Q3 2025 LiveRamp Holdings Inc Earnings Call
Good afternoon, ladies and gentlemen, and welcome to life ramps fiscal 'twenty to 'twenty five.
Third quarter earnings call all lines have been placed on mute to prevent any background noise actually the speaker's 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 have.
Draw your question Press Star one again, thank you.
As a reminder, this conference call is being recorded.
Speaker Change: I'd now like to turn the call over to your host drew Borst, Vice President of Investor Relations.
Speaker Change: Thank you operator, good afternoon, everyone and thank you for joining our fiscal 2025 third quarter earnings call with me today are Scott Howe, our CEO and Lauren Dillard our CFO.
Speaker Change: Today's press release and this call may contain forward looking statements and are subject to risks and uncertainties that could cause actual results to differ materially.
Speaker Change: For a detailed description of these risks please read the risk factors section of our public filings and the press release a.
Speaker Change: A copy of our press release and financial schedules, including any reconciliation to non-GAAP financial measures is available at investors <unk> Dot com.
Speaker Change: Also during the call today will 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 Howe: Thank you drew and thanks to everyone for joining us today with our Investor day approaching on February 25th I'll keep today's remarks brief and focused on our strong third quarter results. During Investor day, we will provide a comprehensive update on our strategy market position product roadmap go to market initiatives and multi.
Speaker Change: Year financial outlook.
Speaker Change: Hope to see you there either in person in San Francisco or via the live webcast.
Speaker Change: Three key takeaways from Q3 first we exceeded expectations for revenue and operating income with double digit revenue growth for the fourth consecutive quarter.
Speaker Change: Second sales momentum rebounded as our pipeline converted into new clients and Upsells and data marketplace and usage revenue remains strong.
Speaker Change: And third we continue making progress on our rule of 40 journey and are prioritizing ongoing improvement.
Speaker Change: Exceeding the expectations.
Speaker Change: We posted strong third quarter results exceeded our guidance and consensus on the top and bottom line.
Speaker Change: I'm, particularly pleased with the improvement in our sales momentum, which validates our strategy and product offering we believe our data collaboration platform is uniquely positioned to capitalize on the growing demand from advertisers and publishers for enhanced measurement of digital advertising using first party data.
Speaker Change: Revenue increased by 12%, marking our fourth consecutive quarter of double digit growth.
Speaker Change: Operating income increased by 24% and operating margin expanded by over two points to reach a record quarterly high of 23%.
Speaker Change: Fiscal year to date, we have generated $91 million in free cash flow, which is a 20% increase year over year.
Speaker Change: Sales momentum.
Speaker Change: Our sales momentum rebounded in the third quarter as the pipeline, we bill year to date started to convert to new clients and Upsells.
Speaker Change: Our pipeline conversion rate improved materially swinging from below trend in the prior three quarters to well above trend in Q3.
Speaker Change: What drove the turnaround we think several factors were at play first the it spending environment improved as concerns about the economy and macro economic policy receded.
Speaker Change: Second customers are increasingly recognizing that data collaboration is critical for measuring outcomes in the fastest growing advertising channels, such as CTV ecommerce media and social.
Speaker Change: And for supporting data fueled AI models.
Speaker Change: Finally, our strategic focus on optimizations are paying off we've simplified our messaging and educated the market about the value of data collaboration the tactical adjustments, we made to our product and go to market strategy, starting last spring are gaining traction with customers.
Speaker Change: As I outlined on the last earnings call. These adjustments made our platform faster and easier to use for the use cases that matter most to customers such as measuring marketing outcomes in CTV and retail media.
Speaker Change: <unk> operates as a classic network business, where scale creates a defensible advantage and a natural flywheel that further enhances the network scale and the value received by all participants.
Speaker Change: Theres been a lot of talk in our industry recently about marketing entering the outcomes era.
Speaker Change: <unk> in which all advertising is data driven accountable and achieved measurable results.
Speaker Change: This trend benefits Libra as our network enables a personalized customer experience at scale across all touch points with the ability to measure and optimize outcomes for better performance.
Speaker Change: The brand and business value our customers build increases exponentially with the live ramp data collaboration network.
Speaker Change: The scale of our data collaboration network is unparalleled consider some of these metrics over 350 brand customers, including 20 of the 25 largest U S advertisers and 30% of the Fortune 500.
Speaker Change: More than 200 AD tech platforms, such as Dsp's, ssp's marketing clouds and customer data platforms.
Speaker Change: 200, plus third party data providers.
Speaker Change: 70, plus AD agencies, including all six of the largest agency holding companies.
Speaker Change: 10 of the 11.
Speaker Change: Largest streaming platforms.
Speaker Change: And over 30, retail and Commerce media networks, including 14 of the 15 largest.
Speaker Change: Even at this scale, we're not done growing the current leg of growth is being driven by the need to deliver measurable marketing outcomes dawning recognition that few companies have enough data to go it alone.
Speaker Change: And the desire to collaborate in a secure clean room environment.
Speaker Change: Every marketer media owner and marketing partner is judged on their ability to deliver measurable marketing outcomes and you simply cannot deliver measure and optimize these outcomes without collaboration.
Speaker Change: Both the data owners and data consumers in our network.
Speaker Change: And most companies now fit into both categories recognize that collaboration improves virtually every measurable outcome.
Speaker Change: Publishers and Commerce media networks use our clean room solution to enhance the value and effectiveness of their advertising inventory through improved targeting and measurement capabilities advertisers are able to seamlessly connect to a broad network of the premium publishers to achieve greater reach Richard.
Speaker Change: <unk> insights execute more sophisticated campaign strategies and measure their marketing outcomes such as return on Ad spend.
Speaker Change: The customer Upsells and new logo wins, we had this quarter exemplified the growth across our network.
Speaker Change: We secured a high six figure upsell on a multimillion dollar two year contract with a leading mass market retailer in the U S.
Speaker Change: The upsell spanned our identity connectivity in clean room solutions, bringing their retail media network into our network as a data owner.
Speaker Change: We also signed a seven figure upsell on a multi million three year contract with a large quick service restaurants, who will be utilizing our clean room solution as a data consumer.
Speaker Change: Our collaboration network is also helping with new logos. This quarter, we signed a top five retail media network to our clean room is the donor for a high six figure ACB.
Speaker Change: Finally, we signed a seven figure new logo contract with a two year term with a global hotel and resort operator. This contract included our clean room solution as a data consumer in addition to our identity and connectivity products.
Speaker Change: As I mentioned many of our clients are now serving as both data consumers and data owners. For example, the aforementioned hotel operator came into our clean room network as the data consumer to support their advertising efforts, but we are already discussing how to expand this relationship to include their commerce media net.
Speaker Change: <unk> as a data owner node and our collaboration network.
Speaker Change: This improved sales momentum is partially although not fully reflected in several key operational metrics.
Speaker Change: <unk> grew by 10% year on year, marking the fourth consecutive quarter of double digit growth.
Speaker Change: Net new <unk> in the quarter was $8 million. This only partially reflects Q3 signings due to the normal one to two month lag between contract signing and the first invoice that triggers revenue recognition for <unk>.
Speaker Change: Third quarter CRP, Oh also rebounded with a 16% increase quarter over quarter, while we typically see an acceleration in CRP O quarterly growth in Q3 due to seasonality in our contract renewals.
Speaker Change: 16% growth was significantly above the normal seasonal trend.
Speaker Change: Of course, we know that a single quarter doesn't guarantee continued success, we're focused on maintaining this momentum and improving the consistency of our execution.
Speaker Change: To support that goal, we are hosting our annual customer and partner conference ramp up in San Francisco at the end of February.
Speaker Change: This event is a cornerstone of our commercial strategy and we anticipate engaging with over 3000 attendees, including hundreds of customers and partners.
Speaker Change: We will hold more than 350 customer meetings and announced platform enhancements focused on speed ease of use and expanded functionality.
Speaker Change: We're also excited to share new use cases partnerships and innovations.
Speaker Change: Given the current momentum within our data collaboration network were more enthusiastic than ever about this years ramp up.
Speaker Change: Rule of 40 progress.
Speaker Change: We continue to make progress on our rule of 40 journey prioritizing ongoing improvement, which we believe will unlock greater returns for shareholders.
Speaker Change: Based on our updated FY 'twenty five guidance, we expect to reach our surpass rule of 30, with 12%, 13% revenue growth and an 18% operating margin.
This represents a 200 to 400 basis point improvement compared to FY 'twenty four.
Speaker Change: Revenue our medium term objective remains 10% to 15% annual revenue growth in FY 'twenty five will be the seventh consecutive year, we grew above 10% since the axiom divestiture.
Speaker Change: While our revenue growth isn't always linear Q3 sales momentum reinforces that we have the right strategy and product to meet substantial market demand for data collaboration.
Speaker Change: This positions us for strong growth over the medium to long term <unk>.
Speaker Change: Additionally, we see an opportunity to evolve our pricing model to better align our revenue growth with our customers increasing data use for digital advertising delivery and measurement.
Speaker Change: We will elaborate on this at our Investor day.
Speaker Change: Margin.
Speaker Change: We have a track record of steady margin expansion delivering 200 basis points of improvement this year to reach 18%.
Speaker Change: We remain on track to deliver a 20% to 25% operating margin in FY 'twenty six driven by cost discipline savings from our offshoring initiative and the inherent dropdown rate on incremental revenue and our SaaS model.
Speaker Change: We're confident that we're striking the right balance between investing for future revenue growth and delivering improved profitability.
Speaker Change: In closing, let me reiterate the key themes from the quarter.
Speaker Change: First we delivered strong Q3 financial results with revenue and operating income exceeding the expectations, we achieved double digit growth in both revenue and <unk> <unk> above.
Speaker Change: Above normal seasonality in the <unk> growth and record high operating margin.
Speaker Change: Second our sales momentum accelerated during the quarter driven by an improving spending environment and growing recognition amongst customers that data collaboration is essential for both measuring outcomes in key advertising channels.
Speaker Change: TV Commerce media, social and supporting data driven AI models.
Speaker Change: Our focus on simplifying onboarding.
Speaker Change: Educating the market and enhancing our products also contributed to this success.
Speaker Change: Third we continue making steady progress towards rule of 40, and expect 300 to 400 basis point improvement to reach or surpass rule of 30 this fiscal year.
Speaker Change: We remain committed to delivering that 20% to 25% operating margin in FY 'twenty six.
Speaker Change: From 18% in FY, 'twenty, five driven by cost discipline, offshoring savings and the high dropdown rate unencumbered it'll revenue.
Speaker Change: We hope you can join US on February 25 for our Investor Day.
Speaker Change: Registration information can be found on our Investor Relations website and please reach out to drew with any questions.
Speaker Change: Thank you again for joining us today.
Speaker Change: I also want to thank our exceptional exceptional customers partners and all of <unk> further ongoing hard work and support.
Speaker Change: We look forward to updating you on our continued progress in the coming quarters and with that I'll turn the call over to Lauren.
Lauren Dillard: Scott and thank you all for joining US today I will cover two topics first a review of our Q3 financial results and second to provide our outlook for FY 'twenty five in Q4.
Speaker Change: Unless otherwise indicated my remarks pertain to non-GAAP results and growth is relative to the year ago period.
Lauren Dillard: I will be referring to the earnings slide deck that is available on our IR website.
Lauren Dillard: Starting with Q3 in.
Lauren Dillard: In summary, we delivered strong results above our expectations highlighting another quarter of solid performance.
Lauren Dillard: Revenue came in at 195 million 4 million above our guidance and operating income was $45 million 6 million above our guidance operating margin expanded by two points to a record quarterly high of 23%.
Lauren Dillard: Subscription net retention improve by one sequentially to 10 quarter high of 108%.
Lauren Dillard: <unk> grew 10% the fourth consecutive quarter of double digit growth.
Lauren Dillard: Let me provide some additional detail please turn to slide five.
Lauren Dillard: Total revenue was 195 million up 12% with subscription and marketplace above our expectations.
Lauren Dillard: Subscription revenue was 146 million up 10%.
Lauren Dillard: Subscription revenue was also up 10% in line with our low double digit expectation.
Lauren Dillard: Subscription usage was up 9% ahead of our expectation of flat.
Lauren Dillard: As a percentage of total subscription revenue.
Lauren Dillard: Usage with 16% slightly above the 10% to 15% historic range.
Lauren Dillard: <unk> was $491 million up 10% year on year.
Lauren Dillard: And quarter on quarter grew by $8 million, driven primarily by apps out.
Lauren Dillard: Subscription net retention was 108% ahead of our 100% to 105% expectation driven by stronger usage.
Lauren Dillard: Total rpms are contracted backlog was up 6% to $579 million.
Lauren Dillard: Current Rps was up 13% to $434 million.
Lauren Dillard: As Scott mentioned, the sequential increase in CRP IL was above normal seasonality, reflecting improved sales momentum in the quarter.
Lauren Dillard: A larger volume of successful renewables.
Lauren Dillard: The selling environment improved notably in Q3 compared to the prior three quarters, our conversion rates swang from below trend in the prior quarter to above trend in Q3.
Lauren Dillard: We think the improvement was driven by a combination of an improved spending environment reduced concerns about macroeconomic growth and the tactical adjustments, we made to our product and go to market motion.
Lauren Dillard: Demand signals and our sales pipeline remains robust. So we're optimistic we can sustain the recent momentum.
Lauren Dillard: Marketplace and other revenue increased 20% to 50 million data marketplace, which accounted for 78% of marketplace and other revenue grew by 18%, reflecting continued strength in digital advertising markets and in particular, CTV, which now accounts for roughly 20% of data marketplace revenue.
Now.
Lauren Dillard: Moving beyond revenue gross margin was approximately 74% down half a point year on year.
Lauren Dillard: Operating expenses were 100 million up 6% and lower than we expected due primarily to the timing of certain investment projects.
Lauren Dillard: Operating income was 45 million up from $36 million, a year ago, and our operating margin expanded by two points to a record quarterly high of 23%.
Lauren Dillard: GAAP operating income was $15 million, reflecting the impact of stock based comp and purchased intangible asset amortization.
Lauren Dillard: Dot com was $27 million up from $17 million a year ago.
Lauren Dillard: The increase reflects a benefit in the prior year from accelerated vesting for tax planning purposes.
Lauren Dillard: The current year also includes the impact of the hydro acquisition.
Lauren Dillard: Operating cash flow was 45 million up from $17 million, a year ago, reflecting growth in adjusted EBITDA and improved impact of working capital changes.
Lauren Dillard: We repurchased $10 million in stock in the fiscal third quarter, bringing the fiscal year to date total to $76 million.
Lauren Dillard: There is approximately $282 million remaining under the current authorization that will expire at the end of calendar 2026.
Lauren Dillard: In summary, we posted strong results in Q3, we saw Nathan improvement in the selling environment and in our own sales execution.
Lauren Dillard: Our marketplace growth continued to outpace market growth and we remain disciplined with respect to costs.
Lauren Dillard: Let me now turn to our financial outlook for FY 'twenty five in Q4, please turn to slide 12.
Please keep in mind, our non-GAAP guidance excludes intangible amortization stock comp and restructuring and related charges.
Lauren Dillard: Starting with the full year.
Lauren Dillard: We are increasing our revenue guidance to be between 741, and $743 million up 12% to 13% year on year.
Lauren Dillard: Relative to our prior guidance this is $4 million higher at the midpoint passing through the Q3 base.
Lauren Dillard: We still expect fixed subscription revenue to be up low double digits, but we now expect subscription usage to increase high single digits up from mid single digits previously.
Lauren Dillard: Our outlook for subscription revenue assumes net retention remains within a range of 100% to 105%.
Lauren Dillard: This is a few ticks below Q3, which benefited from above trend subscription usage as well as the acquisition of <unk>, which gets lapped starting in Q4.
Lauren Dillard: With marketplace. Another we now expect growth to be approximately 20% up from high teens previously.
Lauren Dillard: We expect gross margin to be at the low end of our 74% to 75% range, reflecting short term investments to improve platform reliability and data processing speed.
Lauren Dillard: Expect non-GAAP operating income to be $135 million at 28% and representing a margin of 18%.
Lauren Dillard: Up approximately two points year on year.
Lauren Dillard: On the rule of 40 framework, we expect to reach or surpass rule of 30 for the first time, given our guide of an 18% operating margin plus 12% to 13% revenue growth.
Lauren Dillard: We expect GAAP operating income to be $10 million.
Lauren Dillard: Lastly, we're on track to use a substantial portion of this year's free cash flow for share repurchases and we will be opportunistic in fiscal Q4, depending on market conditions.
Lauren Dillard: Now moving on to Q4.
Lauren Dillard: We expect total revenue of between.
Lauren Dillard: 184, and $186 million non-GAAP operating income of 22 million and an operating margin of 12% up three points year on year.
Lauren Dillard: As a reminder, Q4 is seasonally our highest expense quarter.
Lauren Dillard: Due to ramp up and payroll taxes.
Lauren Dillard: A few other call outs for Q4, we expect subscription revenue to be up high single digits across both fixed and usage.
Lauren Dillard: Placed in other revenue is expected to be up approximately 10%.
Lauren Dillard: Note that the Q4 data marketplace comp is the most difficult over the year.
Lauren Dillard: And our guide assumes the two year stack growth rate remains stable sequentially in Q4.
Lauren Dillard: Do you expect a deceleration in revenue growth in Q4 to high single digits reflects the lapping of the hydro acquisition as well as the challenging sales environment, we experienced in the prior three quarters.
Lauren Dillard: Gross margin is expected to be 73% and we expect stock based compensation to be approximately $26 million.
Lauren Dillard: Before opening the call to questions I'll conclude with a few final thoughts.
Lauren Dillard: We had a strong Q3 ahead of our expectations on the top and bottom line, reflecting strength with existing customers and healthy digital ad market.
Lauren Dillard: Operating margin expanded by two points to a record quarterly high of 23%.
We increased our FY 'twenty five guide for both revenue and operating income.
Lauren Dillard: And finally, our sales momentum rebounded in Q3, and we are making significant progress in scaling our data collaboration network. Our sales pipeline remains robust and we're focused on sustaining the current momentum on the bottom line, we continue to carefully and smartly manage costs, we're executing well against our offshore.
Lauren Dillard: And continue to aggressively manage costs, we remain on track to deliver 20% to 25% operating margin in FY 'twenty six.
Speaker Change: On behalf of all <unk>, 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: At this time I would like to remind everyone in order to ask a question Brett.
Speaker Change: Then the number one on your telephone keypad.
Speaker Change: Our first question comes from the line of Sean <unk> from Susquehanna. Please go ahead.
Sean: Hey, guys congrats on the strong results.
Speaker Change: Got it thanks.
Speaker Change: Okay.
Speaker Change: Got it and I just had a question.
Speaker Change: For you you talked a little bit about improved sales momentum in the quarter and I know this has been a topic that we've talked about for a while but that was great to see I was just wondering if you could maybe provide some additional color on the drivers of the turnaround there.
Speaker Change: Yes, yes, thanks for the question Tom.
Speaker Change: Improved sales momentum always starts first and foremost with great salespeople and I just want to give a call out to our team there because.
Speaker Change: Internally I'm always hard on them and I always say hey, its never good enough, but we have a lot of experienced sellers I was with one of them yesterday in the Midwest.
Speaker Change: <unk>.
Speaker Change: Every time I see them in action and see how knowledgeable they are about our clients' businesses.
Speaker Change: Great stewards they are of client results.
Speaker Change: I always saw impressed and so it starts there.
Speaker Change: But it's complemented by the fact that we are the scale leader in this business network scale means everything.
Speaker Change: Product is important.
Speaker Change: We always need to strive to improve our product, but part of our product efficacy is the network effect that we generate.
Speaker Change: So when you're talking about data clean rooms, or data collaboration a lot of the value that each participant gets is caused by their ability to connect and collaborate with everyone else. That's part of the network and so we have a nice flywheel going in fact.
Speaker Change: The Midwestern retailer I was out yesterday.
Speaker Change: Told us they said.
Speaker Change: Hey, we chose you because when we talk to everyone in the ecosystem and everyone. We wanted to partner with our publishers our merchant partners.
Speaker Change: They all said that they worked with library amp.
Speaker Change: And so when you hear that kind of thing the flywheel gets moving and scale breeds more scale.
Speaker Change: The third thing that I'd point to is just our pipeline and its been frustrating in the last couple of quarters.
Speaker Change: On these calls and talk about how nice our pipeline was but yet our frustration around converting that pipeline into closed contracts.
Speaker Change: Feel like perhaps in the wake of the election budget.
Speaker Change: Budgets were unstuck.
Speaker Change: And we saw a real infusion we.
Speaker Change: We saw our conversion rate increased pretty materially.
Speaker Change: Off of what were.
Speaker Change: Real low points in the previous quarters.
Speaker Change: Had a just a nice rebound and that was particularly true in connectivity connectivity in clean rooms.
Speaker Change: Where are.
Speaker Change: Our additions to clean rooms for instance, doubled in terms of new nodes and our usage.
Speaker Change: Also doubled.
And when you see both new nodes and increased usage.
Speaker Change: That also fuels more data consumption and so you saw that in our marketplace. So we really saw started to see everything hitting on all cylinders.
Speaker Change: Again, I would reinforce what I said in my prepared remarks, one quarter.
Speaker Change: As a as a data point now we need to string together trend lines, but based on what I'm seeing in the marketplace I'm pretty encouraged.
Speaker Change: Yeah, and John I might just put.
John: Some additional numbers against what Scott side, So as Scott mentioned sales were up nicely across all elements of our product suite, but most notably in our connectivity and clean room solutions.
John: Conversion rates nearly doubled from where they were in the preceding three quarters, our sales cycle for new logos improved meaningfully our average deal size kicked up nicely. It was up over 25% versus recent quarters and finally, our renewal rates in the quarter were at a 10 quarter high So just really strong to Scott's point really strong.
John: Sales execution across the board.
Great. Thank you guys very helpful.
Mark Zelle: Your next question comes from the line of Mark Zelle, which with the benchmark company. Please go ahead.
Mark Zelle: Thanks, very much Scott Lauren, it's really nice improving metrics RVO are our retention.
Mark Zelle: Curious on a couple of fronts.
Mark Zelle: Data marketplace, which was also very strong I'm just curious if there was much oracle impact there in the quarter and if you expect.
Mark Zelle: The C any.
Mark Zelle: Impact in the fiscal fourth quarter.
Mark Zelle: And then as it relates to.
Mark Zelle: Just curious.
Mark Zelle: You think about contract renewals and the pace that you saw in the quarter, how that influenced your IPO number and sort of what.
Mark Zelle: Do you think you'll see in terms of contract renewals again in fourth quarter relative to the third quarter.
Mark Zelle: Yes, I'm happy to take both Mark So first on Oracle, just given the scale and breadth of our data marketplace business. It is hard to perfectly tease out the benefit from Oracle versus other factors, including seasonality.
Mark Zelle: Oracle had about 45 data providers and its marketplace.
Mark Zelle: We're already working with the majority of them and just for context, we've got about 200 active data providers in our marketplace.
Mark Zelle: Our best estimate is that <unk> added a few points of growth to data marketplace in Q3, and we would expect.
Mark Zelle: To continue moving forward.
Mark Zelle: And then with respect to RP O first seasonally we always see strong quarter on quarter growth in our Po in Q3, and this reflects the seasonality in our contract renewals.
Mark Zelle: Second.
Mark Zelle: Of the increase in total are about 80% of it was associated with CRP Owen and that really reflects the strong sales momentum both Scott and I discussed in our prepared remarks, and then finally the non current portion also increased nicely and we think this is a reflection of that continued traction we're having signing our custom.
Mark Zelle: <unk> to multiyear deals upon renewal.
Mark Zelle: Q4 is also a seasonally high renewal quarter for the business and we feel good about our ability to maintain renewal rates this quarter.
Speaker Change: Thanks, that's helpful and if I could maybe squeeze one last one in just around the EBITDA adjusted EBITDA Guide.
Speaker Change: Hey, you talked about seasonality you typically have is there a bit more seasonality this year versus the last couple of years that youre expecting or are there any other onetime.
Speaker Change: Items.
Speaker Change: In the quarter, just curious on that point, that's it from me.
Speaker Change: Yeah, Great question.
Speaker Change: The sequential increase in Opex. This year between Q3 and Q4 is roughly in line with what we've seen in prior years.
Speaker Change: Of the $12 million increase about half of it relates to seasonal items and events like payroll taxes and ramp up as I mentioned in my prepared remarks.
Speaker Change: And the remainder is due to some onetime project spend to spend that shifted from Q3 into Q4.
Speaker Change: So those would be the two drivers I would call out for the increase in Opex in Q4.
Speaker Change: Super helpful. Thanks, Mark.
Jason <unk>: Your next question comes from the line of Jason <unk> with Craig Hallum. Please go ahead.
Jason <unk>: Great. Thank you guys I just wanted to stay on the topic of just the sales momentum and asked that just in terms of what youre seeing that would give you indications of the durability of that and then trying to contrast that with the Q4 guide like the trajectory of growth that we're seeing if these sales improvements continue.
Jason <unk>: Do you think that that can drive better momentum exiting Q4, and then ill give us.
Jason <unk>: <unk> indication of growth as we get into FY 'twenty six or do you think it's still too early to look at it that way.
Jason <unk>: Well, let's start Jason with your second question anytime we.
Jason <unk>: Win new clients.
Jason <unk>: Secure up sells that de risks us going forward, but it's the curse and benefit of SaaS right.
Jason <unk>: You see it kind of six months in the future as opposed to immediately.
Jason <unk>: And so the things that we do this quarter.
Jason <unk>: Will really show up in a stronger back half of next year.
Jason <unk>: So in terms.
Jason <unk>: Terms of what gives me confidence I do think it's durable and the reason I say that is because we're in such early stages with all of the data collaboration Commerce media and CTV opportunities in front of us.
Jason <unk>: And CTV for instance, with almost all of our providers and we work with.
Jason <unk>: All but one of the top 10 I think.
Jason <unk>: So were really strong there, but what you typically see as <unk>.
Jason <unk>: Companies start by activating their own data sets their own CRM.
Jason <unk>: Targeting schemes.
Jason <unk>: On CTV providers.
Jason <unk>: It is not yet the case that.
Jason <unk>: Many of our advertisers have started to think about the combination of their data plus the CTV providers deep rich audience data.
Jason <unk>: To combine new segments, the huge measurement opportunity.
Jason <unk>: With all of those see TV providers in the data collaboration space.
Jason <unk>: It's the case that.
Jason <unk>: Most of our clients.
Jason <unk>: Clients are only activating.
Jason <unk>: Oh single digit number of edges or number of use cases, we.
Jason <unk>: We would expect that to continue over time and as it does our usage growth grows fair.
Jason <unk>: Fairly significantly.
And so.
Jason <unk>: All of the things that we've done.
Jason <unk>: Up to this point are really seeds that will blossom over time.
Jason <unk>: What we've found is that the more use cases that any client activates whether its destinations or collaboration partners. The stickier the businesses for us so.
Jason <unk>: We think we see that for instance in.
Jason <unk>: Our declining churn, we had a really nice renewal quarter.
Jason <unk>: So again scale breed scale and scale should breed more growth over time, we like where we're at but now we need to deliver on it.
Speaker Change: I appreciate that Scott Thank you.
Speaker Change: Your next question comes from the line of Elizabeth quarter with Morgan Stanley. Please go ahead.
Elizabeth: Great. Thank you so much.
Speaker Change: To follow up on the comment around some of the sales tactical changes that are benefiting execution just as it relates to sales efficiency, where are you now versus your targets or are we getting back to those historical norms or how should we think about further runway to go on improving that.
Speaker Change: Yes, Elizabeth listen, we're never going to be where we want to be in terms of our selling efficiency.
Speaker Change: And relative to say, where we were a year ago.
Speaker Change: We're not.
Speaker Change: We'd like to be now quarter on quarter.
Speaker Change: We took a nice step forward.
Speaker Change: And so.
Speaker Change: I think we.
Speaker Change: Youre going to see this in our business going forward, we have disproportionately high fall through rates.
Speaker Change: And Thats true kind of across the board. It's also true in sales.
Speaker Change: So we would expect that.
Speaker Change: Our focus is going to be.
Speaker Change: Maintaining this season, the sellers that we have and watching them build their books.
Speaker Change: That they already have.
Speaker Change: I think youll see that drive progress in rule of 40 going forward for us.
Speaker Change: If the question is.
Speaker Change: If your question is whether we've kind of rebounded from some of the sales capacity challenges. We faced a couple of years ago that the answer is unequivocally yes.
Speaker Change: We really like our sales capacity at this point and we will continue to add to it as appropriate to support revenue growth, but we dealt back from the deficit. We faced a handful of years ago. I would also just add we're seeing nice progress with our channel partnership strategy as well and I think for our business we think about.
Speaker Change: Channel partners across a few dimensions, there that you know traditional open air systems integrators, I think over the past few years, we've talked about closer partnerships with the cloud and then finally to Scott's point on our network and the flywheel of our network, we increasingly think about the big Commerce.
Speaker Change: Network nodes as channel partners that we leverage for <unk>.
Speaker Change: New logo, both new logo acquisition as well as kind of growing them do usage of existing customers and I think that's played out really nicely for us. We think there is a continued opportunity to tap into channel partners moving forward.
Speaker Change: Great and just as a follow up I wanted to ask on the customer side.
Speaker Change: Total customer account will take a hit a little bit of pressure and then.
Speaker Change: The greater than $1 million was about the same as last quarter.
Speaker Change: Just given some of the comments around sales cycles, improving retention recruit improving habu likely getting more access to that mid market segment are there any other incremental pressures kind of going on in the customer side and when should we start to think about that needle moving.
Speaker Change: <unk> moving forward.
Speaker Change: Yeah, I'm happy to take this one and I'll address total customer count and then million plus customer count separately. So with respect to total customer account I would say the trends have been pretty consistent with what we've seen in prior quarters.
Speaker Change: Continued to experience a little bit of pressure from smaller lower ACB customers and in part due deal.
Speaker Change: Market consolidation.
Speaker Change: In addition, and to your point over the past couple of quarters. We've also shifted several small international customers from a direct to a reseller arrangement and this has pressured that metric moving.
Speaker Change: Moving forward, we do believe this metric is stabilizing, especially as we work through this international transition I just mentioned.
Speaker Change: So we think that's positive on the $1 million customer account side.
Speaker Change: As we talked about we had a very strong sales quarter, including adding several million dollar plus ACB deals.
Speaker Change: Not not very many of these deals have showed up in our $1 billion plus metric this quarter just due to the lag between when deals close and when they show up in revenue and customer count.
Speaker Change: Would expect this metric to show more strength next quarter.
Speaker Change: But if you just take a big step back I mean, the trend here is pretty clear and pretty positive year to date million dollar customers are up 20% on top of being up 20% last year and I think this really highlights our ability to upsell them more use cases as well as attached newer solutions like clean room. So.
Speaker Change: We feel good about our ability to drive growth from this cohort moving forward.
Speaker Change: Great. Thank you so much for additional color.
Speaker Change: Okay.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad.
Speaker Change: Our next question comes from the line of Allison <unk> with Wells Fargo. Please go ahead.
Allison <unk>: Hey, Thanks, so much for the question. So I think one of the.
Speaker Change: One of the positive factors you cited on the better bookings in the third quarter, where the optimizations you've made to the product in October and I think the lesson is kind of like the easier you make the product to use it better the funnel conversion isn't so could you maybe give us some insight into those next couple of iterations, you're thinking about as you kind of move along the journey of making <unk>.
Allison <unk>: It's easier to use thank you.
Allison <unk>: Yes.
Speaker Change: Hopefully you are going to join us for ramp up at the end of February.
As youll actually see it in a way that you haven't before both our analyst day.
Speaker Change: And I think it's the 25th and then also the <unk>.
Speaker Change: Next day.
Speaker Change: When I do my my keynote to kick off the conference Youll see kind of more product demos than you have in the past.
Speaker Change: I would tell you that if I were to think about kind of three areas of enhancements that I would prioritize in the coming year.
Speaker Change: Number one and it will probably always be number one will just be consistent improvements in usability.
Speaker Change: And I'll tell you exactly what I told our internal team.
Speaker Change: I was sitting through a demo of the other day and it's kind of like the two of our clean rooms, and no one else even has a V. One yet.
Speaker Change: But it's still not good relative to what you would expect it to be it's significantly better than anything that's ever been used in the industry before but it has to be so simple and intuitive that someone who is not a dot data analyst not a data science.
Speaker Change: Test can just pick up the tool.
Speaker Change: Start to create.
Speaker Change: And so you'll see us incorporate more AI into our queries youll see us standardize more and more of our reports because what we've realized is that this is the proverbial 80 20 rule where.
Speaker Change: There if you standardize.
Speaker Change: Reporting.
Speaker Change: Give 80% of the functionality and then you can build more bespoke reporting later on.
Speaker Change: The second big improvement that you'll see an emphasis is really around measurement.
Speaker Change: But it becomes so important.
Speaker Change: As more and more of our clients are connecting with more and more CTV destination, social destinations AI destinations and ingesting more data they need to understand how all those complicated pieces fit together to drive.
Speaker Change: Holistic result.
Speaker Change: And so we've really put a lot of emphasis on our cross media insights.
Speaker Change: To make.
Speaker Change: That easier to use and scale and also the reports easier to interpret and we'll share some of the progress on that ramp up as well.
Speaker Change: And then the third area really doesn't speak to something that's visible in product.
Speaker Change: But it is a product lift and that's.
Speaker Change: More integrations youll see even more use cases from us in future in a great area for expansion to an area that we really want to push on it.
Speaker Change: Is the use of AI.
Speaker Change: And all of our partner capabilities.
Speaker Change: AI, regardless of who's talking about it most AI models to this point in time had been trained on all of the world's public data.
Well a lot of the most valuable data in the world is owned by the enterprises, we work with.
Speaker Change: And so.
Speaker Change: We've tried really hard to configure that datasets that it can be ingested very easily.
Speaker Change: Our partners maintain control of that data the data doesn't necessarily move and they can utilize activate a variety of different applications, we've already talked about perplexity.
Speaker Change: As one of our AI partners, we've talked about childless.
Speaker Change: And I would imagine a year from now.
Speaker Change: We will have a menu offering that kind of goes row by row. What is the use case that you want to identify and I would like to have at least three partners for every major use case, such that all of our clients and partners have a variety of choices when they are thinking about the AI.
Speaker Change: <unk> that they can use to generate better results again.
Speaker Change: That's an important piece of our product that doesn't necessarily require a change in the UI or the architecture, but it is kind of a heavy integration lift to ensure that we are integrating with all of these new AI applications that improves the efficacy of how people experience library.
Speaker Change: <unk>.
Speaker Change: More to come hopefully.
Speaker Change: Hopefully, we will see Alec on the 25th I will.
Speaker Change: Well, thank you for the public call I will be there.
Speaker Change: Awesome.
Speaker Change: Your next question comes from the line of Beckman Cheng with Evercore.
Speaker Change: Core ISI. Please go ahead.
Beckman Cheng: Yeah, Thanks, Scott Congrats on the quarter.
Speaker Change: Thank you could you just talk a little bit about.
Speaker Change: Anything youre seeing in your discussions as it relates to just AI and the need for a lot of these new models to transact on top of data and does that I guess, having any kind of.
Speaker Change: Halo effect for you all or is it helping you get pulled into more discussions I'm just trying to get a sense on you know you guys obviously.
Speaker Change: Play in the world of data and AI sort of requires it. So I'm just kind of curious how you all are filtering into some of those discussions enterprises might be having right now, yes, I Love I Love. The question Kurt Thanks for asking it and I would tell you.
Speaker Change: I think.
Speaker Change: Over time investors, we're going to start to view us as one of the.
Speaker Change: The potential investment vehicles, and AI, because AI only works.
Speaker Change: If you can feed it with valuable data and the valuable data is sitting with our clients.
Speaker Change: And we see kind of three manifestations of this.
Speaker Change: First we know that more useful data.
Speaker Change: Drives better model efficacy.
Speaker Change: And so throughout our client base.
Speaker Change: Data collaboration customers by partnering with one another and.
Speaker Change: Collaborate on data.
Speaker Change: Access better collective data.
Speaker Change: That is authenticated permissions.
Speaker Change: For use in their models.
Speaker Change: The second thing that we're doing across our clients early on this.
Speaker Change: Is we're helping them.
Speaker Change: Transform their existing data into synthetic data, which is so important when they start to test different AI models.
Speaker Change: I always want to use their actual data.
Speaker Change: Nancy.
Speaker Change: They train their models they test their models on synthetic data.
Speaker Change: It's far more secure.
Speaker Change: And gives you a really good indication as to whether the model will work or not so early stages on that and then the third which is what I was just talking about with Alec is is more use cases.
Speaker Change: Anybody who's been CES, the consumer electronics show or.
Speaker Change: Last week was that the Iab annual meeting I mean, it's crazy you walk around with your name badge in like literally 1000 people want to grab you and talked about their latest AI application.
Speaker Change: There are so many innovative companies being spun up around AI and we view our role as much the same as we did 10 years ago in the AD Tech space why do we have 65 DSP partnerships well it's.
Speaker Change: Because 10 years ago, we didn't know who is going to win.
Speaker Change: We secured partnerships with everyone and then overtime DB $3, 60, and Amazon and trade desk kind of emerged as the industry leaders 10 years ago, No one knew that and likewise today.
Speaker Change: No one knows who's going to win in AI.
Speaker Change: And so we view our role as.
Speaker Change: Securing partnerships with all of the contenders and then our clients will decide over time, who the winners and losers in the AI space will be probably be a similar wave of consolidation.
Speaker Change: In a few years that we're now seeing in the AD Tech space.
Speaker Change: So.
Speaker Change: Early stages is where I'd I'd add on this.
Speaker Change: I don't want to over hype. This I mean, we are very early on.
Speaker Change: In AI development as an industry, but I think.
Speaker Change: Lot of potential here.
Speaker Change: That's helpful.
Speaker Change: I think I'll leave it there thanks very much.
Speaker Change: Seeing as there are no further questions I will now turn the call back over to Lauren Dillard for closing remarks.
Lauren Dillard: Thanks, so much and I'll I'll finish with just a few final thoughts first our third quarter was again, a strong quarter with both the top and bottom line ahead of expectations. Our network continues to expand and momentum for our clean room solution continues to build and finally, we hope to see you at our upcoming Investor day and at <unk>.
Lauren Dillard: <unk> up at the end of this month with that thanks again for joining we look forward to speaking with you over the coming few days and weeks.
Okay.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Speaker Change: [music].