LiveRamp Holdings, Inc. Q3 FY2025 earnings call

• Strong third quarter results with revenue and operating income exceeding expectations, marking fourth consecutive quarter of double-digit revenue growth. - Sales momentum rebounded as pipeline converted into new clients and upsells, with pipeline conversion rate improving materially. - Progress on Rule of 40 journey, expecting to reach or surpass Rule of 30 with 12%-13% revenue growth and 18% operating margin. - Data collaboration platform uniquely positioned to capitalize on growing demand for enhanced measurement of digital advertising using first-party data. - Annual customer and partner conference, ramp-up in San Francisco, scheduled for end of February, with over 3,000 attendees expected.

Total revenue for LiveRamp's Fiscal 2025 Third Quarter was $195 million, up 12%. Subscription revenue was $146 million, up 10%, accounting for approximately 75% of total revenue. Marketplace and other revenue increased 20% to $50 million, with data marketplace, which accounted for 78% of marketplace and other revenue, growing by 18%. ARR grew 10% year-on-year to $491 million. Operating income was $45 million, up 24%, and operating margin expanded to a record quarterly high of 23%. Gross margin was approximately 74%, down 0.5 point year-on-year. Operating expenses were $100 million, up 6%.

• Increased FY 2025 revenue guidance to between $741 million and $743 million, up 12%-13% year-on-year. - Expect non-GAAP operating income to be $135 million, up 28%, with an operating margin of 18%. - For Q4, expect total revenue between $184 million and $186 million, non-GAAP operating income of $22 million, and an operating margin of 12%. - On the Rule of 40, expect to reach or surpass Rule of 30 for the first time.

Market fluctuations and macroeconomic conditions could impact sales and revenue growth. Dependence on a few key clients and potential loss of major clients could affect business. Intense competition in the data collaboration and advertising technology space could pressure margins and market share.

Q: Hey, guys. Congrats on a strong results. 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?

A: 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.

Q: 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?

A: 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.