Good afternoon, ladies and gentlemen. And welcome to LiveRamp's Fiscal 2021 Second Quarter Earnings Call [Operator Instructions]. I now like to turn the call over to your host, Lauren Dillard, Chief Communications Officer. Please go ahead.

Thank you, operator. Good afternoon, and welcome. Thank you for joining us to discuss our fiscal 2021 second 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 in 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 Web site. At this time, I'll turn the call over to Scott.

Thank you, Lauren. Good afternoon, and thanks for joining us today. We hope you and your loved ones are managing to stay safe and healthy during this extraordinary year. We delivered another strong quarter in Q2 with total revenue up 16% and subscription revenue up 19%. Our continued growth amid a tough environment demonstrates our critical role in enabling the digital transformations and data-driven strategies of our customers and partners, particularly in times of macro uncertainty when performance marketing takes center stage, global brands are leaning into our technology to consistently deliver better customer experiences and business outcomes. Beneath the top line, the strength of our model was again on display. Gross margin improved to 72% and we delivered our second profitable quarter in a row despite continued investment in our key growth areas. This performance is a reflection of our strong network effects and marginal economics and the incredible leverage in our model. Warren will walk you through the quarter in more detail. So for this call, I thought it might be useful to frame my remarks by addressing three of the most common questions investors have asked over the past several months: one, what gives you optimism for the future; two, how will identity evolve over time; and three, what does the future shape of LiveRamp's business look like? So what gives me optimism for the future? LiveRamp is fitting at the intersection of several powerful secular trends that will fuel strong medium and long term growth. As the world becomes more multichannel, consumer behavior is shifting and organizations are increasingly realizing that true competitive advantage lies in providing meaningful customer experiences, experiences that are personalized, relevant and cohesive across all channels in all interactions. Data is at the center of this and data-driven experiences are the key…

Thanks, Scott, and good afternoon, everyone, and thanks for joining us today. I also hope that you and your families have remained safe and healthy since the last time we spoke. We delivered another strong quarter amidst a tough macroeconomic backdrop and a challenging time for many of our customers. We increasingly find LiveRamp's technology to be core to our customers' most important long term strategies and initiatives. We are fast becoming critical infrastructure. Today, I'd like to focus my remarks in three areas: first, give an update on Q2 and recent business trends, highlighting the continued strength and durability of our model; next, provide Q3 guidance; and finally, a few high level observations for FY '21. Q2 results. Please turn to Slide 4. We are durable SaaS and our position of neutrality continues to pay dividends. Despite the global environment, we had another strong growth quarter. Total revenue was up 16% and subscription revenue increased 19%. The usage portion of subscription revenue was approximately 9%. Overall marketplace was up 4%. As Scott mentioned, our data marketplace, which represents roughly 75% of ongoing marketplace and other revenue was up 27%. As expected, where we felt pressure was in the transactional portion of our linear TV business. Customer counts were up. In the quarter, we added 15 net new subscription customers. Current RPO or our next 12 month backlog was up 13%. As a reminder, the timing and contract length of renewals can and will cause volatility in this metric. ARR ended the quarter up 18% and net retention was 111%, while platform net retention was $1.09. Next, our long term growth levers are in place and thriving. Specifically, I'd like to talk about ATS CTV, Safe Haven. As you think about these important products and capabilities, I'll share some common…

[Operator Instructions] Our first question will come from the line of Daniel Salmon of BMO.

Scott, thanks for reviewing some of those popular questions you get. Certainly, most popular we get is about the competitive environment and Trade Desk and unified ID 2.0, that's a big part of it. We've heard lots about that from all parties, including you. That's been great. In the past, you've also talked about how the digital economy will always have multiple ideas versus old advertising, which often only had 1 main form of measurement. So just a high level, can you talk about within all this competitive noise and there's much more beyond just unified ID 2.0 to be sure. How do you think about LiveRamp being the, I guess, largest, most important, largest revenue generator? How do you think the important -- what do you think the important things are to positioning the company to be that? And then just Lauren, just a quick one for you. We saw the share buyback renewed here. Just curious is that something you have a great appetite for at these levels? Thanks. That would be great.

Dan, in terms of identifiers, I mean there are literally, as you know, other than 1,000s of different identifiers that exist in the marketplace, many of them proprietary at clients or publishers. Our goal from the get go and embedded in the design of ATS was to be the Rosetta Stone, the translation layer that would tie all of the different identifiers together and allow anyone and everyone who's ethical in the industry to operate seamlessly and efficiently across all of those identifiers. Again, ATS from its inception, was designed to be neutral and interoperable. We think the Trade Desk deal is -- it's not a surprise to us. We always knew from the get go that they were an important partner, an important destination for our clients. And so of course, we would be interoperable with them. We love the fact that different folks are out there talking about identity in the industry, because it's raising awareness of the need for the entire industry to move away from third party cookies. And quite frankly, as I think about how do we knit ourselves into the permanent fabric of the ecosystem and really take advantage of the opportunity before us, it's no longer about simply the product. The product works. And you know, I'm an old crusty guy who grew up in the online industry. I mentioned in my prepared remarks, we've only seen this a couple of times before, the kind of lifts that we're seeing, both for advertisers and publishers, it's phenomenal. What we now need to do is raise awareness of everyone in the industry that it's time to shift to something better. And some people may still mistakenly believe that Google isn't going to follow through on deprecating third party cookies. We don't believe that to be true. And even if that did happen, we know from the results I shared the day that our solution is better for the industry at all who embrace ATS. We think we're at critical scale and that's important. I talked about 90% alignment to kind of the addressable US market, that's really important to advertisers. I talked about the yield improvements publishers are getting, that's critical. This simply works better when it's time for the industry to make the switch.

And then Dan, I'll comment just briefly on the share repurchase announcement. Just to remind everyone, we front end loaded our repurchases this year earlier in the calendar year when the period of the significant market dislocation. The reasons for extending was really to give the company flexibility. So in the event circumstances warrant, we have the flexibility to be opportunistic. And again, the share repurchase was extended for two years, we have roughly $325 million on the authorization remaining.

Your next question comes from the line of Kyle Evans of Stephens. Please go ahead.

My question is one pretty short and simple. What is the competitive set for Safe Haven, who could replicate that product? And I've got a follow up. Thanks.

What's really pretty interesting, Kyle, is when you think about data collaboration, data collaboration has existed for decades. Many of you have heard me talk about my experiences as CFO at Delta and Codeshare. Codeshare was a great theme for the airlines and it was a great theme for the consumer and represented collaboration amongst the airlines. What makes the safe haven platform very unique is really a few things that we can do either uniquely or better than anybody else. The first thing is it's grounded in global privacy. So one of the things that we've done at LiveRamp is we've embraced privacy. We don't fight it in any way. It's really part of the fabric, it's everything that we do. And we have a really comprehensive understanding of global privacy, too. The second thing I'm going to highlight is really identity and single view of the customer. So as you think about combining multiple data sets, whether you're a retailer or CPG, a healthcare company, doesn't matter the industry. What we can uniquely do across all those data sets is create a single view of the customer and identity, and that's very, very powerful. And then the third thing that increasingly is something that's very, very important in a technology driven world is we are a scalable global platform. We're not a one-off service structure but rather we're a scalable platform. And when you think about the combination of ATS and Safe Haven, as I mentioned in the prepared remarks, this allows us to work with the CPG and literally every market in which they operate, and that's just a big deal and something that makes us very, very unique.

Your long term gross margin goal of 75%, you looked like you were going straight at that this quarter, impressive margin expansion there. And now you're talking a little bit about feature development, international expansion and maybe some gross margin compression. Can you help us think about how that will kind of phase out over the next couple of quarters, and when do you think, if you care to share, when you think we get to that 75%? Thank you.

We won't talk about a specific timeframe for reaching 75%, I would call out, obviously, our progression has been really excellent. And you're seeing a lot of things, I think, benefit us when it comes to gross margin. First of all, just operational excellence. When we think about how we're managing our identity graph, we just made some really terrific moves in terms of the sophistication with which as to how we manage our different sources and that's creating productivity. Two, in our IT infrastructure, we would expect long-term to continue to drive scale. The third thing is many of our new revenue sources really just leverage this infrastructure. So we have a fixed infra infrastructure in place. And as we layer revenues on top of that infrastructure, obviously, it scales and benefits our gross margin. And then fourth while we don't know the exact timeframe for the deprecation of cookies that's a good thing. Not only as Scott mentioned is it a great thing for the ecosystem and for our customers but it also promises good things for our overall gross margins. So we're on the right track. Q4, there's always going to be ups and downs. We'll have quarters where it goes up and maybe quarters of slight pullback. In the third quarter, we're anticipating making some incremental security related investment, enhance our 70% guidance.

Your next will come from the line of Stan Zlotsky of Morgan Stanley. Please go ahead.

This is Melissa Dunn on for Stan, thank you for taking the question. The first one I had was on your total RPO numbers, noticed that those declined quarter-over-quarter. If you could just give us a little color on why that would happen?

Just as a backdrop for everybody on the call. Let me remind everyone that the timing and amounts of renewals directly impacts RPO and the current RPO or the next 12 months. So for LiveRamp in the next several quarters as is always the case, we of course have renewals and in some cases, renewals that are multiyear. So therefore in particular as we think about RPO again and current RPO that puts a little bit of pressure on our numbers. So that’s what you’re seeing in our numbers today. The good news is we’re used to renewals and our value prop remains solid.

And then on the guidance for 105% net retention rate. Just to clarify, that's for Q3, correct? And then also, if you could just dig into a little bit more detail on why the decline there. I know you mentioned a couple of things there, but a little more color would be really helpful. Thank you.

I'd be happy to. It's really pretty straightforward. It's the change in variable. So when we look at where we are sequentially from where we are going from 111% down to 105%, it's literally almost entirely being driven by a change in variable. There is some impact. Let me just remind everybody we are in the middle of the global pandemic and would be the first ones to say that we're being impacted. So to some degree, a lower contribution from bookings as well but mostly driven by variable.

Next question will come from the line of Kirk Materne of Evercore ISI.

Warren, maybe you just double-clicking on your last comment. I think hopefully everybody realize it in a global pandemic right now. But I'm just wondering if you could help us bridge kind of your enthusiasm around the long term versus what is challenging you near term, whether it's the ability to get new deals into the pipeline, the visibility on pipeline closure? Because it sounds like you guys feel very good about the early reception to some of these newer products. You're investing behind them. So I assume you're doing that because you feel good about the demand coming. But obviously, we have a little bit of this bridge over the next six months. So I was wondering if you could just give us an idea, is it just getting deals into the pipeline because of budgets? Is it the inability to really forecast when they're going to close? When you talk to your sales team, what's sort of the thing that you guys are struggling with maybe from a visibility perspective?

So I'll jump in on this one. I think we're all excited to put COVID behind us. But it's real, and it's unpredictable, and you know how we create our guidance. We guide to things that we can see. And now more than ever, it's time to be conservative because we don't know if there's going to be a double dip recession here, we don't know how pervasive the recent uptick in COVID will be. And we certainly saw back in March a impact in our variable usage. Moreover, we know from experience over the last six months, one of the most encouraging things that we saw last quarter is we saw net new wins, new logo wins. That's just harder to do, though, when we don't have face to face interaction with clients that don't have a great working relationship with us. So those are reasons for kind of near term conservatism. I will tell you, I am incredibly optimistic about the long term future of our business. And again, I would point to three things. ATS, where I also -- I already talked about why I'm so optimistic in my prepared remarks and again to Dan, we think that the results don't lie there. What we're doing is working. And we think we're hitting a tipping point for identity to tip to ATS as kind of the embedded infrastructure for the industry. Connected television, we're surfing a secular trend that's where we're actually being aided by the pandemic. More people than ever are connecting from devices at home and is doing linear television for connected TV. I mean, the stats that we're seeing there, albeit off a low base, are pretty impressive. Bookings up over 100%, ARR up over 100% and revenue up over 70%. And our comScore deal that we talked about last quarter, well, a big chunk of that didn't go live until October 1st. So we think we have some tailwinds there. But again, off a lower base and longer term. And then finally, Safe Haven, Warren just talked about some of the reasons he's optimistic about Safe Haven. Again, ARR, up over 100% and revenue up nearly 90%. I talked about working with three of the 10 largest retailers in the US, another four in the EU. And by virtue of those relationships, they're introducing us to their partners which over time, despite a pandemic, gives us more confidence that we could reel in new logos. So long term, a lot of things that we really like. Short term, we're just really nervous about this pandemic. And what could happen over the next three months if these trend lines follow what we've been seeing in the last few weeks.

And maybe, Warren, if I could just double-click on Safe Haven for a second. Can you just give us an idea of sort of the magnitude of those relationships with the larger retailers, are these clients that are already within those 62 that are paying you $1 million a year? And what's sort of the time frame for these deals? I'd imagine they might be a little bit longer from just a sales cycle perspective. But could you just sort of give us some dimensionality around the opportunity there, at least what you've seen thus far?

The great news is they're both existing customers and brand new customers. For example, the large retailer that Scott spoke about, top 10 retailer in the US that we signed this past quarter, brand new customer. So it's really across the board. And the reason why we're able to penetrate an account like that is, I think, just given really the uniqueness of our value proposition and the uniqueness of our platform. A couple of additional points of color that I might add is even on average, our average ACV is more than double that of a typical brand. So these are typically big ticket sales and they're sometimes a lot larger than that, too. And then finally, I just want to reemphasize that this is a global opportunity. Our Safe Haven pipeline in Europe and even APAC is more than -- in multiples larger than where it was a year ago and again, with some of the most sophisticated brands in the world. And what those brands are doing is, and we've just seen this happen in the market. There are several engagements that we're working on right now that look to dramatically expand our global presence. And the beauty of it is our brand customers are leading us there, which is exactly what we want to have. So we see unique opportunity, great ASPs a product that is very unique in the marketplace and third, product, which is opening up really a global TAM.

Next question will come from the line of Brian Fitzgerald with Wells Fargo.

You mentioned the strong hand you have in Safe Haven,and ATS, and CTV and ATS, I think in the example you use being the connective tissue that's extending that global CPG's ability to drive multi regional campaigns. I guess my question is, how would you assess your current level of cross-sell or upsell and then how much potential do we have there?

Yes. I would tell you, I think it's significant in terms of potential. One of the things that we tried to emphasize with our sales force this year and particularly the back half is the importance of attach rates. We believe that, for instance, Warren talked about Safe Haven. Every time we land one of those opportunities, well, that has a chance to pull in data enrichment, ATS, our core subscription, measurement capabilities. And so there are all kinds of upsell opportunities. I would say for our most penetrated upsell that would be probably data marketplace. We're still upsell if you look at our attach rates of less than 20%. Measurement would be less than 20%. So connected television, less than 20%. So just tremendous opportunity as we educate our clients. And that's great new bookings for us because it's a lot easier to upsell an existing client, a lot less expensive than going out and winning a brand-new logo.

And your next question will come from the line of Tim Nollen of Macquarie.

I'd like to come back on the subject of measurement and attribution again. Kind of a two part question, I guess, on one topic. Could you give us a bit more color on the role of and its participation in unified ID 2.0 in terms of helping create a new measurement system for understanding consumer behavior in response to advertising. And the second part is regarding the Data Plus Math and comScore deal, which Scott, you just referenced only went live on October 1st. I just was going to ask if there's anything more you could discuss regarding that relationship and what is going on there. Thanks.

So for ATS, let me start there. The design principle behind ATS have indeed all of our products at LiveRamp is we want to be neutral and interoperable. Our goal is to catalyze our clients, many of whom are direct brands, many of whom are other technology companies or marketing cloud providers. And so with ATS, our goal is to be the Rosetta Stone and help everybody reach addressable audiences. That's going to entail that there will be other companies that will build their own measurement solutions on top of what we're doing. And certainly, Trade Desk will do that. They have their own algorithms and own measurement capabilities built into their unified ID, built into how they deliver, choose which ads go to which users. That's invisible to us but we catalyze it. We're an important piece of it. And going forward, when we think about measurement, what we hear from many of our clients is the need for an end-to-end holistic measurement solution that includes television, includes programmatic display, includes e-mail and direct mail and other directly addressable mechanisms. We're building that. But importantly, we're building it with APIs such that existing measurement providers can embed our technology into what they're offering. That explains some of the R&D increase, the investment that we've made over the last quarter to make sure that our technology has the right APIs, is modularized and is scalable such that others can build on top of it. Your second question, remind me what that was?

Yes, about Data Plus Math and comScore and how that relationship is going.

So, so far so good. We're really pleased to have them as a partner. It significantly improved the number of connected devices that we could reach in the US. US alone, for instance, by adding in comScore's connected devices, we now reach over 80 million connected devices. So that is full steam ahead. And when I last looked at the pipeline, it is absolutely exploding as we've educated our team and comScore has educated theirs about what the collective partnership can do. So I think we're we struck the deal at the right time to take advantage of a real secular trend going on in the industry, hence, my optimism for CPV.

Next question will come from Jared Pulman of Susquehana.

Hey guys, it's Sean. I had a couple of questions. First of all, congrats on the continued strong performance, the ATS adoption and partnerships. I was just wondering, Scott, you talked a lot about ATS, you talked a lot about the partnerships. We get questions a lot about just the economics. And I was wondering, can you talk about just how you're thinking about the economics of ATS to LiveRamp and has that evolved over time? And then, Warren, I know you've gotten asked this question in a bunch of different ways. But I was wondering if you could maybe talk about October, November trends for subscription and marketplace revenue? If there's something you saw that's informing the outlook, or if it's just kind of the same level of conservatism that you've taken over the past couple of quarters? Thank you.

Sean, let me start with the economics of ATS. And if I make no other point, let me make this one really strongly, which is we design this to be good for anyone and everyone in the industry. And so while I know your question is around our economics, let me start by saying the economics are better for everyone. Publishers are generating higher yields, advertisers are generating higher ROI. And we think our importance in the ecosystem to catalyze that kind of performance becomes even greater. Now how do we monetize that? It's historically been through our license. This is our core subscription. Right now, that core subscription is really around personalization and measurement of a cookie-enabled graph. Over time, that will transition to an ATS-enabled graph. From a revenue perspective, it slots in nicely. I would think over time, our TAM increases because historically, we've been aimed at kind of larger enterprise direct clients. We think ATS is a product that everyone and anyone in the industry who's doing anything with addressable marketing, they ought to would embrace. And so we think that's going to expand. It's going to, over time, be a nice mechanism to win new clients and introduce them to our subscription model. In addition, the other impact that you'll see on our economics is the cost structure with ATS is very different than the cost structure with cookies. You'll see that over time manifest itself in our gross margin. One of our single most expensive expenses every year is maintenance of the cookie graph. As cookies are deprecated, that expense melts away. And in some respect, the earlier question about how quickly can we get to our 75% target margins is really, in large part linked to how quickly our cookies deprecated, if that happens sooner, then we'll get to those margins. We'll make faster progress. The longer that takes and we have to maintain the cookie graph along with ATS, well, that would slow our pace.

And then, Sean, let me just chat briefly about the guidance. In short, no change to our guidance methodology or level of conservatism. We've tried to play it consistently throughout the year, and that continues. And then finally, I'd just repeat what we said in the prepared remarks, which this is the time to -- I would ask you all to be conservative in your expectations.

That concludes all the time we have for questions today. I will now turn the call back over to Mr. Warren Jenson for closing remarks.

Great. Thank you, operator, and thanks to all of you for joining us today. And also, again, thank you to our employees and also our customers, most importantly. I'd leave you with I guess, three quick thoughts to close. First of all, there will always be ups and downs, but I think one thing that we can say definitively is LiveRamp's TAM is expanding dramatically and it's expanding globally. ATS is at critical mass, which is a big, big deal. Secondly, I'd leave you with the thought that our growth initiatives are working globally, whether it's ATS, whether it's connected TV or Safe Haven, they all have a tremendous amount of momentum. And then finally, with the thought that our model is working. If you were to go back over the last couple of years and look at our quarterly progression and year-over-year progression, you can see that our model is scaling, and you can see where the trend lines are taking us over the long term. With that, thank you all for joining us today and we look forward to the follow-up calls.

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