Good afternoon, ladies and gentlemen. And welcome to LiveRamp's Fiscal 2023 Third Quarter Earnings Call [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 us to discuss our fiscal 2023 third quarter results. With me today are Scott Howe, our CEO; and Warren Jenson, President and 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 reconciliations 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 Web site. At this time, I'll turn the call over to Scott.

Thank you, Drew, and thanks to all of you for joining our call today. There are three key messages I hope you will take from our time together. First, we delivered another solid quarter, demonstrating the durability of our business model. Second, we are making steady progress with our key initiatives to reaccelerate revenue growth, including an improvement in sales force productivity and two new integrations with the Walt Disney Company and Amazon Web Services. Finally, we made meaningful operating margin improvement in the quarter and we expect the improvement to continue in FY24. Third quarter performance met or exceeded our guidance on the key financial metrics, including revenue, gross profit and operating profit and also demonstrated the durability of our business model. In recent calls, I've talked about our efforts to strengthen our sales force and our broader macroeconomic concerns. Revenue growth, which I characterize as a lagging indicator given the high subscription component of our business came in as we expected in Q3. Total revenue in the quarter grew 13% year-on-year, Subscription revenue grew by 14% and Marketplace and other revenue grew by 9%. The growth in Marketplace and other was less than we expected due to slower growth in third party data sales, reflecting macro pressure on advertising spend. Our Q3 customer count of 910 was down from Q2. We held steady with large strategic customers and declined in small and medium sized businesses and low ACV accounts. The declines in SMBs partially reflects the challenging macro, but also our strategy to prioritize larger, more profitable enterprise accounts. Our $0.5 million to $1 million customer count grew by 6% from the prior quarter and our 1 million plus customer count increased by 2% to 94 million. We think expanding channel partnership initiatives, which I will elaborate on…

Thanks, Scott, and good afternoon, everyone, and thanks for joining us. Today, I would like to focus my remarks on three areas: first, share a few highlights from the quarter; next, provide a few preliminary comments on our FY24 priorities and outlook; and finally, confirm our top line and update our bottom line guidance for FY23. For the quarter, please turn to Slide 5. Total revenue was $159 million, up 13% and subscription revenue was up 14%. Excluding a $4 million onetime contract settlement, which we called out last quarter, both subscription and total revenue were up 10%. International was up approximately 27% and adjusted for FX was up 37%. Marketplace and other increased 9%, data marketplace, which represents roughly 80% of ongoing marketplace and other, was up 5%, reflecting softness in the overall advertising market. Subscription net retention was 101 and platform net retention 102. The year-over-year decline in subscription net retention was driven by a lower relative contribution from upsell bookings and usage. The sequential decline was driven by the same factors. Platform net retention was also negatively impacted by slower growth in Marketplace and other. Usage was 16% of subscription revenue, driven by data providers, platform partners and the $4 million onetime contract settlement. Excluding the settlement, usage was 14%. Subscription customer accounts decreased by 10% sequentially while our $1 million customer account increased to 94, up 9% versus the prior year. The decline in total customers was driven by a reduction in small and medium sized customers with comparatively low ACVs and profitability. Current RPO or our next 12 month contracted backlog was $324 million, up 12% year-over-year. ARR ended the quarter at $426 million, up 12%. Bookings rebounded sequentially and on an absolute basis, it was the strongest quarter this fiscal year. Beneath the top…

[Operator Instructions] Your first question today comes from the line of Shyam Patil with Susquehanna.

Nice job on the execution. I had a couple of questions. First one, you guys have had a lot of interesting partnerships that you guys talked about in the prepared remarks with some big players out there like AWS, Meta, Pin’s, et cetera. Just wondering if you could just talk a little bit about what kind of potential you see from these partnerships to kind of drive the business going forward? And then Warren, I had a follow up for you. You talked about a tempered outlook for fiscal '24 revenue growth. Can you provide any detail or color on this?

When I think about the partnerships, you can really kind of group them into several different categories. First, we've really made a push on our destination partnerships. We believe that the part of the value we provide is the reach and ubiquity of all the places they can utilize their data. And so wherever they're interacting with their customers, we want to enable that securely and safely and easily with their data. And so the Disney example is a great case study there. Pinterest is another. I would tell you there, I think what the number one impact is that it just embeds us into the very fabric of the ecosystem and improves the durability of our business. Now over time, you're going to see an additional potential revenue driver, because just as our major marketing partners recognize that they have really valuable first party data, so to do all those destinations, whether it be Disney or Pinterest, and I talked about this with the Pinterest example, they recognize they have valuable first party data. And so they're looking for someone who's unbiased, who isn't in the media business to help them unlock that. And so all of the ATS destinations that we have we're already underway with really interesting conversations with our major partners to help them unlock the value of their data. You'll see that play out over the next couple of years. And then there's another group of partnerships, which are really the tech partnerships. And there, I think the value will be driven by our ability to grow this SMB channel. And Shyam, you've listened to our calls for years now and we've always talked about the challenges we've had with SMBs. We see higher churn there. Oftentimes, those clients come on and they realize --…

And then, Shyam, let me touch a little bit on our FY24 outlook. I'm going to make a couple of broad comments that I think sort of set the stage. First, everybody should just recognize it's still early. So we, like you, are going to be watching the macro environment unfold over the coming months and then, of course, we'll update you as we give our formal guidance in May. Secondly, is we feel that this is the exact time that it's appropriate to be conservative in setting expectations for the top line. It's just the best way to go is you do your planning and it also recognizes that there is fundamentally a lot of uncertainty broadly and also in the ad marketplace. So sitting here today, I would say, be conservative on the top line, think about a low single digit growth rate for the company. With that in mind, though, we would also ask everybody to think about the guidance that we've given on the bottom line, we're expecting to deliver roughly 50% increase in operating income in FY24. So for us in thinking about all this uncertainty and the broader ecosystem today, as you think about FY24, there are three things you can expect from us. Number one, a conservative top line, you can expect significant margin expansion, and you can expect a strong return of capital.

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

I just first wanted to follow up on the low single digit view for fiscal '24. Just given that the Q4 exit rate is kind of more mid to high single digits, so for that 4% to 6% range. So what are some of the drivers of kind of the incremental weakness from the Q4 exit rate? And just given that it feels like the dynamics should be getting a little bit better into back half, but I just wanted to kind of get your views on the puts and takes there.?

I'd say the following, the headline would be really just thinking about marketplace. We clearly saw weakness as others have in our third quarter and in particular, in December. And then we just have our January results into and we also saw pressure. So I think we just have got to be really cautious as it relates to data marketplace. We would say, think about flat to down potentially next year again, sitting here today, obviously, better on the top line related to subscription. Finally, on this point, again, where we are in the planning cycle is it just pays dividends to be conservative across all of the assumptions. Again, there's just way too much uncertainty. We want to see our bookings trends continue and even strengthen more and then deliver on a lot of the initiatives that we have in place.

That color on marketplace versus subscription super helpful for us and makes sense on setting a conservative guidance next year. Just as a follow-up, I wanted to -- congratulations on just all the great partnerships. And I wanted to dig into a little bit more on the AWS Clean Room. Historically, you've had a really strong relationship with retail and CPG verticals in your clean room offering. So just as it relates to AWS, what's the opportunity to expand kind of meaningfully outside of retail verticals, given just retailers maybe hesitant to be an AWS kind of customer? That's question one. And then second, you called out SMB specifically for AWS but are large enterprises addressable here as well?

Well, I think they are, Elizabeth. I don't know if you're planning to attend ramp up, but it's really interesting, one of our first sessions that Warren is going to lead is kind of a discussion on commerce networks. And so we'll have a major retailer on stage, I think it'll be Albertsons. We'll have General Motors on stage talking about the future of connected cars and we'll have one of the major airlines, I think, on stage talking about connected travel. And I think that illustrates what we're seeing. What started as retail media networks has really become commerce networks. And commerce networks really apply to almost every vertical. So for instance, in the connected car business. Automotive manufacturers, I mean, basically any retail shop, any automotive repair, every gas station, they should be forming partnerships and collaborating on data. And in the travel space, all you have to do is look back to the late '90s when all of the travel marketers formed partnerships based on miles. Well, now we're entering a new age where the partnerships and collaboration will be on intelligent data usage. So there are very few industry verticals that we don't think should be experimenting with data collaboration. I think it's going to be one of the drivers for marketing and data usage over the next few years. And so I think there's a tremendous opportunity. I think AWS sees it, Snowflake sees it, GCP sees it. And we’re forming similar partnerships with every major cloud provider. The good news is that regardless of who wins there, we're going to be supporting them and helping their clients and data partners.

Elizabeth, I might add just one thing to what Scott said. It's interesting if you think of all the partnerships that we have in place and have been announced, it's pretty ubiquitous. And if you think about multiple industries, there are three things that are just table stakes. So it doesn't matter whether it's retail, health care, financial services, et cetera. You have to have foundational identity, you have to have unparalleled reach and you have to have the strongest approach to privacy and security and fundamentally, that's what we do.

Your next question comes from the line of Kirk Materne with Evercore.

This is actually Peter Burkly on for Kirk. Maybe, Scott, just to start with you. Given the choppy macro, I'm just curious if you could kind of double click on the dynamics of just how all the choppiness is sort of impacting net new client addition versus sort of the upsell expansion opportunities? And then maybe just a quick follow up for you, Warren. It looks like you guys are guiding to 100% NRR for next quarter. Just curious as you look out a year, does that keep trending down in the near medium term to the low 90s, or do you see that sort of at the bottom? Just curious if you could kind of touch on that a little bit.

I think the macro environment overall is cause for conservatism as everyone builds their models. That said, I would tell you I'm really pleased with some of the progress we're making with our sales team. I mentioned in my prepared remarks we were really impacted by this great resignation. We saw a lot of our sales reps leave. We're really a talent magnet for other companies and boy, they paid our sales reps 50%, 60% more to jump ship. So we've now rebuilt that capacity. I would tell you I'm really pleased with our pipeline. I think it's at an all time high. Our bookings sequentially were up. And so there's a lot of interesting conversations underway. Bad macro economy or not, there is still a lot of interest in doing clever things, sophisticated things with data. And in fact, in a bad economy, it actually encourages companies to be more innovative. So I think we can benefit from that. But you have to temper that with the other side of our business. I mean, if -- I was just talking about the data subscription side, our data collaboration platform. This other side of our business that Warren touched on our data marketplace, that's where we'll absolutely see macroeconomic pressure. We saw it last quarter. We're seeing it in the early weeks of this year. And when we listen to the calls of a lot of the major media companies, we hear them talking about it as well. So all this to say is I just echo something Warren said, which is it's early. We wanted to get out in front of guidance for next year and talk about things in broad brush strokes, but we will learn a lot more in the next quarter or so before our fiscal year starts by seeing how the macro economy develops, what happens to data marketplace and how our cloud partnerships continue to develop as well.

And then, Peter, let me take the second question. We're not going to give long term guidance on net retention on this call or probably ever. But what I can flat out tell you is nobody would even be remotely satisfied with a net retention trend that dips down into the low 90s just full stop. So for us, we think we're doing the right things to really turn around what has been a downward trend. It's what we're doing to drive higher bookings and drive higher upsell. Secondly, it's all the work that we have going on to focus on usage and working with all our partners. So you can expect that to continue as well as the work that we're doing to reduce any impact of contraction. So no long term guidance today. But make no mistake, 100 is not our end objective whatsoever.

Your next question comes from the line of Brian Fitzgerald with Wells Fargo.

Scott, there's a sense out there maybe that the competitive set is expanding, some players in clean rooms and CDP and ad tech build out, some lighter weight kind of onboarding and any resolution capabilities. I'm wondering if you could give us your take on that trend, whether or not you were there behind the scenes powering some of these? And then we’d imagine larger clients want to use one provider with many activation opportunities. But wondering if you place in the market for some of these newer lighter weight offerings out there?

Well, it's interesting. I mean we're pretty unique but we've always faced competition. And if you go back a decade, people would talk about us competing with DMPs or more recently DSPs. But in reality, that masks what was really happening, which is we power those things. And I think that is going to be the case going forward as well. And sort of DMPs and DSPs will increasingly be talking about CDPs and the marketing clouds. Well, we've had some recent announcements. CDPs, I think it was last quarter, I talked about our sales force collaboration for their Genie launch. And more recently, I've talked about, obviously, AWS today and Snowflake where we continue to push forward on that partnership. It's so funny. I oftentimes get investor queries when they see the announcement of Disney and Trade Desk or today's Acxiom Snowflake partnership. And we just smile because when an announcement occurs with two partners that we're working with, what gets left unsaid is that they're riding our rails to deliver the joint value. So every time you see one of those things, I think that's an opportunity for LiveRamp. And just to make it real clear, when I think about what clients need, they obviously need storage and compute. They need a service layer and they need the ability to do segmentation and a good view eye. Those will be provided by the marketing clouds, the Adobes, the Salesforce's of the world, that's never been the business that we've been in. However, the concept of foundational identity, our ubiquity and the connected ecosystem, we stitch it all together. And so we make the marketing clouds actually work, we make the data that sits in them, be usable at all the destinations that matter. And so we think there's a real essential role for us. You heard me talk about the fact that we've knead ourselves into the very fabric of the ecosystem. And I think all of these partners are potential growth opportunities for us long term.

Your next question comes from the line of Jason Kreyer with Craig-Hallum.

I was actually interested in Warren's comment on CTV data partnerships and specifically making media more addressable. So we've heard in a lot of conversations, there's just limited access to truly addressable inventory in connected TV. So just curious what you think your role is in that ecosystem and if you think you could serve as a catalyst to making more of that inventory truly addressable?

I love this question. And what I would tell you is too often people talk about CTV, you're hearing about programmatic CTV, which is a very small slice of the CTV environment. Well, we play there and we power the folks that play there. But we see the much bigger opportunity to be making the entire upfront CTV inventory addressable and targetable. And so we already have partnerships with virtually every major CTV player, not just for programmatic but for the vast majority of their inventory. And those that you haven't heard us talk about historically, I think you'll hear us talk about in the coming months. So really important part of what our clients are trying to do, they don't just do programmatic, they don't just do display advertising. They advertise on CTV, they advertise an e-mail, they want to make their data available at point of sale, and we enable all of those things. So we are much more ubiquitous than any one media tactic. Really excited about what you'll hear from us and the capabilities we’ll expand there in the coming year.

Craig, I would add one thing on the point is, I know in certain places in the market, there's just so much demand that you don't even honestly need to do targeting. But I think that's a short term phenomenon. And I think the Disney announcement today was a really great example of where the streamers will go and what will be done. The bottom line is when you use data effectively, you're going to create better CPMs, you're going to create higher levels of revenue.

Your next question comes from the line of Mark Zgutowicz with Benchmark Company.

A couple of specifics. On the ATS publisher growth, you saw -- I think that moved from 1,500 to 2,000 quarter over quarter, which has been flat for the last few quarters. I'm just curious what drove that, if there's any specific partnerships that contributed there? And then two, on the on Safe Haven, I'm just curious if you could give us an update on the ARR trajectory? And sorry if you did already, I might have missed it, but it would be helpful.

On the ATS, what I would tell you is I'm not sure that there's any one single thing, rather, I would just say we've reached critical mass. And it's not driven now by Google's timeline for cookie deprecation rather it's just driven by the fact that addressability works more effectively. Our publishers are seeing fairly significant. Microsoft published a case study about a year ago, showing 40% lift in yields when they switch from cookies to authenticated inventory, and the vast majority of our publishers are seeing similar things. And so those stories, those case studies travel fast and virtually every major publisher wants to deepen their partnership. And it's not just in the US, it's worldwide. And I think this is another thing that really sets us apart that we probably don't talk about nearly enough, we're not a US company, we are a global company. And if you are a global advertiser, the only way you can reach your audience in dozens of countries that you want to be in is through LiveRamp. So all of the partnerships that we're signing are global. And in many cases, we are the only authenticated option in some of those markets. So I think all that's coming together. That said, it's still early stages in terms of the vast amount of media flowing through these authenticated channels. So I think that plays out over the next couple, three years.

And Mark, the only other thing I would add is in our deck, you'll see a bunch of case studies that we've linked to, and if you haven't had a chance to take a look at the case studies, I would encourage you to do so, because you can really see the effectiveness of overall ATS. And then to your second question, one thing that we’d suggest everybody sort of think about is increasingly, LiveRamp is a platform sale, and Safe Haven is our enterprise platform. So we don't think in terms of discrete products. What we think of is how do you use that platform for different use cases. A use case could be activation, it could be measurement, it could be identity or it could be collaboration. So increasingly, we're going to be just talking about the platform and not a discrete element called Safe Haven. Safe Haven is our platform. To your specific math though, as we go through this transition, Safe Haven influenced ARR is up about 62% year-over-year. It's gone from roughly 20% of ARR to about 29%, again, year-over- year, so up 900 basis points.

Your next question comes from the line of Dean Sable with Stephens.

I’m on for Nick Zangler. So we were wondering, as [Fast] services continue to proliferate with like Vita announcing today. We were just wondering about your exposure to that and if it's visible enough for you to frame up how that's contributing to CTV growth, if at all? And maybe just any long term thoughts on [Fast].

I would -- let me kick things off. And we want to comment -- and maybe Scott with specific things that may or not have been announced. But big picture think about our TV strategy. And our TV strategy is to make every impression addressable. So for us, we have partnerships with all the major MVPDs, with DISH, with DIRECTV, with all the major publishers, whether it's Fox, Tubi, Paramount, Warner Media, Hulu, Roku, today, we announced Disney and also in mobile. So as we think about our approach to CTV, it boils down to that first statement, we intend to make every impression addressable and CTV is an important part of the overall value that we create.

I mean I don’t know if I have much to add other than as some of the streaming services start to accept advertising, you can get a nice revenue bump simply through volume. But that gives you one quarter. The next quarter, the volume doesn't grow infinitely, you have to start turning the yield lever. And the only way you improve your yield is through better targeting, both context and user and that's what we provide. So I look at things like this as an opportunity for us and it feels a lot like the business that we've been in forever.

There are no further questions at this time. Warren, I turn the call back over to you.

Great. Well, thank you, operator, and thanks to all of you for joining us today. Let me conclude again with just a few final thoughts. First, we're really excited about the markets that we play in. There are big long term opportunities and we believe that we are playing and demonstrating our right to win, whether it's in identity, whether it's in data collaboration, whether it's in measurement or whether it's in marketplace and then doing so wherever data may reside. Second point would be we are in an uncertain environment. And I'd repeat the three big takeaways you should walk away with for FY24. You're going to see us forecast a conservative top line, you're going to see us give guidance that will involve significant margin expansion, and you'll see a strong return of capital. And then finally, we hope all of you are going to join us at RampUp on February 28th and March 1st. We've got a great lineup of customers, clients and partners and competitors, and everybody else who will be in attendance and we'd love to have you there. So if we can help with your registration, please reach out to Drew or Cassandra. With that, again, thank you, and we look forward to the follow up calls.

Thank you. This concludes today's call. You may now disconnect.