Acxiom Corp (ACXM - Free Report) reported non-GAAP earnings (with stock-based compensation adjustments) of 3 cents per share in fourth-quarter 2017, missing the Zacks Consensus Estimate by 3 cents.
Excluding stock-based compensation adjustments and one-time items, earnings declined 16.7% from the year-ago quarter to 15 cents per share.
Total revenue was $224.9 million almost flat from the year-ago quarter but better than the Zacks Consensus Estimate of $223 million. Adjusted total revenue increased 8% to $226 million.
Domestic revenues for the quarter were $207 million, up 8% year over year. However, international revenues declined 8% to $18 million in the reported quarter. Excluding revenues related to Australia transition and foreign exchange effect, international revenues increased 8% year over year to $19 million.
In fiscal 2017, non-GAAP total revenue increased 4% over fiscal 2016 to $880 million. The figure was better than management’s guided range of $870–$875 million. Earnings per share (EPS) of 71 cents increased 22% over fiscal 2016 and were slightly better than management’s guidance.
Shares fell more than 8% in after-hour trading following the unimpressive results and modest fiscal 2018 guidance. We note that shares have underperformed the Zacks IT Services industry on a year-to-date basis. While the industry gave a positive return of 10.3%, Acxiom gained 5.2%.
Marketing Services segment revenues decreased 16.8% year over year to $94.3 million. Marketing Database and Strategy & Analytics revenue inched up 1% year over year, but was more than offset by the sale of Acxiom Impact.
Marketing Services segment revenues from the U.S. markets were $87 million, down 16% year over year. International revenues declined 24% to $7 million.
Audience Solutions segment revenues increased 7.8% to $86.4 million, driven by growing customer base. Sales from the U.S. markets were $78 million, up 9% year over year, while international revenues decreased 2% to $8 million. On a trailing 12-month basis new bookings increased more than 20% over the comparable period.
Acxiom continues to expand distribution to digital channels. The company added 10 new data services partners in the reported quarter. The company expanded data partnerships with Alphabet’s (GOOGL - Free Report) Google to include mobile targeting as well as with AOL to help power their TV Solution.
Digital data revenue was almost $17 million up 86% year over year in the quarter. The company entered into a partnership with Data Expand during the quarter, which allowed it to activate 35% of the entire connected Spanish speaking world.
Acxiom now offer data products in over 50 countries representing 2.5 billion addressable consumers or roughly 60% of the entire online connected population. This has been a rapid growth from eight countries representing 850 million addressable consumers just within a short-span of six months.
The Connectivity segment continued to show strong momentum, as revenues were up an impressive 41.7% year over year to $44.2 million. The growth rate was better than management’s expectation of 40%.
LiveRamp product revenue soared 59%, which was within management’s guided range of 55–60%. Sales from the U.S. markets were $41 million, advancing 42% year over year. International revenues jumped 39% to $3 million.
Connectivity added more than 25 new direct customers during the quarter and added over 50 new partner integrations including Microsoft’s (MSFT - Free Report) LinkedIn. Total direct customer count grew to more than 400.
Moreover, the integration of Arbor and Circulate with LiveRamp has been smooth and clients are already benefiting from the combination of match data and omnichannel identity graph. The company stated that on average, clients are experiencing a 60% improvement in deterministic web match rates and a 40% improvement in deterministic mobile match rates by using the combined product.
Further, more than 70 clients signed up for Smart Reach product and more than 30 have already implemented it.
Non-GAAP gross margin expanded 310 basis points (bps) on a year-over-year basis to 50.1%. The improvement was primarily driven by robust performance from Audience Solutions segment, which surged 590 bps. However, Marketing Services and Connectivity gross margins decreased 230 bps and 10 bps, respectively.
Operating expenses as percentage of revenues (prior to one-time items) increased 520 bps to 48.8%, on the back of 300 bps jump in research & development (R&D) expense, 110 bps surge in sales & marketing expense and 100 bps increase in general & administrative expense.
Segment operating margin expanded 270 bps to 63.2% in the reported quarter. Marketing Services and Audience Solutions operating margin expanded 370 and 190 bps, respectively.
Connectivity reported operating profit of $1.5 million as compared with a loss of $0.4 million in the year-ago quarter.
Non-GAAP operating margin (including stock-based compensation expense) contracted 280 bps to 2.7% in the reported quarter.
For fiscal 2018, Acxiom anticipates to report revenues of $ 945 million, up 10% over fiscal 2017. Non GAAP EPS is projected to be almost 80 cents.
Revenues as percentage of fiscal 2018, total revenue is expected to be 23% in the first quarter, 24% in the second quarter, 26% in the third quarter and 27% in the fourth quarter.
For first-quarter 2018, EPS is anticipated to be 16% of management’s guided figure.
Connectivity revenue is expected to accelerate both organically and inorganically, as much as 50% year over year. Gross margin could be as high as 65% for the fiscal year and management expects segment margin to approach 10%.
Audience solutions revenue is expected to be up mid-single digits driven by growth in digital data and the company’s global data initiatives. Margins are expected to remain flat.
Marketing services revenues are anticipated to be roughly flat. However, management expects segment income to be up mid-single digits and EBITDA margins to improve year over year.
Acxiom expects continuing International growth. Management forecasts every region outside the U.S. to grow double digits in fiscal 2018.
Management expects capital expenditure to be approximately $70 million for fiscal 2018.
Zacks Rank & Key Pick
Acxiom currently carries a Zacks Rank #3 (Hold). DXC Technology (DXC - Free Report) a Zacks Rank #1 (Strong Buy) is a stock worth looking in the same sector. You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for DXC is currently pegged at 8%.
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