Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2025 Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. [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, everyone, and thank you for joining our fiscal 2025, third quarter earnings call. With me today are Scott Howe, our CEO; and Lauren Dillard, our 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 investors.liveramp.com. Also, during the call today, we'll be referring to the slide deck that is also available on our Investor Relations website. With that, I'll turn the call over to Scott.

Thank you, Drew, and thanks to everyone for joining us today. With our Investor Day approaching on February 25, I'll keep today's remarks brief and focused on our strong third quarter results. During Investor Day, we'll provide a comprehensive update on our strategy, market position, product road map, go-to-market initiatives and literate financial outlook. We hope to see you there, either in person in San Francisco or via the live webcast. Three key takeaways from Q3. First, we exceeded expectations for revenue and operating income with double-digit revenue growth for the fourth consecutive quarter. Second, sales momentum rebounded as our pipeline converted into new clients and upsells and data marketplace and usage revenue remains strong. And third, we continue making progress on our Rule of 40 journey and are prioritizing ongoing improvement, exceeding expectations. We posted strong third quarter results, exceeding our guidance and consensus on the top and bottom line. I'm particularly pleased with the improvement in our sales momentum, which validates strategy and product offering. We believe our data collaboration platform is uniquely positioned to capitalize on the growing demand from advertisers and publishers for enhanced measurement of digital advertising using first-party data. Revenue increased by 12%, marking our fourth consecutive quarter of double-digit growth. Operating income increased by 24% and operating margin expanded by over two points to reach a record quarterly high of 23%. Fiscal year-to-date, we have generated $91 million in free cash flow, which is a 20% increase year-over-year. Sales momentum. Our sales momentum rebounded in the third quarter as the pipeline we've built year-to-date started to convert to new clients and upsells. Our pipeline conversion rate improved materially, swinging from below trend in the prior three quarters to well above trend in Q3. What drove the turnaround? We think several factors were at…

Thanks, Scott, and thank you all for joining us. Today, I will cover two topics. First, a review of our Q3 financial results; and second, provide our outlook for FY 2025 and Q4. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth is relative to the year ago period. I will be referring to the earnings slide deck that is available on our IR website. Starting with Q3. In summary, we delivered strong results above our expectations, highlighting another quarter of solid performance. Revenue came in at $195 million, $4 million above our guide and operating income was $45 million, $6 million above our guide. Operating margin expanded by 2 points to a record quarterly high of 23%. Subscription net retention improved by 1 point sequentially to a 10-quarter high of 108%. The ARR grew 10%, the fourth consecutive quarter of double-digit growth. Let me provide some additional details. Please turn to Slide 5. Total revenue was $195 million, up 12% with both subscription and marketplace above our expectations. Subscription revenue was $146 million, up 10%. Fixed subscription revenue was also up 10%, in line with our low double-digit expectations. Subscription usage was up 9%, ahead of our expectation of flat. As a percentage of total subscription revenue, usage was 16%, slightly above the 10% to 15% historic range. ARR was $491 million, up 10% year-on-year and quarter-on-quarter grew by $8 million, driven primarily by upsell. Subscription net retention was 108%, ahead of our 100% to 105% expectation, driven by stronger usage. Total RPO or contracted backlog was up 6% to $579 million. Current RPO was up 13% to $434 million. As Scott mentioned, the sequential increase in CRPO was above normal seasonality, reflecting the improved sales momentum in the quarter and a larger volume of successful renewals.…

[Operator Instructions] Your first question comes from the line of Shyam Patil from Susquehanna. Please go ahead.

Hey, guys. Congrats on a strong results.

Thanks, Shyam.

I just had a question for you. You talked a little bit about improved sales momentum in the quarter. And I know this has been a topic that we talked about for a while, but that was great to see. I was just wondering if you can maybe provide some additional color on the drivers of the turnaround there. Thank you.

Yes. Thanks for the question, Shyam. Improved sales momentum always starts first and foremost with great salespeople. And I just want to give a call out to our team there because internally, I'm always hard on them, and I always say, hey, it's never good enough. But we have a lot of experienced sellers. I was with one of them yesterday in the Midwest. And every time I see them in action and see how knowledgeable they are about our clients' businesses, what great stewards they are of client results. I'm always so impressed. And so it starts there. But it's complemented by the fact that we are the scale leader. And in this business, network scale means everything. Product is important. And we always need to strive to improve our product. But part of our product efficacy is the network effect that we generate. And so when you're talking about data clean rooms or data collaboration, a lot of the value that each participant gets is caused by their ability to connect and collaborate with everyone else. That's part of the network. And so we have a nice flywheel going. In fact, in the Midwestern retailer I was at yesterday, they told us, they said, "Hey, we chose you because when we talk to everyone in the ecosystem and everyone we wanted to partner with our publishers, our merchant partners, they all said that they worked with LiveRamp. And so when you hear that kind of thing, the flywheel gets moving and scale breeds more scale. The third thing that I'd point to is just our pipeline. And it's been frustrating the last couple of quarters to be on these calls and talk about how nice our pipeline was, but yet our frustration around converting that pipeline into closed contracts. I feel like perhaps in the wake of the election, budgets were unstuck and we saw a real infusion. We saw our conversion rate increase pretty materially off of what were real low points in the previous quarters, we had just a nice rebound. And that was particularly true in connectivity and clean rooms, where our -- both our additions to clean rooms, for instance, doubled in terms of new nodes and our usage also doubled. And when you see both new nodes and increased usage, that also fuels more data consumption. And so you saw that in our marketplace. So we really saw -- started to see everything hitting on all cylinders. Again, I'd reinforce what I said in my prepared remarks, one quarter is a data point. Now we need to string together trend lines. But based on what I'm seeing in the marketplace, I'm pretty encouraged.

Yeah. And Shyam, I might just put some additional numbers against what Scott said. So as Scott mentioned, sales were up nicely across all elements of our product suite, but most notably in our connectivity and clean room solutions. Conversion rates nearly doubled from where they were in the preceding three quarters. Our sales cycle for new logos improved meaningfully. Our average deal size ticked up nicely. It was up over 25% versus recent quarters. And finally, our renewal rates in the quarter were at a 10-quarter high. So just really strong, to Scott's point, really strong sales execution across the board.

Great. Thank you guys. Very helpful.

Your next question comes from the line of Mark Zgutowicz with The Benchmark Company. Please go ahead.

Thanks very much. Scott, Lauren. Really nice improving metrics, RPO, ARR retention. Curious on a couple of fronts on Data Marketplace, which was also very strong. Just curious if there was much Oracle impact there in the quarter and if you expect to see any impact in the fiscal fourth quarter? And then as it relates to RPO, I just curious if you think about contract renewals and the pace that you saw in the quarter, how that influenced your RPO number and sort of what pace you think you'll see in terms of contract renewals again in fourth quarter relative to the third quarter? Thanks.

Yeah, I'm happy to take both, Mark. So first on Oracle, just given the scale and breadth of our data marketplace business, it's hard to perfectly tease out the benefit from Oracle versus other factors, including seasonality. Oracle had about 45 data providers in its marketplace, and we were already working with the majority of them. And just for context, we've got about 200 active data providers in our marketplace. That said, our best estimate is that Oracle added a few points of growth to data marketplace in Q3, and we would expect that to continue moving forward. And then with respect to RPO, first, seasonally, we always see strong quarter-on-quarter growth in RPO in Q3, and this reflects the seasonality in our contract renewals. Second, of the increase in total RPO, about 80% of it was associated with CRPO, and that really reflects the strong sales momentum both Scott and I discussed in our prepared remarks. And then finally, the non-current portion also increased nicely, and we think this is a reflection of the continued traction we're having signing our customers to multiyear deals upon renewal. Q4 is also a seasonally high renewal quarter for the business, and we feel good about our ability to maintain renewal rates this quarter.

Thanks. That's helpful. And if I could maybe squeeze one last one in, just around the EBITDA, just the EBITDA guide. I know you talked about seasonality you typically have -- was there a bit more seasonality this year versus the last couple of years that you're expecting? Are there any other onetime potential items in the quarter? Just curious on that point -- that's it for me.

Yeah. Great question. The sequential increase in OpEx this year between Q3 and Q4 is roughly in line with what we've seen in prior years. Of the $12 million increase, about half of it relates to seasonal items and events like payroll, taxes and ramp up, as I mentioned in my prepared remarks. And the remainder is due to some onetime project spend to spend that shifted from Q3 into Q4. So those would be the two drivers I'd call out for the increase in OpEx in Q4.

Super helpful. Thanks, Lauren.

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

Great. Thank you, guys. I just wanted to stay on the topic of just the sales momentum and as that just in terms of what you're seeing that would give you indications of the duration that? And then kind of to contrast that with the Q4 guide, like the trajectory of growth that we're seeing, if these sales improvements continue, do you think that can drive better momentum exiting Q4 and give us a better indication of growth as we get into FY 2026? Or do you think it's still too early to look at it that way?

Well, let's start, Jason, with your second question. Anytime we win new clients and secure up-sells, that de-risks us going forward. But it's the curse and benefit of SaaS, right? You see it kind of six months in the future as opposed to immediately. And so the things that we do this quarter will really show up in a stronger back half of next year. So in terms of what gives me confidence, I do think it's durable. And the reason I say that is because we're in such early stages with all of the data collaboration, commerce media and CTV opportunities in front of us. In CTV, for instance, with almost all of our providers, and we work with all, but one of the top 10, I think. So we're really strong there. But what you typically see is companies start by activating their own data sets, their own CRM targeting schemes on CTV providers. It is not yet the case that many of our advertisers have started to think about the combination of their data plus the CTV providers deep rich audience data to combine new segments. It's a huge measurement opportunity with all of those CTV providers. In the data collaboration space, it's the case that -- most of our clients are only activating a single-digit number of edges or a number of use cases. We would expect that to continue over time. And as it does, our usage grows fairly significantly. And so all the things that we've done up to this point are really seeds that will blossom over time. And what we found is that the more use cases that any client activates, whether it's destinations or collaboration partners, the stickier business is for us. So we think we see that, for instance, in or declining churn. We had a really nice quarter. So again, scale breed scale and scale should breed more growth over time. We like where we're at, but now we need to deliver on it.

Appreciate that Scott. Thank you.

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

Great. Thank you so much. I wanted to follow up on the comment around some of the sales tactical changes that are benefiting execution. Just as it relates to sales efficiency. Where are you now versus your targets? Are we getting back to those historical norms? Or how should we think about the further runway to go on improving that?

Yes, Elizabeth, listen, we're never going to be where we want to be in terms of our selling efficiency. And relative to, say, where we were a year ago, we're not where we'd like to be. Now quarter-on-quarter, we took a nice step forward. And so I think we -- you're going to see this in our business going forward. We have disproportionately high fall-through rates and that's true kind of across the board. It's also true in sales. So we would expect that our focus is going to be maintaining the seasoned sellers that we have and watching them build their books that they already have. And I think you'll see that drive progress in Rule of 40 going forward for us.

And Elizabeth, if the question – if your question is whether we've, kind of, rebounded from some of the sales capacity challenges we faced a couple of years ago, the answer is unequivocally yes. We really like our sales capacity at this point, and we'll continue to add to it as appropriate to support revenue growth, but we've built back from the deficit we faced a handful of years ago. I would also just add, we're seeing nice progress with our channel partnership strategy as well. And I think for our business, we think about channel partners across a few dimensions. There are the traditional kind of systems integrators I think over the past few years, we've talked about closer partnerships with the cloud. And then finally, to Scott's point on network and the flywheel of our network, we increasingly think about the big commerce media network nodes as channel partners that we leverage for new -- both new logo acquisition as well as kind of growing the usage of existing customers. And I think that's played out really nicely for us. We think there is a continued opportunity to tap into channel partners moving forward.

Great. And just as a follow-up, I wanted to ask on the customer side. The total customer count looks like it had a little bit of pressure and then the greater than $1 million was about the same as last quarter. Just given some of the comments around sales cycles improving, retention improving, Habu, likely giving more access to that mid-market segment. Are there any other incremental pressures kind of going on in the customer side, and when should we start to think about that needle moving forward?

Yeah, I'm happy to take this one, and I'll address total customer count and then $1 million-plus customer count separately. So with respect to total customer count, I would say the trends here have been pretty consistent with what we've seen in prior quarters. We continue to experience a little bit of pressure from smaller, lower ACV customers and in part due to broader market consolidation. In addition, and to your point, over the past couple of quarters, we've also shifted several small international customers from a direct to a reseller arrangement, and this has pressured the metric. Moving forward, we do believe this metric is stabilizing, especially as we work through this international transition I just mentioned. So we think that's positive. On the $1 million customer count side, as we talked about, we had a very strong sales quarter, including adding several million dollar plus ACV deals. However, not very many of these deals showed up in our $1 million-plus metric this quarter just due to the lag between when deals close and when they show up in revenue and customer count. So we would expect this metric to show more strength next quarter. That said, if you just take a big step back, I mean the trend here is pretty clear and pretty positive. Year-to-date, $1 million customers are up 20% on top of being up 20% last year. And I think this really highlights our ability to upsell to more use cases as well as attach newer solutions like clean room. So we feel good about our ability to drive growth from this cohort moving forward.

Thank you so much for the additional color.

[Operator Instructions] Your next question comes from the line of Alec Brondolo with Wells Fargo. Please go ahead.

Hey, thanks so much for the question. So I think one of the positive factors you cited on the better bookings in the third quarter were the optimizations you made to the product in October. And I think the lesson is, kind of, like the easier you make the product to use, the better the funnel conversion is. And so can you maybe give us some insight into those next couple of iterations you're thinking about as you move along the journey of making product easier to use? Thank you.

Yeah. Alec, and hopefully, you're going to join us for RampUp at the end of February because you'll actually see in a way that you haven't before at both our Analyst Day on, I think it's the 25th. And then also, the next day, when I do my keynote to kick off the conference, you'll see more product demos than you have in the past. I would tell you that if I were to think about three areas of enhancements that I would prioritize in the coming year. Number one, and it will probably always be number one, will just be consistent improvements in usability. And I'll tell you exactly what I told our internal team, I was sitting through a demo the other day, and it's kind of like V2 of our clean rooms and no one else even has a V1 yet. But it's still not good relative to what you'd expect it to be. It's significantly better than anything that's ever been used in the industry before. But it has to be so simple and intuitive that someone who's not a data analyst, not a data scientist can just pick up the tool and start to create. And so you'll see us incorporate more AI into our queries. You'll see us standardize more and more of our reports, because what we've realized is that, this is the preverbal 80-20 rule where if you standardize reporting, you give 80% of the functionality and then you can build more bespoke reporting later on. The second big improvement that you'll see in emphasis is really around measurement. Measurement becomes so important as more and more of our clients are connecting with more and more CTV destinations, social destinations, AI destinations and ingesting more data. They need to understand how all…

I will. Thank you for the public call. I will be there.

Awesome.

Your next question comes from the line of Kirk Materne with Evercore ISI. Please go ahead.

Yes. Thanks Scott and congrats on the quarter.

Thank you, Kirk.

Could you just talk a little bit about anything you're seeing in your discussions as it relates to just AI and the need for a lot of these new models to transact on top of data? And is that, I guess, having any kind of halo effect for you all? Or is it helping you get pulled into more discussions? I'm just trying to get a sense on you guys obviously play in the world of data and AI sort of requires it. So I'm just kind of curious how you all are filtering into some those discussions enterprises might be having right now.

Yes. I love the question, Kirk. Thanks for asking it. And I would tell you I think over time, investors are going to start view us as one of the potential investment vehicles in AI, because AI only works if you can feed it with valuable data. And the valuable data is sitting with our clients. And we see kind of three manifestations of this. First, we know that more useful data drives better model efficacy. And so throughout our client base, data collaboration customers by partnering with one another and collaborating on data can access better collective data that is authenticated, i.e., permissioned for use in their models. The second thing that we're doing across our clients and early on this, is we're helping them transform their existing data into synthetic data, which is so important when they start to test different AI models. They don't always want to use their actual data and if they train their models, they test their models on synthetic data, it's far more secure and gives you a really good indication as to whether the model will work or not. So early stages on that. And then third, which is what I was just talking about with Alec is more use cases. Anybody who's been to CES, the Consumer Electronics Show last week was at the IAB annual meeting. I mean, it's crazy. You walk around with your name badge and like literally 1,000 people want to grab you and talk about their latest AI application. There are so many innovative companies being spun up around AI and we view our role as much as the same we did 10 years ago in the ad tech space. Why do we have 65 DSP partnerships? Well, it's because 10 years ago, we didn't know who was going to win, so we secured partnerships with everyone. And then over time, DV360 and Amazon and Trade Desk kind of emerged as the industry leaders. 10 years ago, no one knew that. And likewise, today, no one knows who's going to win in AI. And so we view our role as securing partnerships with all of the contenders and then our clients will decide over time who the winners and losers in the AI space will be, and they'll probably be a similar wave of consolidation and AI in a few years that we're now seeing in the ad tech space. So early stages is where I'd end on this. I don't want to overhype this. I mean we are very early on in AI development as an industry. But I think a lot of potential here.

That's helpful. And I think I'll leave it there. Thanks very much.

Seeing as there are no further questions, I will now turn the call back over to Lauren Dillard for closing remarks.

Thanks so much, and I'll finish with just a few final thoughts. First, our third quarter was again a strong quarter with both the top and bottom line ahead of expectations. Our network continues to expand and momentum for our clean room solution continues to build. And finally, we hope to see you at our upcoming Investor Day and at ramp up at the end of this month. With that, thanks again for joining. We look forward to speaking with you over the coming few days and weeks.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.