Q2 2025 LiveRamp Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen and welcome to Live Ramps Physical 2025 Second Quarter earnings call.
Speaker Change: All lines have been placed on mute to prevent any background noise.
After the speakers remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you.
Speaker Change: 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.
drew Borst: Thank you, operator. Good afternoon everyone and thank you for joining our fiscal 2025 Second Quarter earnings call.
drew Borst: With me today, our 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 factor section of our public filings and the press release.
drew Borst: Copy of our press release and financial schedules, including any reconciliation to non-gap financial measures. The available at investors.lygrap.com
drew Borst: 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.
Scott: Thank you Drew and thanks to everyone for joining our call. There was a lot to like about our most recent quarter, whether it be top line growth, client progress or margin improvement.
drew Borst: I'll start my remarks today by discussing our performance on these dimensions, which will be a fun conversation. I'll then shift to the topic about which many of you have been asking. The current selling environment provides some color and talk about why I'm optimistic about the long term.
drew Borst: Finally, I will discuss our ongoing progress toward becoming a rule of 40 company, a study journey of continuous improvement to which we are fully committed.
drew Borst: Let's start by spending some time on Q2 results. These were strong. For the quarter, both revenue and operated income exceeded our expectations. Total revenue grew by 16%. Our third consecutive quarter of double
drew Borst: Subscription revenue grew by 14% and marketplace and other revenue increased by 23%.
drew Borst: This marks the 6th straight quarter of at least 20% marketplace growth, reflecting both strong secular growth in digital advertising, as well as strong execution by our team.
drew Borst: On the bottom line, operated income grew by 28%, and operating margin expanded by 200 basis points to a quarterly high of 22%.
drew Borst: Beyond these key financial results, there are two operational measures worth highlighting.
drew Borst: First, our subscription net retention was 107%, which marks a sixth consecutive quarter of improvement.
drew Borst: Second, our $1 million plus customer count increased by 10 to a record high of 125.
drew Borst: Thank you for watching. See you next time. Bye.
drew Borst: Both of these metrics reflect a continued improvement in our renewal rate with existing customers.
Speaker Change: Over the past 18 months, we have enhanced our customer support and service function and invested in our platform to make it more user-friendly. This has led to higher customer satisfaction and contributes to our renewal rate improvement.
drew Borst: Every quarter brings a fresh set of renewals, but we are focused on sustaining this positive momentum.
drew Borst: These metrics also reflect some key upsells in the quarter, including a multi-year, multi-million dollar ACV deal with one of the largest global ad agency holding companies, and a seven-figure ACV upsell with a major financial services company for a full suite of our solutions.
drew Borst: While it's early, we expect this trend to be a growth opportunity over the coming years, in much the same way that we've seen retail media networks gain traction.
drew Borst: We also had several notable new logo wins during the quarter. We signed a mid-six-figure deal for identity and onboarding with a leading biopharmaceutical company, as well as with a leading public cloud provider.
drew Borst: New logo deals like these are critical to our future growth because most of today's million-dollar-plus customers were yesterday's much smaller new logos.
drew Borst: Finally, on the customer front, we had two key wins international with PF1.
drew Borst: France's largest commercial broadcaster and streamer.
drew Borst: and R.E.A.
drew Borst: Australia's leading residential real estate website. In both cases, these companies are using our cleanroom solutions to enable privacy-first data collaboration with advertisers for enhanced measurement of advertising effectiveness.
drew Borst: With another strong quarter now in our rearview mirror, let me shift gears to the future.
drew Borst: Growth is never completely linear. And last quarter I talked briefly about some of the near-term headwinds we've seen in the selling environment.
drew Borst: In the tech sector, IT budgets are tight given economic uncertainty and, at least based on conversations I've had with clients, many of them were anxious about yesterday's election and the implications for the business environment.
drew Borst: In addition, when Google Chrome changed its timing and process for cookie deprecation, it certainly lessened the panicked technology migration urgency that many marketers may have felt.
drew Borst: What always fuels my confidence in the future, however, is LiveRamp's fundamental market position. And we've also taken advantage of this temporary lull to do some smart things that should position us well for a decade of long-term growth.
Speaker Change: Liferay has a natural advantage.
drew Borst: We have steadily built our network over the past decade, and we have significant scale with all, all of the important participants.
drew Borst: Over 500 brand advertisers and ad agency customers, 500 plus digital publishers from the open web to CTV and streamers to commerce media, and also all of the meaningful ad tech intermediaries.
drew Borst: Not to be overlooked, the other key component of our network is our data marketplace.
drew Borst: with more than 200 active data providers offering high-quality data to other participants in the ecosystem and a growing amount of first-party data collaborations through cleanrooms.
drew Borst: The scale of our network is a true competitive advantage today, and we are not done.
drew Borst: As the density of our network increases and network participants can activate more use cases, collaborate with more complementary companies, and unlock greater value, we believe our growth will accelerate.
drew Borst: Capitalizing on our existing capabilities and network, we have embarked on the next phase of our network expansion, scaling our data cleanroom network.
drew Borst: Two overarching existential trends are driving our network growth. First, personalized customer experiences are the gold standard in marketing because it results in better advertising outcomes for brands as well as their customers.
drew Borst: Second, first-party data on premium content where consumers spend their time is the best way to deliver personalized experiences. As third-party signals degrade, seamlessly connecting first-party data is paramount.
drew Borst: Our data collaboration platform is purpose-built for this environment, helping brand marketers safely and securely use their first-party data to deliver, measure, and optimize personalized advertising at scale across the premium advertising ecosystem.
drew Borst: In recent months, I've sat in on virtually all of our pipeline and forecasting calls, our account planning conversations, and been involved in dozens of client pitches.
drew Borst: I've been speaking frequently, and we've hosted numerous client education sessions.
drew Borst: I've learned there is an incredible demand for collaboration, but customers need help to optimize their efforts.
drew Borst: More succinctly, we're seeing clients have ambitious agendas, unlock promising early results, but struggle with how to best prioritize the partner landscape, sequence their collaborations, and intelligently scale their efforts.
drew Borst: This is a luxury problem, inasmuch as it's really an opportunity. A decade ago, we had to teach the ecosystem how to use their own data effectively, which unlocked consistently high top-line growth.
drew Borst: Now, we're teaching many of the same participants how to collaborate with others on data, which we believe is an even bigger opportunity. So what are we doing? Let me highlight some of our initiatives.
drew Borst: Number one, we're focusing on the network nodes that really matter.
drew Borst: Just as we once found that some destinations matter more than others, like Google and Meta, for example, we are now finding that some collaboration partners matter more than others.
drew Borst: The biggest retailers, the largest card issuers, data-rich CTV companies, and the major airlines.
drew Borst: Over the past quarter, we have focused our efforts on winning key data owner nodes, knowing that adding these participants to the network will create a future flywheel effect.
drew Borst: We are seeing early signs that these enhancements are working.
drew Borst: But this will take some time to scale.
drew Borst: 2. We're adding more publisher partners to the Clean Room Network.
drew Borst: Another key to seizing the data collaboration market is scaling the key publisher and data owner nodes in our cleanroom network. As we think about network expansion, we are focused on four categories of publisher and data owner segments.
drew Borst: Retail and Commerce Media
drew Borst: CTV
drew Borst: The Comscore 100 Publishers, including the largest walled gardens, as well as Premium Open Web Publishers. And finally, unique data providers.
drew Borst: Across each customer segment we are initially prioritizing the largest players with significant addressable audiences and consumer data.
drew Borst: 3. We're expanding our use cases.
drew Borst: In any network, participants can extract greater value if there are more endpoints in the network.
drew Borst: Use cases that allow marketers to create greater customer value.
drew Borst: Last month we announced the first artificial intelligence destinations in our network with Perplexity and Chalice.
drew Borst: Through these partnerships, LiveRamp will enable marketers to personalize AI-powered searches on perplexity.
drew Borst: and use Chalice to activate AI-derived custom audiences on Meta, YouTube, and soon other social platforms.
drew Borst: And this is just the beginning. Over time, we will create a full suite of compelling AI partnerships and use cases for our ecosystem participants.
drew Borst: 4. We're making it easier for our clients and partners to collaborate with one another.
drew Borst: Our approach centers on overcoming the primary hurdles to seamless collaboration between data owners and data consumers. We've developed a frictionless framework for collaboration by standardizing terms of engagement in two key areas, legal contracting and turnkey use cases.
drew Borst: You can call this acceleration through standardization.
drew Borst: And here's how it works practically.
drew Borst: This enables them to act quickly on foundational use cases like audience overlap, reach and frequency, and custom attribution.
drew Borst: Moreover, we've designed pre-built query templates for these and other common applications, allowing advertisers to generate insights faster and reduce their time to value significantly.
drew Borst: Two weeks ago, we convened a group of over 30 current collaborators in Nashville. Some of the world's largest retailers packaged goods companies and publishers, and walked them through all the enhancements.
drew Borst: Without exception, those in attendance saw opportunities to accelerate their efforts.
drew Borst: 5. We're improving our product functionality.
drew Borst: In early October, we debuted a new version of the LiveRamp Data Collaboration Platform that will further accelerate customers' time-to-value and strengthen their ability to deliver personalized advertising to consumers.
drew Borst: The updates enable first-party identity graphs with self-service capability, standardized queries to help customers drive immediate insights with clean room measurement, and faster, much faster activation and performance.
drew Borst: If interested, I encourage you to view the product demo videos available on our website to learn more about these new features.
drew Borst: Importantly, we're seeing early momentum that should snowball over time.
drew Borst: In less than a quarter, I am pleased to report that we have achieved strong traction with over half of these 35 targeted publishers joining the Data Collaboration Network.
drew Borst: We expect the remainder to be signed by the end of this quarter, and we have added an additional 45 targets.
drew Borst: This progress highlights a pivotal aspect of our strategy.
drew Borst: Technology alone is insufficient to drive real value for our partners and customers.
drew Borst: For our customers,
drew Borst: Seamless access to premium internet publishers is proving transformative, enabling deep customer insights.
drew Borst: Accelerating sales, and most importantly, better consumer experiences.
drew Borst: This expanding network effect is fueling our strategic vision and will only deepen the impact and efficiency of our clean room solutions.
drew Borst: We know what data collaboration success looks like with these large publishers that have scaled authenticated audiences and a highly demanded advertising inventory.
Speaker Change: For more information, visit www.FEMA.gov
Speaker Change: So let me share some recent examples.
Speaker Change: One of the largest CTV nodes in our network is Disney's video streaming platform.
Speaker Change: We have been working with them for more than a year, and they have scaled their collaboration connections to over 30 brands and counties.
Speaker Change: The primary CTV use case is measurement and optimization of personalized advertising using first-party data.
Speaker Change: Brands want to safely and securely use their first party data to connect to publishers logged in authenticated audiences.
Speaker Change: We enable this in a privacy-compliant way through the combination of our clean room, identity, and connectivity solutions.
Speaker Change: We intend to replicate this kind of success, not only with other CTV and streaming platforms, but across the entire publisher ecosystem, including Commerce Media, Walled Gardens, and Open Web Publishers.
Speaker Change: We are seeing similar success in retail media.
Speaker Change: Wal-Mart is using our cleanroom solutions to collaborate with advertisers on a couple of different platforms, including collaborating with media platforms to measure sales attribution and sales uplift from advertising campaigns.
Speaker Change: and creating custom audience segments for on-site and off-site advertising.
Speaker Change: It's still early days, but Walmart is actively collaborating with 10 advertisers and is continuing to scale.
Speaker Change: Finally, we think the prize is significant, not only for our clients and partners, but for LiveRamp itself.
Speaker Change: Our revenue model is now intentionally two-sided, with both publishers and brand advertisers investing in the platform to unlock distinct advantages.
Speaker Change: Publishers pay an annual platform fee for each clean room they use to collaborate with individual brand advertisers. For publishers, this investment enhances the value and effectiveness of their advertising inventory through improved targeting and measurement capabilities.
Speaker Change: On the other side, brand advertisers also pay an annual fee.
Speaker Change: Christie, With Scales Based on the Data Volume Shared over the Year. For large enterprise customers, the annual fee will typically be larger than the publisher's fee.
Speaker Change: Brands see this as a high-value investment, because it grants them access to a broad network of premium publishers, enabling them to connect seamlessly with multiple cleanrooms.
Speaker Change: This two-sided approach not only drives revenue, but creates a collaborative network where both parties see meaningful returns.
Speaker Change: To summarize, we think this clean room network is a significant growth opportunity as we successfully execute.
Speaker Change: This business has the potential to scale quickly. We think the combination of our identity, connectivity, data access, and clean room capabilities, all, all of them on a single platform.
Speaker Change: All of them available to the entire ecosystem.
Speaker Change: is a unique competitive advantage that will allow us to capitalize on this emerging growth opportunity.
Speaker Change: Finally, let me close by briefly talking about our ongoing efforts to earn our way into the Rule of Forty Club, a steady march which we believe will unlock greater returns for shareholders.
Speaker Change: Good news. We continue to make steady progress on our goal of being a Rule of 40 company. In fact, at the midpoint of our updated guidance, we expect to reach Rule of 30 this fiscal year with 12% revenue and 18% operating margin.
Speaker Change: This is a 350 basis point improvement year over year.
Speaker Change: On the revenue side, we have been meeting our objective of 10 to 15 percent growth in each of the past three fiscal years, including this fiscal year with 12 percent growth, assuming the midpoint of our guide.
Speaker Change: Growth will never be perfectly linear, but we like our long-term prospects.
Speaker Change: On the margins side, we continue to make steady progress on improving our efficiencies throughout the business.
Speaker Change: And we are not nearly done.
Speaker Change: Like many well-managed companies, we use periods of economic uncertainty
Speaker Change: to even more closely examine every aspect of our operations.
Speaker Change: As we look out to FY26, we see the potential for our operating margin to expand to between 20 and 25 percent.
Speaker Change: Driven by a combination of cost efficiencies,
Speaker Change: savings associated with our offshoring initiative and the high drop-down rate on incremental revenue inherent in our SAS model.
Speaker Change: As always, we believe we are striking the right balance of investing for future revenue growth, but also delivering improving profitability.
Speaker Change: Thank you for joining us. We'll see you next time.
Speaker Change: In closing, let me reiterate what I believe to be the key themes from the quarter.
Speaker Change: First, we delivered strong financial results in Q2 with revenue and operating income exceeding our expectations.
Speaker Change: Double-digit growth and revenue in ARR, record-high $1 million-plus customers, and record-high operating margin. Good stuff!
Speaker Change: We're using what I believe is a short-term lull in sales caused by economic uncertainty to educate the ecosystem and position ourselves for sustained longer-term growth.
Speaker Change: We're making our data collaboration platform simple and easy and scaling our cleanroom network by adding the critical publisher and data owner nodes.
Speaker Change: We are doing the foundational work to standardize the use cases and the contract terms that will allow publishers and advertisers to immediately, immediately start collaborating on foundational use cases.
Speaker Change: And we're seeing signs of progress.
Speaker Change: I'm optimistic here.
Speaker Change: Finally, we want to deliver even greater returns to our shareholders. We are committed.
Speaker Change: to making steady progress on our goal of being a Rule of Forty company.
Speaker Change: This fiscal year we expect a 350 basis point improvement, which will earn us membership in the Rule of 30 Club.
Speaker Change: That's progress.
Speaker Change: But we want to be in the more prestigious Rule of Forty Club.
Speaker Change: As we look out to FY26, we see a path to 20-25% operating margin, up from 18%.
Speaker Change: driven by a combination of cost efficiencies.
Speaker Change: Offshoring Savings, and High Drop Down Rate on Incremental Revenue.
Speaker Change: Thank you again for joining us today. And a special thanks to our exceptional customers, partners, and to all LiveRampers for their ongoing hard work and support.
Speaker Change: We look forward to updating you on our progress in the coming quarters.
Speaker Change: I will now turn the call over to Lauren.
Lauren Dillard: Thanks, Scott. And thank you all for joining us. Today I will cover two topics. First, a review of our Q2 financial results. And second, provide our outlook for FY25 and Q3.
Lauren Dillard: Unless otherwise indicated, my remarks pertain to non-GAAP results and the growth is relative to the year-ago period. I will be referring to the earnings slide deck that is available on our IR website.
Speaker Change: Starting with Q2, in summary, we delivered strong results above our expectations, highlighting another quarter of solid performance.
Speaker Change: Revenue came in at $185 million, $9 million above our guide. And operating income was $41 million, $10 million above our guide.
Speaker Change: Operating margin expanded by two points to a record quarterly high of 22%. Subscription net retention improved by two points sequentially to 107%.
Speaker Change: ARR grew by 13% and million dollar plus customer count grew by 10 quarter on quarter to a record high of 125.
Speaker Change: Let me provide some additional details. Please turn to slide 5.
Speaker Change: Total revenue was $185 million, up 16%, with both subscription and marketplace and other above our expectations.
Speaker Change: Subscription revenue was $143 million, up 14%.
Speaker Change: Fixed subscription revenue was also up 14%, a two-point acceleration from last quarter and slightly ahead of our low double-digit expectation on lower-than-expected contraction.
Speaker Change: Usage revenue was up 16% and largely benefited from some one-time activity. Usage as a percentage of total subscription revenue was 16%, slightly above the 10-15% historic range.
Speaker Change: ARR was $483 million, up 13% year-on-year, and quarter-on-quarter grew by $5 million, driven by product attach expansion and improved customer churn and downsell.
Speaker Change: Subscription net retention was 107%, two points better sequentially, and above our 100 to 105% expectation. The improvement was mostly driven by lower customer churn and downfill and, to a lesser extent, stronger subscription usage.
Speaker Change: Total RPO, or contracted backlog, was up 3% to $504 million.
Speaker Change: Current RPO was up 10% to $374 million.
Speaker Change: The selling environment in Q2 was similar to the prior two quarters. On the positive side, our sales headcount is stable and we have sufficient sales capacity to meet our goals this year.
Speaker Change: We are confident in our second half pipeline and we saw a modest improvement in the average sales cycle in the quarter
Speaker Change: And we had a near record renewal rate with existing customers in Q2.
Speaker Change: On the other hand, our conversion of pipeline into sales remains below trend.
Speaker Change: Customers remain cautious and software spending decisions are being carefully scrutinized.
Speaker Change: Customers remain cautious and software spending decisions are being carefully scrutinized.
Speaker Change: As we turn the page to calendar 2025, with a lower interest rate environment, we are cautiously optimistic that spending loosens up.
Speaker Change: As we turn the page to calendar 2025 with a lower interest rate environment, we are cautiously optimistic that spending loosens up.
Speaker Change: In the meantime, as Scott mentioned, we remain focused on what we can control.
Speaker Change: In the meantime, as Scott mentioned, we remain focused on what we can control, refining our go-to-market, improving our product functionality, and expanding our network.
Speaker Change: Finding our go to market, improving our product functionality and expanding our network.
Speaker Change: Marketplace and other revenue increased 23% to 42 million data marketplace, which accounted for 78% of marketplace and other revenue grew by 24%, reflecting continued strength in digital advertising and in particular, CTV, which now accounts for 20% of data marketplace revenue.
Speaker Change: Marketplace and other revenue increased 23% to $42 million.
Speaker Change: Data Marketplace, which accounted for 78% of Marketplace and other revenue, grew by 24%, reflecting continued strength in digital advertising, and in particular, CTV, which now accounts for roughly 20% of Data Marketplace revenue.
Speaker Change: Moving beyond revenue gross margin was 75% flat year on year operating expenses were 99 million up 11% driven primarily by investments in product and sales head count to support revenue growth.
Speaker Change: Thanks, everyone. Have a great day. Thank you.
Speaker Change: Moving beyond revenue, gross margin was 75% flat year-on-year. Operating expenses were $99 million, up 11%, driven primarily by investments in product and sales headcount to support revenue growth.
Speaker Change: Operating income was $41 million up from $32 million, a year ago, and our operating margin was up two points to a record quarterly high of 22%.
Speaker Change: Operating income was $41 million, up from $32 million a year ago, and our operating margin was up two points to a record quarterly high of 22 percent.
Speaker Change: GAAP operating income was $7 million, reflecting stock based compensation and purchased intangible asset amortization.
Speaker Change: Gap operating income was $7 million, reflecting stock-based compensation and purchased intangible asset amortization.
Speaker Change: Stock comp was $29 million up from $60 million a year ago. As a reminder, the prior year benefited from accelerated vesting for tax planning purposes.
Speaker Change: Dot comp was $29 million, up from $16 million a year ago. As a reminder, the prior year benefited from accelerated vesting for tax planning purposes, and the current year includes the impact of the HABU acquisition.
Speaker Change: And the current year includes the impact of the hydro acquisition.
Speaker Change: Operating cash flow was $56 million up from $36 million, a year ago, reflecting growth in adjusted EBITDA and improved working capital.
Speaker Change: Operating cash flow was $56 million, up from $36 million a year ago, reflecting growth in adjusted EBITDA and improved working capital.
Speaker Change: In August the board expanded and extended our share repurchase program and in Q2, we increased our repurchases to $50 million, bringing our fiscal year to date total to roughly 71 million through today.
Speaker Change: In August, the board expanded and extended our share repurchase program, and in Q2, we increased our repurchase to $50 million, bringing our fiscal year-to-date total to roughly $71 million through today.
Speaker Change: There is approximately $287 million remaining under the current authorization that expires at the end of calendar 2026.
Speaker Change: There is approximately $287 million remaining under the current authorization that expires at the end of calendar 2026.
Speaker Change: So in summary, we posted strong financial results in Q2, we beat on both the top and bottom line.
Speaker Change: So in summary, we posted strong financial results in Q2. We beat on both the top and bottom line. Subscription revenue and ARR grew by double digits.
Speaker Change: A description revenue in <unk> grew by double digits.
Speaker Change: For the third consecutive quarter subscription net retention improved sequentially to 107% the highest level in over two years.
Speaker Change: For the third consecutive quarter, subscription net retention improved sequentially to 107%, the highest level in over two years. Million-dollar-plus customer count increased by 10 to reach a new record high of 125.
Speaker Change: Plus customer count increased by 10 to reach a new record high of 125.
Speaker Change: Operating margin expanded by two points to a record high of 22%.
Speaker Change: Operating margin expanded by two points to a record high of 22%.
Speaker Change: Let me now turn to our financial outlook for FY 'twenty five in Q3, please turn to slide 12.
Speaker Change: Let me now turn to our financial outlook for FY25 and Q3. Please turn to slide 12.
Speaker Change: Please keep in mind, our non-GAAP guidance excludes intangible amortization stock based compensation and restructuring and related charges.
Speaker Change: Please keep in mind our non-GAAP guidance excludes intangible amortization, stock-based compensation, and restructuring and related charges.
Speaker Change: Starting with the full year, we are increasing our revenue guidance to between 737 and $739 million up 12% year on year.
Speaker Change: Starting with the full year, we are increasing our revenue guidance to between $737 and $739 million, up 12% year-on-year.
Speaker Change: Relative to our prior guide this is a $13 million increase at the midpoint and above the $9 million in Q2.
Speaker Change: Relative to our prior guide, this is a $13 million increase at the midpoint and above the $9 million beat in Q2.
Speaker Change: We are increasing our subscription growth expectation.
Speaker Change: We are increasing our subscription growth expectations.
Speaker Change: We expect fixed subscription revenue to grow approximately low double digits versus our prior expectation of high single to low double digits.
Speaker Change: We expect fixed subscription revenue to grow approximately low double digits versus our prior expectation of high single to low double digits. We expect subscription usage to be at mid single digits up from flat previously.
Speaker Change: We expect subscription usage to be up mid single digits up from flat previously.
Speaker Change: Our outlook for subscription revenue assumes net retention remains within a range of 100% to 105%.
Speaker Change: Our outlook for subscription revenue assumes net retention remains within a range of 100 to 105 percent. This is a few ticks below Q2, which benefited from some one-time items in subscription usage, as I mentioned.
Speaker Change: This is a few ticks below Q2, which benefited from some onetime items and subscription usage as I mentioned.
Speaker Change: With marketplace to another we now expect growth in the high teens up from our prior expectation of mid teens underpinning. This estimate is an expectation that data marketplace growth will be in line to above the growth in overall U S digital advertising.
Speaker Change: With Marketplace and other, we now expect growth in the high teens up from our prior expectation of mid-teens. Underpinning this estimate is an expectation that data marketplace growth will be in line to above the growth in overall U.S. digital advertising.
Speaker Change: In addition, we expect services growth to moderate as we move through the back half of the year.
Speaker Change: In addition, we expect services growth to moderate as we move through the back half of the year.
Speaker Change: We now expect gross margin to be approximately 74% to 75%.
Speaker Change: We now expect gross margin to be approximately 74-75% due to short term investments to modernize our platform and improve data processing speed and reliability.
Speaker Change: Short term investments to modernize our platform and improve data processing speed and reliability.
Speaker Change: We expect non-GAAP operating income of between $133 and $135 million.
Speaker Change: At the midpoint, this represents 28% growth and a margin of 18%, up two points year-on-year.
Speaker Change: On the Rule of 40 framework, at the midpoint of our guide, the 18% operating margin plus 12% revenue growth would put us at Rule of 30 for the first time.
Speaker Change: We expect GAAP operating income to be between $6 and $8 million. And lastly, on share repurchases, we intend to use a substantial portion of this year's free cash flow for share repurchases.
Speaker Change: and will be opportunistic over the balance of the fiscal year depending on market condition.
Speaker Change: Now, moving on to Q3, we expect total revenue of $191 million, non-GAAP operating income of $39 million, and an operating margin of 20%.
Speaker Change: A few other callouts for Q3. We expect subscription revenue to be up high single digits with fixed subscription up low double digits and usage roughly flat.
Speaker Change: Marketplace and other revenue is expected to be up mid-teens. Note that the comps get increasingly difficult in the fiscal second half, but our guide assumes a fairly stable two-year stack.
Speaker Change: Gross margin is expected to be between 74 and 75 percent and we expect stock based compensation to be approximately 27 million.
Speaker Change: Before opening the call to questions, I'll conclude with a few final thoughts.
Speaker Change: First, we had a strong Q2 ahead of our expectations on the top and bottom line, reflecting strength with existing customers and healthy digital ad markets.
Speaker Change: Operating margin expanded by 2 points to a record quarterly high of 22%.
Speaker Change: We've increased our FY25 guidance for revenue and operating income.
Speaker Change: And while not yet in a position to provide guidance for FY26, we remain committed to continued Rule of 40 progress.
Speaker Change: As Scott mentioned, our top focus is on building out our network and re-accelerating our sales momentum.
Speaker Change: On the bottom line, we will continue to carefully and smartly manage expenses.
Speaker Change: We are executing well against our offshoring initiative and are continuously evaluating opportunities for further cost efficiencies.
Speaker Change: Net, we expect to deliver several points of operating margin improvement in FY26 and show further progress against Rule of 40.
Speaker Change: Before turning to your questions, a quick public service announcement.
Speaker Change: Ramp up our annual customer and partner conference.
Speaker Change: will be held on February 25th through February 28th in San Francisco. In addition, we will host an Investor and Analyst Day on February 25th. More details to come, but please mark your calendars, and we hope you can join us.
Speaker Change: On behalf of all Light Rampers, thanks again for joining us today, and thank you to our amazing customers and partners.
Speaker Change: Operator, we will now open the call to questions.
Speaker Change: Thank you.
Speaker Change: Thank you. At this time I would like to remind everyone in order to ask a question press star then the number one on your telephone keypad. We ask that you please limit to one question and one follow-up. We will pause for just a moment to compile the Q&A roster.
Speaker Change: Please see the complete disclaimer at https://sites.google.com
Speaker Change: Your first question comes from the line of Jason Cryer with Craig Hallam. Please go ahead.