LiveRamp Holdings, Inc. Q4 FY2022 Earnings Call

Good afternoon ladies and gentlemen and welcome to LiveRamp's Fiscal 2022 Fourth Quarter Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Lauren Dillard, Senior Vice President of Finance and Investor Relations.

Thank you, operator. Good afternoon and welcome. Thank you for joining us to discuss our fiscal 2022 fourth quarter results. With me today are Scott Howe, our CEO; and Warren Jenson, President and 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 in the press release. A copy of our press release and financial schedules, including any reconciliation to non-GAAP financial measures, is available at liveramp.com. Also during the call today, we will be referring to the slide deck posted on our website. At this time, I will turn the call over to Scott.

Thank you, Lauren and thanks to all of you for joining us today. I'm hoping that my prepared remarks today will highlight three fundamental takeaways about LiveRamp. First, as the economy enters a period of market uncertainty, we believe LiveRamp is well insulated from macroeconomic headwinds relative to most companies. We're resilient, 80% subscription-based and embedded into the very fabric of the data economy. Second, in the recently completed Q4, we posted another quarter of growth with a number of notable client wins. And third, we're by no means satisfied with where we are and have clear line of sight to areas that we think can improve our top line growth, profitability and return on shareholder capital. First, LiveRamp's resilience. Let me start by just addressing the swirling macroeconomic headwinds. I always enjoy talking with Wall Street at our fiscal year-end as it provides a chance for both reflection on the path we traveled as well as an opportunity to share our perspective on the next leg of the journey. This year feels really different, however, given the absolute chaos of the financial markets in recent weeks. With the devastating war in Ukraine, supply chain challenges, rising inflation rates and volatility in the financial markets as well as lingering impacts of the global pandemic, this year has brought a significant amount of uncertainty. As we have seen in the past, broader market uncertainty can serve as a strong catalyst for LiveRamp's business as companies shift their dollars toward resources that more directly enable them to address and measure their marketing performance. This not only plays into our strengths but is the very reason we exist. Since our founding over a decade ago, LiveRamp has been recognized as a leader in the customer experience economy. We've grown through multiple industry cycles and ecosystem changes, delivered category-creating innovation to our customers and future-proofed our product for the next generation of data-driven experiences. Despite recent macroeconomic uncertainty, we are entering FY '23 from a position of strength with conviction in our ability to deliver a balance of solid top line growth and enhanced operating profit, all while continuing to transform customer experiences and generate more valuable business outcomes. Moreover, our success in identity, addressability and data collaboration have embedded us into the very fabric of the data ecosystem. Case in point, today, more than 1,500 publishers representing more than 11,000 domains are leveraging LiveRamp's authenticated addressability technology, including roughly 80% of the Comscore 50 and the major walled gardens. These include both display publishers and mobile app inventory and there are a handful of great case studies on our website that prove how well our solutions are working. In part due to these integrations, LiveRamp is now connected to over 85% of consumer time spent online in the U.S. and continues to scale internationally as well. For example, earlier this year, we announced an expanded partnership with The Trade Desk to power their EUID in Europe. Taken together, these successes secure our destination network. And of course, on the origination side, 80% of our revenue is comprised of predictable SaaS subscriptions which help insulate us from large economic fluctuations. Second, LiveRamp continued to grow and win with clients in Q4. In Q4, we exceeded our guidance across all metrics for the eighth consecutive quarter. Total revenue grew 19% and subscription revenue was up 22%. Normalizing for the wholesale contraction, total revenue grew 26% and subscription revenue was up 31%. We exited the quarter and year with approximately $400 million in ARR, up 19% as reported and up 28% normalized for wholesale. We're pleased with these top line results which continue to be driven by the momentum in our Land & Expand selling motion. In the quarter, we added 15 net new logos and continue to see particular strength in our large enterprise customer segment as a result of increased adoption of our enterprise product suite, Safe Haven. Our $500,000 to $1 million customer count was up 30% and our $1 million-plus customer count grew to 87, an increase of 24% compared to the prior year. In the quarter, we signed a new Safe Haven deal with Colgate in the EU for projects in both the U.K. and France and a TV measurement deal with a major North American insurance provider. Safe Haven also continues to be a big driver of account expansion. For example, last quarter, we talked about a new Safe Haven deal with JD.com. In the quarter, we expanded this relationship to include an emerging new use case, enabling collaborative personalization on JD.com's owned and operated properties. This is a great example of next-generation retail media network use cases powered by our capabilities. Another Safe Haven expansion example from the quarter was with a major global agency holding company. As part of this multiyear strategic partnership, LiveRamp will power the identity and collaboration suite for top clients in the retail, CPG and financial services verticals. Given the breadth of use cases enabled by the platform, Safe Haven customers have higher ACVs and upgrade at higher price points. As we continue to upgrade our customer base to Safe Haven, we expect the average length and size of our contracts to continue to increase and the average churn and contraction to remain lower than what we have typically seen on average. Our subscription net retention in the quarter was 111% or 119% normalized for wholesale. Turning to our bottom line. Our gross margin expanded to 76%, ahead of our long-term target of 75% and we delivered sustained profitability. For the full year, operating margin was roughly 8%, up 400 basis points. This performance reflects the leverage in our model and our ability to generate strong free cash flow across the business which is perhaps a great segue to the final topic I would like to discuss, our focus on and commitment to value creation. Third, we are not remotely satisfied and have implemented plans designed for faster growth, improved profitability and greater return for our shareholders. As I often remind our employees, great companies have an ability to look in the mirror and never, never like what they see. They recognize that there are always ways to better serve clients, grow even faster, improve efficiencies and build better market traction. LiveRamp aspires to be not just great but exceptional, an exceptional company. And we recognize that we have many improvement levers which can accelerate our success in the coming quarters. Let me walk through a few areas of the business where I don't think we're hitting on all cylinders and where I think there is untapped potential for us to pursue. While some of these may explain our recent performance and near-term outlook, all of them represent opportunities to further improve on our operating plan for the coming year. Opportunity number one, accelerate our top line growth. Although we grew subscription revenue by roughly 20% over the past year, I think we can do better. We intend to accomplish this through four discrete initiatives: one, expanding our sales and marketing capacity; two, improving our product efficacy; three, expanding to new geographies; and four, accelerating our partner channel efforts. In FY '22, we came out of the blocks fast in bookings, the early indicator of future revenue, but we slowed in the back half of the year. Now let me be clear, we're not seeing material competitive headwinds, adverse economic conditions or changing client demands. The biggest driver is a product of the hot labor market over the past 12 months. We simply did not hire enough sales reps. In the U.S., for example, year-over-year revenue increased by roughly 20% compared to sales and marketing headcount growth of approximately 8%. When you further refine this number to just experienced commercial salespeople, we were roughly flat. We're already responding to this challenge. We've hired 18 new commercial leads over the past three months, an increase of about 25% to our sales capacity. With the influx of talent, we've also introduced new training and development programs to ensure sales reps are more persuasive, well trained in enterprise selling and more effectively achieve their quotas. We also hired a CMO and are in the process of building a more robust lead generation program to provide qualified leads to our sellers. And while we know that not every person we hire will succeed, we strongly believe that successful SaaS sales at scale is a math equation. It just requires growing pipeline, strong sellers and predictable conversion rates. We believe that continued investments in selling capacity will fuel stronger long-term growth. Now in SaaS, there's an old axiom that great product sells itself. To this end, we also think our recent refinement of our Safe Haven suite will continue to pay dividends for us. Some investors ask whether Safe Haven is just another clean room. The answer is an emphatic no, that we can work with almost any clean room or any cloud. Safe Haven represents a holistic integrated suite of all of LiveRamp's capabilities that can be easily purchased and used through a common user interface and is interoperable with all kinds of complementary technologies, major data destinations, CDPs, storage and compute to clouds. We work with everyone and there isn't a true competitor that has our breadth and scale. All data is accessible, can be powered with identity, can be activated anywhere and can be centrally managed with appropriate permissions and security. This bundled suite is exactly how clients have expressed how they desire to work. A simple buying process and user experience, seamless across hundreds of valuable use cases and increasingly cloud-agnostic so that clients can plug us into any partner. Clients can explore new functionality and upgrade as their needs expand. Today, we have over 40 brands on the Safe Haven suite. These clients have higher annual ACV and a net dollar retention in excess of 120%. Within the next year, our goal is to double the number of clients leveraging the Safe Haven suite. We think the migration will be relatively painless. As existing onboarding or television clients, they won't experience disruption but rather we'll simply start to use a cleaner, more intuitive UI with access to capabilities to which they may not have been previously exposed. A third strategic initiative this year is to accelerate our international expansion. The combination of ATS and Safe Haven has been a game changer for our international business and has allowed us to scale the new markets more quickly and much more efficiently. Today, we serve over 40 markets, up from 12 only a few years ago. In FY '22, our international bookings outpaced the U.S. and revenue for the quarter was up 33%. We increasingly serve global multinational companies and believe we have a long runway for growth here. A final key initiative in FY '23 is to expand our partner channel strategy, the initiative that James Arra has been leading for us. This includes ecosystem partners, systems integrators and increasingly, importantly, cloud providers. We help our customers unlock value from their data wherever it lives. And as more customer data migrates to the cloud, key LiveRamp technologies, identity, for example, can be deployed natively in these environments. This enables these customers to achieve faster returns on their cloud investments, reduce data fragmentation and allows for greater flexibility and simplicity with using identity in the cloud. A year ago, we announced a strategic partnership with GCP which has been a nice source of lead generation for us. And since then, we announced similar partnerships with AWS and more recently, Snowflake to power identity natively within their cloud environments and data warehouses. In the coming year, we expect to launch additional LiveRamp technologies like advanced segmentation and activation natively in the cloud as well. This will unlock many additional use cases and deliver even greater value to our cloud customers. Now we haven't built significant revenue from these efforts into our near-term forecast, but over time, we think that this could be a catalyst for us. Opportunity number two, improve operating profit. LiveRamp's SaaS model exhibits strong economies of scale. On this, our track record speaks for itself. Operating cash flow over the past 12 months was $78 million, an improvement of over $100 million from just two years ago. Again, we are not satisfied. As the travel restrictions of COVID ease, we'll absorb additional T&E but we'll continue to improve profitability in the coming year. While we'll increase sales capacity and invest internationally, most other areas of our business will benefit from increasing returns to scale. And opportunity number three, improve shareholder return on capital. We are not remotely satisfied with LiveRamp's recent share price performance. We don't believe that our stock price currently appropriately reflects our potential and we're committed to continue exploring all opportunities to maximize shareholder value. Of course, the best thing we can do is simply continue to grow revenues, profits and satisfied clients. And as I just discussed, that's our intent. But in this erratic market, as we have done historically, we will also explore returning capital to shareholders. For example, we have a strong track record of opportunistically and aggressively buying back shares based on market conditions. As a result, over the course of the last decade, we have returned over $1.2 billion to shareholders in the form of share repurchases, including more than $800 million since the LiveRamp-Acxiom separation in late 2018. Given the current market, we today announced our intention to repurchase up to an additional $150 million of LiveRamp's common stock before December 31. Warren will discuss this in more detail during his portion of the call. In summary, let me revisit the three key themes with which I started the call. First, in a period of market uncertainty, we believe LiveRamp is a safe choice. We'll continue to grow and improve profitability and we're embedded into the very fabric of the data ecosystem we serve. Second, Q4 represented another quarter of growth and we anticipate more of the same in the coming year. And third, but perhaps most importantly, know that we aren't even remotely satisfied with our current trajectory. In the coming months, we will seek to grow bookings and revenue even faster by increasing our sales and marketing capacity, improving our products, expanding geographically and broadening our cloud and partner channels. We will continue to focus on a path of cash flow improvement. And we will explore creative ways to unlock shareholder value, including an accelerated buyback program. There is much work to do but our market opportunity is significant and continues to grow. We are a critical component of our customers' data infrastructure and continue to deliver category-creating innovation to the market. Finally and importantly, we have a strong team in place to execute against our goals and we enter FY '23 focused and energized to deliver on the year ahead. With that, thank you again for joining us today and a special thanks to our exceptional customers, partners and to all of our LiveRampers across the globe for their ongoing hard work and support. We look forward to updating you on our progress in the coming quarters. I will now turn the call over to Warren.

Thanks, Scott and good afternoon, everyone and thanks for joining us today. Q4 was a solid quarter. And while there is always room for improvement, the one thing we can say is that amidst the sea of change and uncertainty, we continue to deliver. Today, I would like to focus my remarks on three areas: first, share a few highlights for the year in Q4; next, provide guidance for Q1 and FY '23; and finally, discuss our approach to capital allocation and provide an update on our buyback program. For the year, LiveRamp had a solid year. We grew, total revenue was $529 million, up 19%. We exceeded our long-term gross margin target. Our gross margin was 76%, up 400 basis points. We again demonstrated considerable operating leverage. We were profitable, not only for the full year but in every quarter, too. Our fall-through ratio was approximately 30%. We generated cash. Operating cash flow was $78 million. Our capital spending for the year was a modest $4 million. And finally, we returned capital to share owners. During fiscal '22, we repurchased 1.3 million shares for $59 million. Please turn to Slide 6. In the fourth quarter, total revenue was up 19% and subscription revenue increased 22%. Overall marketplace and other revenue was up 6%. Data marketplace which represents roughly 80% of ongoing marketplace and other revenue was up 15%. Customer accounts were again up. In the quarter, we added 15 net new subscription customers. Current RPO or our next 12-month contracted backlog was $309 million, up 21%. As a reminder, the timing of renewals can and will cause volatility in this metric. ARR ended the quarter at $399 million, up 19%. And net retention was 111%, while platform net retention was 110%. As expected, our results were negatively impacted by wholesale contraction as shown on Slide 18. This impact was $30 million for the year and approximately $6 million for the quarter. Excluding this, total revenue increased 26% and international, up 45%. Subscription revenue was up 31% and ARR up 28% and net retention would have been 119% and platform net retention 116%. Beneath the top line, our business model is working. For the quarter, gross margin improved 200 basis points to 76%. Productivity here was driven by continued identity graph optimizations. We were profitable and operating cash flow was approximately $60 million, driven in part by a tax refund of roughly $30 million related to a carryback of losses. Before moving on to guidance, please consider our trended results since Ramp became public. Please turn to Slide 5. The performance is pretty clear. Growth, a trended CAGR of 23% since FY '19. Non-GAAP gross margin improvement of 1,200 basis points, non-GAAP EBITDA improvement of $104 million and $812 million of cash returned to share owners. In summary, FY '22 is a mirror of the past, growth and gross margin expansion, operating leverage and capital stewardship. Now on to guidance for Q1 and FY '23. Before jumping into the numbers, I'd like to talk about our priorities and considerations for FY '23. First, while our foundations and product market fit remain strong, we're being appropriately cautious in our outlook, given macroeconomic uncertainties. Also, as Scott mentioned, our overall growth bookings slowed in Q4 and we expect relative softness for the first half of the year. That said, we believe this slowing will correct as our reps ramp and as we build our enterprise sales motion. Next, we are committed to continuing to deliver bottom line leverage. Please turn to Slide 15. We expect our operating profit to increase despite the post-COVID rebound in expenses, continued R&D investment and costs associated with our global expansion. We are currently available in 40 countries. By year-end, we expect to be up and running in 60. Now on to guidance. Please turn to Slides 13 and 14. For the first quarter, we expect revenue of approximately $139 million and non-GAAP operating income of approximately $1 million. For the full year, we expect revenue of between $608 million and $625 million and non-GAAP operating profit of approximately $49 million or a margin of roughly 8% at our midpoint. Please keep in mind this guidance excludes intangible amortization, stock-based comp and restructuring and related charges. A few other call-outs for Q1 and the full year. For Q1, we expect subscription net retention to be roughly 112% and platform net retention to be approximately 114%. The sequential decline from the adjusted net retention of 119% is driven by an expected lower relative contribution from usage and to a lesser extent, anticipated contraction. In Q1, we expect our gross margin to be roughly 75%. And we expect Q1 operating income to be the low watermark for the year. For the full year, in order to help you think about our top line guidance, let me provide a high-level bridge from our FY '22 performance. Subscription revenue, we expect subscription revenue to grow in the mid-teens. The factors impacting our year-over-year performance are; lower relative contribution from both bookings and usage, the previously disclosed incremental $15 million of wholesale contraction and to a lesser extent, our assumptions for FX. Usage; in FY '22, usage was approximately 14% of revenue. Given the macro uncertainties, we expect usage in FY '23 to be approximately 11%. Marketplace; given the strength of data marketplace, our plans for FY '23 and our outlook for our service business, we expect marketplace to grow in excess of 25% for the year. We expect gross margin to be roughly 75% for the full year. Investment in services and continued international expansion are driving the slight year-over-year gross margin decline. We are anticipating a modest negative revenue impact from FX in FY '23. We would remind everyone that we do not have any exposure to either Ukraine or Russia. Finally, we have included other assumptions for the year on Slide 14. I'd like to now conclude by talking about our capital allocation philosophy. Over the course of the last decade, our approach to capital allocation has been consistent and focused on three priorities. We want a strong balance sheet that allows us to invest in the business to extend our market leadership and global opportunity, strategically take advantage of acquisition opportunities and, as appropriate, return capital to shareholders through our repurchase program. With that as a backdrop, we exit FY '22 with a business that has a strong balance sheet, has financial flexibility and one that is profitable in generating meaningful cash flows. Given that strength, we intend to repurchase an additional $150 million of stock by the end of Q3 FY '23. Repurchases will be made under our existing share repurchase program that extends through December 31, 2022. Under the program, we are authorized to repurchase outstanding shares in the open market or privately negotiated transactions. Before opening the call to questions, I'll now close with a few final thoughts. Through the challenges of this past year, LiveRamp again delivered on its commitments. Our foundations are strong. We have consistently demonstrated an ability to navigate change, to ensure our customers are competitive and can use data to create lasting and personal relationships with their customers. Our model works, growth, strong gross margins and demonstrated profitability. And finally, we are confident that over time, our model will generate significant returns on invested capital. On behalf of all of us here at LiveRamp, thank you for joining us today. Operator, we will now open the call to questions.

Your first question is from Kirk Materne with Evercore ISI.

This is actually Peter Burkly on for Kirk. Warren, I thought maybe I'd start with you. Just curious, I mean, it definitely sounds like you're baking in the usage being down a bit for fiscal '23 and it seems like that has a lot of the factors. That's the biggest impact on guidance. But I just kind of want to just clarify what extent the current macro environment is sort of baked into that fiscal '23 guidance?

That's a great question to start with. When considering our guidance, I would describe it using three words. First, balance. Secondly, due to the macro uncertainties, an appropriate level of conservatism. For example, usage was 14% in FY '22, and our planning assumption is 11%. This could potentially be too conservative, but given the current circumstances, we believe it's wise to be conservatively cautious. Additionally, we've factored in recent bookings trends and the incremental wholesale contraction we've discussed in previous quarters. There's also a small impact from foreign exchange. Finally, while our guidance reflects an appropriate level of conservatism, we are asking our team to exceed these results. In light of the macroeconomic environment, we believe our guidance is appropriate.

That's helpful color. I appreciate that, Warren. Scott, maybe for you. You mentioned you're planning on picking up hiring here in fiscal '23. I'm just curious because we've obviously been hearing some software companies that are sort of pulling back on hiring a little bit. And granted you guys have a lot of growth in front of you, so it does make sense. Just curious given the environment, I guess, how you're thinking about that balance between growth and profitability going forward?

Yes. I always think back to a quote from Warren Buffett, probably said many, many years ago, 'In hard markets, winners win.' And we think now is the time to actually win share. We certainly hear from our clients that they love our products. Our pipeline is growing and we think that there's a big prize in front of us. I hate myself for allowing ourselves over the last quarter or so to get behind in hiring because when we recruit people, we have a pretty good message to tell them, too. They get to work on something that really changes the world. And there's not a company on the planet that isn't trying to figure out how to use their data more effectively, to power better customer experiences, better ROI, better decisions. And they get to work with some of the best companies in the world. I always tell people when they're talking to us, 'Hey, judge us by the company we keep.' And the companies that we've talked about even here on this earnings call over the last couple of quarters, we've talked about Amazon, we've talked about Walmart, we've talked about Target, we've talked about Carrefour. We work with some of the best companies, and so people want to come work here. We just need to hire more of them in sales. It doesn't mean we're going to hire across the board. But we think that this is the bottleneck that could really accelerate our top line.

Peter, I’d like to add a couple of points. I encourage everyone to look at Slide 15 as we discuss our prepared remarks. As Scott mentioned, our main focus is on hiring coders and callers, but we are also planning with discipline for our operating performance in FY '23. We are dealing with approximately $20 million in additional COVID-related costs and investing around $6 million to expand internationally. We expect to see an increase in operating income as a result. While we are prioritizing hiring to foster growth, we are also taking a disciplined approach to managing costs and ensuring we deliver higher operating profit in FY '23.

Your next question is from Brian Fitzgerald with Wells Fargo.

A couple of questions. International showed really nice acceleration and you called out some incremental investment in international expansion working with Trade Desk. And then you called out some stuff in the operating income bridge. Can you talk a bit more about what's driving that strength and your expansion plans for '23? Are you going deeper in existing markets, opening up new territories? Anything further there?

I'd be happy to start and Scott, you may want to weigh in on this too. We're forecasting that about 20 geographies during the course of the year or so. Today, we're in about 40. We would expect to be in 60. One of the terrific things about what's going on internationally. I'd cite two things. First of all, we've said it before on multiple occasions and Scott mentioned it earlier today, the combination of Safe Haven and ATS is a winning combination. ATS is allowing our customers to go global with a consistent approach in every market in which they operate. So one, we have great product market fit. The second thing that I would highlight, which is a little bit tied to the last thing I mentioned, is that our customers are pulling us into these global markets. So as we move to another 20 countries, it's global advertisers that want to be in those markets and they're asking us to be there. It's our customers taking us to Brazil, to Italy, to Spain and so on. So I'd highlight a couple of things. One, our model works. ATS and Safe Haven are a winning combination. And third, it's our customers that are driving our expansion.

And Scott, did you want to add anything? Warren, that's great.

I think there was a mic drop. I mean...

I wanted to ask about the phasing guidance, which seems to suggest a slowdown in the September quarter. You mentioned a recovery in the latter half. Could you elaborate on the trends that are affecting your outlook? Is it due to macroeconomic factors, comparison issues, or perhaps the sales force hiring and their increasing productivity? Or is it a combination of these factors?

I don't know that I would add anything beyond that which we've already said. It's really a combination of all of those things. Obviously, the holiday quarter is a bit seasonal for us, too.

Yes. The one thing I would layer in, I mean, this speaks to the fact that we hired 20 new sales reps in the last quarter. Our experience has been that people don't start and immediately be as productive as they someday will be on day one, right? It takes six months for them to really find their stride. And so that's built into our numbers here. But again, we kind of believe that sales is a math equation. If you get talented sales reps and you know you have a good pipeline, you know you have a good product. And for us, check, check and check, then if we hire the right number of people and deliver against our product builds, then the revenue is going to happen.

Your next question is from Shyam Patil with Susquehanna Financial.

I had a couple of questions. First one on Safe Haven, can you just talk about how we should think about the contribution to revenue and growth in this upcoming fiscal year? And then second question, can you just maybe update us on how Carrefour and Walmart, those relationships, are progressing?

Sure. This is Warren. I'll get us started, and Scott can add his thoughts as well. I want to emphasize what Scott mentioned in his prepared remarks, and reflect on previous calls where we noted that our platform has applications for every Single LiveRamp customer. We’re very optimistic about our prospects, especially considering our net retention rate exceeds 120% for Safe Haven-related customers. I’d like to share a statistic: last quarter, we reported that the annual recurring revenue for Safe Haven-related revenue was approximately $76 million. Now, just a quarter later, it’s approaching $100 million, indicating significant potential. Additionally, I’d like to highlight a couple of important points, echoing what Scott mentioned previously. It’s crucial that our products are integrated into the platform, which is precisely what our customers are requesting. As we look towards the upcoming fiscal year, we plan to integrate the data marketplace into Safe Haven, fulfilling a key customer need. Furthermore, integrating TV into the platform is a priority, as it aligns perfectly with the desires of large advertisers. We believe there is a tremendous product-market fit, and we see ourselves just at the beginning of the platform's potential. Scott, do you have anything to add regarding other clients?

Maybe I'll add one thing, Shyam. If you think back over the last few years, we've always been a SaaS company. However, in some ways, we operated under a SaaS pricing model but not necessarily as a complete SaaS product. Specifically, the best SaaS products tend to sell themselves. In the past, when we created new features and offerings, our clients faced a confusing landscape where we sold them a variety of disjointed, unbundled products. For instance, they might ask for television services, onboarding, or data marketplace integration, forcing our sales team to learn multiple products and our clients to interact with us in several different ways. The most effective SaaS products don't function like that; they operate more like Safe Haven. Now, a client can log in and, no matter what service they initially subscribe to, such as onboarding, they are recognized as a Safe Haven client. Even if they're only using onboarding initially, they see all the other services available to them in the user interface. This setup encourages clients to explore, ask questions, and upgrade over time. That's why we're experiencing significantly higher net retention for Safe Haven; our clients discover these features on their own. Great SaaS products enhance your selling efficiency over time because they shift the discovery responsibility to the clients. We may still integrate professional services and client education as other major SaaS companies have done, but this shift to a bundled, discoverable SaaS offering positively transforms our go-to-market strategy for both us and our clients.

And then, I'll take the second part of the question on both Walmart and also on Carrefour. Let me start with Walmart and just simply say that we're just beginning that relationship so I'd say stay tuned on that front but obviously we're thrilled to be a partner of Walmart and we're thrilled with the opportunity to really build this business alongside them. Next taking about Carrefour, a couple of key words that I would say. I think we're in the expand and accelerate phase. Let me just kind of tell you again a few things that I find incredibly interesting right now is we're now up and running in France, we're now up and running in Brazil, we're now up and running in Belgium, we're now up and running in Italy, we're now up and running in Spain. So this is really an exciting time. Two, as a result of the work that we've been doing globally with ATS, we also are building incredible ATS publisher relationships in each of those markets. For example, this quarter, in Brazil, Globo and UOL, so some wonderful publisher relationships, in Spain, PRISA and Prensa Iberica. So a lot of really, really positive things going on that are helping us now to accelerate that partnership. A couple of other things to think about. I'd use two other words would be expertise. As a result of our overall relationships not only with Carrefour but other CPGs and retailers, we are building up a tremendous level of expertise in CPG, retail media and retail that is extremely valuable in this market, in particular where retail media networks are exploding. Two, our product just continues to get better. We're incredibly excited about our analytics library and what that can mean for assortment management and pricing and category management and also more effective media activation. And then finally, I think we're starting, again, I'd still put it very early innings to see what network effects can be created. I think it was last quarter we talked about partner tenants being at roughly 100, today overall we're now over 180. So again it's the beginning, a lot more work to do but I think some exciting progress.

Your next question is from Jason Kreyer with Craig-Hallum. Please go ahead.

So I appreciate all the color on just the objectives for growth and profitability. You did give the guide for the year that I think indicates kind of 15% to 18% top line growth and 8% non-GAAP operating margin. As you go forward, Scott, you talked about how you're not happy with those rates as we look across '23. So curious what kind of figures would you be happy with? What are you expecting to accelerate that to? And then when should we start to see traction against that plan?

Yes. I mean great question. And what I'm not going to do is give guidance that trumps the, I think, appropriate guidance we just gave. I mean, those are the conversations that we have internally but I have a pretty simple philosophy which is a plan is a stake in the ground. And our challenge is to run past it. So judge us by our track record. If you look back at our history, we don't have a history of missing our guidance and we don't intend to this year either.

I would separate the data marketplace performance in Q4 into what we've been calling TV transactional and data marketplace. Overall, it was up 6%, while the data marketplace increased by 15%. We're really excited about what lies ahead for the data marketplace next year. There are three key things on our roadmap. First, we aim for tighter integration with Safe Haven, as we've heard from clients that they want data marketplace connected to Safe Haven for direct access to third-party data. Second, we believe we have a solid plan for increasing brand attach rates and enhancing the discoverability of data sources within the platform. Finally, we are considering more destinations, like integrating the data marketplace into mini-walled gardens, which we see as an opportunity. These are three areas that we are looking forward to in the upcoming year. Additionally, we have not discussed it much today, but we're excited about what's happening in our service business. We launched this last year and expect to double the business in fiscal year '23. The combination of the advancements in the data marketplace and the positive momentum in our service business gives us great optimism for the year ahead.

Your next question is from Tim Nollen with Macquarie.

There's obviously so much news about privacy regulation and moves by the big walled gardens and so forth. And I think one topic that's come up that's been a bit of a newer wrinkle to it is some non-ID-based forms of targeting. Google moving to its topics system from FLoC. And then I think Prebid has something under the works. I just wonder if you could talk a little bit about what such non-ID-based moves would mean for LiveRamp if they gain traction, just not clear what the distinction is between what you do and how that would pan out.

Yes. First, I want to emphasize that there are significant regulatory trends emerging, and I believe we are ahead of the curve in both areas. I feel confident about our position. Interestingly, some of the companies you mentioned, whether they are walled gardens or others, serve as a case study for our success with mobile apps and Safari inventory available on our website. These companies collaborate with us because we prioritize consumer transparency and choice. When we secure consumers' consent and provide visibility into our processes, it leads to better marketing returns. Without that consent, alternative targeting methods, often contextual, tend to perform poorly. Notably, when you combine the best contextual targeting with our addressability approach, the results improve significantly. Therefore, there is a valid role for addressability as new targeting methods emerge. Additionally, there has been recent negative news about certain targeting methods, which we do not utilize as our operations are grounded in consumer consent. We view techniques that rely on device IDs or fingerprinting—methods that create identities without consent—as detrimental and not viable in the industry. Another major trend we've consistently highlighted is our commitment to neutrality. We are willing to partner with anyone who operates ethically, including those who may consider themselves our competitors. We are interoperable, and it appears that regulatory trends are increasingly aligning with the kind of interoperability we've championed. This is beneficial for our growth, whether it involves cloud providers, the thousands of publishers we collaborate with, or marketing clouds. We will maintain our interoperable approach because what we offer is distinct. We do not provide a clean room or a customer data platform; instead, we offer data access, identity, data activation, and comprehensive permission controls. These capabilities thrive when implemented at scale, neutrally, and for the benefit of the entire industry, which is the essence of our strategy.

And your last question is from Nicholas Zangler with Stephens.

Yes, in the past, you've talked about connected TV-related revenues being the fastest growth driver within LiveRamp. I was hoping just to get an update on connected TV-related growth and exposure and your thoughts maybe on the outlook within this segment, particularly as some of these social media companies are seeing some ad-related weakness.

Yes. I'll tell you, connected television continues to be something we're bullish on. It grew faster than our overall business. It's increasingly hard to kind of parse it apart because so many of our clients are just buying it on a subscription basis. So it just becomes another use case. But I think it was probably up 30%, maybe a little bit more for the year. Overall, we're very optimistic about the opportunity. This is also an area, though, where if there are any clients on the phone listening to this, we've heard you that you want us to make it even simpler to buy, more integrated into the rest of our offering and so that's what we're doing as we integrate it into our Safe Haven product suite. It's going to become drop-dead simple to plan and buy connected television right alongside everything else that any client is doing. And ultimately, we think that this is a secular trend that's going to continue to benefit us and others in the industry. Linear television hasn't tipped. We've been talking about the tipping point for the last couple of years. CTV is growing explosively but it's still the case that it's probably only 15%, maybe a little bit more of overall television spend. The vast majority of the prize is still waiting for us and others like us to capture. So we think it's going to be a real nice tailwind for us for the next few years.

No, no, that makes sense. And then just one on Safe Haven, I've thought Walmart was obviously just such a huge win for the Safe Haven product. And I want to make sure I'm thinking about this correctly. But has that relationship in and of itself been a driver for incremental wins within Safe Haven? Like does that naturally bring other CPGs into the fold to utilize Safe Haven? And does it make other retailers feel the need to utilize Safe Haven just to remain competitive and keep up with...

I won't comment specifically on that, but overall, it is absolutely true. We are seeing progress on two fronts. First, the quality of our retail relationships enhances the momentum with our packaged goods partners. Warren mentioned earlier that we've nearly doubled the number of Safe Haven partner tenants, which isn't just due to our selling skills, even though we are proficient. Often, it's the retailers who initiate the connections, arranging meetings and informing their partners about the benefits of collaborating with LiveRamp. That's a powerful message. Additionally, marketing, like many industries, often mirrors trends. Companies look to see who is leading, and when the most respected brands partner with LiveRamp, it creates a positive trend. The success stories of major companies, such as Carrefour, encourage others—like those smaller than Carrefour—to engage with us. A strong example we shared last quarter is JD.com, one of China's largest retailers, which was influenced by the Carrefour case. This success was shared by our team, including Vihan Sharma, who played a key role in the Carrefour partnership and now oversees our global sales efforts. Promoting these client success stories significantly aids us in the retail sector, and we are just beginning, as retail opens doors to financial services, travel, and many other industries we plan to target in the coming years.

I want to add something that Scott mentioned indirectly, which is also about our global presence. Awareness of the Safe Haven platform is reaching new markets that we have yet to enter. A few weeks ago, I was in Germany, where we had strong representation from consumer packaged goods, retail, and publishing sectors, all of whom are well aware of our efforts with Safe Haven. This recognition is growing worldwide, whether in Latin America, Asia, Europe, or the Middle East. Safe Haven is becoming a recognized brand, though there is still much work to do.

Great. I would like to ask one more question. I think I know the answer, but I would love to hear your thoughts. In the past, you have mentioned that advertisers are becoming more focused on return on investment during uncertain times, which seems to benefit LiveRamp through the use of ATS. This allows for user targeting, relevant ad delivery, and insightful feedback for advertisers to justify their spending. Does this perspective still hold true in the current environment? Do you believe this is simply accelerating the overall shift toward targeted advertising by advertisers?

Yes. Well, I'm so glad you asked this question because it's something that we talk about internally quite a bit. And first off, I'd just tell you, I know that there's a lot of hand wringing in the market around economic softness, we're not seeing that right now. And the good news, I'd just reiterate the fact that we're SaaS, we're subscription. So we have a pretty good line of sight into our forward numbers. And we found that it's insulated us in the past. I mean you could see that in the early part of COVID, for instance, when media take rate businesses were falling off the cliff, we weren't because we tend to be just as staple and have a lot of persistency or consistency with respect to our revenue model. Now the downside to that is when times get great and all of a sudden, there's a huge boom in media spend, we don't necessarily get the roller coaster ride up that some others have seen. So we're very predictable and stable. But in 2001, I lived this. I lived through it again in 2007. I saw it again in the first six months of COVID. Every time there has been a recession, the last three U.S. recessions, there has been a flight away from branded, what I would call pray and spray advertising to accountable, addressable advertising. Marketers would say it's a flight from above-the-line to below-the-line advertising or from brand to direct response advertising. The first thing a CEO does when the market gets soft is they turn to their CMO, they turn to everybody and they say, 'Where can we tighten the belt?' And so the CMO has given instruction of we need to make sure that every dollar you spend is accountable and has an ROI against it. The only way a CMO can do that is by working with a company like LiveRamp. So, I think back to a quote from one of the big travel marketers in the early part of COVID. And they said, 'Hey, LiveRamp is going to be the last thing I turn off. And it's going to be the first thing I turn back on because it sits underneath everything I do.' And sure enough, that travel marketer was back online after a brief kind of 60-day pause at the early part of COVID. And we sat underneath everything they did. So I expect that this trend could really help us.

And that ends the question-and-answer session. I will now turn the call back to Warren Jenson for final comments.

Well, great. Well, thank you, operator. And most importantly, thanks to all of you on the call. I'd leave you with, I guess, three final thoughts today. One, we believe our foundations remain very strong at LiveRamp. And while we 100% take nothing for granted and would be the first to say that we still have a lot to do, we're also very confident in our guide today. And then finally, I want to invite everybody, if you happen to miss RampUp in San Francisco here a couple of months ago and you happen to be headed to Europe, we're having RampUp Paris on June 14 and we would love to have you join us. So with that, thanks to all of you for joining us and behalf of all my colleagues here at LiveRamp, we really appreciate your support.

Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.