operating expenses | | (1,606,087) | | 45,609 | | (1,501,500) | | 128,933 | Total operating expenses | | | (1,606,087) | | | | (1,501,500) | |
Income from discontinued operations | Income from discontinued operations | | 1,581,410 | | 38,747 | | 1,620,173 | | 111,445 | Income from discontinued operations | | | 1,581,410 | | | | 1,620,173 | |
Interest expense | Interest expense | | — | | (2,566) | | (5,702) | | (7,432) | Interest expense | | | — | | | | (5,702) | |
Other, net | Other, net | | 74 | | (13) | | 97 | | (176) | Other, net | | | 74 | | | | 97 | |
Earnings from discontinued operations before income taxes | Earnings from discontinued operations before income taxes | | 1,581,484 | | 36,168 | | 1,614,568 | | 103,837 | Earnings from discontinued operations before income taxes | | | 1,581,484 | | | | 1,614,568 | |
Income taxes | Income taxes | | 509,823 | | 15,761 | | 456,301 | | 34,986 | Income taxes | | | 509,823 | | | | 456,301 | |
Earnings from discontinued operations, net of tax | Earnings from discontinued operations, net of tax | | $ | 1,071,661 | | $ | 20,407 | | $ | 1,158,267 | | $ | 68,851 | Earnings from discontinued operations, net of tax | | | $ | 1,071,661 | | | | $ | 1,158,267 | |
Capital Resources and Liquidity
Working Capital and Cash Flow
Working capital at December 31, 2018 totaled $1.105 billion, a $961.3 million increase when compared to $144.0 million at March 31, 2018, due primarily to the net cash received in the sale of AMS. Current assets and current liabilities held for sale at March 31, 2018 are excluded from working capital.
The Company’s cash is primarily located in the United States. Approximately $7.5$7.9 million of the total cash balance of $1.547 billion,$767.2 million, or approximately 0.5%1.0%, is located outside of the United States. The Company has no current plans to repatriate this cash to the United States.
Accounts receivable days sales outstanding was 83 daysWorking capital at December 31, 20182019 totaled $784.0 million, a $313.0 million decrease when compared to 78 days$1.1 billion at March 31, 2018, and is calculated as follows (dollars in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2018 | | March 31, 2018 |
Numerator – trade accounts receivable, net | | $ | 71,906 | | $ | 52,047 |
Denominator: | | | | |
Quarter revenue | | 80,021 | | 60,210 |
Number of days in quarter | | 92 | | 90 |
Average daily revenue | | $ | 870 | | $ | 669 |
Days sales outstanding | | 83 | | 78 |
Net cash used in operating activities was $40.3 million for the nine months ended December 31, 2018, compared to $4.8 million in the same period a year ago. The $35.6 million decrease resulted primarily from unfavorable changes in working capital.
Investing activities used cash of $7.8 million during the nine months ended December 31, 2018 compared to $4.0 million in the same period a year ago. The year over year change is primarily due to the collection of the $4.0 million note receivable from the Impact sale in the prior year. Investing activities also included capital expenditures of $4.0 million ($5.2 million in the prior year), capitalization of software of $1.3 million ($1.7 million in the prior year), and payments for investments of $2.5 million ($1.0 million in the prior year).
Financing activities used cash of $820.6 million during the nine months ended December 31, 2018 compared to $35.1 million in the same period a year ago. The year over year change is primarily due to the payoff of the revolver debt of $230.0 million, and the acquisition of treasury shares from the tender offer of $503.4 million (11.2 million shares). The prior period included the debt refinancing which consisted of the payment of the prior debt of $226.2 million plus the fees related to the debt refinancing of $4.0 million offset by the proceeds from the new debt of $230.0 million. Financing activities also included the acquisition of treasury stock pursuant to the board of directors' approved stock repurchase plan of $64.1 million (2.3 million shares of the Company's common stock pursuant to the board of directors' approved stock repurchase plan) compared to $39.4 million in the prior year, and sale of common stock, net of stock acquired for withholding taxes of $19.5 million (net cash provided of $5.1 million in the prior year). 2019.
Net cash provided by discontinued operations was $2.3 billion in the current period compared to $50.6 million in the prior year. The increase is due to the net cash received in the sale of AMS.
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded, most recently on October 25, 2018 (see Note 3 - Earnings Per Share). OnManagement believes that date, the board of directors authorized a $500 million increase to the existing common stock repurchase program. Under the modified common stock repurchase program, the Company may purchase up to $1.0 billion of its common stock through the period ending December 31, 2020.
During the nine months ended December 31, 2018, the Company repurchased 2.3 million shares of its common stock for $64.1 million under the stock repurchase program. Through December 31, 2018, the Company had repurchased a total of 22.4 million shares of its stock for $438.7 million under the stock repurchase program, leaving remaining capacity of $561.3 million.
On October 25, 2018, the board of directors authorized a Dutch auction tender offer to purchase shares of its outstanding common stock at an initial aggregate purchase price not to exceed $500 million, plus up to 2% of the Company's outstanding shares of common stock in accordance with the rules and regulations of the SEC. On December 13, 2018, the Company accepted for purchase 11,235,955 shares of its common stock at a price of $44.50 per share, for an aggregate cost of $503.4 million, including fees and expenses. These shares represented approximately 14.2% of the shares outstanding.
Credit and Debt Facilities
Based on our current expectations, we believe our liquidity and capital resourcesexisting available cash will be sufficient to operate our business.meet the Company's working capital and capital expenditure requirements for the foreseeable future. However, we may take advantage of opportunities to generate additional liquidity or refinance existing debt through capital market transactions. The amount, nature, and timing of any capital market transactions will depend on our operating performance and other circumstances; our then-current commitments and obligations; the amount, nature, and timing of our capital requirements; any limitations imposed by our current credit arrangements; and overall market conditions.
Cash Flows
The following table summarizes our cash flows for the periods presented (dollars in thousands):
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| | For the nine months ended | | |
| | December 31, | | |
| | 2019 | | 2018 |
| | | | |
Net cash used in operating activities | | $ | (28,355) | | | $ | (40,332) | |
Net cash used in investing activities | | $ | (115,150) | | | $ | (7,795) | |
Net cash used in financing activities | | $ | (135,840) | | | $ | (820,644) | |
Net cash provided by discontinued operations | | $ | — | | | $ | 2,277,338 | |
Operating Activities - Continuing Operations
Our cash flows from operating activities are primarily influenced by growth in our operations, increases or decreases in collections from our clients and related payments to our suppliers. The timing of cash receipts from clients and payments to suppliers can significantly impact our cash flows from operating activities. Our collection and payment cycles can vary from period to period.
For the nine months ended December 31, 2019, net cash used in operating activities of $28.4 million resulted primarily from net loss adjusted for non-cash items of $15.2 million and an increase in cash used by operating assets and liabilities of $13.2 million. The net unfavorable change in operating assets and liabilities was primarily related to unfavorable changes in accounts receivable of $11.9 million and income taxes of $13.4 million partially offset by favorable changes in accounts payable and other liabilities of $12.6 million. The increase in accounts receivable was primarily due to the growth in our subscription and marketplace and other revenue and the timing of cash receipts from clients. The change in income taxes was primarily due to extension payments related to fiscal 2019 state income tax returns and deferred tax liabilities associated with DPM acquired intangibles.
For the nine months ended December 31, 2018, net cash used in operating activities of $40.3 million resulted primarily from net earnings adjusted for non-cash items of $35.7 million offset by a decrease in cash provided by operating assets and liabilities of $76.0 million. The net unfavorable change in operating assets and liabilities was primarily related to unfavorable changes in income taxes of $50.0 million and accounts receivable of $35.0 million, offset partially by favorable changes in accounts payable and other liabilities of $18.5. The change in income taxes was primarily due to the sale of AMS. The increase in accounts receivable was primarily due to the growth in our subscription and marketplace and other revenue and the timing of cash receipts from clients. The increase in accounts payable and other liabilities was primarily due to the timing of payments to suppliers.
Investing Activities - Continuing Operations
Our primary investing activities have consisted of capital expenditures in support of our expanding headcount as a result of our growth. Capital expenditures may vary from period to period due to the timing of the expansion of our operations, the addition of new headcount, new facilities and acquisitions. Expenditures related to our capitalized software may also vary from period to period based on development cycles. As development cycles shorten, we expect our capitalized costs to continue to decrease. Other periodic investing activities include cash paid in acquisitions, cash received in dispositions that are not classified as discontinued operations, and payments for investments.
For the nine months ended December 31, 2019, we used $115.2 million of cash in investing activities, primarily consisting of $10.3 million for capital expenditures, and $105.4 million for the acquisitions of DPM and Faktor.
For the nine months ended December 31, 2018, we used $7.8 million of cash in investing activities, consisting primarily of $4.0 million for capital expenditures, $2.5 million payment for an investment and $1.3 million for capitalized software.
Financing Activities - Continuing Operations
Our financing activities have consisted of acquisition of treasury stock, proceeds from our equity compensation plans, and shares repurchased for tax withholdings upon vesting of stock-based awards.
For the nine months ended December 31, 2019, we used $135.8 million of cash in financing activities, consisting of the acquisition of treasury shares pursuant to the board of directors' approved stock repurchase plan of $121.2 million (2.6 million shares), and $18.1 million for shares repurchased for tax withholdings upon vesting of stock-based awards (0.1 million shares). These uses of cash were partially offset by proceeds of $3.4 million from the sale of common stock from our equity compensation plans.
For the nine months ended December 31, 2018, we used $820.6 million of cash in financing activities, consisting primarily of the acquisition of treasury stock from the tender offer of $503.4 million (11.2 million shares), the payoff of the revolver debt of $230.0 million, the acquisition of treasury shares pursuant to the board of directors' approved stock repurchase plan of $64.1 million (2.3 million shares), $36.9 million for shares repurchased for tax withholdings upon vesting of stock-based awards (1.0 million shares), and other payments of debt of $3.3 million. These uses of cash were partially offset by proceeds of $17.4 million from the sale of common stock from our equity compensation plans.
Discontinued operations
Net cash provided by discontinued operations was $2.3 billion in the prior year, primarily due to the net cash received in the sale of AMS.
Off-Balance Sheet Items and Commitments
Common Stock Repurchase Program
Under the modified common stock repurchase program, the Company may purchase up to $1.0 billion of its common stock through the period ending December 31, 2020. During the nine months ended December 31, 2019, the Company repurchased 2.6 million shares of its common stock for $121.2 million under the stock repurchase program. Through December 31, 2019, the Company had repurchased a total of 25.1 million shares of its stock for $570.2 million under the stock repurchase program, leaving remaining capacity of $429.8 million.
Contractual Commitments
The following table presents the Company’s contractual cash obligations exclusive of interest, and purchase commitments at December 31, 2018.2019. Operating leases primarily consist of our various office facilities, purchase commitments primarily include contractual commitments for the purchase of data, and other commitments primarily include contractual commitments related to hosting services and software as a service providers. The table does not include the future payment of liabilities related to uncertain tax positions of $17.5$22.4 million as the Company is not able to predict the periods in which the payments will be made. The amounts for 20192020 represent the remaining three months ending March 31, 2019.2020. All other periods represent fiscal years ending March 31 (dollars in thousands).
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| | For the years ending March 31, | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Operating leases | | $ | 3,077 | | $ | 12,024 | | $ | 11,264 | | $ | 10,913 | | $ | 5,159 | | $ | 7,767 | | $ | 50,204 |
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| | For the years ending March 31, | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Operating leases | | $ | 2,725 | | | $ | 10,187 | | | $ | 9,147 | | | $ | 2,670 | | | $ | 725 | | | $ | 33 | | | $ | 25,487 | |
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| | For the years ending March 31, | | | | | | | | | | | | |
| | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter | | Total |
Purchase commitments | | $ | 6,999 | | $ | 12,892 | | $ | 9,861 | | $ | 4,073 | | $ | 3,212 | | $ | 1,575 | | $ | 38,612 |
Purchase commitments primarily include contractual commitments forFuture minimum payments as of December 31, 2019 related to restructuring plans as a result of the purchaseCompany's exit from certain leased office facilities are: Remainder of data.Fiscal 2020: $636; Fiscal 2021: $2,560; Fiscal 2022: $2,610; Fiscal 2023: $2,663; Fiscal 2024: $2,699; and Thereafter: $4,497.
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| | For the years ending March 31, | | | | | | | | | | | | |
| | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Purchase commitments | | $ | 5,220 | | | | $ | 9,531 | | | | $ | 5,201 | | | | $ | 3,308 | | | | $ | 96 | | | | $ | 48 | | | | $ | 23,404 | |
Other commitments | | 6,215 | | | | 21,912 | | | | 25,575 | | | | 27,720 | | | | 7,525 | | | | — | | | | 88,947 | |
Total purchase and other commitments | | $ | 11,435 | | | $ | 31,443 | | | $ | 30,776 | | | $ | 31,028 | | | $ | 7,621 | | | $ | 48 | | | $ | 112,351 | |
While the Company does not have any other material contractual commitments for capital expenditures, certain levels of investments in facilities and computer equipment continue to be necessary to support the growth of the business. Management believes that the Company’s existing available cash will be sufficient to meet the Company’s working capital and capital expenditure requirements for the foreseeable future. The Company also evaluates acquisitions from time to time, which may require up-front payments of cash.
For a description of certain risks that could have an impact on results of operations or financial condition, including liquidity and capital resources, see “Risk Factors” contained in Part I, Item 1A, of the Company’s 20182019 Annual Report.
Non-U.S. Operations
The Company has a presence in the United Kingdom, France, Netherlands, Australia, China, Singapore and Japan. Most of the Company’s exposure to exchange rate fluctuation is due to translation gains and losses as there are no material transactions that cause exchange rate impact. In general, each of the foreign locations is expected to fund its own operations and cash flows, although funds may be loaned or invested from the U.S. to the foreign subsidiaries. These advances are considered long-term investments, and any gain or loss resulting from changes in exchange rates as well as gains or losses resulting from translating the foreign financial statements into U.S. dollars are included in accumulated other comprehensive income. ExchangeTherefore, exchange rate movements of foreign currencies may have an impact on the Company’s future costs or on future cash flows from foreign investments. The Company has not entered into any foreign currency forward exchange contracts or other derivative instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates.
Critical Accounting Policies
We prepare our condensed consolidated financial statements in conformity with U.S. GAAP as set forth in the FASB ASC and we consider the various staff accounting bulletins and other applicable guidance issued by the SEC. These accounting principles require management to make certain judgments and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The consolidated financial statements in the Company’s 20182019 Annual Report include a summary of significant accounting policies used in the preparation of the Company’s consolidated financial statements. In addition, the Management’s Discussion and Analysis filed as part of the 20182019 Annual Report contains a discussion of the policies that management has identified as the most critical because they require management’s use of complex and/or significant judgments. None of the Company’s critical accounting policies have materially changed since the date of the last annual report other than as described in the Accounting Pronouncements Adopted During the Current Year section of Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements.
Accounting Pronouncements Adopted During the Current Year
See “Accounting Pronouncements Adopted During the Current Year” under Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements for a discussion of certain accounting standards that have been issued and were adopted during the current fiscal year.
New Accounting Pronouncements Not Yet Adopted
See “Recent Accounting Pronouncements Not Yet Adopted” under Note 1, “Basis of Presentation and Summary of Significant Accounting Policies,” of the Notes to Condensed Consolidated Financial Statements for a discussion of certain accounting standards that have been issued but not yet adopted.
Forward-looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements.statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements, which are not statements of historical fact, may contain estimates, assumptions, projections and/or expectations regarding the Company’s financial position, results of operations, market position, product development, growth opportunities, economic conditions, and other similar forecasts and statements of expectation. Forward-looking statements are often identified by words or phrases such as “anticipate,” “estimate,” “plan,” “expect,” “believe,” “intend,” “foresee,” or the negative of these terms or other similar variations thereof. These forward-looking statements are not guarantees of future performance and are subject to a number of factors and uncertainties that could cause the Company’s actual results and experiences to differ materially from the anticipated results and expectations expressed in the forward-looking statements.
Forward-looking statements may include but are not limited to the following:
•management’s expectations about the macro economy;
•statements containing a projection of revenues, operating income (loss), income (loss), earnings (loss) per share, capital expenditures, dividends, capital structure, or other financial items;
•statements of the plans and objectives of management for future operations, including, but not limited to, those statements contained under the heading “Growth Strategy” in Part I, Item 1 of the Company's 20182019 Annual Report on Form 10-K;
•statements of future economic performance, including, but not limited to, those statements contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company's 20182019 Annual Report on Form 10-K;
•statements containing any assumptions underlying or relating to any of the above statements; and
•statements containing a projection or estimate.
Among the factors that may cause actual results and expectations to differ from anticipated results and expectations expressed in such forward-looking statements are the following:
•the risk factors described in Part I, “Item 1A. Risk Factors” included in the Company's 20182019 Annual Report and those described from time to time in our future reports filed with the SEC;
•the possibility that, in the event a change of control of the Company is sought, certain clients may attempt to invoke provisions in their contracts allowing for termination upon a change in control, which may result in a decline in revenue and profit;
•the possibility that the integration of acquired businesses may not be as successful as planned;
•the possibility that the fair value of certain of our assets may not be equal to the carrying value of those assets now or in future time periods;
•the possibility that sales cycles may lengthen;
•the possibility that we will not be able to properly motivate our sales force or other associates;
•the possibility that we may not be able to attract and retain qualified technical and leadership associates, or that we may lose key associates to other organizations;
•the possibility that competent, competitive products, technologies or services will be introduced into the marketplace by other companies;
•the possibility that there will be changes in consumer or business information industries, and markets or regulations that negatively impact the Company;
•the possibility that we will not be able to protect proprietary information and technology or to obtain necessary licenses on commercially reasonable terms;
•the possibility that there will be changes in the legislative, accounting, regulatory and consumer environments affecting our business, including but not limited to litigation, legislation, regulations and customs impairing our ability to collect, manage, aggregate and use data;
•the possibility that due to changes in culture, legislation or regulation, such as the California Consumer Protection Act (and regulations thereunder) and analogous laws and regulations, that greater numbers of consumers will exercise rights to prevent the use of personal data and reduce the amount of data available for our use and for the advertising and marketing ecosystem in which we operate leading to a reduction in our revenue;
•the possibility that data suppliers might withdraw data from us, leading to our inability to provide certain products and services;
•the possibility that data purchasers will reduce their reliance on us by developing and using their own, or alternative, sources of data generally or with respect to certain data elements or categories;
•the possibility that we may enter into short-term contracts whichthat would affect the predictability of our revenues;
•the possibility that the amount of ad hoc, volume-based and projectother transactional based work will not be as expected;
•the possibility that we may experience a loss of data center capacity or interruption of telecommunication links or power sources;
•the possibility that we may experience failures or breaches of our network and data security systems, leading to potential adverse publicity, negative customer reaction, or liability to third parties;
•the possibility that our clients may cancel or modify their agreements with us;
•the possibility that we will not successfully complete customer contract requirements on time or meet the service levels specified in the contracts, which may result in contract penalties or lost revenue;
•the possibility that we may experience processing errors that result in credits to customers, re-performance of services or payment of damages to customers;customers or regulatory error;
•the possibility that our performance may decline and we may lose advertisers and revenue if the use of "third-party cookies" or other tracking technology is rejected by Internet users, restricted or otherwise subject to unfavorable regulation, blocked or limited by technical changes on end users' devices, or our or our clients' ability to use data on our platform is otherwise restricted;
•general and global negative economic conditions; and
•our tax rate and other effects of the changes to U.S. federal tax law.law.
With respect to the provision of products or services outside our primary base of operations in the United States, all of the above factors apply, along with the difficulty of doing business in numerous sovereign jurisdictions due to differences in scale, competition, culture, laws and regulations.
Other factors are detailed from time to time in periodic reports and registration statements filed with the SEC. The Company believes that it has the product and technology offerings, facilities, associates and competitive and financial resources for continued business success, but future revenues, costs, margins and profits are all influenced by a number of factors, including those discussed above, all of which are inherently difficult to forecast.
In light of these risks, uncertainties and assumptions, the Company cautions readers not to place undue reliance on any forward-looking statements. TheForward-looking statements and such risks, uncertainties and assumptions speak only as of the date of the Quarterly Report on Form 10-Q, and the Company undertakes noexpressly disclaims any obligation or undertaking to publicly update or revise any forward-looking statements contained herein, to reflect any change in our expectations with regard thereto, or any other change based on the occurrence of future events, the receipt of new information or otherwise.
otherwise, except to the extent otherwise required by law.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We believe there have been no material changes in our market risk exposures for the nine months ended December 31, 2018,2019, as compared with those discussed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2018.2019.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of our Chief Executive Officer (our principal executive officer) and our President, Chief Financial Officer and Executive MDManaging Director of International (our principal financial and accounting officer), evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended). Based on this evaluation, our principal executive officer and our principal financial and accounting officer concluded that as of December 31, 2018,2019, our disclosure controls and procedures were effective.
(b) Changes in Internal Control over Financial Reporting.
There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended December 31, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are currently no matters pending against the Company or its subsidiaries for which the potential exposure is considered material to the Company’s condensed consolidated financial statements.
Item 1A. Risk Factors
The risks described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended March 31, 20182019 (the "2018"2019 Form 10-K"), which was filed with the Securities and Exchange Commission on May 25, 2018,29, 2019, remain current in all material respects. The risk factors in our 20182019 Form 10-K do not identify all risks that we face. Our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. If any of the identified risks or others not specified in our SEC filings materialize, our business, financial condition, or results of operations could be materially adversely affected. In these circumstances, the market price of our common stock could decline.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
a.Not applicable.
a.b.Not applicable.
a.c.The table below provides information regarding purchases by LiveRamp of its common stock during the periods indicated.
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| | | | | | | | Maximum Number (or Approximate |
| | Total Number | | Average Price | | Total Number of Shares | | Dollar Value) of Shares that May Yet |
| | of Shares | | Paid | | Purchased as Part of Publicly | | Be Purchased Under the |
Period | | Purchased | | Per Share | | Announced Plans or Programs | | Plans or Programs |
October 2018 | | — | | — | | — | | $ | 79,600,656 |
November 2018 | | 400,194 | | 45.81 | | 400,194 | | 61,259,714 |
December 2018 | | — | | — | | — | | 61,259,714 |
Total | | 400,194 | | — | | 400,194 | | N/A |
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Period | | Total Number of Shares Purchased | | Average Price Paid Per Share | | Total Number of Shares Purchasesd as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
October 2019 | | — | | | $ | — | | | — | | | $ | 450,473,075 | |
November 2019 | | 195,500 | | | $ | 48.44 | | | 195,500 | | | $ | 441,002,759 | |
December 2019 | | 228,453 | | | $ | 49.22 | | | 228,453 | | | $ | 429,757,545 | |
Total | | 423,953 | | | $ | 48.86 | | | 423,953 | | | N/A |
On August 29, 2011, the board of directors adopted a common stock repurchase program. That program was subsequently modified and expanded, most recently on October 25, 2018. Under the modified common stock repurchase program, the Company may purchase up to $1.0 billion of its common stock through the period ending December 31, 2020. Through December 31, 2018,2019, the Company had repurchased a total of 22.425.1 million shares of its stock for $438.7$570.2 million, leaving remaining capacity of $561.3$429.8 million under the stock repurchase program.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
The following exhibits are filed with this quarterly report:
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10.131.1 | | Amended and Restated 2005 Equity Compensation Plan of LiveRamp Holdings, Inc., as amended and restated on September 20, 2018, and as subsequently amended and restated on October 2, 2018 (previously filed on October 2, 2018, as Exhibit 99.1 to LiveRamp Holdings, Inc.’s Amendment No.1 to registration statement on Form S-8, Registration No. 333-219839, and incorporated herein by reference) |
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31.1 | | |
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31.2 | | | |
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32.1 | | | |
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32.2 | | | |
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101 | | | The following financial information from our Quarterly Report on Form 10-Q for the quarter ended December 31, 2018,2019, formatted in XBRL: (i) Condensed Consolidated Balance Sheets at December 31, 2018,2019, and March 31, 2018,2019, (ii) Condensed Consolidated Statements of Operations for the Three Months ended December 31, 20182019 and 2017, 2018,(iii) Condensed Consolidated Statements of Operations for the Nine Months ended December 31, 20182019 and 2017,2018, (iv) Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months ended December 31, 2018 and 2017, (v) Condensed Consolidated Statements of Comprehensive Income for the Nine Months ended December 31, 2019 and 2018, and 2017, (vi)(v) Condensed Consolidated Statement of Equity for the Three Months and Nine Months ended December 31, 2019 and December 31, 2018, (vii)(vi) Condensed Consolidated Statements of Cash Flows for the Nine Months ended December 31, 2019 and 2018, and 2017, and (vi)(vii) the Notes to Condensed Consolidated Financial Statements, tagged in detail. |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| LiveRamp Holdings, Inc. | |
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Dated: February 11, 2019 5, 2020 | | |
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| By: | /s/ Warren C. Jenson |
| | (Signature) |
| | Warren C. Jenson |
| | President, Chief Financial Officer and Executive Managing Director of International |
| | (principal financial and accounting officer) |