Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2024 Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host Drew Borst, Vice President of Investor Relations..

Thank you, operator. Good afternoon and welcome. Thank you for joining our fiscal 2024 second quarter earnings call. With me today are Scott Howe, our CEO; and Lauren Dillard, Interim CFO.

Today's press release and this call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For a detailed description of these risks, please read the Risk Factors section of our public filings and the press release.

A copy of our press release and financial schedules, including any reconciliation to non-GAAP financial measures is available at liveramp.com. Also, during the call today we will be referring to the slide deck posted on our website. At this time, I'll turn the call over to Scott..

cloud computing, retail media networks, first-party data collaboration, CTV and the slow march toward authenticated addressability, can all be tailwinds for our business in the coming years.

Thank you again, for joining us today and a special thanks to our exceptional customers, partners and to all of my LiveRamp colleagues, for their ongoing hard work and support. We look forward to updating you on our progress in the coming quarters. I will now turn the call over to Lauren..

Thanks, Scott and thank you all for joining us. Today, I will cover two topics. First, a review of our Q2 financial results; and second, our updated outlook for FY 2024 and for Q3. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth is relative to the year ago period. Starting with Q2 results.

In summary, results were above our expectations. Revenue came in at $160 million, which was $8 million above our guidance. And operating income was $32 million or $13 million above our guidance.

Operating margin expanded by eight percentage points to a record high of 20%, and we generated $36 million in operating cash flow our fifth consecutive quarter of positive OCF. Let me provide some additional details. Please turn to slide 5. Total revenue was $160 million, up 9%.

The subscription revenue is slightly ahead of our expectations, while marketplace and other was significantly ahead, driven primarily by a stronger than expected digital advertising market. Subscription revenue was $126 million, up 5% and growth was driven by broad product and sector strength.

Fixed subscription revenue grew mid-single digits and usage as a percentage of total subscription revenue was 15% within the historical 10% to 15% range. ARR was $428 million, up 2%. We believe this growth represents a low watermark as the recent improvement in bookings and contraction will start to more fully impact this metric moving forward.

In addition Q2 growth was hurt by the timing of bookings being recognized in ARR, reflecting our move up market to larger more complex deals. Subscription net retention was 101%. The sequential improvement was mostly due to improved upsell and to a lesser extent reductions in contraction.

While our longer term aspiration is, obviously, much higher we are pleased to get our S&R back above 100% two quarters earlier than we initially expected. Current RPO or our next 12-month contracted backlog was $339 million, up 16%. Total RPO including contracted backlog beyond the next 12 months was up 26% to $490 million.

Like last quarter there is an unusually large difference between CRPO and ARR growth. As we've discussed previously, the RPO is very sensitive to the timing of renewals and to contract durations and both of these factors again benefited CRPO growth in the quarter. Overall, the Q2 selling environment remains stable.

On the positive side, we saw an improvement in our pipeline conversion back to FY 2022 levels. And on a dollar basis had the strongest new logo quarter in the past two years. Also our contraction or the combination of down-sell and customer churn improved both quarter-on-quarter and year-on-year. And budget constraints were cited less frequently.

On the other hand, our average deal cycle continues to run about one quarter longer than FY 2022. This has been the case now for consecutive quarters and is at least partially due to our shift upmarket to larger high LTV enterprise customers with more complex data collaboration use cases.

You can see this shift show up in some of our key growth metrics like our $1 million customer count. Marketplace and other revenue of $34 million increased 25% driven by data marketplace, which grew 19% and accounted for 78% of marketplace and other revenue.

Data marketplace growth was fueled by a healthy digital advertising market including strength in CTV. We also continue to see strong growth in professional services, which accounted for nearly one-third of the revenue growth in marketplace and other. Moving beyond revenue.

Gross margin was 75% flat year-on-year and 200 basis points higher than our guidance, driven primarily by the timing of planned investments. Operating expenses decreased 5% to $89 million, driven by last year's cost restructuring and benefited from the shift of certain expenses to the fiscal second half.

Operating income was $32 million, up from $17 million a year ago and our operating margin expanded by 800 basis points to a record high of 20%. GAAP operating income was positive for a second consecutive quarter at $8 million representing a GAAP operating margin of 5%.

We incurred $7 million in restructuring charges, primarily related to a goodwill impairment associated with the restructuring of our China operations and a lease impairment. Stock-based compensation was $16 million, down from $27 million a year ago due to the accelerated vesting of certain non-NEO RSUs in Q4 of FY 2023.

Operating cash flow was $36 million, up from $21 million a year ago due primarily to higher earnings. We repurchased 490,000 shares for $15 million in Q2, bringing the fiscal first half total to $35 million. We have approximately $183 million remaining under the current authorization that expires on December 31, 2024.

In summary, Q2 was a strong quarter. Revenue growth improved to 9% with both Subscription and Marketplace exceeding our expectations. Our non-GAAP operating margin, expanded by 800 basis points. GAAP operating income was positive for a second straight quarter.

We generated $36 million in operating cash flow in the quarter and $108 million in the trailing four quarters. And finally, we repurchased $35 million of stock through Q2. Next, let me now turn to our financial outlook for FY 2024 and for Q3. Please turn to slides 12 and 13.

Please keep in mind, our non-GAAP guidance excludes intangible amortization, stock-based compensation and restructuring and related charges. Starting with the full year. We are increasing our total revenue guidance by approximately $10 million at the midpoint and now expect revenue to be between $632 million and $637 million, up 6% to 7% year-on-year.

Our outlook for Subscription revenue is unchanged. We continue to expect Subscription revenue to grow in the mid-single-digits with usage as a percentage of total subscription near the midpoint of the historic 10% to 15% range. We expect Subscription net retention to hover around 100% for the next two quarters.

We now expect Marketplace and Other revenue growth to be in the low-double-digits for the full year, up from our prior expectation of mid- to high-single digits. We continue to expect gross margin to be approximately 74% despite the outperformance in Q2, which was mostly a timing issue.

In the second half, we are making incremental investments in our platform architecture and in professional services to support future revenue growth.

We expect our operating expenses to decline this year by approximately 4% but are still making additional investments in our sales force and cloud strategy as well as some upfront investment to ensure our offshoring initiative is successful.

Despite these added investments, we are increasing our operating income guidance to be between $97 million and $100 million, $7 million higher than our prior guide at the midpoint. At the midpoint of our guidance range, the operating margin is approximately 15%, up 500 basis points year-on-year.

We expect stock-based compensation to be approximately $69 million, which benefits from the $23 million in accelerated vesting in FY 2023 and is slightly lower than our prior guide. We now expect $11 million in restructuring charges given the lease and goodwill impairments recognized in Q2.

We expect GAAP operating income to be between $8 million and $11 million. Lastly, we continue to expect share repurchases of between $15 million and $20 million per quarter in the fiscal second half. Now, moving on to Q3.

We expect total revenue of approximately $165 million, operating income of roughly $29 million, and an operating margin of approximately 18%. A few other call-outs for Q3.

Recall that in the year ago quarter, our subscription revenue included a nonrecurring contract settlement of $4 million, resulting in a three percentage point growth headwind for subscription revenue this Q3. Excluding this headwind we expect underlying subscription growth to be mid-single-digits.

We expect subscription net retention in Q3 to be approximately 100%. We expect marketplace and other revenue to grow by low double-digits. This growth rate is slower sequentially because we are taking a measured view on digital ad market growth in light of the current macro and geopolitical environment.

And we expect gross margin to be approximately 74%. Before opening the call to questions, I'll conclude with a few final thoughts. First, Q2 was strong on the topline and especially the bottom-line. Importantly, we think our revenue growth metrics are turning a corner.

Next, given the uncertain macro environment, we remain appropriately cautious with our revenue guidance for the balance of the fiscal year. We have good visibility on our subscription business. And with marketplace, we are striking a balance between our strong execution and the risk of a slowdown, driven by forces outside of our control.

To be clear, we would expect to see upside in marketplace particularly in Q4 if the advertising markets hold at the current level. And finally, as Scott mentioned, our financial North Star is Rule of 40 with mid-teens topline growth and a 25%-plus operating margin.

On the topline we are encouraged by the positive trends in forward bookings and contraction.

On the margin front, the high incremental margin inherent in our model, combined with the expansion of our new India office, gives us a path for sustained margin expansion in the coming years, while we continue to appropriately invest to support top line growth. With that, on behalf of all LiveRampers, thank you for joining us today.

Operator, we will now open the call to questions..

Thank you. [Operator Instructions] Your first question comes from the line of Shyam Patil of SIG..

Hey guys, this is Jared on for Shyam. Congratulations on the impressive quarter. Of course I've got a couple if you don't mind. I guess for starters, focusing in on the higher LTV customer strategy.

Can you elaborate a bit further upon that and how you're thinking that this plays out through the rest of the year? As well as maybe unpacking a bit more of the decline that we saw in the current quarter? And then for the second question, you continue to highlight CTV as a driver of the strength in the business.

Anywhere in particular that we should be looking in your results as we're looking both in this quarter and then further CTV strength down the road? And just how are you thinking that that CTV strength continues to materialize?.

Thanks, Jared. I'm happy to take the first and I'll pass it to Scott for the second.

With respect to customer count, I'll start maybe by just highlighting something Scott mentioned in his prepared remarks, which is that this is a direct reflection of a decision that we made as a business several quarters ago to really focus our selling efforts on large high ACV enterprise customers, where we believe our value proposition today is the greatest.

So in the quarter, we did see continued pressure on customer count. This was almost entirely driven by small customers in the ad tech sector that are being impacted by the macro as well as other market dynamics.

That said, I think it's important to note that our dollar-based metrics are improving and reflect this quality versus quantity dynamic that Scott had mentioned. As an example in the quarter, we closed one of our strongest new logo bookings quarters in recent history.

And we saw a pretty nice uptick in both million-dollar customers as well as customers who fall in the $500,000 to $1 million range.

So in terms of our outlook for the balance of the year, we do expect this dynamic to continue for at least the next couple of quarters which means total customer count could continue to decline but we would expect other metrics like million dollar-plus customer count to continue to increase..

And Jared on your second question, I would tell you I'm really bullish about CTV and you probably heard that in my prepared remarks. In terms of where you're going to see it, I would say it's hard to tease out, but you can broadly look at three major areas. The first is subscriptions.

If you look at the CTV providers for the most part they're 100% authenticated. So they could be a big winner as third-party cookies go away because that spend is addressable and it works. And so where you see that in our business is in our subscriptions. And so as the market tips to CTV, I think you'll see our subscriptions become even stickier.

And you might see that in terms of a usage increase as well. What's kind of startling. I was looking at the stats earlier today. If you look at our distributions, the destinations that advertisers send data to, if you look at the top 50 by volume, nearly half of them 22 of them are pure CTV providers or CTV platforms.

So it suggests that very quietly over the last couple of years advertisers are already making a shift. The second place that you're going to see this is in our Marketplace business. And again, it's kind of beneath the surface line. TV data sales as a part of Marketplace were actually up a staggering 50% year-over-year.

And that data comprises I think roughly 10% of the total demand within data marketplace. So nice story there as well. And then the third place that you'll see it not surprisingly because they're getting more demand and because they also have really deep pockets of authenticated data is we think there's an opportunity for data collaboration.

Very similar to what we've seen in the retail media network space. The various CTV providers have something really interesting to share.

And so there's an opportunity that all of them are interested in, in partnering more deeply with the major advertisers of the world, collaborate in on data, such that advertisers can find their target audiences and also understand kind of end-to-end measurement across everything that happens once an ad is seen.

So three really interesting places and -- just come full circle. We've hit the tipping point for CTV. It's here. We're seeing it in our numbers. And we think that's going to be a really nice tailwind for us really for the next few years..

Great. Thank you, both..

Your next question comes from the line of Elizabeth Porter of Morgan Stanley. Your line is open..

Hi. This is Chris Quintero on for Elizabeth. Congrats again on another solid quarter here.

Maybe to start out of all of your kind of like top line initiatives that you all have been focused on over the past year or so whether that's the sales force improvement or the growing industry partnerships I'm curious to hear what areas have maybe surprised you the most of the upside than maybe you initially expected so far?.

Yes, Chris, I would tell you that to me sales success is a function of two ingredients. First you have to have demand. And there I think we've probably been pleasantly surprised based on our initial forecast in terms of market softness. And I think the market's just developed better than we thought.

But from a demand side there are so many levers that we're pulling; Cloud Partnerships, CTV, collaboration networks. Likewise really, really pleased with some of the traction we're getting with major European clients and Australian clients.

And what's interesting is the opportunities that we're seeing if you looked at our pipeline and you looked both at the named clients and the conversation that's underway it is really encouraging. Because they're all companies that you would have heard of and they're doing really fascinating things with data.

So I like the demand side and that's firmed up I think even better than I would have thought. But to meet the demand you also have to execute. You have to be able to respond. And there I'm equally pleased. We've really done a revamp of our marketing collateral.

Our team has done a nice job of onboarding and training and arming sellers with the tools that they need to succeed. And we're seeing that in our numbers. More specifically best new logo quarter in a couple of years. Strength kind of across the board auto, financial services, healthcare, retail.

And our pipeline conversion was the highest we've had in seven quarters and even stronger with $1 million deals. So when I look at the numbers everything is kind of tipping in the right direction. Now the one thing I'd say to our entire organization many of whom are listening on the call today is success has to be stacked. We can't let up.

We have a lot of momentum but a couple of good quarters doesn't make the trend line we're looking for. So we need to keep it going through the back half of the year..

Got it. That's very helpful. I also wanted to ask around the impressive six Fortune 500 customer additions in the quarter that I think you mentioned. Just curious how this kind of came about.

Did they come through the improved sales force or maybe through some of your industry partnerships? And what do you think worked well in the process to ultimately win those large customers?.

Yes. Hold on. I'm just going to pull a stat which is kind of mind-blowing actually. What I would tell you is what I'm really pleased with is our channel partnerships. And I think we're seeing a lot of traction there. One of the things that I realized when I worked at Microsoft, I thought that years ago all of Microsoft sales were direct.

And when my company got acquired, I realized no that's not the case. They have a really big partner sales force. And in fact most -- most SaaS companies use partner channels to their benefit with the exception of LiveRamp. Now a couple of years ago we really started to push on channel partnerships.

And our focus for this past year has really been with the cloud and cloud data warehouses. We've done direct partnerships with all the major cloud providers. We've also forged strategic partnerships with system integrators for cloud opportunities.

And we are partnering closely with the ecosystem, educating them about how our products work in the cloud and use cases go-to-market education. As an example, if I think about just last quarter alone, we did over 215 joint planning calls just with Snowflake. But ultimately we're going to be judged by our results.

And on this, 60%, and this is the stat I was looking for -- 60% of our commercial leads closed cloud business year-to-date which is an amazing stat relative to a year or two ago. And if you look at cloud attached business as part of our revenue, we'll double it this year to $20 million for the year. So, really, really encouraged.

And I think we're still in the early stages of getting those partnerships up and running..

Excellent. Thank you, so much..

Your next question comes from the line of Mark Zgutowicz of The Benchmark Company. Your line is open..

Thank you and good evening Scott and Lauren. Just two questions. I was curious, what dynamics drove the usage as a percent of subscription revenue above expectations to 15%? I think the 15% is sort of at the higher end of your historical range.

And what might that suggest in terms of '24? And then separately, curious what kind of demand you may be seeing outside of your core CPG and retail verticals? And I know you've talked in the past about health care and fintech being sort of limited with data privacy laws. Just maybe some color there would be helpful..

Sure. I'm happy to take the first, Mark, and I'll let Scott jump in on the second. With respect to usage as a percentage of subscription revenue, you're right, it landed right around 15% in the quarter which is at the high end of our historic 10% to 15% range.

The only notable thing I would call out is just it benefited certainly from a better macro environment and better overall trends in digital advertising than we assumed in our outlook going into the quarter.

Again, in the back half -- and this is consistent with how we've been guiding those subscription usage in marketplace -- we are attempting to be both balanced and conservative. And so I would guide you to the midpoint of that 10% to 15% range in Q3 and Q4 versus what we saw in Q2..

And then Mark your second question is really about, which verticals. In my prepared remarks today I talked about my time at Adweek a few weeks ago in New York. And one of the things that was all over Adweek literally every conversation was the growth of retail media networks. It's the fastest-growing part of most media plans.

And as a result other advertiser's marketers and data providers have really taken notice. And the whole driver of retail media networks is collaboration that's happening between retailers and their merchant partners. I think we're starting to see that evolve in a really healthy way to other verticals.

I think it was in Q4 last year, I talked about the automotive space as an example. And I shared a new client win that we had and a fascinating case study where they're using us and doing data collaboration not get with the rest of the world, but between the OEM, the regional advertising groups and the actual dealers where cars are sold.

And when all of them are collaborating, all of a sudden you can make the connection between a car that's manufactured where an ad is served regionally and whether it actually drove a purchase at the dealer.

That is a great case study that I look forward to sharing with you some day at an Analyst Day, because it's also indicative of a company we brought on. When they came on they were just an on-boarding client $0.5 million a year. And within three years they're doing some of the most sophisticated things that any of our clients are doing.

Their spend is over 10x as much as it was when they started. And they just keep layering more sophistication on what they're doing. Another more recent example is I talked about some airline wins that we had.

And I'm really excited about where one of them is going to take their partnership with LiveRamp because certainly they'll start and they'll use LiveRamp to better direct their own spend from a marketing perspective.

But the partner collaboration that they're going to turn on over time they have a network of both code share partners and hundreds of different travel partners, where they can be sharing data for the collective good and to drive a better customer experience as well.

In addition, most airlines including this one probably more than most have a lot of untapped assets. In particular, the screens that are in your seat back and the apps that you might be watching to watch movies when you're on the plane. So, some just amazing things that you're going to see out of the travel space.

And a third vertical, and I'm just giving these three as examples would be the publisher space. Earlier Jared asked me about CTV. And there we're seeing such interesting innovation from those CTV providers. They can build unique segments from their data.

They can create multi-screen packages and they can collaborate with advertisers to really deliver full purchase funnel measurement from the moment in that is seen to how much engagement to an actual purchase in store at a dealership or online.

So I think the whole concept of retail media networks that term is yesterday collaborative networks or collaborative data partnerships. I think the world is wide open every sector. And the good news is we sit right in the middle of that..

Interesting stuff. Thanks Scott. Very helpful..

Your next question comes from the line of Jason Kreyer of Craig-Hallum Capital Group. Your line is open..

Great. Thank you. This is Cal Bartyzal on for Jason. So I guess first just to start you've seen some good improvements in the results in the last couple of quarters. So just wanted to get some color on the bookings trajectory.

If you go back to some of the issues that started back in 2022, I mean, do you think that all of those have kind of been put behind you now and the start of a migration higher? And I guess how is that kind of manifested in the strength for first year salaries?.

Yes I'm happy to take the first part and Scott can weigh in on the strength of our first year reps. So with respect to our bookings momentum as we mentioned in our prepared remarks I think we're very encouraged by our recent sales momentum. And I said this in my prepared remarks, I believe our growth metrics are turning a quarter.

I use the word turning rather than turned because we do need to see continued strong execution in the second half both with respect to bookings as well as contraction really to begin to see our key growth metrics accelerate in Q4 and exiting this year. So feel pretty good about the few strong quarters of bookings we've posted.

But as we both mentioned now we need to see that trend continue in the back half..

Yes. And in terms of our selling efficacy in the prepared remarks I talked a little bit about the bookings efficacy of our new reps relative to our seasoned reps and they're roughly the same. And it's interesting. If I think back to LiveRamp's early days we invented a category.

And so we had a lot of young sellers who knew more about technology and our products than anybody else in the planet. So they were the unquestioned experts in all areas of data onboarding. Now many of them are still with us and they've grown and they've become spectacular sales representatives.

But more recently, the clients that we're serving tend to be larger, bigger contracts, brands that are very recognizable. And our profile of the new people that we're hiring has probably shifted a little bit more towards industry vertical experts.

And I think one of the reasons that our new hires have been so effective is they can go in and they can talk the language of retail, the language of automotive, the language of travel. And they're very effective in a slightly different way than perhaps our original sellers what they brought.

The combination of all those people together and the sharing of best practices I'm really happy with because I think we have great technical knowledge, coupled with great industry knowledge. So when a situation arises there's always multiple people across the organization that you can say -- you can tap into and say, what would you do here.

So I feel like we're showing up with really smart ideas to clients and those clients are receptive to it..

Perfect. And then just quickly just circling back to the comments on marketplace. The conservatism in the guide, I mean, did you guys see anything around that October time frame that you would call out? Or is this just more just general uncertainty? Thanks..

Great question, Cal. So we did see a bit of a pullback in early October, which we would at least partially attribute to the conflict in the Middle East. Since then growth has been healthy.

But we are taking a conservative view for the balance of the quarter, just given the macro uncertainty as well as our lack of visibility into this area of the business. As a reminder, it was this quarter last year where we saw growth swing from positive to negative year-on-year in a matter of a month.

So we just think it's prudent to be conservative with our guide. And to put some numbers against that we're assuming marketplace growth in Q3 is low single digits and roughly flat in Q4..

Thank you..

Operator, we have time for one more question please..

Understood. Your last question comes from the line of Brian Fitzgerald of Wells Fargo. Your line is open..

Thanks. Scott, I don't know if you have a role here but we wanted to ask about an announcement at Amazon unBoxed of the Amazon Publisher Cloud. It sounds to us like even when publishers are doing premium direct deals going forward there there's going to be significant utilization of clean rooms.

And presumably some underlying identity resolution technology.

Just wondering if you could give us some thoughts on trends there and what you're seeing and how you think LiveRamp factors into that?.

Yes, so interesting. If I go back five years ago, one of the questions that I often got from shareholders or potential shareholders were things like hey, will Amazon, Google and Facebook eventually put you out of business? And I say no, like absolutely not but they're competing with one another. We are complementing them. We are partnering with them.

Well you see it today because it's not just Amazon but it's the fact that we are the beta launch partner for Google PAIR. And you see it with the relationship that we have with Meta. You see it with the relationships that we have with virtually every CTV provider.

It is just the case that in the world we live in people are rightfully very protective of their data. And so the world needs someone like LiveRamp to ensure that collaboration can happen but either side is protected. And if one side says trust us, give us all your data, you should naturally be suspicious.

And so I think it is a really good sign that on both the advertiser side and the publisher side big companies are recommending that LiveRamp be utilized to facilitate the collaboration.

The other thing that I would say that's a little bit part and parcel of this is – I get a lot of questions about the ID space because it seems like every week someone is unveiling a new identifier. Well we work with hundreds of them now. And again, it goes back to our positioning as neutral and interoperable. We're the Rosetta Stone.

So whether it's Acxiom's new identifier, Facebook's identifier, Fabric's identifier, Google's identifier, doesn't matter to us. UID, there needs to be that Rosetta Stone that can tie it all together. And that's the role that LiveRamp plays..

Awesome. Really appreciate it. Thanks Scott..

There are no further questions at this time. I will now turn the call over to Lauren Dillard..

Thanks very much. And let me just close with a few final thoughts. First, Q2 is strong. We're pleased with our execution in the quarter. And importantly, we think our revenue growth metrics are turning the corner. Next, given the uncertain macro environment, we remain appropriately cautious with our revenue guidance for the balance of this fiscal year.

And finally, we continue to make nice progress against our Rule of 40 aspirations and believe we still have several levers to pull to improve both our growth rate and margin profile moving forward. So with that thanks again, everyone for joining us and we look forward to speaking with many of you in the days and weeks ahead..

This concludes today's conference call. You may now disconnect..