Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to your host, Drew Borst, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining our fiscal 2026 second 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 a 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 joining us today. We delivered solid Q2 results with revenue and operating income surpassing our guidance. This quarter showcased strong execution of filling our near-term financial commitments whilst strategically investing in growth drivers like AI product enhancements and our new usage-based pricing model. Q2 revenue increased by 8% and led by a notable acceleration in Marketplace and other to 18% growth. Subscription revenue grew by 5%, as expected, based on bookings a year ago and what we foresee to be the low watermark. The good news, as we anticipated at the start of the year, a growth upturn appears to be on the horizon as evidenced by ARR, which is the best leading indicator of our subscription revenue. Net new ARR in Q2 was $14 million, the largest organic increase in the past 7 quarters and equating to year-on-year growth of 7%. We are seeing good momentum across a range of use cases including Commerce Media, CTV and Cross-Media measurement. Million-dollar plus subscription customers increased by 5% sequentially to a new high of $132. In Q2, we signed a multimillion dollar new logo contract with 1 of the largest global auto manufacturers and signed a multimillion-dollar upsell with a leading social media platform. Our non-GAAP operating income climbed 10%, a testament to improving cost efficiencies achieved through expanding offshore operations in India. GAAP operating income more than doubled and the margin expanded by 7 points to a record quarterly high, driven by sustainably lower stock-based comp. Overall, it was a strong second quarter, particularly in our revenue leading indicators. Lauren will provide further details, we'll all focus on 3 key areas: First, our data collaboration platform's impact on Commerce Media integration benefits with CTV and other major publishers in catalyzing effect for AI.…

Thanks, Scott, and thank you all for joining us. Today, I'll review our Q2 financial results and then discuss our updated outlook for FY '26 in Q3. 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 posted to our IR website. Starting with Q2. In summary, we delivered solid results exceeding our expectations, reflecting strong execution by the team and ongoing sales momentum against a relatively stable macro backdrop. Revenue increased by 8% and was $3 million above our guide. Non-GAAP operating income increased by 10% and was $6 million above our guidance. GAAP operating income more than doubled. Net new ARR was a 7-quarter high and we posted a strong upturn in million dollar plus subscription customers. Let me provide some additional details. Please turn to Slide 5. Total revenue was $200 million, up 8% ahead of our guide and consensus. Subscription revenue was $150 million, up 5%. Fixed subscription revenue was up 6%, in line with our expectation and usage was down slightly. ARR increased by $14 million quarter-on-quarter, which was the best organic result in the past 7 quarters. On a year-on-year basis, ARR was up 7%, pointing to an acceleration in the second half. Our $1 million-plus subscription customers increased by 5% quarter-on-quarter to a new high of 132. Subscription net retention was 102% and in line with our 100% to 105% near-term expectation. Total RPO or contracted backlog was up 29% to $652 million and current RPO was up 15% to $430 million. RPO and CRPO is declined sequentially, consistent with the historical pattern, driven by seasonality in our contract renewals. And which skewed to our fiscal second half. Turning to the selling environment. It was a…

[Operator Instructions]. And we will take our first question from Jason Kreyer from Craig-Hallum.

This is Cal on for Jason tonight. Maybe just to start, can you elaborate on some of the drivers of the improvement in ARR in the quarter?

Sure. I'd be happy to, Cal. This is Lauren. A few things I'd highlight. First with respect to the strength of gross new ARR cross-sell and upsell of our clean room solution continues to be a big driver here. And these are for the use cases that Scott mentioned. So measurement and, in particular, CTV measurement cross-media intelligence and to support just a growing number of retail and commerce-media use cases. We also saw a really nice uptick in new logo activity in the quarter, which was encouraging, specifically for our connectivity or data onboarding use cases. And we think this is a reflection of an increase in focus as we've rolled out now a dedicated new logo sales team, as well as the new pricing model, which allows us to address a larger ICP. In addition, we also had much lower customer churn in the quarter both on an absolute basis and particularly compared to Q1, which was impacted by the couple of unusual events we discussed last call. Importantly, though, we believe these trends are durable. And while 7% ARR growth is solid and certainly trending in the right direction, it's not our final destination. We believe we have the product and market demand for faster growth over time. And that's exactly what the team is focused on here in the back half.

Great. And then as a follow-up, you alluded to some of this on the call, but your renewal cycles, they're a little skewed towards the second half of your fiscal year. So with these new solutions and integrations coming to market, how do you feel about the upsell opportunity here over the next 2 quarters?

I think we feel really good about it. And I'll reference again the road trip I just took. There are so many different levers of growth and depending on which client we're talking to, they're excited about something a little bit different. So we have XMI Cross-Media Intelligence. We have our commerce-media networks that are taking us in completely new directions with new types of clients. We have CTV expansion. And we have some really exciting opportunities in AI. So I was talking to a sales rep just last night, and he told me, I can't remember being at LiveRamp and having this many things that our clients are excited to talk about. So we've got to deliver, but I feel really optimistic about our ability to do that.

Our next question comes from the line of Shyam Patil from Susquehanna.

This is [ Mitchel ] on for Shyam. There's been a lot of debate about how AI search and AI overviews are hurting click-through rates to the open web. How are you thinking about the implications that this dynamic might have on your business?

Yes, [ Mitchel, ] this is Scott. I'll take that. And thanks for being on the call today. I recognize to everybody who's on the call that this is 1 of the busiest earnings weeks and you're juggling a lot of balls. 2 thoughts come to mind with your question. First off, I would tell you our exposure to the open web is low. I mean throughout LiveRamp's history, we've always seen changes in our activation profile. We see the winners and losers sometimes far before the market as a whole does. And if some things don't work as effectively, the money just flows to the things that do work. And we've seen that in recent years. We've been the beneficiary of that with the growth in CTV, and social media and commerce media as well. I looked at our top destinations actually just earlier today. And the vast majority of our top 20 destinations, I mean in no particular order. Companies like Meta, Roku, LinkedIn, Spotify, Disney+, Pandora, Twitter X, I guess, and TikTok, they're simply not impacted by these open web shifts that people are talking about. And then the second point that I'd make is our upside from AI is high. AI models are only as effective as the signals that power the underlying intelligence of those models. And first and second-party data, the kind that empowers everything we currently do is the great differentiator that makes any model even better. Our clients want to standardize and control how their data is used, which puts us right at the center of a long-term future growth driver. And the investments that we've made that Lauren and I both referenced, modernizing our stack, creating AI readiness and usage-based pricing, they build the foundation for our success as AI starts to take off.

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

This is Alex on for Mark. I have 2, if you don't mind. First one, just on the degree of macro conservatism baked into the guide on the revenue guide for the year. Curious if you can provide an update there. And how you're thinking about potential incrementality from these pilots in addition to working with AI labs? And then second question. Curious if you can elaborate on the mix of retail in CPG versus non in terms of incremental ARR in the second half as you point towards an acceleration?

Sure. I'm certainly happy to take the first. So with respect to our guidance, kind of at this point in the year, the swing factors are mostly in our variable revenue sources, so specifically subscription usage and data marketplace. And as we typically do, we have built in some conservatism here, which is -- accounts for the relatively wide range in the back half. At the midpoint, we're assuming the macro remains fairly consistent with what we've seen recently. The low end of the range assumes a pretty major deterioration in the macro in the back half. But in short, we believe we've built in an appropriate level of conservatism into our guide.

Yes. In terms of the retail versus non-retail commerce-media stuff, I don't know if I have those specific numbers because I don't know if we broke it out, did the math. We can get that. But I would tell you that if I just think about what I believe is happening. We're seeing growth in both places. And our kind of traditional retail media, what we're trying to do is build density. So it's usage increases. We're trying to scale the number of merchant partners that are working with each major retailer. And then from a new logo, new starts perspective, that's where we're really excited about expanding from retail to commerce-media. Some of the things I talked about, like PayPal or Uber, the airlines, that just exposes us to really different businesses. And instead of just thinking about merchant partners it's causing us to think about, well, how do we connect with quick-serve restaurants or restaurants as a whole, how do we connect with SMB merchant partners that are driving payments usage. How do we connect with travel partners. And so all of that opens up new TAM for us. And so I think that will be an even greater accelerator for our growth next year than even maybe the traditional retail media side where we've long been strong.

Alex, really quickly. There was a second part of your first question, which is on the pricing pilot, and I didn't answer it. So on to now. We have not baked in any upside in this year's guide to account for pricing upside. I may just take the opportunity to reiterate what Scott mentioned, which is at a high level, our hypothesis is, over time, the new model will unlock incremental revenue growth by benefiting both our land and expand sales motions. As Scott mentioned, on the land front, it offers a lower entry point, which should allow us to address a larger ICP. And on the expand front, due to the fungibility of the tokens, enables customers to more seamlessly grow into our product suite. Right now, we're in the middle of the pilot, which we expect to run through the balance of this fiscal year. We're learning a lot. We expect to continue to learn a lot, which will help us fine-tune the model and approach ahead of rolling it out in the early part of next year. And we expect to roll it out very thoughtfully and for the benefit to accrue over several quarters. So this is something you -- we would expect to see some benefit from as we move through next fiscal year. But so far, nothing baked into this year's guide.

[Operator Instructions]. Our next question comes from the line of Clark Wright from D.A. Davidson.

Maybe to start, can you elaborate on the step-up in platform investments this year? Is this something that stretches into fiscal 2027?

Yes. Clark, I'll start, and Lauren will certainly probably jump in here. But yes, we have actually stepped up our investments recently. We are confident about this driving incremental revenue in the coming quarters and years. The investments are in 3 critical areas. First, we're upgrading our platform both the front and back end to provide our customers just with a better experience, more intuitive UI, faster processing, more stability. Second, we're investing in AI product capabilities. I mentioned that. AI-powered segment builder, Agentic orchestration, I talked about those in my prepared remarks. AI is really reshaping the digital advertising ecosystem. And so these investments ensure we're ready to capture the opportunities that are emerging from these changes. And then third, the kind of companion piece with this is the investments we're making in our new usage-based pricing model. And that ensures that we'll have the optimal revenue model as the volumes kind of expand from what we're seeing in terms of increased collaboration and the AI opportunity, we're going to monetize that through this new variable usage-based pricing model.

And Clark, I would just simply add that while we're making these investments to fuel future revenue growth, we're not sacrificing bottom line growth in the short term. Again, we're guiding to FY '26 operating income growth of over 30% and 4 points of margin expansion and finally, we just mentioned to the earlier part of your question, we believe this investment period will abate by the end of this fiscal year, which puts us in a really strong position for both revenue growth and continued margin expansion in FY '27.

That's helpful. Appreciate that color. And then turning to the growth picture, direct subscription customer count has effectively stabilized after declining for 5 straight quarters. Do you have the visibility to call this the trough or a potential inflection in growth going forward? Or is that still yet to be determined given some of the other moving factors?

Yes. I would characterize that it's stabilizing, especially now that we've worked through the international headwind that we've discussed on past calls, and you saw that in the results this quarter. In addition, I mentioned this a bit earlier, we saw a nice uptick in new logo activity in the quarter, which we think is durable. This is a combination of building out a dedicated new logo sales force and also having a new pricing model that allows us to serve a larger TAM over time. As we look out over the medium to long term, we do think there are a couple of meaningful levers for customer count growth, the pricing model, which I just mentioned. And then also our Clean Room strategy. As Scott discussed as kind of these big Clean Room networks to support use cases in retail or commerce media take hold, we have the ability to pull customers through these large anchor nodes that we're supporting. And we think that can be a source of sustained new logo growth over time. The final point I would just make here is that the quality of our new customer adds continues to be very impressive. It certainly was again in Q2. GM, Uber, constellation brands. I think this is a real testament to the criticality of what we do and to the value we deliver to our customers.

We have no further questions. I will now turn the call back over to Lauren Dillard for closing remarks.

All right. Thank you. I'd love to close with just a few remarks. So first, our second quarter featured again, strong execution and healthy demand with results ahead of expectations across the board and double-digit growth in operating income. We're seeing sustained sales momentum and a robust pipeline heading into our seasonally high renewal quarters in the second half. Our focus, of course, remains on converting that pipeline into sales and keeping churn low to set the stage for accelerating top line growth next year. And finally, we remain on track for another strong year of free cash flow reflecting more than 30% growth in operating income and continued discipline in balancing growth investments with efficiency. We plan to deploy a substantial portion of that free cash toward share repurchases, underscoring both our confidence in the business and our commitment to long-term shareholder value. Thanks again for joining us. We look forward to speaking with many of you in the days ahead.

The meeting has now concluded. Thank you all for joining. You may now disconnect.