Q4 2023 LiveRamp Holdings Inc. Earnings Call
Good afternoon, ladies and gentlemen, and welcome to live ramps fiscal 2023 fourth quarter earnings call. After the Speakers' remarks, there will be a question and answer session to ask a question. During this time. Please press star one on your telephone keypad as.
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. Please go ahead.
Thank you operator, good afternoon and welcome. Thank you for joining our fiscal 2023 fourth 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 <unk> Dot Com also during the call today will be referring to the slide deck posted on our website.
At this time I will turn the call over to Scott.
Thanks drew and thanks to all of you for joining our call today, yes.
There are three key points I hope you take from today's call first.
First our business model is consistent and durable.
Our Q4 financial results were broadly in line with our expectations. Despite a challenging macro environment and we delivered strong operating profit growth and margin expansion.
Second.
We think we've positioned ourselves for topline acceleration in future quarters.
We aspire to be a true rule of 40 company and we have historically achieved consistent double digit top line growth rates.
As a subscription business our current growth rate can be traced to the disappointing leading indicators of several quarters ago.
Likewise, the more promising leading indicators we are seeing now if we continue to maintain our trajectory.
Suggest gradual revenue acceleration throughout fiscal year, 'twenty four and beyond.
Finally, as we have consistently done.
To continue to improve operating profit and return capital to shareholders.
We delivered a significant improvement in operating margin in FY 'twenty, three and we expect to do so again.
2024.
Starting with Q4, while results were in line with our guidance on the key financial metrics, including revenue gross profit and operating profit.
We're not satisfied with our performance and have implemented programs to accelerate our topline growth while also ensuring consistent margin improvement.
We're starting to see nice progress on our leading indicators. So I'll share some of those successes with you today as well.
Q4, total revenue grew by 5% year on year with subscription revenue also up by 5% and marketplace and other revenue up 6%.
While revenue was in line with our guidance the growth rate is not up to our standards.
Q4 revenue growth reflects the weakness in last year's Q1, and Q2 bookings that we've discussed on past calls.
This slowdown was the result of a dislocation in our sales capacity and productivity following elevated sales staff turnover during the great resignation in late 2021, combined with a more challenging macro economy.
Our Q4 customer count of 920 was up by 10 from the prior quarter driven by large enterprise customers with above average <unk>.
Our million dollar plus customers increased by one sequentially.
While our half 2 million customers increased by 16.
We had a six figure new client win with a major digital marketing agency for data Onboarding and identity resolution products.
We also signed a three year high six figure contract with a national home improvement retailer for our identity resolution products for use in their retail media network.
Q4 was an especially strong quarter for up selling existing customers to the live ramp data collaboration platform or what was formerly branded safe havens.
In fact, this was the strongest quarter for our collaboration platform contract signings in over a year.
We had five customer upsells, each with an incremental ACB of $1 million or more.
Three of these deals were with national retailers to support their growing retail media networks.
There are two upsells, where data collaboration use cases outside the retail sector demonstrating that commerce networks are not limited to the retail CPG complex.
We had an up sell with a global travel and hospitality customer and also a major automotive manufacturer.
The auto upsell is an eight figure multi year deal to enable data collaboration between the corporate auto OEM.
Our ships and the regional advertising group.
The data collaboration will enable more effective and efficient advertising across these three related get independent organizations and improve the customer experience fortified brand loyalty and reduce customer acquisition costs.
This is especially exciting because not only is this use case applicable to the other auto Oems.
Is also applicable to other franchise business models.
Please see the appendix of our earnings slides for additional details on this auto use case.
Okay.
The most disappointing statistic up this past quarter was our net retention.
Subscription net retention of 97% and platform net retention of 99% reflected down sell and customer attrition, mostly from non enterprise customers being pressured by the macro environment.
We would like to see retention comfortably over 100% with 110% or more being the goal we wont have surpassed.
Over the past year, we've implemented a number of client facing changes. So we think this is our low watermark.
On the product side, we've introduced enhancements that improve the speed reliability and functionality of our most widely used products.
On the service side, we've implemented early warning dashboards to highlight clients that may be at risk tightened our customer segmentation and improved our service coverage model.
Recent upsell trends give us confidence that our net retention rates will improve throughout FY 'twenty four.
Moving beyond the quarter, let me provide an update on some of the key leading indicators for our revenue growth, which is a primary focus for us and you our shareholders.
We think there are multiple levers that can get us back to our historical double digit topline growth and we've been making progress across all of them.
Let me quickly touch on five of these revenue drivers now.
One.
We have meaningfully increased our sales capacity.
As we enter FY 'twenty for the number of ramped reps defined as a wrap with at least six months experience is at an all time high and is currently 25% over our quarterly average throughout FY 'twenty two.
To put this improvement in perspective in the fiscal first half of FY2023 are ramped reps were approximately 20% below the FY 'twenty two average.
So our sales capacity is not just recovered it has expanded over the past year.
And we now have the right level of sales capacity to drive stronger bookings, which is one of the key components of <unk> and other revenue growth metrics.
Second.
Our bookings pipeline has grown.
I like the fact that it's also seemingly increased in quality and grown with new logos.
Our new logo pipeline is the highest in over a year and is nearly 20% higher than the average FY2023 pipeline.
Importantly, because we've tightened our ideal client segmentation criteria, we're more confident that the clients. We signed will remain clients for the long haul.
Third our sales productivity has increased.
Capacity and pipeline alone will not accelerate revenue growth.
Higher sales productivity is required and here we are also seeing encouraging trends.
Our newest sales reps the ones hired within the past year continue to make great strides.
<unk> gotten better over time with their collective bookings more than double the physical first half and they are also good producing 30% more bookings than their predecessors from the prior year.
And these productivity improvements aren't limited to our newest hires across the entire sales force the proportion of sales reps, who signed deals in Q4 was nine percentage points higher than the fiscal first half quarterly average and 10 points higher than a year ago.
Fourth we're seeing early momentum from our partner channel.
In March we hosted our annual customer conference ramp up bringing together leaders from the world of marketing advertising technology and media.
This was our first exclusively in person ramp up since 2020 and attracted over 2000 attendees, a 130 plus speakers and presenters in 200 plus client meetings.
The customer feedback was overwhelmingly positive.
We made several important announcements at ramp up covering new sales partnerships and product integrations that will make our products even more accessible for customers.
And will ultimately help stimulate topline growth.
First we announced an expanded partnership with snowflake to upgrade our product capabilities that are natively built on their platform.
Last year, we natively integrated our identity solutions into Snowflake that we have done the same for our data activation solutions, along with an easy to use marketer friendly user interface that allows customers to easily activate hundreds of marketing and media destinations directly.
From Snowflake.
In addition, we announced a new sales partnership with Snowflake that will allow us to leverage snowflake significant scale of over 3000 sellers of nearly 8000 customer relationships.
We expect this relationship to be especially helpful with our new logo acquisition.
<unk>, 50% of our top customer prospects are already snowflake customers equating to one hundreds of potential new library customers.
Additionally, we expect the partnership will accelerate our sales cycle and lower our cost of acquisition.
These benefits should start materializing in the second half of FY 'twenty four.
We also announced a new partnership with Adobe as real time customer data platform one of the largest <unk> in the market to natively offer live ramps people based identifier ramp IV.
Marketers will now be able to activate their customer data on ramp up via downstream activation partners, including DSP is ssp's CTV destinations and other premium publishers.
And the year just ended we generated approximately $10 million in bookings from our cloud partnerships alone all of it incremental to the year prior.
We expect that this will be in an even stronger revenue driver for us in the coming year given the partnership progress we have made in recent months.
And fifth.
We're expanding the utility of our core subscription offering.
Recently, Google confirmed its previously announced timeline for Deprecating third party cookies in chrome and the second half of 2024.
We think this will be a catalyst for more brand marketers to engage in data collaboration and leverage Ats to maintain reach address ability and high return on AD spend across the open web.
As Google prepares for the final deprecation of Chrome cookies library is playing an important role.
Last year, Google announced that we would be one of a select number of clean room launch partners for publisher Advertiser identity reconciliation.
Per Google.
Google is payer allows publishers and advertisers to securely reconcile their first party data.
For marketing use in Google's DSP.
DB three <unk> without the use of cookies.
We continue to make progress on our partnership with Google.
Earlier this month, we began testing payer with publisher partners.
Using Google pair these publishers will be able to securely and privately reconcile their first party data with market our first party audiences.
Brand customers. Meanwhile, we'll be able to transact on television 360 without the need for third party cookies.
We think this is a final inflection point for the migration from cookies to authenticated permission based destinations that live ramp has long seen coming.
<unk> has always made it safe and easy for its clients to use their data at a wide variety of different destinations and the vast majority of these destinations are now authenticated and addressable.
We work with over 165, DSP and SSP.
Nearly 70% of the top 100 Comscore publishers.
Over 14000 domains.
Ats publisher integrations now account for more than 90% of U S. Consumer time spent online.
Today more than 75% of our customers are already buying on ramp.
Or our direct cookie less integrations.
And we believe Google's definitive migration announcements will further establish <unk> as the industry standard.
I just shared a lot of leading indicator numbers with you, but I think the important thing is that they are all trending in the right direction.
To summarize top line growth trends.
We're operating in a challenging macro environment.
But we are controlling and improving what we can control.
We've expanded our sales capacity.
A more robust pipeline.
The channel partner motion and our knitting live ramp into the very fabric of the ecosystem with our ever expanding array of destinations and use cases.
We want to position library Amp as a true rule of 40 company with double digit topline growth rates complemented by strong operating margins.
The leading indicators for our revenue growth are encouraging and if there is just one statistic that epitomizes our IRR of momentum it's des.
In the fiscal second half our bookings were 30% higher than the fiscal first half.
Increased bookings along with lower contraction will fuel top line growth.
Revenue growth is obviously, a top priority and an important lever in the rule of 40 calculation.
But so too is bottom line growth and building a reputation for good cash stewardship.
So before wrapping up let me touch on this final topic.
Amidst slower revenue growth, we have acted swiftly to reduce operating costs and drive strong bottom line growth and margin expansion, we have a long and established track record of delivering steady operating margin improvement.
Over recent years, we've moved from a negative non-GAAP operating profit of negative $60 million in FY 17 to a positive $60 million or 10% margin in FY2023.
During that time revenue grew by $422 million and operating profit increased by $121 million.
And we're not done.
No were not done in FY 'twenty four we expect to deliver approximately 500 basis points of margin expansion.
Translating to 50% year on year growth.
Lauren will provide additional details in a moment.
In addition, we continue to return excess free cash flow to shareholders through our share purchase program, which was upsized and expanded last December .
During FY 'twenty, three we spent $150 million repurchasing our shares which resulted in a 4% decline in our FY2023 average diluted shares.
In FY 'twenty four we expect to use a substantial portion of our free cash flow for share repurchases in fiscal year to date, we have already repurchased $12 million.
At current valuation levels and factoring for our progress on the leading indicators I've discussed we think repurchasing our shares is a prudent investment.
In summary, we delivered an in line quarter in a still challenging macro economy.
But more importantly, we enter FY 'twenty four with stronger bookings momentum new partnerships and new integrations that give us confidence we can deliver improving revenue growth in FY 'twenty four.
Despite slower top line growth in Q4, we delivered meaningful operating profit growth and margin expansion and we expect to do the same in FY 'twenty four.
Finally, we expect to use a substantial amount of our FY 'twenty for free cash flow for share repurchases.
Thank you again for joining us today and a special thanks to our exceptional.
Customers partners and all the live wrappers across the globe for their ongoing hard work and support.
We look forward to updating you on our progress in the coming quarters and with that I will now turn the call over to Lauren.
Thanks, Scott and thank you all for joining us.
Today I will cover two topics first a review of our Q4 financial results followed by our outlook for FY 'twenty for <unk> Wang.
Starting with the Q4 results.
In summary results were broadly in line with our expectation.
Revenue was near the midpoint of our guidance range, while operating income was at the high end of the range. After adjusting for the accelerated RF investing that was not factored into our guidance more on that later.
Operating margin expanded by nearly eight percentage points year on year, and we generated $31 million in operating cash flow.
Now, let me start and finish cannot be town.
Please turn to slide five.
Unless otherwise indicated my remarks pertain to non-GAAP results.
And growth is relative to the year ago period.
Total revenue was $149 million up 5%.
Subscription revenue was roughly in line with our expectation and marketplace and other were slightly ahead, driven by better than expected advertising environment in February and March.
International revenue was up 4% inclusive of a five point headwind from foreign currency.
Subscription revenue was $121 million at 5%.
With $424 million at 6% subscription.
Net retention was 97% and platform net retention was 99%.
The decline in the subscription revenue metrics was broadly in line with our expectations and reflects a combination of soft bookings in the first half of FY2023.
New salespeople ramp.
As long as some incremental downtime activity in the quarter with non enterprise customers.
Both factors in part if not largely due to a challenging macro environment.
Current RPM, where our next 12 month contracted backlog was $338 million up 9%.
Total RPM, including contracted backlog beyond the next 12 months was that 19% to $471 million due to several large multiyear renewals touches with our largest customer IPG as we discussed on our last call.
A major auto manufacturer as Scott mentioned.
Digging into subscription for there are fixed subscription revenue grew by 7% in the quarter.
Subscription usage revenue represented 13% of total subscription revenue down from 15% a year ago and declined by 8%, resulting in a one point drag on total subscription growth.
Reversals from the recent trend.
This decline, mostly reflects a difficult comp and quarterly variability that is technical on this revenue.
While down the usage revenue mix with down near the midpoint at the 10% to 15% historical range.
Marketplace and other revenue of $28 million increased 6%.
Driven by data marketplace, which represents roughly 80% of our marketplace and other segment.
This performance reflects the decline in January .
Growth in February and March.
Pattern broadly consistent with the overall digital advertising market.
Moving beyond revenue.
Gross margin was approximately 75% down slightly from prior year due primarily to higher data hosting from customer use and parallel costs related to customer migration projects as well as continued investment in our services business.
Operating expenses were down 8% to $97 million driven by the cost actions taken in November .
Q4 was the first quarter with savings from these actions.
We expect to total $30 million annualized consistent with our prior comments.
Operating income was $14 million up from $3 million, a year ago, and our operating margin expanded by nearly eight points to 10%.
In Q4, we decided to accelerate divesting of certain non <unk> Rs here that would've otherwise vested over the next six months.
This resulted in an additional $2 million of payroll tax expense in the quarter, which was not contemplated in the guidance we provided on our last call.
Stock based compensation was $55 million, including $23 million from the accelerated vesting and $22 million of ordinary stock based comp expense consistent with our guidance.
Operating cash flow was $31 million down from $59 million a year ago, due primarily to a difficult comp from an IRS tax refund.
We did not repurchase any shares in the quarter, but in FY2023 we repurchased six 1 million shares for approximately $150 million.
Additionally, since March 31, we repurchased $12 million in stock and there is currently $206 million available under our authorization.
In summary, while Q4 was broadly in line with our expectations. The bookings pressure, we felt in the first half of FY2023.
Coupled with an uncertain macro weighed on our top line performance metrics in the corner.
That said many of the top line, we continue to drive margin improvement and in the fiscal year again returned meaningful capital to shareholders through our buyback.
Looking ahead, we are encouraged by our recent sales momentum and are focused on the initiatives Scott outlined to reaccelerate growth as we move through the year.
Which is perhaps a nice segue to our FY 'twenty, four and Q1 financial outlook.
Please turn to slides 12 and 13.
Please keep in mind, our guidance excludes intangible amortization.
Stock based compensation and restructuring and related charges.
Starting with the full year.
We expect revenue of between 610 $620 million up 2% to 4% year on year.
We expect subscription revenue to grow mid single digits inclusive of a one point headwind from usage.
Usage as a percentage of total subscription revenue is expected to be just below the midpoint and the historic 10% to 15% range.
14% in FY2023.
Our outlook for subscription growth assumes a steady improvement in that retention throughout the year and for it to be above 100% by Q4.
However, we have not embedded in the guide a hockey stick improvement in bookings, even though we are optimistic that the improved sales productivity and the new partnerships and integrations Scott discussed will benefit second half subscription growth.
Of course, the potential offset to this benefit in addition to our own execution would be the macroeconomic conditions.
We expect marketplace and other revenue to be approximately flat, which is slightly better than our previous expectation of flat to down.
We're upgrading our growth outlook based on what we're currently seeing in our business.
After the softness in December and January we have seen better growth in February March and April consistent with the growth and the overall digital ad market.
To be clear, however, flat marketplace revenues still does assume a slight degradation in the current advertising market over the balance of our fiscal year.
We do this in the name of conservatism.
So uncertain economy, and not because we have a better crystal ball on the economy or the ad market.
Advertising is inherently a short duration business, which means we have less visibility on our marketplace as well as subscription usage.
In this macro environment performance is more variable than normal.
Emmons traded by our recent results.
Should the economy and advertising markets hold steady with the current conditions, we're even strengthen over the balance of FY 'twenty four.
We would expect to do better in the marketplace and subscription usage.
To be balanced.
Adverse would naturally also B trail.
We expect a gross margin of approximately 75% in line with FY2023.
However in the fiscal first half, we expect gross margin to be roughly 73% and in the second half I expect margin to improve to approximately 76%.
The first half margin reflects incremental investments in our identity graph.
Our cloud capabilities and in our services business with payback starting to materialize in the second half, particularly in services and hosting.
We expect non-GAAP operating income of between 90, and $93 million up roughly 50% year on year and representing a margin of 15%.
Approximately five percentage points.
Operating expenses are expected to decline by mid single digits, reflecting the savings from the prior year and cost actions as well as ongoing optimization initiatives.
Looking out to FY 'twenty five we expect another year of significant margin expansion similar to FY 'twenty four driven by an offshoring initiatives that we will implement in the fiscal second half.
We expect stock based compensation to be $78 million, which benefits from the $23 million and accelerated vesting in FY2023.
We expect GAAP operating income for the first time to be positive and to be between three and $6 million.
Lastly, we expect to return a significant amount of our FY 'twenty for free cash flow to shareowners through our repurchase program.
We believe this is a great investment and will largely offset the impact of forecasted dilution.
Now moving to Q1.
We expect total revenue of $147 million.
non-GAAP operating income of $15 million and an operating margin of 10% up seven percentage points year on year.
A few other call outs for Q1.
We expect subscription net retention to be roughly flat to Q4 give or take a point.
In Q1, we expect gross margin to be approximately 73% as we discussed earlier and.
And we expect stock based compensation to be approximately $18 million.
Before opening the call to questions I'll conclude with a few final thoughts.
We had a solid quarter in line with our expectations, despite a choppy and challenging environment.
Our Q4 operating margin expanded meaningfully and we expect five points of further margin expansion in FY 'twenty four.
And a similar level of improvement again in FY 'twenty five.
We have line of sight to stronger topline growth in the fiscal second half driven by our recent bookings performance and new partnerships and initiatives.
As with Snowflake, and goop repair that should gain market traction in the coming quarters.
And finally, we have attempted to be conservative and cautious as it relates to our FY 'twenty outlook that.
But we see upside potential if our bookings trends continue on the current trajectory and if the current AD market conditions hold for the balance of our fiscal year.
With that on behalf of all <unk>. Thank you for joining us today and thank you to our amazing customers.
Operator, we will now open the call to questions.
Thank you.
I would like to ask a question. Please press star one if you wish to withdraw your question simply press Star One again one moment. Please for your first question.
Your first question comes from the line of Sam <unk> with Susquehanna. Please go ahead.
Hey, this is Aaron on for Sean. Thank you for taking our question.
<unk>.
First can you provide some additional details on the rollout of Google pair and the impact this could have in FY 'twenty four and beyond.
And secondly is there any more color you can share on the sales pipeline and deal cycle environment right now specifically anything you can call out on the length of the sales cycle would be helpful. Thank you.
Sure Erinn, it's Scott and I can answer both of those.
First off with respect to your question on Google payer.
Above all.
We're excited that Google.
Finally confirmed the timing for the eventual.
Deprecation of cookies, because I think that was just an uncertainty that was hanging over the industry's had for sure.
A couple of three years now.
Now this is something we've been thinking about for far longer than that I mean, we've been preparing for a.
Cookie less future really for the last five years and our belief was that it.
Uh huh.
The keys are.
Consumer control.
And authentication.
And so that's what we built our technology on when Google announced pair, which once again stands for publisher Advertiser identity reconciliation. They followed the same principle.
And they announced US I guess it was last quarter.
As one of their partners for the launch and Theres a couple of others, but we are by far the largest.
We have been in.
Testing.
To be fair Alpha testing and I don't want to get in front of any news Google might want to share.
But what I would tell you is that.
In Alpha testing, we've hit every single one of our.
The milestones we set out for ourselves.
We're currently live with.
Handful of publishers by summer, we think that will expand to a 100 plus publishers and twenty-five advertisers.
But make no mistake it will be a slow ramp.
Google's timeline for Cookie deprecation is in.
Calendar 2024.
Slow ramp.
So.
I think I think you'll see gradual progress on this.
What I think more than anything that this has done is it confirmed for the entire world.
This is real.
Now D. V 360 is one of the biggest sources of media volume on the planet and so anybody who wants to continue to buy on DB 360 by addressable audiences, it's going to have to do it with care.
So a year from now.
I think it will really start to gain traction.
And we think the benefit to us over time.
Could be new subscription volume and clients.
Every single one of our advertisers today.
Virtually all of them would have Google on their media plan.
But there are a lot of advertisers in the world that we don't work with and so this is a natural inroads to our work with a number of new clients.
And then second is I think that.
This development of pair the kind of key.
Clean room functionality that it requires is going to drive more data collaboration use cases.
And again, that's something that we've really been out in front on.
And I think it will.
Spur more demand over time for us and also for the public clouds.
It is not baked into our guidance for this year.
Any any head start we get on that would be upside.
I think that the bigger volume.
Comes next year.
On the second question sales pipeline.
I walked through a number of the leading indicators.
We're generally pretty pleased.
But that said.
I would tell you that we are seeing a change with the macro environment.
Right now.
And I think it's manifested itself in a cup.
<unk> one is the sales pipeline is longer.
Probably a few months longer than it is directly has been and in addition, we're seeing.
A change in terms of the eye.
I'd say it is a.
The market power dynamics have changed a little bit and as much as procurement teams are being a little bit more aggressive with their payment terms.
And other conditions now that's offset somewhat by the fact that every market around the planet.
In tough times once more addressed ability and accountability in their media plan. So we become more important in some sense, but.
Uh huh.
Procurement departments have a little bit more leverage.
I don't think I'll say and this is pure anecdote.
But.
What we're hearing from our frontline reps is that some of these procurement departments.
Actually have staffing challenges.
And.
There've been a lot of head count.
Actions in the tech space in particular, but.
More broadly across the the marketing world.
But I think thats hit on.
Some of these procurement department, because it's taken a little bit more time to get contracts red lined to get responsiveness and it's just.
It's a sort of staffing shortage.
So.
All of this to say is.
Macro headwinds for sure.
But despite that.
I like where we're positioned I think things are moving in the right direction.
Thank you Scott very helpful.
Yeah.
Your next question comes from the line of Elizabeth border with Morgan Stanley . Please go ahead.
Great. Thank you very much I first just wanted to get a little bit more color on guidance.
The opportunity to accelerate revenue growth for the year versus the guide for about 3% growth in both Q1 and the full year, despite improving kind of low growing contribution from sales capacity and partners.
So I was hoping to get more guidance on what are the factors that you are assuming actually get more or less difficult from what you saw in Q4, and then I have a follow up.
Sure. Thanks, Elizabeth I'm, certainly happy to happy to take that and I would start with just acknowledging at a high level.
Mentioned in our prepared remarks, we do believe our guidance is conservative.
And we think there is some potential upside so first let me address the subscription guide.
We're pleased with the recent bookings improvement as Scott mentioned and our guidance assumes a steady continued improvement in bookings throughout FY 'twenty four but it does not assume a hockey stick improvement.
Acknowledging that we are still operating in a tough macro.
And as we just discussed it also does not assume significant contribution from some of our newer initiatives like Google parents. An example, so should those newer initiatives whether it be pair or the progress, we're making with our cloud partners gain market traction earlier in the year that could that could present, some nice upside too.
Our subscription.
In addition.
As it relates to subscription usage and data marketplace as we shared in our prepared remarks, we've attempted to be appropriately conservative here.
Our marketplace guide does assume the growth rate we've seen over the last couple of months moderates to should current trends.
Taking hold or even strengthen throughout the balance of the year.
We would expect to see some upside in data marketplace and potentially awesome subscription usage.
Great and then on the SMB churn side. It sounds like that continues to be a headwind. So can you just help us understand how big This group is from kind of an a or our revenue standpoint.
Should we think about this group as a continued drag as you prioritize more profitable enterprise accounts.
Or should we expect some stabilization or improvement as new channels might be helpful to address this more SMB base.
Yeah, I'm happy to I'm happy to take that one too Elizabeth and as a reminder, and I think we've discussed this on past calls smbs as a percentage of total revenue represents less than 25%.
In Q4 contraction was really a reflection of the macro environment.
We look at contraction very carefully and have a good handle on the reasons for it.
Q4 is typically our highest renewal quarter, and here's where we really felt the impact of recessionary pressures in the form of a down so with our tech platform customer base.
Inc. AD tech platforms other kind of AD.
Tack intermediaries, whose models or just more sensitive to overall trends in advertising.
In fact, I believe in the quarter this drove more than 50% of the increase in contraction.
That said as we've as we've said in the past outside of the macro we continue to believe contraction represents an opportunity for the business.
And have several initiatives underway.
Both from a product and support standpoint, which we believe will improve contraction as we move through the year. So we do expect it to stay.
Based on everything I just mentioned.
Great. Thank you so much.
Your next question comes from the line of Brian Fitzgerald with Wells Fargo. Please go ahead.
Thanks, guys, maybe it's more technical color on Snowflake partnership I think you've talked about 200 large accounts within snowflake client base anything you can tell us about how you're building out and approaching the opportunity pipeline and anything you could tell us about how youre already working alongside the Snowflake seller base our plans.
Go to market there. Thanks.
Yeah, Hey, Brian It's Scott.
It's interesting I don't want to over rotate on snowflake.
Because this is really a broader cloud channel strategy.
And I think I've mentioned.
Last year.
We really got this effort going and we ended up with about $10 million in incremental bookings and thats up from nothing.
Because we didn't have a channel partner program.
That said if you look at the past year.
The vast majority of.
The effort there.
The success, we had really came from being included with DCP.
<unk> negatively and then also in their in their marketplace.
Going forward, our belief is that our success with DCP will extend to.
Snowflake and AWS I think will be the.
The first two that we'll see a lot of progress with <unk>.
Following by Azure and data breaks as well.
And in each case.
I would tell you that.
Those partners are really leaning in.
It starts with <unk>.
Collaboration around target clients.
In most cases, our partners have offered up incentives so as an example.
It is fairly typical that if someone were to.
Engage in a live ramp subscription.
The channel partner would retire quota.
Themselves from GGP or snowflake quota.
They do that because we drive pretty significant amounts of compute.
For them.
It's kind of a broader trend its cloud and AI all of those things require massive amounts of data to use effectively and so.
It's been beneficial to us and beneficial to the partners.
And I think we're pretty high on their radar screen I know some of your colleagues I can't remember if you were there Brian .
<unk> to ramp up.
And those were.
Some of the partners that were on stage with us presenting and doing workshops with clients. So it's not just a high level talk track it has become very tactical.
And very operational.
But let me end by caveat and it's really early.
We're talking about six to nine month sales cycles potentially so even as this starts to scale.
We really won't see.
The bookings come in until the back half of the year and you won't see an impact in revenue until going into next year.
Thanks, Scott very helpful and yes, we did catch a lot of that out it.
At a ramp up so I appreciate it.
Your next question comes from the line of Jason <unk> with Craig Hallum. Please go ahead.
Thank you guys I just wanted to reconcile the puts and takes around subscription growth.
I think we've talked a lot about the higher attrition rates in 2022 kind of impacting bookings over the last quarter. Scott I thought. It was helpful that you mentioned the longer sales cycles earlier, and just as we look to the numbers you know exiting this year still with subscription growth kind of in that low single digit rate.
What are the other puts and takes that are around that that we need to consider or kind of outside of attrition outside of sales cycles and maybe what are the drivers that we want to highlight that could push that number higher.
And I'm happy to take this one and Scott feel free to feel free to follow up.
Our results in the quarter was largely impacted by the bookings pressure, we felt in the fourth quarter of FY 'twenty, two and through the first half of FY 2023.
While we're pleased with our recent bookings progress.
As a subscription business, it's going to take a few quarters for us to lap the bookings pressure we felt in the early part of last year and for our recent bookings momentum to really benefit our top line results and we talked about things that could potentially drive bookings higher in the early part of the year, which would have a benefit on our <unk>.
Subscription growth rate for FY 'twenty four.
In addition.
I would highlight subscription usage, which does represent 10% to 15% of total subscription revenue.
We are assuming that this revenue source is down in FY 'twenty four.
As we mentioned.
In the lack of forward visibility here, we've attempted to be conservative, we're assuming down growth, which is both a reflection of the macro and then also a reflection of.
Some onetime items that benefited FY 'twenty, three which we just don't expect to repeat in FY 'twenty for them again I would go back to an earlier comment I made which is should macros macro trends or trends in digital advertising hold or improve.
We could see.
Some upside to subscription usage, which of course, it would benefit our overall subscription rate as well.
Okay. Thanks Loren.
Wanted to follow up with one just on Google and Cookie Deprecation curious if theres any way to handicap, how much of the industry has already moved beyond cookies.
Or kind of advanced targeting mechanisms and I'm, assuming there is still an opportunity to tap into some of the late adopters. Just wondering if you have any sense for how big of an opportunity that could be.
Yes.
Larger advertisers they've moved beyond.
And I say that because already well over 70%.
Our destinations are fully cookie proof, if you want to buy.
On most social platforms for instance, it's a direct authenticated integration.
That is also increasingly true with the open web.
Can't remember the exact stat, but it's overwhelmingly it's either 49, a 50 year now it might be all 50 of 50.
The top 50 Comscore publishers.
Stablish some form of authentication.
So all this to say is it is increasingly easy for advertisers to buy.
Addressable authenticated inventory.
For smaller advertisers.
It may not be doing that.
They are more likely to just go direct to <unk> 360.
Use one of the major DSP that might still be heavily reliant on cookies.
And so they have been the slowest.
To migrate.
Yes.
They're going to be forced to a year from now.
And so I do think there is an inflection point, where we can have a lot more success with smbs.
Simply because they will be forced to cast a wider net to get the kind of online volume that they want.
For sophisticated call it the top few hundred advertisers on the planet again, I think they've already moved beyond this.
And.
Not only are they starting to Pi addressable.
They're thinking hard about their own first party data strategies and how did they collaborate with other companies that have good first party data and that's what's driving.
Sure.
Real.
Real potential in clean rooms across the industry.
And <unk>.
Interest in our data collaboration platform so.
Zinc brighter days ahead.
Thank you.
Your next question comes from the line of Tim Nolan with Macquarie. Please go ahead.
Hey, everyone. Thanks for taking the question.
Scott I've got a quick follow up to the last question then I accept that.
<unk> question for Lauren.
Follow up on the Google Cookie Deprecation is basically what do you think Scott will be the overall market response, when this actually happens I mean I heard everything you just said.
But when GE PR came about for example in 2018 I remember there was just like a market freeze up even though everyone. Also knew that was going to come do you think some sort of a market reaction may take place or do you think really even the smaller advertisers will be far enough along at that point that will it'll all be okay.
Yeah, well, it's interesting you mentioned GDP or because I actually.
Using the same example internally.
In GDP are or even if you go back to.
As in the industry when y2k happened.
And literally it felt like.
There was a sprint at the end before.
Before both of those.
Because clients just weren't ready.
And then they covered a lot of ground.
In the final couple of months.
Uh huh.
I think for smaller advertisers, we're going to see a similar pattern here.
Quite frankly, they're not who we might be prioritizing anyway for any kind of alpha testing.
With sophisticated advertising advertisers and the largest publishers.
Make no mistake about it Google is so important to the ecosystem. The advertisers are relying on the EV 360.
For reach publishers are reliant on DB 364 yield.
And so they are the first in line.
Two.
Alpha and beta testers.
And.
Think Google by having such a long.
Migration period in <unk>.
Being so definitive about what it's going to happen next year.
Has really paved the way.
For minimal disruption to occur in the industry.
Great.
My question for you Lauren is.
The number that sticks out the most to me in your report today is actually the gap Oh I positive guidance for fiscal 'twenty four.
I don't think you've even had a GAAP oi positive quarter ever as far back as I can see correct me if I'm wrong.
But.
Maybe if you could explain a little bit like if youre talking 2% to 4% revenue growth.
And youre still looking towards positive.
A positive gap of why what are the drivers of that is at the cost savings program that you put through that helps this much is it the SPC you're going to be lower I assume it's those anything else and then you know if your fiscal 'twenty five your implied more upside that comes with any more color you could give us in terms of what we may expect in margins beyond 24, even thanks.
Yeah.
I'd be happy to take that one Tim and thanks for the question of is something internally. We are we are quite proud about in large part those are non-GAAP and GAAP operating performances is benefiting from the cost actions. We took in November in FY 'twenty. Three in addition to just aren't.
Going opt.
<unk> initiatives, we've implemented in addition and to be balanced.
Our GAAP results this year will benefit from lower stock based compensation as a result of the accelerated stock comp expense, we incurred in Q4 of FY2023 and then just a final note. We did have some restructuring charges in FY 'twenty.
Three we don't expect.
We have not contemplated further restructuring charges.
In our 24 guide.
Okay anything on 25, you could offer up any further color further upside from the 24.
Yeah, it would be premature to kind of size the upside today, Tim but I would go back to a couple of comments I made in my prepared remarks.
We have additional levers to continue to expand margin in FY 'twenty five and beyond.
One of which is the offshoring initiatives that that I mentioned earlier. In addition to that of course, we have continued just optimization efforts, which we believe will drive.
Later.
Operating.
Performance in margin.
In the coming years as well.
Great. Thanks, I know, that's something you've been striving for for a while so I look forward to seeing that next year. Thanks.
<unk>.
Your next question comes from the line of Vasily Caris, yet of Cannonball Research. Please go ahead.
Thank you good afternoon, Scott in your prepared remarks, you said that.
But with Dell media networks that Europe , Jason.
Recent initiatives proved that tells me there is not.
Limited to CPG complex I think I did not misquoting here can you elaborate please on what your medium here and then a quick follow up just to clarify the terminology. When you talk about can you tell me do you separate retail media and shopper marketing and if you do how is that different for you.
How do you get involved in.
Either of those or is it the same thing for you. Thank you.
Yeah, absolutely I would tell you first off.
I think we're not.
Not alone in thinking that for retail media networks are kind of limiting name to me their commerce networks.
And the same things that you can see take place I mean, it's all about data collaboration rate.
And a natural first place to do it given how complementary retailers and packaged goods providers are.
Was the whole concept of retail media networks.
Because the retailer the retailer has a store purchase information.
They have.
Sophisticated concepts like.
Merchandising and thinking about its beyond just the store with the website as well now and the packaged goods companies.
We're spending pretty significantly.
And their co op.
Budgets could be made far more effective through data collaboration.
Will those conditions.
Our collaboration kind of lock.
Benefits for all.
Our.
Extend far beyond just retail media.
So in the travel space for instance think about.
How many travel partners that you might utilize whether it be airlines and rental cars or hotel companies.
An incredible opportunity for them to collaborate.
Connected cars.
Almost all of the cars, we buy today have pretty sophisticated user interfaces in the dashboard.
And so to the extent that you are using your car to NAV to a gas station or a retailer.
Incredible opportunity for the OEM to collaborate with retail.
And even the example, I shared earlier of.
Where I was talking about the new.
Auto manufacturer, we had signed.
It's a really interesting manifestation of ecommerce network because you have.
Multiple constituencies you have the OEM.
That might be doing big National television buys and planning you have the regional.
I don't know what they call them there they are like.
The.
Grouped their regions.
Consolidate like local market ad spend.
Through those those kind of <unk>.
Retail agencies, if you will.
And then you have the actual distributors themselves.
Where do you go to buy your car dealership.
And this is connecting all three of those groups together.
That they can collaborate more effectively.
And I think like.
I can see this working in health care.
I can see them working in financial services, we have some financial services clients actually that already are moving down that path.
Services and retail I mean, so many of the credit cards and our wallet.
Co branded for a retailer.
So.
I've I've read some of the research that says Hey, retail media networks isn't a large market.
And.
That may be true I don't agree with that but that's not the market we're playing for.
We think that the Tam here is so much bigger than just retail in packaged goods, it's literally any company that has data.
Can collaborate with other companies that have good permission authenticated data and generate better results.
Yeah.
Okay. Thank you.
Thanks.
Your next question comes from the line of Nicholas <unk> with Stephens. Please go ahead.
Hey, guys solid quarter here.
I did want to take a deeper dive on the usage met metric you provided so I think that was down 9%.
In the prior quarter were just released if I were to kind of use that metric as an indicator of advertising demand can you just talk about maybe how that performed in April and may or maybe just discuss how that number has progressed from January till now just doesn't meet means to kind of gauge the ad environment.
Whether you think that metric is actually likely trough.
In this quarter as you if you think about maybe softer.
Negative trends into next year.
Specifically on that metric.
I'm happy to take that Nicolas and I would start by just saying well not perfectly linear.
So subscription usage and data marketplace Directionally kind of track in line with what the overall digital advertising environment.
However in Q4.
Usage was impacted by a pretty tough comp from the year ago period.
So in terms of a barometer on overall digital advertising housing I'd, probably point you to our data marketplace growth.
Especially in in the quarter, we just reported.
<unk> is a better indicator.
For data marketplace, we saw growth decline in December .
December and again in January .
We saw very modest growth in February and then growth.
And pick up in March and again and again in April .
So we have seen trends there rebound a bit.
Ever for our data marketplace. Some of that rebound was fairly concentrated with a few large media platforms, who buy offer marketplace.
As we think ahead to FY 'twenty four.
Our guidance does assume marketplace grows kind of moderates.
And this is really this is really our attempt to kind of be conservative given the lack of forward visibility here and again. This is an area, where we feel like we can do better if current trends hold.
Got it that's very helpful. And then just I just wanted to circle back to payers, if you don't mind.
We've been exploring it and it just seems that it's very heavily reliant on the safe Haven clean room solution and obviously there are other clean rooms.
Involved in the mix it just as far as like fundamentally how it works if if Paris has access through Google's DSP can you just talk about then what happens like how the clean room selection is done by an advertiser thinking through that there are multiple providers, including yourself.
And also then does a Google DSP user has to be alive ramp subscriber currently in order to utilize that that payer solutions. So just any more details on the fundamentals and how that's executed and if youre willing just how that how to think about how that relationship is monetized.
Yeah. So.
<unk> per <unk>.
<unk> is basically outsourced and I think it's the right decision on their part.
This this kind of matching functionality.
And it requires authentication on the advertiser side. So the advertiser is collecting permissions.
Perhaps in their loyalty program on their website when you sign up for an email.
The publisher is doing the same.
Perhaps when you go sign in to get walled garden content.
And then the match happens in the middle.
And having it actually be a neutral party and library Amp is one of several.
That are participating in the alpha.
We're the biggest.
I think.
Eliminates any potential concern about security or data privacy or bias or anything like that.
Because we can.
Make the match Anonymize it encrypted.
Insurance secure.
To participate in this if someone wanted to use ramp.
Yes, they have to be a live ramp subscription client.
So potentially there is some upside.
Uh huh.
Future client wins for us as this scales, but again.
Its so early I mean, this is an alpha testing right now.
And full scale deployment isn't scheduled.
By Google until next calendar year.
So.
I think.
Theres, probably a lot of learnings that theyre going to have.
A lot of communication that they will.
<unk>.
As they have those learnings about how the program will scale and how it will ultimately deploy.
But the one thing we do know is.
The big migration is planned for calendar 2024.
Okay understood and then just final quick one for me if you don't mind I'm thinking about political AD spend is it is this is.
Is there a way for ramp to benefit from this as we think about you know.
2023, and especially 'twenty.
'twenty 'twenty four calendar I mean, it would seem that the solution would be very useful.
These political AD campaign start to run through but just.
Thoughts there thank you.
Sure and it is something that we work with both parties.
And.
Particularly in our data marketplace business.
We typically.
Typically do see a bump a seasonal bump during an election cycle.
It'll be really interesting depending on how things get ramped up I know there was a big announcement.
Today.
Whether.
Some of the presidential election stuff.
The cycles pulled up a little bit if it is that helps us a lot.
But obviously we think the.
The real spend happens in calendar 2024.
Americans are making up their minds about who they are going to vote for it.
Got it thank you so much.
We have time for one more question and it comes from the line of Mark <unk> with the benchmark company. Please go ahead.
Yes.
Thank you just a couple of real specific ones I was hoping you might be able to share with safe Haven <unk> was in the quarter.
Scott in your comments about data collaboration outside CPG and retail.
Certainly an interesting topic to dig into a bit but just curious.
If you think about contribution outside CPG retail over the next two years.
Would you care to sort of.
A finer point on what you think that mix could look like in terms of our bookings or something.
And then last quick one is on <unk> growth.
Hoping you might share what that growth looks like ex your ICD renewal and the large auto just to get.
Gauge on how that trajectory may look for the balance of the year.
Certainly and Mark let me take the first one and I may pass it to Scott for the second and then can circle back to answer the third.
So in the quarter, we had a strong quarter as Scott mentioned Upselling, our customers to our data collaboration platform, which we formally talked about as safe Haven in the quarters Safe Haven influenced represented north of 30% of total.
And was was up nicely year on year, so up 30% year on year.
That said moving forward, we don't expect to formally disclose this metric is we've really evolved our go to market and have integrated the safe Haven, the data collaboration capabilities into a unified platform. So moving forward, we would point you to overall <unk> growth.
Growth is the best indicator of forward growth for the business.
And in terms of.
Commerce networks.
And.
The growth in the pacing of those.
I don't know.
If if we're the experts in terms of sizing all of those things.
Can't tell you, which I think are going to become larger faster.
And my bet would be that the next.
One that we really see take flight will be.
With publishers.
Hello vision providers in particular.
It is.
Very compatible with clean room solutions like pair.
Publishers have.
Over the last couple of years almost universally become much.
Better at getting the authentication.
And they're recognizing that they have some really valuable data that hasn't been effectively utilized.
And so they see an opportunity they don't want to just share that data broadly they want to control.
How that data is utilized to ensure that the right permissions are adhere to.
And that no one is misappropriating their data and using it to train their own models.
So I think particularly in the CTV space.
There is a lot of interest.
And creating a very similar.
Kind of media collaboration model to how we've seen.
The media networks develop.
If you're a large CTV provider you kind of think K monetize of my inventory Thats yield.
Data is just a second lever.
<unk> potential yield for me.
It might make my existing inventory more valuable or maybe I, even monetize the data itself.
That to me is number one.
Then kind of two and three in no particular order I would say financial services are there's a healthy appetite for this and then the other is travel.
The seeds and travel are already in place because airline miles of the currency exchange across all of your travel partners.
So those same consortiums that exist that have historically been built around miles increasingly we will use data as the currency.
I think thats, probably a couple years to really play out in scale.
But all.
All three of those I see being very interesting markets.
And to circle back Mark to the RP O question looking at the sequential increase into Q3 to Q4 increase in total RPM.
I believe it was up roughly $60 million to $65 million and wood.
The IPG impact at roughly $30 million to $40 million of that of that sequential improvement.
I'm not going to break out the size of the auto.
Io deal that Scott mentioned, but I will say in addition to the auto when we had several large multiyear multimillion dollar data collaboration deals that closed in Q4, which also benefited the improvement in RPM.
Thank you that's very helpful color I appreciate it.
Thank you with that I will turn the call to Lauren Dillard for closing remarks.
Thank you well Q4 was not a momentous quarter on the surface. We did deliver strong operating profit results well on the topline weathering, a tough macro and sales execution challenges from earlier in the year as we enter FY 'twenty four we're heads down and focused on the things we can improve.
We're seeing some very positive trends emerge that give us confidence in our ability to reaccelerate growth as we move through the year and finally, we believe our FY 'twenty guidance is appropriately conservative and achievable.
Thanks again, everyone for joining us today, we look forward to updating you in the quarters ahead.
Thank you.
This concludes today's conference call. Thank you for joining you may now disconnect your lines.
Please wait the conference will begin shortly.
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