Good afternoon, ladies and gentlemen, and welcome to the LiveRamp Fiscal 2024 First Quarter Earnings Call. 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 first 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 reconciliations to non-GAAP financial measures is available at liveramp.com. Also during the call today, we'll be referring to the slide deck posted on our website. 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. My comments today will focus on 3 key topics. First, we're off to a strong start to fiscal '24. Q1 exceeded our expectations on both the top and bottom line. Our operating margin expanded by 11 percentage points, and this was our first ever quarter with positive GAAP operating profit. Second, there continue to be many levers for us to continually improve our financial performance, and we're focused on reestablishing strong recurring double-digit revenue growth. This will be driven short term by the tactical initiatives we have in motion and longer term by some mega trends that are propelling digital advertising. Namely, new messaging opportunities in retail, media and CTV, a shift to cloud computing, the transition from cookies to true authentication, and generative AI. Third, we continue to drive meaningful operating income growth and margin expansion and have clear line of sight to additional margin improvement. When combined with accelerated top line growth, this will bring us that much closer to our Rule of 40 goal. Starting with Q1, revenue and operating income exceeded our expectations and consensus estimates. We produced $26 million in positive operating cash flow in a quarter that is seasonally low and typically negative, and we repurchased $20 million in stock. Q1 total revenue grew by 8%, with subscription revenue up 5% and Marketplace & Other up 21%. Subscription growth was in line with our mid-single full year outlook. While Marketplace & Other was significantly ahead of our expectation due to a better-than-expected digital advertising market. Our Q1 customer count of 915 was down 5 from the prior quarter, driven by nonbrand customers with below-average ACVs. Meanwhile, our $1 million-plus customers increased by 1 sequentially. We signed a new 3-year 7-figure…

Thanks, Scott, and thank you all for joining us today. Today, I will cover 3 topics. First, a review of our Q1 financial results; second, an update on our offshoring initiative; and finally, our outlook for FY '24 and Q2. Starting with our Q1 results. In summary, results were above our expectations. Revenue came in at $154 million, which was $7 million above our guidance, and operating income was $21 million, $6 million above our guide. Operating margin expanded by 11 percentage points to 14%, and we generated $26 million in operating cash flow. Let me now fill in some additional details. Please turn to Slide 5. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth is relative to the year ago period. Total revenue was $154 million, up 8%. Subscription revenue was in line with our expectations, while Marketplace & Other was significantly ahead, driven by a stronger-than-expected digital advertising environment. Subscription revenue was $122 million, up 5%. ARR was $426 million, up 4%. Subscription net retention was 98%, and platform net retention was 102%. The sequential improvement was driven by subscription usage. Current RPO or our next 12-month contracted backlog, a was $351 million, up 19%. Total RPO including contracted backlog beyond the next 12 months was up 25% to $497 million. There is an unusually large difference between CRPO and ARR growth this quarter. As we've discussed before, the RPO is very sensitive to the timing of renewals and the contract duration. And both of these factors flattered CRPO growth this quarter. ARR normalizes for timing. And for this reason, we continue to believe it is a better leading indicator of subscription growth than trends in RPO. Digging into subscription further, our fixed subscription revenue grew by 5%, again, in line with our expectations. Overall,…

[Operator Instructions]. Your first question comes from the line of Sean Paul with Susquehanna.

This is Aaron on for Sean. We have two. First, last quarter, you talked about automotive as a new use case for your data collaboration platform. I was wondering, if you could give us an update if there are any other new industries or new use cases using the data collaboration platform? And then secondly, is there any color you can give us on how to think about the net customer number over the coming quarters? Anything to call out in terms of SMBs rolling off? Or maybe some -- I think on the last call, you talked about some tailwinds in the second half related to the Snowflake sales partnership.

Yes, Aaron, it's Scott. I'll take the first one. And I'm really glad you asked that because it's a question we've been getting from investors with increased frequency. They see the success that we've had in Retail Media Networks. And they ask themselves, "Hey, how long is the cycle for that? Are you reaching a point of saturation." And my response is an emphatic no. That within the retail space, we still have a lot of room by filling in the partner networks underneath each one of the major retailers. But more importantly, we recognize that marketing is nothing if not a me-too industry. People copy what they see working. And the success that so many major retailers have had globally by collaborating with their Retail Media Networks and their group of partners is now starting to spread to other industries. You mentioned connected cars, and we have a couple of major automotive clients. Recently, I got back from Europe. And I met with one of the largest packaged goods companies in the world. And they're using RampID to power their media network capabilities all across the globe. I met with one of the largest travel companies in the world, just a couple of weeks ago here in the U.S. and they're spinning up a global travel network. And they have turnkey already 150 partners that they could activate and do really interesting collaborations with. If we win that, that would be a great new logo. But we're seeing a lot of interest in travel. And then importantly, I talked a little bit in the prepared remarks about CTV. I'll tell you who's got great data sets, the CTV companies. They have deep viewership and demographic information. And for too long, they haven't used that effectively. What a great opportunity for them to collaborate with advertisers start to share permission data in a way that is more effective for advertisers. So I think we're going to see a wave over the next 5 years of data collaboration across the leading companies and they'll benefit because they'll generate more value, but consumers will benefit because they'll get a better value exchange. Importantly, we think we've positioned ourselves to be right in the middle of that.

Hey, Aaron, Lauren here. I'd be happy to address your question on net customers. The first thing I mentioned is that in the quarter, gross adds were stable. And importantly, the composition of those ads was better, skewing to larger enterprise accounts, which is really a direct result of the tightened sales focus that we talked about on the last call where we continue to feel a bit of pressure is with our lower ACV customers and specifically our nonbrand customers whose business models are just more economically sensitive. In addition, in the quarter, we were impacted by some unusual events in the form of M&A and account consolidations as well as a couple of bankruptcies. Looking ahead and for modeling purposes, we would expect Q2 could look like Q1. However, based on our pipeline of new deals, we do expect to see a rebound in ads in the second half. And again, I would go back to what I started with, we feel really good about the quality of the customers we're adding. These are household names. These are larger deals, multi-year deals in many cases and customers that we believe will have a higher LTV.

Your next question comes from the line of Chris Quintero with Morgan Stanley.

This is Chris Quintero on for Elizabeth Porter. Some of the strong results here. I wanted to ask around the bookings trend you saw in Q1 versus what you saw exiting last fiscal year, kind of how are you tracking versus the targets of a steady improvement throughout the year?

Yes. Chris, thanks for the question. I would characterize our Q1 bookings as solid. And there's a lot to like. I would tell you, amongst things to like, I feel like we have capacity back to where we want it to be. So if I look at our sales capacity overall versus a year ago, it's probably flat to even down. But that said, if you look at the number of ramped reps people that have been with us for longer than 6 months, who we would describe as just better sellers and the numbers would prove that out. Well, we are 50% higher on that measure than we were in the first half of last year. Importantly, those ramped reps they are productive. The new folks that we've hired now that they've gotten up to speed, they are winning some really notable deals. Second thing I really like is the state of our pipeline. And first, let me caveat because any of our sales reps who might be listening to this call are saying, "I can't believe you saying that." Because internally, it's never enough. We can always do better on pipeline. But if you look at it empirically, I would tell you, we're going into Q3 in another 1.5 months here with the strongest ever qualified pipeline in LiveRamp's history. So I like that. Now that said, now let me temper everything, which is, hey, 1 or 2 quarters does not yet a trend line make. The nature of SaaS is it's a gradual slow when your bookings are soft. We saw that last year, and we're paying for it now. It's also a gradual reacceleration when you start to rediscover that success. And so really happy with last quarter, happy with this quarter. We got to do it again next quarter. We've got to do it again throughout the back half of the year. We do that we're going to be in a really good position to be well above 10% growth for next year, but we have to execute.

And Lauren, I wanted to ask around the incremental investments you're making, like anything changed in the quarter where you saw this as being a really nice opportunity you, guys, wanted to lean into.

Yes, happy to. And I would point to a couple of areas of investment. First, our sales force, nothing new in the quarter other than as Scott mentioned, we've rebuilt capacity. We want to maintain adequate capacity as we move through the year. We don't want to find ourselves in the position we found ourselves in, in the first half of last fiscal, without adequate selling capacity. So we're going to continue to invest behind revenue-generating headcount. The second area where we've continued to see nice momentum is with our cloud and collaboration offerings. And there, we're seeing growing momentum that we like and that we're going to invest behind as we move through the year. The final area of investment, which I mentioned in my prepared remarks, is there some upfront investment required this year to ensure the rollout of our offshoring initiative next year and through FY '26 is successful. That was incremental in the quarter.

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

Two quick questions. Any impact from MediaMath in the quarter? Or do you anticipate any dislocations relating to the situation over the next quarter or 2 is just some of their advertiser clients are transitioning to newer DSPs. Second question is just any dynamics to call out international versus domestic. You highlighted multiyear deals and large enterprise focus. Do you generally think you're seeing an acceleration in multiyear deals?

Thanks, Brian. This is Lauren. I'm happy to take the first and Scott can jump in on the second. With regard to MediaMath, in short, we anticipate minimal, if any, impact as a result of their bankruptcy. And any impact has been accounted for in both our guidance and in our AR reserve. We work with all of the major DSPs and would expect other DSP partners to absorb the volume that was previously running through the MediaMath platform.

And Brian, on your question on international, I would say that was one of the disappointments of our revenue performance. But when you look beneath the top line there, I actually think it is pretty reassuring. So remember, our Head of International was also our CFO when he transitioned out. So there's always a little bit of disruption there. But I just got back from Europe. And if you peel apart our European numbers, I believe they were slightly up, not where we want to be, but over the course of two weeks, I met with the largest television companies in the U.K. and France, some of the largest retailers. I mentioned one of the large packaged goods companies. And it wasn't like deep in the organization. I was meeting with CMOs and CEOs and they look at LiveRamp as an important part of their future. So I emerged from that, pretty excited about the opportunity for us in Europe. And I think I mentioned a couple of wins that we had internationally including essentially the biggest retailer and property manager in the Middle East. So that's exciting. Now what's not exciting is what's happening in APAC. So if you look at our international business, it was down materially. Well, Europe, slightly up, APAC down precipitously, and that's China. And we like probably every company you cover are thinking hard about how we're going to participate in the Chinese market going forward. I don't think I'm surprised at anybody to say over the last 10 years, that has been a material change in the business environment. And I think a lot of companies have just pulled out entirely. You're not going to see us do that. We're hopeful that what became tighter will open back up again because, obviously, it's a large market and a huge population base. But in the meantime, until that happens, we're taking a hard look at China, thinking about our overall investment there, and I just don't expect significant growth in that market.

And Brian, I think if I can just add on to that, you mentioned multiyear deals accelerating. This is absolutely the case, and you can see this in our RPO trends. And we believe this is a real positive for our business.

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

This is Alex on for Mark. Just a couple from me. I was curious if you could quantify the drag on subscription revenue from non-brand exposure. And what gives you the confidence that, that can start to recover towards the back half of the fiscal year, perhaps upside, of course, into '25. And then separately, it sounds like the advertising market from your perspective, is improved faster than expected. So just curious what level of conservatism remains baked in to your conversion trends, especially in the back half of the fiscal year?

Yes. Thanks for those questions. I'm happy to take both. So with respect to your first question, I would say that the drag from lower ACV customers probably represented a couple of point drag on subscription revenue. And you're seeing this also in a couple of our key growth metrics, namely net adds as well as our subscription net retention. As we move through the year, and we talked about this on our last call, we've implemented several initiatives, both product and support and services oriented to reduce churn and down sell with our smaller customers. And we're seeing early signs of success there. And as a result, have already pulled down our outlook for contraction in the back half. So we feel like while there's more work to do, we're taking the right steps to address that SMB contraction I mentioned. With regard to conservatism in our outlook, we continue to expect for bookings specifically, we continue to expect to see an improving trend in bookings as we move through the year. As we mentioned on our last call, we're not forecasting a hockey stick nor have we forecasted a material improvement in conversion rates. So I think we feel pretty good about our outlook for our subscription business where we see the potential for upside in the second half would be in the data marketplace business. As we've mentioned, we have less forward visibility here than we do in our fixed subscription business. And the last year has demonstrated this area can be a bit volatile. We had a good Q1 and but it's still early in the year, and Q1 did benefit from some onetime things we just don't expect to repeat. So relative to marketplace, based on what we're seeing quarter-to-date, we're going to take up our outlook for Q2 but aren't yet ready to pull it up for the back half. So if macro trends and trends in overall digital advertising hold, we would expect the potential for further upside in our marketplace business.

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

Lauren, I was wondering if you can just expand a little bit on the year-over-year growth in current RPO. That's a pretty good lift. I assume that speaks to some of the positive bookings trends you're seeing. But I was also just wondering if you could comment on how that sort of impacts your visibility into the remainder of the year from a subscription perspective. I assume you're feeling better about visibility today than 6 months ago based on those trends continuing. Just wondering if you could add a little bit more on that side.

Sure. Happy to, Kirk. In short, yes, we do feel better today than we did 6 or even 3 months ago, and this is a result of the recent bookings momentum that both Scott and I have talked about on the last couple of calls. With respect to CRPO specifically, as you know, both CRPO and are very sensitive to the timing of renewals as well as to the length of contracts. And both of those factors benefited CRPO growth this quarter. So as an example, we had a couple of large deals closed on 6/30 this year, whereas a year ago, they closed in early July. So that benefited our CRPO comp. In addition, and this is a really positive thing for the business. We've been successful in shifting some of our largest customers to multiyear deals. So positive for the business but can create an unequal comparison that can flatter RPO and CRPO growth rates in any given quarter. So I guess, net-net, we like what we're seeing would probably continue to point you to ARR as a better forward indicator of growth because it normalizes for some of the variables I just mentioned.

Your next question comes from the line of Dean Sublet with Stephens Inc. Please go ahead.

This is Dean on for Nick. We were just curious, so on the Pinterest relationship, we were wondering if there's anything you could call out on how you think about the progression there? I think you started with the clean room piece and then expanded into more measurement and analytics. Does that progression capture the general strategy? And maybe any thoughts on what the long-term monetization opportunity looks like?

Yes. Dean, thanks for asking that question. I think what you just described is a trend not just at that particular partner but indeed an opportunity we see across all major publishers. In a world where publishers are authenticating and building their own valuable first-party data sets, in some case, it could be retail purchase information. It could be audience engagement or viewership. It could be demographic information. Depending on the partner, they each have a pretty unique data set. And so it's an incredible opportunity for us to work with them in a number of ways. Number one, to ensure that they can continue to have authenticated users and deploy targeting that is even more powerful than perhaps what they had in a world of cookies, more precise and certainly more consumer-friendly. Number two, to prove definitively especially in a market where there's still some uncertainty, ample uncertainty around where things are going from a macroeconomic perspective. It is the case that almost every CEO turns to their CMO and says, prove to me that our advertising is working. So those publishers or partners that can prove that their audiences, monetize better respond to advertisements more effectively and can make the definitive ROI case are going to attract more dollars than those that can't. And then finally, where does that go? I think ultimately, it goes to a decade of really interesting collaborations between all these partners and advertisers and potentially other partners as well and their publisher partners. Everybody has unique data and now that it's possible to collaborate in a way that doesn't expose you to risk, doesn't expose the movement of data and is consumer-friendly. I think some really interesting things are possible. And what I like best of all, I mentioned this earlier, is we're neutral, we're agnostic. We work with everyone. And so often, we can be right in the middle of all the fun.

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

Thanks so much, and thanks, everyone, for joining us today. I'd love to conclude with just a few final thoughts. First, Q1 represented a strong start to the year, and we're making consistent progress against the key initiatives we've talked about on recent calls. Next, while we like our momentum exiting the quarter, a single quarter does not make a trend, it is still early. And given this, we've attempted to be balanced and conservative with respect to our outlook for the remainder of the year. And finally, while not yet fully reflected in our results, we are encouraged by the ongoing momentum in our sales bookings and improvements in churn and down sell that we believe put us on a path to return to double-digit revenue growth. With that, I look forward to speaking with many of you in the days and weeks ahead. Thanks again for joining.

This concludes today's conference call. Thank you for joining. You may now disconnect your lines.