LiveRamp Holdings, Inc. (RAMP) Earnings Call Transcript & Summary

For those of you that have been with me before [indiscernible]. Really pleased to have LiveRamp's CEO, Scott Howe with us. Thanks for joining us, and we've got IR, Drew Borst here, too. So feel free to jump in whenever Scott goes off track.

Looks as often.

So let's start with Scott. So for people that are newer to the LiveRamp story, can you just walk us through what exactly it is LiveRamp does, how it fits with the AdTech ecosystem and the broader digital advertising specific.

Sure. we're probably one of the bigger companies you've never heard of, but you've heard of all the clients that we work with. And I say that because virtually every big company on the planet is struggling with the opportunity of how to harness the power of data more effectively. They know that if they can capture the right consented data and use it effectively that can deliver better customer experiences. They can deliver better business ROI. They can unlock better collaboration with their partners and customers. So all good. But practically, it's hard to do. And what LiveRamp does is help companies make it safe and easy to collaborate with that, and there's kind of 4 different pieces to that. all of which are sold under a single SaaS platform called our data collaboration platform. One is allowing companies to ingest consented data easily and effectively. Oftentimes, it's just their own data, many times increasingly, it's the data from their major partners where a packaged goods company and the retail partner, for example, Walmart and P&G want to collaborate together. The second thing that we do is we provide a concept of foundational identity. The way to think about data is it's just a series of rows and every row is a person. But what my database might show -- might be different than your database. And so unless you have kind of a Rosetta stone that can translate across different data sets, and helped co-mingle data elements that all you have is 2 disconnected silos of data. The third piece is turnkey activations every place that a customer wants to use their data, major client wants to use our data. Like let's take Citi, for instance, Citi is a customer of LiveRamp, and so they will activate their CRM files on Facebook, on Google, on Trade Desk, on CTV partners like Hulu or Roku, within their e-mail platforms, and all of that flows through LiveRamp's platform to get to those destinations. And then the final thing, which is really important, given where the world is going is we manage all of the permissions and governance, and that's a big deal in a world of heightened data regulations, and it's a big deal when every company is trying to collaborate with dozens of other companies. Each of them needs to know that their data is going to be maintained according to their permission controls, their requirements and that partner can never misappropriate the data. So we do all that with a turnkey platform. 80% of our revenue is SaaS. We think of ourselves as a Rule of 40 company, but we got a ways to go on both of those levers. Slow and steady progress, but still early in the journey.

Okay. Great. So that's a great overview. Let's kind of dive into some of the key things. So you guys talked about some mega trends on your 1Q call. But let's start with the first with new marketing channels, retail media, CTV, to the big ones. They've been bright spots for you. They've been bright spots in digital advertising kind of collectively this year, poised see strong growth over the next 5 years. why is LiveRamp well positioned to serve these markets? And what are you doing to capture that market?

I mean, it really speaks to the 4 criteria I just talked about the 4 foundational elements of our platform. There's this concept called Retail Media Networks. It has really grown explosively. I think it's the fastest-growing element of media that and CTV, I think, are the 2 top. And retail media networks have grown so fast because there's kind of a handful of truths. One is every company in the world is looking at Amazon and saying, "Wow, they have such a huge competitive advantage, given all the data that they collect they can deliver better insights and better customer experiences to their audience. How am I going to compete with that? Well, they can't unless they partner with someone else. And so how can Walmart compete? Well, Walmart can compete by saying, I'm not going to just try to do it alone. I'm going to allow my data to be utilized by P&G and by Coca-Cola and by Pepsi. And so you get this concept of this retail media network, which is really just data collaboration between the 2 nodes of the network. On the one hand, the retailer on the other hand, all of their major merchant partners. And so that's data collaboration. And that's what we do. And ultimately, that also allows those retailers and those packaged goods partners to deliver better customer experiences. Because if you're signing up for a loyalty program or a part of Walmart's CRM system, you're going to get better offers. You're going to get better in-store shopping experiences. And what's really interesting here is like we've seen explosive growth from Retail Media Networks, but this is a secular trend that is only just starting. Because like I've had investors say, well, I've heard a lot about Retail Media Networks. When is the growth for that going to slow? And the answer is, it's not about Retail Media Networks. It's about a broadened definition. It's commerce media networks that everyone else in the industry is looking at the success of retail media networks and saying, "Shouldn't I do that? And so you have the major travel companies, all of whom bring a turnkey major airline, they have 150 big travel partners that they've been working with for the last 20 years. And the currency has been mild, well, no longer. The currency increasingly is going to be data. And so Avis, Delta or American and Hertz, you can start to see how sharing data and offering better joint offers is going to improve the economics of both companies and improve the customer experience. Well, it's a short a jump from like commerce networks to connected car networks. I can't remember which automotive manufacturer was actually [indiscernible]. They said hey, we don't think of ourselves in the car business anymore. We're in the information. We're in the data business because we're realizing our car is just a central point for all of this data, the car just connects you to all the places you want to go. And why should the revenue be limited to just transportation, it should actually expand to data linkages to all those different destinations. Or what I'm really excited about, and this gets a little bit of CTV, which is its other big mega trend, like who has really rich permission-based data on their customers? Well, companies like Hulu or Netflix or Roku or Disney Plus, and they've never been able to use those data repositories effectively. All the information has been kind of monopolized by the buy side. Well, now through data collaboration, the sell side, the destinations and the buy side can pull together at a moment in time and unlock better outcomes for both sides. So, early on in this major secular trend, surfing the wave that is these retail or commerce media networks. I think that is going to be so much of what's going on in media and agencies for the next 5 years.

I think you took the excitement around CTV and Retail Media to a whole new level. I didn't know it's possible to do, but I think you did it. Let's go to something that's maybe a little less exciting, but very important. That's cookie deprecation. So that was the second one you mentioned on the key themes. And so I think Google is still looking at that 2H '24 time line. Talk us about your relationship with Google, the testing process, including pairs and kind of as it relates to cookie deprecation, was LiveRamp position to benefit from this?

Yes. So I'd tell you, as an investor, if I were looking at stocks, the thing that I often want to see is what companies are at an inflection point, and I think we're at an inflection point at LiveRamp. And I say this because for the last 3 or 4 years, for many investors, their biggest concern was, "Hey, what happens in a world of no cookies", is LiveRamp impacted? And we've said all along, no, we're not -- like we don't care what our destination is and what the kind of bridge is to that destination, whether it's cookies or mobile IDs or increasingly authenticated consented IDs. We're going to be the ones that are serving as the Rosetta Stone from where data originates to where it goes to be put to use. Well, Google announced they've confirmed several times now that they will definitively end cookies early next year. They'll start the process early next year, finished by the end of 2024. They named 3 launch partners. LiveRamp is by far the biggest that will provide a service for them, the way that they're deprecating cookies, they are introducing a technology called PAIR, stands for publisher, advertiser identity, reconciliation. And it goes back to this concept of a clean collaboration. In the future to advertise on DV360, that's Google's DSP. It is the biggest element on most media plans other than perhaps Google Search. But to advertise, display on DV360, you need to have one of these clean room partners. LiveRamp was 1 of the first 3 name. We're the only one as far as I know, that is live. We have signed up over I think [ 75 ] is the number I gave in the last earnings call and maybe [ 80 ], but the number is growing all the time, and we have campaigns live. By the time we do our next earnings call, I think we'll be in a position to have published case studies. The initial alpha case studies from this are performing better than client expectations. And notably, the reach is exceeding their expectations. I think this is the way, given the world privacy regulations and consumer control of their data. This is just the way that all media someday is going to be bought. And so anybody who starts on DV360 in this very consumer authenticated way to buy media, can extend that to every other element on their media plan. So I think it's going to be a huge opportunity because it will take a risk off the table that investors have perceived that we don't think is there. But also be a nice growth catalyst for us next year as this really starts to find traction with Google advertisers.

Great. Let's move to the third one, third theme. So that's the cloud -- the shift to cloud. LiveRamp spent the past year going to rearchitecting your product to be embedded within the cloud environments. Talk us through how LiveRamp benefits from the shift to cloud. You've talked about your relationships with Snowflake. It seems to be really interesting. I'd love to hear more on those dynamics. And just where you might be kind of relative to competitors as they're working on data rooms as well?

Well, as you can imagine, in a world where harnessing the value of data is everything. A lot of sophisticated companies are looking at their storage and compute needs. And we've always prided ourselves at LiveRamp being connected to everybody ubiquitously, neutrally agnostic. And what we've realized is increasingly, we've always been a GCP shop ourselves. That's who we used for storage and compute. But we realized clients, some use Azure, someone use AWS, some of use Snowflake, some use Databricks. And so we need to be interoperable with all of the different cloud providers. Now we've seen that oftentimes when someone starts to use LiveRamp there's a real explosion in storage and compute. So our partners, those can realize a pretty meaningful bump in revenue. And clients benefit because they're no longer captive to any single cloud provider that can work with anyone. So in the last 6 months, for instance, we announced data integrations with Snowflake. We continue to progress in our partnership with GCP. In fact, I think it was last week, we were named Google's Cloud Partner of the Year. So it was kind of a cool announcement that most may have missed. But AWS, we've done some really interesting things with. For us, like last year, the cloud partner channels did about $10 million for us, so off a pretty small base. That was up from nothing 18, 24 months ago. I expect it's going to be a nice growth driver, but again, off a small base. But if I think about the next 5 years. One of the things I learned when I got acquired by Microsoft years ago, is I was surprised when I went in, like how much of their revenue was actually partner-driven. And yet when I look at LiveRamp, less than 5% of our revenue is partner-driven. It's nothing. I see an opportunity to get that to be much higher and there are benefits for us when we do that because then we're not doing all the selling ourselves. It's Google bringing us in. It's Amazon bringing us in. It's snowflake bring us in to something that they're already working on, and we're just helping them get across the line.

Got it. So it could still -- is the last of the themes, and that's Gen AI. Can you talk us through the potential impacts to the top and bottom line? And what we could see those impacts in the financials?

Yes. I think of 4 things that we talked about, this has probably got the longest pull, but it's a question I've been getting from investors quite a bit. And so first, let me say, I think so often investors look at Gen AI and say, "Hey, is this another iPhone moment that changes everything?" I believe it is. But I actually think, in many respects, it could be the greatest tailwind that LiveRamp will have because what does Gen AI need? A ton of data. And what is the requirement of data about people these days. You better get consent, you better have the right governance in place. And so in some respects, increased usage of AI embeds LiveRamp even more firmly into the very fabric of the ecosystem. Now how will that manifest itself for LiveRamp I would say, the kind of classic using a marketing framework for us, I would say, 3 Ps. One will be in product, where I would expect all of our own product development to increasingly use AI. Now we've been doing some of this for the last 3, 4 years. So for instance, at our identity graph, we use machine learning. We've used that for a long time to make better decisions and have better recognition of customers. A second important application of Gen AI will be in our partnerships. So you can imagine in a world today where every single one of the major agencies is a client of LiveRamp, how they might work with us different in the future. Because I can't imagine a world where in 5 years' time, more agency functionality isn't automated through AI. You can imagine like precision media buying or dynamic AI-driven, creative. And those are things that agencies and a whole lot of start-ups are just starting to work on but I think they're all going to need sources of data, and they're all going to need to activate those applications at the places that matter, major publishers. And so huge opportunity for us in those partnerships. And -- so products, processes, and then I think the third P is just partnerships. That there are a ton of opportunities for us to expand the partnerships we have when someone buys LiveRamp, they're buying a SaaS product, certainly, but the product itself isn't just a UI or real-time functionality or anything like that. it's a network. It's -- you plug in and it's access to all of this data and all of the places the data can be utilized. And so I see an opportunity for us to really expand our biz dev efforts and find new use cases for folks to use AI technology. And so I'm really excited about it. though I think this is kind of a 3-year pull as opposed to something you'll see immediately. Yes.

3 years at least.

Yes. It will take time for the industry to develop. But we're going to be right in the middle of it, and that's fine.

Great. Yes. Data just becomes more important. Okay. So those are the mega trends. Let's kind of dig into some of the things you hit on here. So 2 of the key products, your identity reconciliation and then your clean room product. I've heard a lot about clean rooms, regionally from agencies, obviously, a really important products. What's the momentum that you're seeing there? And what is it about these products that advertisers need? And you hit on a bunch of it, but sure, there's more...

Yes. Well, first off, I think they kind of go hand in glove, so to speak. It's peanut butter and jelly. -- peanut-butter and chocolate actually, it's better. They're just better together. And so for a long time, like when you first got to know LiveRamp, we were -- I think when we launched, we called ourselves a data onboarder, We helped activate data. Well, very quickly, you realize, no, it's not enough. To be better at that, you have to have identity because increasingly, identity is the glue that stitches together different disparate data sets. And then this clean room functionality has to go with it as well because so often, the whole concept of disparate data sets sitting at companies that are not owned by the same parent. Again, it's the Walmart and P&G example, or it's the American Airlines and the Avis example. I'm making this up. But just think about companies that should go together and as a consumer, if they work together, you would get a better experience. They have to have that clean room functionality to protect their data such that it's never misappropriated. And so we wrapped it into 1 tasty snack package. The way we sell our SaaS platform is you get both those things together. And when you choose to activate different features completely up to the client. But what we heard from our clients over time is they didn't want to buy a la carte, they wanted to buy everything together and have the ability to deploy it when and where they wanted to.

Okay. So let's talk a little bit more about identity. So just start with RampID and what it is.

Yes. So think of RampID as the Rosetta Stone for data. And this is a little bit confusing. I'm glad you asked this because I probably get this question more than most others from investors. They say, "Hey, I heard about UID 2.0 or I heard about this thing called Fabric and they said, don't they compete with you? And the answer is no. We're in a world where I think we support 120, 120 different identifiers. And Facebook needs its own identifier to power its own decisions. Trade Desk has its own identifier called UID 2.0 to power its bidding instructions. Everybody has their own identity, and that's okay. One of the big beauty companies is launching a beauty ID and their belief is that every consumer in the world who buys beauty products should have a consented beauty ID that allows them to interoperate with other companies. There'll be traveler IDs, I mean you can imagine all kinds of things. But for those to talk to one another, there needs to be the equivalent of the power grid, the telephone grid, the data grid, so to speak, and that's RampID. Where the Rosetta Stone that sits underneath all those different identifiers. And I often talk about -- imagine like you're diving into a pool. Well, Trade Desk is a swim lane, Amazon is a swim lane, Facebook is a swim lane, but LiveRamp is the entire pool because we connect them all together.

Okay. So your RampID -- let's just take RampID and UID too, they're separate, but they kind of work together, so...

Yes, UID rides on top of RampID. We supply a big chunk of their reach. They are a great partner. They're one of our top 4 destinations that advertisers want to utilize. Facebook, Google, Trade Desk, probably be the top 3 in no particular order. And super important partner for us.

Okay. And these IDs are key in the shift through cookies.

Yes. Yes. Right now, a lot of them still rely on cookies, but ours is a personal identifier, consented identifier. And so we can activate in cookies. We can activate in mobile IDs, we can activate in where we think the world is going, complete authentication. And again, it's 120 different identifiers right on time.

And complete authentication is locked in hashed e-mails.

Well, I think that's a start, and hashed e-mails are an easy way for most companies. But in reality, they're probably not as secure as a lot of companies would like. We would like to see something that is even more pseudo-anonymous than a hashed e-mail ID. RampID is a unique identifier that as soon as an e-mail or other form of identity is shared, it is destroyed and replaced with something that if wherever hacked is completely unintelligible.

Okay. Got it. You've got to mention most of these number of integrations across the market including pretty much all the walled gardens. You've got Meta, Google, YouTube, Amazon. Have you gotten these integrations? What's the value proposition you bring into the walled gardens? And who tend to not have -- or maybe be more guarded with their data than open with?

Yes, I think that's the key is everybody has something that's valuable. And no one necessarily wants to lose control of that. And so the industry desperately needs an independent neutral player to help companies work with one another effectively. We don't have bias and media. We're not an agency. We're not a cloud provider. We just bridge them all together. And so we're a threat to no one. It's actually really fun because I could go to almost any meeting and say, how can we help? Because we work with so many companies and we are neutral agnostic. But for a big cloud provider, for instance, or a big publisher, they're going to work with us because number 1, we bring them demand. And we bring them demand not just in terms of an interest in buying on a Facebook and Google but rather data that can be deployed on Facebook and Google to make the purchase more effective and make the interaction with the client more meaningful to that customer. And so by virtue of us being involved, the advertiser gets a better ROI. The customer gets a better experience. And ultimately, the publisher generates a better ROI. They can charge more, their yield goes up -- they charge more for their inventory. Moreover, we also facilitate measurement. So like Facebook uses us through the -- you have a conversion API program that allows measurement on Facebook. Likewise, we've sat underneath Google people-based search, if you want to serve a different copy in your search keywords, like for city, for instance, for current cardholders versus prospects, Google will tell you, hey, we're happy to help, but you need to have a LiveRamp contract in order to do that. So Google is, I think, since our existence has been our biggest source of new client leads.

Okay. So kind of that brings me to next question is just on the competitive landscape. You guys do something -- feels pretty unique? Are there others out there? Who do you see as your biggest competitor? Or is it just somewhat kind of forgoing what you offer. That Citi, Google example, like working directly without...

It's the last and people are going to think it's not real. But it is because we do sometimes lose clients. And when we lose clients, and what we do is really sticky. But when we lose clients, they tell us stuff like. I feel like I bought a Porsche, but you didn't bother to tell me how to drive stick. You're way too complicated. And all I really do is advertised with Google and Facebook. And so why do I need you? And for someone who's really small, and all they do is Google and Facebook, they probably won't need us. But most sophisticated advertisers, as an example, have several hundred different line items on their media plan. And so when you get to that level of complexity, you really do need someone like us to help you keep score to help ensure that your data is safe and utilized appropriately. And for those companies, we are an absolute must buy. And I remember going into the pandemic, 1 of our travel clients, big hotel chain said, "Hey, we're going to cut back. We have to. We're seeing our room rates evaporate. But you're going to be the last thing turned off along with the lights and you're going to be the first thing turned back on" and sure enough, they slowed spend and then about 5 months later, that turned it all back on again not only do they turn it on, they basically told other partners, you got to standardize on LiveRamp because we want to make sure that everything is accountable and addressable and measurable going forward. So yes, our real competition is someone saying they're not sophisticated enough to use someone like us. Do we sometimes run into our big partners occasionally Sure, like our biggest partners like in the venn diagram, there's a little area of overlap. And this is the case that every sales rep in the world says, "No, you don't need anybody else can do it all through us". But as clients start to dig into that, they realize going back to the Peanut-butter and chocolate analogy, we are better together.

Okay. All right. Great. So now let's shift to just how this kind of flows through to the P&L. You talked about aspiring to be your viewing yourself as Rule of 40, not quite there yet. How does all this get you there?

Yes. Well, I mean, I think we've been in a pretty slow steady journey of increasing our operating profit. I mean, what -- 3 years ago, we were losing $50 million plus. Now we are cash flow positive. We are GAAP profitable, and in part, it's because we have great SaaS economics, a disproportion amount of our incremental revenue drops to the bottom line. As we look forward to the next couple of years, we think we have pretty clear line of sight even this next year to generate another 500 basis points margin improvement. Long term and -- let's call it long-term kind of 3- to 5-year time horizon, I'd like our investors to be able to dial in and say they're completely steady and predictable and that looks like 25% to 35% operating margins and strong predictable double-digit SaaS recurring growth. We have a way -- I'd like to think we're on the track coming out of the pandemic and on the rebound of getting back to that double-digit growth. We still got some work to do on our operating margins. And that, quite frankly, is probably what gives me the most encouragement as an investor is that like we look at the mirror every day in our company and never like what we see because we always see the bad. We always feel like are there opportunities for us to get better. And yes, we think we can get better in selling execution. Yes, we think we can get better with channel partnerships. Yes, we think we can get better in operating margins.

Okay. On the margin side, R&D is one of those areas where got big investment is about 30% of revenue. What are the key areas where you're investing in? And presumably, that's an area of margin leverage, too?

Yes, I'd say there's 2 things that I think about all the time right now. Number 1 is our cloud integrations. And so I talked about our native Snowflake integration, our work and deepening our partnership with GCP with AWS. All that has to become drop dead simple. Companies that have succeeded in the technology space, don't always just have the best technology, oftentimes, they don't. But they are almost always easy to use. And so everything we do has to be simple and intuitive for the user who's deploying our technology. And that means UI enhancements, platform efficacy, more real-time, quicker processing. So there's a whole host of things in terms of cloud. And then the other big piece, particularly as we go into next year and start thinking about how do we really super scale things like PAIR got to be self-serve. Like I can't lose clients in the future who say, "I don't know how to drive stick. " Like we have to make it so simple for them that they don't need to talk to a person, and we don't need to throw service at the opportunity, but rather it is just turnkey software. And I think that allows us to scale from the sophisticated advertisers we serve today to more mid-tier kind of mid-funnel, mid-torso kind of clients that we haven't historically served effectively.

Got it. I want to see if there's any questions from the audience. Take a few.

Great. Thanks. [ Steve ], can you just talk a little bit more about the implementation of PAIR? You said it starts in early '24 and cookies will be degraded by the end of '24. And agreed you're 1 of 3 of the largest of the providers. So give us a little more insight on how you're thinking that might play out.

Yes. I think it's going to be -- it's a trust. I feel like I've seen this movie before, and I know how it ends. It doesn't mean I like the plot. And more specifically, I lived through this phenomenon in 1999, 2000 called Y2K, where everybody had to upgrade their computer systems. And there have been others as well like GDPR more recently, where there was kind of a drop dead there, like I can't remember the data, it was like January 1, 2019 or something like that. that everyone had to be GDPR compliant. And in both instances, there was a ton of lead time. And people say, "Oh, I don't know. This isn't really feel " And then kind of like Thanksgiving, December 1, panic set in because in both cases, in GDPR and Y2K, company said, "Oh my gosh, this is happening. Am I ready?" And right now, I would tell you that if you had 5 people on stage and said, "Hey, our cookie is really going to be deprecated next year. " Half of them -- 2 of them would say yes. Google says they're going to go away, and I believe, Google. And 3 of them would say, at regulators might step in an antitrust issue. And so who knows. Well, I know that right now, Google is pushing really hard to roll this out. And on the other side, advertisers have been kind of slow to embrace it. The big advertisers are testing. There's a big chunk of mid-tier advertisers saying that's not going to happen. I'm not going to worry about that. And I think, it will be really interesting in December. I'm predicting this is why I think the self-serve piece is going to be really important. I'm predicting that all of a sudden, everybody is going to panic and go "oh my gosh, this is the most important thing on my display media plan. It's the biggest place where I'm spending dollars. I'm not ready." And there'll be a wave of adoption and trial. So we need to get out in front of that. Now Google's helped by saying they've announced a very slow time line. It starts in Q1 really officially. Right now, it's an alpha but they'll start to deprecate come next January, and I think they're finished by like Q3 of next year, maybe early Q4. So we'll see. I mean the bet I'm making is that they're going to go through with it. But I will also say if they don't, we don't really care because we'll support cookies as long as cookies exist.

Thank, Scott. Thanks, Drew. That's our time. Thanks, everyone, for joining. I appreciate that.