Earnings Call Transcript - RAMP Q4 2021

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2021 Fourth Quarter and Fiscal Year-End Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Lauren Dillard, Chief Communications Officer.

Lauren Dillard, Chief Communications Officer

Thank you, operator. Good afternoon and welcome. Thank you for joining us to discuss our fiscal 2021 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 and 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'll turn the call over to Scott.

Scott Howe, CEO

Thank you, Lauren. Good afternoon and thanks for joining us today. In preparing for this call, I reflected back to the last time we spoke when our stock price was hovering around $80. What a difference three months can make! I reflected on the old Benjamin Graham quip that states within the short run, the stock market is a voting machine, but in the long run, it is a weighing machine. Given this, I wanted to focus my remarks on three specific investment themes: our strategic position, our top-line growth prospects, and our operating characteristics. I feel we are even better positioned than when we last spoke. First, our strategic position. It's now widely accepted that the ability to interpret, enhance, and activate data is a critical and enduring component of most companies' success. The past 12 months witnessed significant changes in the data ecosystem. Google affirmed its intention to retire third-party cookies, Apple instituted changes to IDFA, and regulations throughout the world placed heightened emphasis on consumer privacy, transparency, and choice. Our clients and partners look to LiveRamp to determine how best to navigate this changing landscape. We believe industry complexity further enhances our strategic position. For example, recognizing that cookies were an antiquated technology, LiveRamp began developing an alternative for the industry, the Authenticated Traffic Solution, or ATS, several years ago. Given its widespread adoption, better performance, global reach, and privacy-first approach, we're now finding that ATS represents a key differentiator in virtually every client conversation. ATS is critical in our new logo efforts, where we once again posted some meaningful wins, and it also has the potential to capitalize on even greater adoption of our platform. While we do not intend to charge publishers or our media platform partners for use of ATS, over time, we expect it to drive increased platform usage and cross-sell of newer use cases like conversion, analytics, and personalization that were previously served by third-party cookies. Additionally, our industry authentication solution significantly accelerates our international expansion efforts and opens up new addressable markets in geographies we have not historically served. Just two years ago, we were in the U.S., UK, France, Australia, and China. Today, our geographic footprint also spans Spain, Italy, Germany, and Japan, and continues to grow. We're at critical scale today with the Authenticated Traffic Solution, and global adoption continues to build. Today, more than 400 publishers worldwide have adopted ATS to offer marketers a more efficient way to reach audiences and measure performance. We've supported more than triple the number of ATS enabled campaigns in Q4 relative to the prior quarter, and more than 100 of our brand customers have already shifted spend to use our industry authentication solution. Most importantly, the industry is embracing ATS because it is a better solution than what it is replacing. Our authentication solution is the only truly neutral, omnichannel, and global technology available. As a result, publishers make more money, marketers generate higher returns, and consumers gain greater control and transparency over their data. For too long, publishers have ceded control of identity and their first-party relationships to the browsers or other platforms that have profited by building segments using publisher data collected via third-party cookies. As the only neutral and media-agnostic solution in the market, we don't care where or what media is bought. All we want to do is enable the connection of data to inventory where the publisher and marketer wish to transact. This is why publishers like Microsoft, one of the world's largest publishers, are seeing initial results of 40% higher CPMs when leveraging ATS. Marketers are also seeing better results when using ATS. Forrester recently published a report that independently evaluated ATS performance relative to third-party cookies, and the results verified the superior performance we've generated. Forrester found that advertisers deploying our industry authentication solution can generate a 340% ROI improvement over three years, with a payback period of less than six months. A separate series of case studies showed that a leading international hotel chain generated a 400% increase in bookings, and a well-known consumer electronics brand drove a 200% return on advertising spend when leveraging ATS. These types of results are game-changing for our customers. I've often been asked by analysts and shareholders how we compare against other identity providers that have more recently emerged in the wake of cookie changes. Notwithstanding the fact that we either private label or allow many of these partners to ride in our carriage, we feel we are very well positioned for the future. Two important points: one, we are far broader than alternatives when evaluated by use cases; and two, unlike some U.S.-first alternatives, we've built our products for the more exacting privacy standards of GDPR. As a result, we're the only company that offers a truly global capability. We believe industry disruption is a good thing for our business as the resulting uncertainty makes us an even more valuable advisor to our clients and gives us natural opportunities for game-changing innovation. Second, revenue growth. On our May call a year ago, we talked about navigating FY2021 from a position of strength by doubling down on our customers, supporting them through their digital transformations, and by leveraging our durable business model and strong financial position. We grew for the quarter; total revenue and subscription revenue were both up 13%. Marketplace & Other revenue also grew 13%, driven by Data Marketplace, which was up 25% and benefited from a steady recovery in digital advertising spend. As we look to the future, our confidence is strong. In our last call, we discussed the $30 million of revenue we had sunset associated with the deprecation of third-party cookies, but we will grow through this headwind as well. Let me share four important proof points. One, we're winning with clients. Q4 represented yet another record bookings quarter, with bookings for the quarter up more than 70%. For the full year, bookings were up 37%. Two, we're winning with the largest companies. While our net customer adds metric has been pressured given the pandemic, the new logos added over the last year are more strategic and have the sophistication to leverage a wider set of our product capabilities. As a result, the average ACV of a new logo brand deal in FY2021 was 50% larger than it was a year ago. Three, we're building stronger selling capabilities. We're leveraging subject matter experts, a more disciplined approach to global account planning, and a continued focus on white space analysis. In addition, we launched a services business in response to continued client requests. While this does not represent meaningful standalone revenue, it allows us to educate our customers while helping them use LiveRamp more effectively. We're pleased with our progress today. Inside our overall bookings performance, upsell bookings were up 75% and we closed a record number of global deals in FY2021. Fourth, we're well positioned for the future. Recent conversations with customers and prospects make me confident that our long-term opportunity is even bigger than what we first envisioned. Our vision is to make it safe and easy for companies to use data. We did this initially by pioneering data onboarding, bringing our customers' offline data online to improve cross-channel advertising. While this remains a critical need for any customer-centric business, increasingly we are discovering new applications and markets for our products. You see this momentum reflected in the steady growth of average brand ACV, which was up 28% in FY2021, as well as in the continued strong growth of $1 million-plus customers, which totaled 70-plus at the end of the year. We signed a multi-million-dollar new deal with a leading insurance provider in Q4, and an automotive manufacturer substantially expanded our partnership. Our success in retail encourages growth in packaged goods. We had significant upsell deals in the quarter with top 50 global CPG brands. In summary, looking back on the past year, what we feel more than anything is gratitude. Thank you to our employees, customers, partners, and everyone else in the LiveRamp community for your ongoing support and hard work. Our strong execution despite the unique macro challenges gives us confidence in our future. We are strategically positioned for long-term success.

Warren Jenson, President and CFO

Thanks, Scott. Good afternoon, everyone. Thanks for joining us today. Q4 was a solid quarter, and even more importantly, we enter our new fiscal year from a position of strategic strength and momentum. I would like to focus on three areas: first, share a few highlights for the year in Q4; next, discuss a few specific call-outs for the quarter; and finally, talk about our momentum and provide guidance for Q1 and FY2022. Our total revenue was $443 million, up 16% for the year. We expanded our gross margin to 73%, up 600 basis points. We were profitable not only for the full year, but in every quarter as well. Our $62 million top-line increase led to a gross profit increase of $69 million and improved our bottom line by $80 million. Our expenses benefited from COVID-related savings of approximately $25 million, but the strength of our model was clear. We returned capital to our shareholders, repurchasing 1.3 million shares for $42 million during fiscal 2021. In the fourth quarter, total revenue was also up 13%, with subscription revenue seeing a similar rise. Our Data Marketplace, which represents roughly 75% of ongoing Marketplace and Other revenue, grew by 25%. We added 15 net new subscription customers, and as Scott mentioned, we had a record bookings quarter driven by our Safe Haven and CTV expansion. Current RPO increased by $25 million sequentially. ARR ended the quarter up 13%, with net retention at 101% and platform net retention at 104%. In Q4, we saw an increase of gross margin to 74%, further demonstrating our productivity from continued identity graph and hosting optimizations. In summary, we delivered a solid growth year and strong operating performance. For Q1 and FY2022 guidance, we expect revenue of up to $112 million, with a non-GAAP operating loss of up to $2 million, for the full year, we expect revenue of $509 million with roughly 15% growth. Subscription net retention in Q1 should be around 96% due to the wholesale contraction that will impact our growth metrics in FY2022. Excluding that impact, we expect total revenue growth to exceed 20% and subscription revenue growth of approximately 25% for the year. Our model shows signs of exceptional strength and continued profitability. As we invest, we maintain profitability while delivering growth in FY2022.

Operator, Operator

Thank you. Your first question comes from the line of Shyam Patil from SIG. Your line is open.

Shyam Patil, Analyst

Hey, guys. Congrats on a great fiscal year. I had a couple of questions. Maybe the first one on CTV. Could you talk a little bit about the scale that you’re seeing with this business and elaborate on some of the trends related to privacy changes and how they impact that business? And then second question Warren: how does the revenue guidance for fiscal 2022 break out between subscription and marketplace? What should we think about the quarterly impact of the cookie-based revenue throughout the year?

Warren Jenson, President and CFO

Let me jump in on the first question. The Connected TV business is doing extremely well. During the quarter, our growth was strong, and we expect another great year next year. Our forecasts indicate that Connected TV should grow to about 70% of total revenue by the end of next year. When we look at the impact of the wholesale transaction contraction, it’s about $8 million a quarter, affecting both total and subscription revenue. Our mix is roughly 80% subscription and 20% marketplace, as it historically has been.

Stan Zlotsky, Analyst

Thank you so much, and congratulations on a strong finish to a challenging year. I'd like to go back to the large customer metrics and the 70 customers with greater than $1 million of subscription. If you look at sequentially, you added five new logos, which is indicative of the product's strategic nature. Is there something specific that drove so many customers above that $1 million threshold this quarter?

Warren Jenson, President and CFO

That's a sign that we’re innovating and creating products that our customers want to buy. This drives us to command a higher price point for some of our new logos. Our ATS solution breeds accountability, and while it’s still early in terms of adoption, it will drive platform economics. We had a lot of success with Safe Haven, and Connected Television is an easy upsell to our clients. I see strong growth opportunities as travel opens up out of the pandemic.

Brian Fitzgerald, Analyst

Thanks, guys. With the recent release of iOS, can you provide some insight into what ATS publishers and brands are seeing in the iOS environment? Are your customers able to drive opt-in rates higher over time now that they have more opportunities?

Scott Howe, CEO

Our advertisers use us to activate data across various touchpoints. The impacts of IDFA haven't changed our customer records. The estimates I see range widely, but our clients believe that their authentication rates are increasing. Even low opt-in rates can drive significant improvements for publisher yield and marketer effectiveness. Publishers are experiencing higher yield improvements, evidenced by successful case studies, which gives us reason for optimism.

Jack Andrews, Analyst

Good afternoon. I'd like to ask a couple of questions about Safe Haven. How do you perceive the market opportunity for Safe Haven? Are you experiencing competition from players like Snowflake, or is this more of a greenfield opportunity? What percentage of your customer base do you see potentially adopting Safe Haven?

Warren Jenson, President and CFO

We believe that 100% of our customers can adopt Safe Haven. Our total addressable market for this solution is substantial and growing daily. Our privacy skills, identity solutions, and the scalability of our platform set us apart from competitors. We see other providers as complementary rather than competitive.

Daniel Salmon, Analyst

Could you provide an update on your search for a new head of Salesforce? Additionally, what prompted the decision to create a services arm at this time?

Scott Howe, CEO

I’m pleased with our team's accomplishments in continuing strong performance without a sales head. The search process has been going well, and I believe we have strong options. As for launching a professional services arm, our clients have indicated a need for assistance with product utilization, and this allows us to better educate them and expedite their success.

Warren Jenson, President and CFO

Thank you for joining us today and for supporting LiveRamp. Our strong foundations and our ability to navigate change ensures our technology remains world-class and our business model continues to deliver results. We look forward to our growth engines finding their stride as we progress.