LiveRamp Holdings, Inc.
Q4 2020 Earnings Call Transcript

Published: 22 May 2020

[Operator:]

Good afternoon, ladies and gentlemen and welcome to LiveRamp’s Fiscal 2020 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, Chief Communications Officer.

[Lauren Dillard:]

Thank you, operator. Good afternoon and welcome. Thank you for joining us to discuss our fiscal ‘20 fourth quarter and year end results. With me today are Scott Howe, our CEO and Warren Jenson, President and CFO. James Arra, President and Chief Commercial Officer, will be participating in the Q&A portion of today’s call.

[Scott Howe:]

Thank you, Lauren. Good afternoon and thanks for joining us today. Let me begin by saying we hope you and your loved ones are safe and healthy. To say that we are in unprecedented times almost feels cliché, but we are and the rapid onset of the COVID-19 pandemic will have far reaching consequences for months and likely years to come. This is the global time unlike any we have faced before and we are responding by supporting our global employees, customers and partners and community. Our first priority is always to our people and I am incredibly proud of how seamlessly our 1,100 employees transitioned to working remote. We are providing our teams with the tools and resources they need to be productive and serve our customers in a work from home environment. We are doubling down on employee communications all-hands meetings and virtual events to ensure our people feel supported and connected to their teams and we are soliciting and responding to employee feedback through ongoing surveys. We held a very successful virtual sales kickoff at the end of last month and have smoothly transitioned our ramp-up on the road events to a series of virtual summits. While it feels as though we haven’t missed a beat, we also recognize this is a challenging time for our employees and their families and I am so inspired by the resilience, grit and customer obsession our teams have demonstrated. There are silver linings to be found in every crisis. And for LiveRamp, this period has served to strengthen the exceptional culture and character of our company. As a technology partner, we also have a duty to support all our customers and partners as they adjust to these challenging economic conditions by offering products and solutions that help their businesses become more resilient, efficient and innovative. Now more than ever, it is important for brands to stay close to their customers and to demonstrate that their marketing investments are driving quantifiable business results.

[Warren Jenson:]

Thanks, Scott and good afternoon, everyone. Thanks for joining us. Before jumping in, I too would like to thank our associates for their awesome work over the last several weeks. I feel fortunate to work with such great people. I also hope that all is well for each of you and your families. I would like to focus my remarks today on four areas

[Operator:]

Thank you. Our first question comes from Dan Salmon with BMO Capital Markets. Your line is open.

[Dan Salmon:]

Good afternoon everyone. Thanks for taking the questions. I’ve got one for Scott, one for Warren. Scott, I would be curious just to hear a little bit more of the nuance on your conversations with clients if we can sort of remove the effect of the pandemic if that’s possible. And what the tone of conversations is with clients around some of the key issues that were driving adoption of your products previously, including obviously the challenges to third-party cookies and particularly to notice that a lot more people tended to take once Chrome made their announcement regarding that. So I’d love to just hear what the conversation is broadly around? And then Warren, I understand that the fiscal ‘21 guidance of albeit modest growth, I guess when we see that and compare it against plus 14% in April. I guess it’s fair to say that where some of these negatives around, especially say pipeline pushing out in some concessions are driving something that we would expect to be below the April rate, is that how we should take modest to be? Thank you.

[Scott Howe:]

So, Dan, it’s Scott. And I will start, but also invite James. James Arra is on the call with us as well and so he can probably provide some real anecdotal color around what I am about to say. So what I would I tell you is there is a real headwind from COVID, but also a real silver lining. And certainly, the economy is in a different period, different state than it was just 6 short months ago. And we absolutely work with some clients who are hard hit by that. Travel, retail, automotive, they have been hard hit and you can see in particular, their television investments, their broadcast television investments. I mean, they really pull back. But within that backdrop, I think all of our clients have found that they have little bit of breathing room to stop and think as opposed to just execute, execute, execute. And so the conversations around third-party cookie depreciation and their response have certainly accelerated. We especially see that from publishers. I think there was kind of a misperception in the industry that the authenticated traffic solution was a replacement for third-party cookies. No, it’s not an or it’s an and that even before third-party cookies go away, publishers who embrace ATS can make what was 40% of their inventory that was previously unaddressable through Safari or Firefox, they can actually lock in significantly higher yields, I mean 20% more. And so as a result, those conversations have really found wings. Our direct clients also as they think about what spend remains and what additional spend they will activate as they come out of the recession they are really focused on measurability and ROI. And those two characteristics really play to our strengths. So we were talking earlier we tend to be the last one to leave and the first one back meaning that when clients turn off their efforts, the direct accountable stuff is the last thing that they will ever want to touch. And it’s the first thing that they want to reactivate coming out of a downturn. And so that spurred additional conversations for us in things like connected television, where clients realize there is no upfront. Behavior is shifted to in-home behind screens and the only way to reach young people is through connected television, the light switch we can provide moreover because we have a dataset that allows them to buy far more granularly than GRPs or TRPs. They can actually target their audience more effectively. So a lot of good opportunities for us to go mine in this downturn.

[Warren Jenson:]

And then down – James go ahead.

[James Arra:]

Sure. Thanks, Warren. Hey, Dan. Yes, just to give you some client anecdotes, just clearly, the COVID shutdown is having an impact that no one could have predicted a few months ago, but our conversations with our clients have always been around two primary themes and that’s addressability and measurability. And the interesting thing we saw at the end of last quarter and then even in April is many – we are seeing some pipeline push, we are also seeing some of our companies look to this as an opportunity to really think about what to do once they are out of the COVID shutdown. And just two examples I want to give you one is with a fantasy sports platform. And we thought for sure our deal at the end of last quarter would be dead in the water, but we were able to show them that once we get through this period, here is all the things they need to do and they ended up signing a deal at the end of the quarter. So we are really pleased with that and that’s an example of the company thinking about what happens after the shutdown. I mean, another one is in the QSR space, we signed a new logo deal, 7-figure deal with one of the major QSR companies out there and they are clearly not as impacted by the COVID period, but they are using this as an opportunity to really think about the strategy and think about how to drive to more of a data-driven approach, how to drive to more measurability and more addressability. So there is certainly a lot of silver linings in what’s happening and we really believe strongly we are well-positioned to help our customers through the recession and to really recession-proof their businesses.

[Warren Jenson:]

And Dan, let me – this is Warren, let me chat a little bit about our guidance. First, let me just start off by saying we were incredibly pleased by what we saw in April and the resiliency of our business across the board. As you would expect however, we like you were watching everything very, very carefully and in particular watching the variable portion of subscription revenue and marketplace. So, what about our guidance? A couple of things I want to mention. First as I did in my prepared remarks, we intended our guidance to be conservative and let me just kind of put another phrase around that, we wanted to give you guidance you can take to the bank and I am going to mention three things. First of all, overall revenues will be up for the year. Subscription revenue will be up for the year. And we expect profitability improvement. So again, we fully intended the guidance to be conservative, be conservative and secondly guidance you can take to the bank.

[Dan Salmon:]

Thank you.

[Scott Howe:]

Thank you.

[Operator:]

Your next question comes from Stan Zlotsky with Morgan Stanley. Your line is open.

[Stan Zlotsky:]

Thank you so much. Ladies and gentlemen, thank you so much for taking my questions. The first one for me, the connected TV business, we are certainly hearing a lot about it in the industry news with the upfront going away as you mentioned. How are you thinking about this business and whether this really could – the COVID as terrible as the whole thing is, maybe this could be a massive shift that finally pushes the whole industry away from the right legacy way in which TV advertising was bought and really push it to this connected TV and digital buying? And then I have a quick follow-up.

[Scott Howe:]

Yes, Stan, it’s Scott. So, connected TV for us was up very, very strongly in Q4 and we expected to have another very strong double-digit growth year in FY ‘21. I do think this is as close to a tipping point as we will see. Things are starting to move. I think the first harbinger for us is just the sheer number of client conversations that we fielded. And yes, it’s picked up perhaps in the last couple of months. However, these were strong over the last 6 to 8 months that this trend was already coming. The other thing that I mentioned briefly in my prepared remarks, but one of the advantages that we have as a company right now is we do feel like we have really strong balance sheet and that’s going to allow us to be very strategic in commercial deals as well. And so one of the things we announced in the last couple of weeks was our deal with comScore. In the television space, there are kind of two things that really matter. Number one is addressability, the ability to identify who is living behind the set-top box and that’s something that we have long prided ourselves on the ability to do, but the other piece of that is viewership. What are they watching? And through the comScore commercial deal that they announced in their earnings call couple of weeks ago, we have licensed viewership data for really significant number of households. I mean when you talk about both set-top box and connected television we are talking upwards of 80 or 90 million devices. So, that really I think allows us to bring scale to the conversations we have and really offer a compelling value proposition to our advertisers. So, all this to say we are really excited about what’s to come here.

[Stan Zlotsky:]

Got it. And then just a follow-up on the expansion and actually I guess the flipside, the contraction rather that you are seeing within your existing customers, maybe help us to break it down between the 22% of your ARR that’s really coming from these heavily impacted industries and what you are seeing there is the contraction there isn’t full stop, we are stopping everything and or is it maybe just a slight pullback? And then the other 78% of your business and with the contraction looks like on the other side? That’s it for me. Thank you.

[Scott Howe:]

James, do you want to...

[James Arra:]

Stan, this is James. Yes, I will go ahead and take this. So, let me start with saying Q4 was a really good quarter and as Scott mentioned in his prepared remarks, it was our third largest bookings quarter ever. And similar to other quarters for FY ‘20 roughly 65%ish of that was an up-sell. So, we are still seeing significant growth within our customer base. Now, what we experienced towards the end of Q4 and what we are being very cautious of in our guidance for FY ‘21 is we did see a number of very small clients sub $50,000 a year clients pull back and we saw churn from there. The other thing we saw was some non-controllable churn. There was some major acquisitions that have happened where both of our clients – both sides of our clients, so we saw that impact to a certain extent and then some bankruptcies and some non-payment. We saw that pickup quite substantially in Q4 as well. So, all that being said, we are always looking for ways. We can provide more value to our customers and we will continue to do that. And we have always said that that churn is an opportunity for us and we are really looking for ways that we can continue to drive more value. Now, the COVID impact for specific to the 22% that we outlined, there what we are seeing is them ask for concessions and we are being a good partner and we recognize that they are going through some very, very tough times right now. And we are working with them as they shut things down right now, but we don’t view this as a situation for the companies that survive this and we think many of our customers well. We don’t necessarily view that COVID shutdown as a churn event. In fact just earlier today, a major hotel chain that 2 months ago had asked us to pause because they were shutting down everything and furloughing employees. They came back to us today and said they are starting backup. We were expecting the conversation to be hey, we are going to need another month or we are going to need another 2 months and it was the opposite. They are already gearing up for the reopening. So we are viewing that as a really positive sign.

[Stan Zlotsky:]

Perfect. Thank you so much.

[Warren Jenson:]

Sure.

[Scott Howe:]

Thank you.

[Operator:]

Your next question comes from Brian Fitzgerald with Wells Fargo. Your line is open.

[Brian Fitzgerald:]

Thanks, Scott. I wanted to drill down just a little bit more on the mechanics of that lower usage, is it fewer campaigns, fewer segments, customers using fewer touch points or just the impact to your point clients who are pulling back very hard in advertising and any broad trends or themes to tease out there, how quickly you see that bouncing back as we exit? Thanks.

[James Arra:]

Yes, I will start and then Warren, why don’t you weigh in with some of the macro metrics that we are seeing. So for the customers that have requested a pause and really this is a concession that we are giving. It’s really due to the fact that either completely shut off all marketing and in many situations have furloughed employees because of the shutdown where there is just no reason for them to be spending that money. But we are staying engaged with these customers, we are being a good partner and what we are also doing is we are helping them build their startup plans. So Scott mentioned this in his remarks as well. Once we get out of sort of COVID shutdown mode, there is going to be a meaningful recession and we strongly believe we can help our customers through recession, because budgets are going to be constrained and what they are going to need to maximize the value they get out of every marketing dollar they spent and the way they do that is through measurability and addressability and that’s the areas that we really help them what. So, for many of these customers that are on pause, we are staying engaged, we are working with them on their plans for how to restart and what they should focus on and we believe that will help them and will help us accelerate out of this very quickly.

[Warren Jenson:]

A couple of things Brian that I had mentioned that are also I guess one thing very specific to the numbers and then a couple of things anecdotally. It was really interesting. A large global consumer brand that spends, I don’t know how many hundreds if not billions of dollars on advertising came to us about 30 days ago and they said we have pulled back 80% of our advertising globally, but we have also made the decision that when we come back we are going to come back with 100% addressability. And so we are working with this brand on putting them in a position to do exactly that and that’s the sort of thing that we are seeing from our customers. The second thing is that obviously as it comes to usage for April and for the first 2 weeks of May it’s been we said loaded mid single-digits, so call it 4% or 5%. So, it is down from 10% to 15%, but it’s still positive and would argue at least for now it’s certainly stable. And then one other interesting specific in terms of the concessions we have given to people as I noted in the call and I will just repeat it typically they are 30 to 90 days and then also for the vast majority of those we also extended our clients – or extended our contracts. So, it was very much just a pause. And over I think James wasn’t it over 70% of those requests came in the first 10 days or so of April? So this was very much front-end loaded and we just have not seen any kind of volume like that over the course of maybe the last 4 weeks.

[James Arra:]

Yes. That’s exactly right.

[Brian Fitzgerald:]

Got it. Thanks, James. Thanks Warren.

[Scott Howe:]

You got it.

[Operator:]

Your next question comes from Shyam Patil with Susquehanna. Your line is open.

[Shyam Patil:]

Yes, good afternoon. Thanks for all the transparency and color. I wanted to ask a few questions or couple of questions around the marketplace business. It seems like its trending much better than what we have seen for programmatic spend. And I was just curies why you think that is and when you look at just the programmatic display portion of that business, are you seeing any changes in terms of data elements per campaign, less uses there? And then Warren in your fiscal year expectations, just in your base case, how are you thinking about just the marketplace on? Thank you.

[Scott Howe:]

So, Shyam, it’s Scott. First off, on the marketplace business, remember that if you think about the customers of our data marketplace business, it’s actually fairly broad. Yes, we work with direct brands, but we also work with some of the large platform and tech providers. And importantly, when they are ingesting data through our data marketplace, they are using it to enhance their own products. So, it’s not just for programmatic, it can be for programmatic, it can be for television, but in many cases, it’s even more broad than that. I think there is going to be a real benefit in the coming year for us with television, because to the extent that an advertiser feels that just buying thin demographic sets on broadcast television that no one is watching anymore is kind of a tired approach. Well, they can actually utilize Data Plus Math to go find a much more granular audience. So, we think that will be an enabler for that business over time. That said, it is the one area, because its variable – much of it is not subscription that we think will be most impacted by the recession. And so we have put in place a conservative forecast. In terms of the data elements, the people are buying the mix, it’s not something I know off the top of my head, but we will look at that and let you know, I mean we certainly have good line of sight to that.

[Warren Jenson:]

And then in terms of our guidance just our outlook for the year, I’d probably just repeat a little bit of what Scott said we are again very pleased by what we have seen in April and what we have seen really month to date in May. That said just given all the uncertainty this is one of the areas that we are watching throughout the year and we have tried to be appropriately conservative in our internal outlook such that we right-sized everything, but at the same time we are optimistic but also cautious.

[Shyam Patil:]

Great. Thanks, guys.

[Warren Jenson:]

Thank you.

[Operator:]

And our next question comes from Kyle Evans with Stephens. Your line is open.

[Kyle Evans:]

Hi, thanks. Scott, you mentioned…

[Scott Howe:]

Hey, Kyle.

[Kyle Evans:]

Hi. You mentioned that ATS was causing some of your constituents to rally around and as kind of a solution in a post tricky world. Could you talk about what you have seen geographically, I know there are other countries that have higher exposure to Safari and Firefox? I was wondering if that was a good kind of leading indicator for what we would expect from the rest of worlds going forward?

[Scott Howe:]

Warren runs on international business. You want to talk about that?

[Warren Jenson:]

Go ahead and jump in, I will follow-up.

[Scott Howe:]

Okay. I mean, in my prepared remarks I talked about just this – the traction we have gotten outside the U.S. I think we have signed double-digit international publishers in the last quarter as an example. And in certain markets, particularly in Europe and much of the Asia, this is the only solution for publishers, I mean, they have even more stringent privacy regulation, but they need to navigate. And so it’s just so important that they go out and rather than rely on someone else to sit as the intermediary and potentially disintermediate them that they collect their own authentications, their own consents. Any publisher who has compelling content is already offering a value exchange and it’s just making that from being an implicit value exchange to explicit. And as soon as they do that, as soon as they collect those consents and literally upload a lighter code on their page to benefit from ATS, then they can start to generate significant advantages and monetization. Our initial tests have suggested that could be 20% or more and obviously in markets that have the most adoption of Safari and Firefox or the most exposure to Chrome, the yield is going to be even greater and the urgency to adopt something like ATS will increase. So as a result, lot of traction, I think the biggest challenge for us is how to evangelize that without getting on airplanes, but our team has done a really great job of hosting vid con sessions, webinars and we have a lot of content on our site if you are interested in learning more.

[Warren Jenson:]

Kyle, let me add a couple of things to what Scott said that really excites us from an international and global perspective. I just remind everybody that ATS is not a U.S. thing, it’s a global thing. So it is truly a global product offering for LiveRamp. And when you think about our acceleration and recovery, this really globalizes our company much, much more quickly. We have momentum with ATS in Japan. We have momentum with ATS in Australia. We have momentum in Italy and Germany, France, UK and keep going in Spain. So, this is a global phenomena and it is a global phenomena with brands. Many of the largest advertisers in the world again are not simply U.S. companies, they are global companies and they want uniform addressability in every single market in which they operate and that’s a very, very positive thing for us. The second thing that I would note for everybody that this had time to sit down and work with us and hear about what we are doing with our Safe Haven platform. ATS and Safe Haven are very natural partners and they are natural partners for brands and they are natural partners for publishers, which again accelerates our opportunity. And again, when you think about Safe Haven, it just revolutionizes how companies collaborate and it was also built in a privacy first way, it was built for GDPR. So the combination of those two things really we believe speak and in fact the results are showing it bode well for us globally over not only the near-term, but also very much so as the world lives on from this crisis.

[Kyle Evans:]

Great, thank you.

[Operator:]

And that is all the time that we have for questions. I turn the call over to Warren Jenson for any closing remarks.

[Warren Jenson:]

Great. Well, thank you operator and again a huge thank you to everyone for joining us today. And most importantly, I would like to repeat something I said in my prepared remarks just a huge thank you to our customers and our employees. It’s you who make this company great. I would like to conclude with, I guess just a few thoughts as you think about the year ahead and what we have talked about today. We will grow in FY ‘21 and our subscription revenue will grow in FY ‘21. When we think about momentum in the near-term and we think about momentum and recovery. Our products are winning whether it’s TV, whether it’s Safe Haven, whether it’s ATS. We believe we have given you guidance that you can take to the bank with profitability improvement and that is always for everyone just as we have done this past year, we will be highly strategic with our capital. And let me put it this way in the near-term and on anything discretionary, we will be very stringy, but also we intend to be very strategic. So with that, thank you all very much for joining us. We look forward to talking – speaking with you over the coming days. Thank you.

[Operator:]

This concludes today’s conference call. You may now disconnect.