LiveRamp Holdings Aktie

Good morning. This is the conference operator. Welcome, and thank you for joining the Publicis Group's acquisition of LiveRamp Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Arthur Sadoun, Chairman and CEO of Publicis Group. Please go ahead, sir.

Thank you, Sherry. Hello, everyone. I am Arthur Sadoun, and I'm here in New York in the middle of the night with Carla Serrano, Chief Strategy Officer of Publicis Group; and Scott Howe, CEO of LiveRamp. Loris Nold, our CFO, is also on the line, but from Paris.

Thank you for joining us at such a short notice. We wanted to make sure we give you more color following yesterday announcement that we have entered into an agreement to acquire LiveRamp to become a leader in data co-creation and help clients build more intelligent agents. With these strategic investments, we are demonstrating once again our commitment to accompanying our clients in their transformation and continuing to power our growth and financial KPIs by leading the industry into the AI era. But before we get into the presentation, please read the disclaimer, which is an important legal matter. Okay. Let's start with a quick overview.

LiveRamp is a global data collaboration platform and a strategic AI enabler. The transaction represents an all-cash deal for an enterprise value of $2.2 billion. Among its many benefits, it will allow Publicis to become a leader in a new high-growth segment, data co-creation to fuel more intelligent agents for our clients. LiveRamp will also strengthen our ability to deliver Agentic business transformation.

We expect this acquisition to be accretive to our headline EPS from the first year. It will also allow us to raise our '27 and '28 constant currency growth objectives to plus 7% to 8% for net revenue and plus 8% to plus 10% for headline EPS versus previous objectives of 6% to 7% and 7% to 9%, respectively. In terms of next steps, the acquisition is subject to regulatory approval and approval from LiveRamp shareholders. It is expected to close by the end of the year. Now let's get into the detail of this announcement, including what LiveRamp is, the financial details of the transaction, the rationale for this strategic investment and how it fits into Publicis model. We will then answer what we believe are the 3 key questions you could have before opening up to Q&A.

For those who are not familiar with LiveRamp, we thought Scott should start by giving you a quick snapshot of the business. But before, first, Scott, as we say in French, bienvenue to Publicis. We are very happy that you are here with your team and that you will be soon joining Publicis family.

I'm thrilled, thrilled to be here with you and have even moved on the French time. LiveRamp. Well, it's a data collaboration platform that allows companies to connect, unify and activate data throughout the digital ecosystem. Its interoperable technology connects data across all major cloud environments with robust governance tools and a commitment to shared standards that help customers collaborate with trust and transparency at scale. It enables data activation at scale through plug-and-play connections across our extensive collaboration network made up of 25,000 publisher domains and more than 500 data and technology partners in 14 markets. We have over 800 clients, including more than 25% of the Fortune 500 and cover nearly all segments and verticals, including advertisers, retailers, publishers, platforms and holding companies. Customers. Customers are our North Star. So what I'm most proud of over this period is our ability to attract world-class clients and profitably grow their success over time.

Our revenue has grown by a 13% compound annual growth rate over the trailing 5 years. Recurring SaaS subscriptions represent 76% of our business and our customer revenue retention has averaged 107%. In fiscal 2026, LiveRamp's revenue reached $813 million and our non-GAAP EBIT margin of 22% improved significantly and regularly compared to the 4% margin we delivered in 2021.

Scott, I'm sorry for the 2:00 a.m. meeting. Yes, you're right. We're on French time. I'm now going to hand over to Loris, who will tell you more about the financial details of this transaction before we come back with Carla on the strategic rationale. Loris, over to you in Paris.

Thank you, Arthur, and good morning, everyone. Let me walk you through the main financial aspects of the transaction. The total enterprise value amounts to USD 2.167 billion. This corresponds to an equity value of $2.546 billion based on a share price of $38.50 and fully diluted shares outstanding of circa 66.1 million and an acquired net cash of $379 million.

This transaction implies a forward adjusted EBITDA multiple of 12.3x. This multiple is based on a calendarized 2026 non-GAAP EBITDA of circa $126 million for LiveRamp based on consensus that includes a cost of $80 million of share-based compensation to align with Publicis Group's accounting policies and an incremental $50 million of savings on a run rate basis, which I will detail later in the presentation.

The all-cash transaction is accretive to headline earnings per share on a fully diluted basis from the first year of consolidation. Closing is expected by year-end 2026, subject to customary approvals. Moving to the next slide and how we are planning to fund this transaction. As said, this is a 100% cash transaction fully financed through cash on hand and financial debt. We anticipate issuing new bonds in the second half of 2026.

Assuming closing by the end of 2026, this transaction would result in a maximum net financial leverage of around 1.2x in 2027. We expect to confirm our current BBB+ and Baa1 credit ratings post financing of this transaction.

Moving to the next slide and the illustration of the impact of the transaction on our 2026 fully diluted headline EPS. We expect a 2.9% positive impact on headline EPS, assuming calendarized 2026 figures based on consensus for LiveRamp and a post-tax run rate cost improvement of EUR 0.13 per share based on an assumed pretax $50 million savings. The incremental cost of financial debt is expected to be circa EUR 70 million on a full year basis or EUR 0.21 per share after tax.

Moving on to the next slide. We have a strong track record when it comes to accelerating growth of our acquisition post closing. Since 2019, we have closed more than 30 acquisitions and with an accretive impact on our top line. To give you just a couple of illustrations. First, Epsilon delivered double-digit growth in 2021 through 2024, well ahead of our initial expectations.

Second, our bolt-on acquisitions completed over the last 2 years have delivered circa 20% organic growth per year, again, above their stand-alone business plan. We are expecting to see an accretive impact of LiveRamp, driven by its strong growth on a stand-alone basis and as it starts benefiting from the power of One model.

Second, we are absolutely committed to fully preserving the neutrality and inter-operability of LiveRamp's operating ecosystem. In doing so, we intend to secure revenue with all partners and clients, including other holdcos, which represents circa 5% of LiveRamp revenue as we did with Influential and Captiv8 since we acquired them in 2024.

In fact, we proactively wrote to all the other holdcos to make this commitment clear to them. Moving now to cost improvement opportunities. At this stage, we are targeting a minimum of $50 million of savings on a run rate basis. These savings will come from 4 main sources. First, the continuation of the stand-alone margin improvement plan initiated by LiveRamp with its Rule of 40 objective that aims for a non-GAAP operating margin of 25% to 30% by 2028. Second, the post-transaction elimination of all public company costs at LiveRamp. Third, the integration of LiveRamp's back office into Publicis Group shared service centers; and last, some procurement synergies, including IT, hosting and real estate. With this, we anticipate LiveRamp to deliver an operating margin in line with Publicis Group's margin as of year 1.

Moving to the next slide on outlook and capital allocation post acquisition. First, we are confirming our 2026 guidance on all KPIs. This excludes one-off transaction-related costs. Second, with this acquisition, we are raising our 2027-2028 objectives at constant currency.

We now expect net revenue yearly growth of 7% to 8% versus 6% to 7% previously and headline EPS growth is expected at 8% to 10% per year versus 7% to 9% previously. In terms of capital allocation, we confirm our dividend payout of 45% to 50% of free cash flow with a floor of EUR 3.75 per share.

We will continue our share buyback policy to offset any potential dilution effect, and our focus will be on balance sheet deleveraging until early 2028. Moving to my last slide on the next steps. The transaction has been signed and will now proceed through customary regulatory approvals and LiveRamp shareholder approval. Scott Howe will remain CEO of LiveRamp and continue to oversee all of its operations, reporting directly to Publicis Group Chairman and CEO, Arthur Sadoun.

LiveRamp will continue to operate as an independent business and for external reporting purposes, its numbers will be reported within the group technology pillar. We expect closing to take place by the end of 2026. This concludes my financial presentation, and I now give the floor back to you, Arthur.

Thank you, Loris. Back to New York. Now let me hand over to Carla, who will explain why LiveRamp with Publicis will position the group as a leader in data co-creation to fuel more intelligent agents for our clients.

Hi, everyone. First, let me take a beat to explain what data co-creation is. Data co-creation is the process by which companies connect multiple high-value data sources across partners in a secure environment. This generates new data assets that companies could not build alone. This sets the foundation for building more intelligent agents for clients. It's a valuable capability for clients in today's world.

As AI adoption accelerates, the AI paradox is becoming impossible to ignore. Companies are investing millions and only getting thousands in return. When you roll those investments up across industries, that disconnect becomes even more staggering. $1 trillion in expected AI investment with only 5% delivering meaningful value.

That's $1 trillion of spend without material returns. But let's be clear, the problem with Agentic development isn't the AI itself. It's the data foundation. The fundamental issue is that the agents companies are building today do not have the data required to compete and grow their business.

In fact, 93% of companies don't have the right data to support effective Agentic builds. This is because of 3 things. First, most companies are running agents on legacy enterprise data built to report on the past, not make decisions for the future. Second, everyone has access to the same data for the same agents, killing their competitive advantage. Third, all of that incomplete and disconnected data increases AI hallucinations, moves agents further away from their set objectives and means companies can't identify where an agent went wrong or how to fix it. That is why we have decided to invest in LiveRamp.

Thanks to their data connectivity, marketplace, collaborative clean rooms and partner and agent network, combined with Epsilon's identity, we are going to accelerate on data co-creation to help clients build more intelligent agents for real business outcomes. In doing so, we can deliver 3 important advantages that will help clients close that gap between AI investment and return. First, greater speed, security and scale. They can now unify fragmented internal and partner data to enable secure collaboration across organizations without exposing sensitive underlying data.

For example, a bank could build a powerful wealth management life cycle agent. The agent could use unified customer data from its retail banking, credit card and wealth management and securely connect it with partner data from merchants, payment networks and travel providers without exposing sensitive customer records. This agent can now cross-sell faster, coordinate efforts across multiple lines of business and more accurately detect fraud. The business impact of the agent is transformed from narrow task completion into a tangible competitive advantage in customer lifetime value, customer experience and retention and risk mitigation. Second, generate proprietary intelligence. By creating proprietary data assets from new combinations of signals and data sets, they can unlock hidden insights that drive smarter strategies and sustainable competitive advantage.

For example, a retailer could build a comprehensive retail journey agent. The agent could connect data from CRM, loyalty to in-store to retail media network inventory to partners in order to measure the incrementality of each touch point and to build new proprietary journeys for shoppers. The business result of this agent now becomes faster, more efficient shopper conversion and more value for retail media partners.

Third, continuously train and fuel enterprise grade A agents with co-created data to accelerate responsiveness and decision-making. For example, a global pharmaceutical company can build a therapeutic area optimization agent. This agent can compliantly use clinical, commercial and operational signals with patient, prescriber, payer and supply chain data across their brands and at a therapeutic area level. This agent can now use new dynamic signals to balance distribution by brand, optimize field force deployment in the context of marketing and uncover and navigate any barriers in the payer system. The business impact is incremental growth for each brand, more efficient and higher ROI field force activities, therapeutic area product lifestyle management and total enterprise growth. These are just a few select examples of how, as Scott would say, together, we can democratize innovation and data for the entire ecosystem.

Scott highlight the value of democratized innovation and data for the entire ecosystem. It's very inspiring. Look, put simply, agents build on co-created data, learn and improve with every signal, separating them from competitors that train their agent on stagnant generic data.

Building smarter agents by leading in data co-creation opens up a new addressable market that allow us to raise our '27 and '28 financial objectives. It is important to note that it also complements our proven growth model and boost our ability to accelerate client Agentic business transformation. Thanks to Publicis Sapient, we can build and modernize technology and system foundations to make our client infrastructure AI rich. Epsilon market-leading identity connects clients and their agents to real people, behavior and deterministic transactions as a fundamental source of truth and growth potential. With the addition of LiveRamp, we will enable clients to collaborate safely and securely across partners and platform to co-create new data that fuels smarter agents. Last but not least, with Marcel, our Agent platform, we can activate this co-created data across all of our clients' enterprise function. Just to wrap up, as you can see on this chart, LiveRamp perfectly fits into the architecture of our entire model, delivering more intelligent agents to accelerate on our clients' agentic business transformation.

Now before we open the floor to the Q&A, let me first address 3 key questions that I think will be top of mind for many of you. First, for those that are not that familiar with our industry, let me explain why LiveRamp is so different from Epsilon. Actually, Epsilon and LiveRamp serve 2 fundamentally different purposes. Epsilon is a marketing activation engine, focused on using identity and data to drive direct consumer engagement and business outcomes. On the other hand, LiveRamp is a B2B data collaboration platform that connects partners to enable multiparty data collaboration. When you look at their capabilities in detail, the differences are even clearer. On data, Epsilon is focused on organizing and unifying deterministic transactional, behavioral and proprietary data to power personalized marketing and media activation.

Meanwhile, LiveRamp specializes in connecting and unifying fragmented enterprise and partner data across the entire ecosystem. On technology, Epsilon is focused on identity, building a unified identity graph to support audiences creation, media planning activation and measurement across paid and all channels.

LiveRamp expertise is in inter-operability and collaboration, enabling multiparty data collaboration through clean rooms, data onboarding and ecosystem connectivity. On client access, Epsilon is delivered as a managed service designed to help clients reach audiences by activating data through deep insights and by providing performance measurements.

In contrast, LiveRamp operates as a SaaS platform used by publishers, retailers, platforms, brands and partners. To cut a long story short, they serve different purposes, have different data approaches, complementary tech stack and distinct go-to-market. LiveRamp is not duplicative. It will be an additional building block of our growth model. Second question you might have is how LiveRamp neutrality and interoperability will be preserved. Let me be very clear on this one.

As with all Publicis operations that work directly with partners and competitors, LiveRamp will maintain total neutrality. It will continue to operate as an independent business and ensure open access. It will not prohibit or restrict access to its service for any current or potential customer and will remain fully interoperable.

When it comes to privacy and control, LiveRamp will not use or share client publisher or partner data in any way that is not explicitly identified in agreement with them. Last but not least, LiveRamp will not engage in pricing changes beyond standard business practices. As Loris this told you, we have sent a letter to the holding companies that represent roughly 5% of LiveRamp revenue to make those commitments very clear. It's very important to note that independence has been a key growth driver for many of Publicis acquisition, including Influential, Captiv8, Lotame and several sports acquisitions. To give you one concrete example, when it comes to our connected influencer platform, 51% of its growth come from non-publicis clients and competitors who have chosen to use it. Last important question, why acquiring LiveRamp when we are already partnering with them? The #1 reason for this acquisition is that the addition of LiveRamp will allow us to expand into a new addressable market.

In 2019, we acquired Epsilon in the name of leading personalization at scale to enable our clients to take back control of their data from the walled garden by shifting from cookies to identity. Since then, we have been outperforming the industry. Now with LiveRamp, we are looking ahead to what's next by building the future of data co-creation.

It is how we will enable our clients to generate new exclusive and proprietary data to build the smartest and most differentiated AI agent on the top of the leading LLMs. Second, we are confident that the power of One means that we will be able to quickly unite and deploy LiveRamp capabilities for all of our clients globally. With LiveRamp added to our ecosystem of Publicis Sapient, Epsilon and Marcel, as you have seen, we will go even further and faster in delivering agentic transformation for our clients safely and transparently and even more importantly, in their own environment. Last but not least, we have talked a lot about data and technology today. But at Publicis, we continue to believe that people are a key differentiator. We have absolutely no doubt that LiveRamp highly talented teams will have a great impact on our organization. In fact, we worked closely together over the past 6 months through our commercial partnership, which has allowed us to test the cultural fit, and I can tell you something it has been excellent.

Of course, the deal still has to go through the full regulatory process, but we are really looking forward to welcoming Scott and his team to Publicis. Well, thank you for listening. Thank you for joining. And now we are ready to take all of your questions.

[Operator Instructions] The first question comes from Nicolas Langlet of BNP Paribas Exane...

Congratulations on the announcement. I've got 3 questions, please. First of all, on the network neutrality. So do you plan to implement any new governance structure to ensure that all the competing data providers continue to view LiveRamp as a neutral platform.

So is there any change on that front? Secondly, on the synergies, so you have mentioned the $50 million cost synergies, but do you expect any revenue synergies over the midterm? And when do you think they might start materializing and what magnitude we could expect? And finally, on the ID system you will get. So post the acquisition, Publicis will operate 3 distinct identification systems with Epsilon, and LiveRamp -- is there a plan to consolidate those data systems at some point? Or you think they all have their own specificities and they can remain like that?

Thank you, Nicolas. I'm going to take 1 and 3, and I'll pass on to you, Loris, for 2. On the identity, no, we have no plan to consolidate. As you have seen in the presentation, each of our operation actually fit a different purpose, but also can be connected to really bring agent transformation to our clients. And I think this is the power of what we are doing. And by the way, the power of One, which is to bring very different expertise together, but each of them with their culture, with their way to go to market, okay? This leads me to the neutrality.

So I want to be very clear on that. There will be absolutely no change in how today and tomorrow LiveRamp will be led. I mean I've got Scott next to me here that will be able to tell you a couple of words about that. But he will remain, of course, the CEO. The team will still be in place. Again, we have this great partnership for 10 years. We have accelerated for the last 6 months. We have seen how well we work together. And again, one of the big reasons why we are doing this deal is a cultural and people fit.

So to come back to your point, absolutely no change. Now before I pass on to Scott, let me take a moment again to come back to this question because we have seen since yesterday that was a big topic for you guys on the analyst side. So first, we absolutely want to preserve the

inter-operability of LiveRamp because it is part of the business. And that's how they grow and how they will grow in the future. And that's why we are very confident that this is going to only increase the Publicis performance. Second, we are making very strong statement about that here on the call.

But also, by the way, with our competitors that represent today 5% of the revenue. I have addressed a letter to all of them, and we feel confident that we can still work in good condition. And this is only work. The things that matter are the facts. And the reason why we are so confident in our ability to keep this interoperability is actually that the neutrality that you see that you will see with Live is the one we are having today with other of ours. And we mentioned a lot of them, but I think the most interesting one is actually Influential and Captiv8. You would remember at the time we did those acquisitions, you could have hear the market, yes, but the competitors are going, blah, blah, blah.

The result is half of our growth for those platforms come from client, non-publicis clients and competitors. So we know how to do that. But maybe, Scott, do you want to say a word on those 2 points, way, you're more than I am. So feel free to talk about that and definitely on the independents.

Sure. I think you covered it well. And Arthur, you know that this is a topic of conversation that started a long time ago between us. I mean this was very important. We have a 10-year track record of being neutral in the industry, and that's helped fuel our growth. And the commitment that you made already in terms of being committed to remain interoperable and the letters that you sent, I think, went a long way.

But what gave our team even more confidence is just seeing how you've managed your businesses over time. And as you've made past acquisitions, you've allowed them to be neutral and interoperable with the ecosystem, and that's accelerated their success. I think the strongest thing I would say, though, is whatever concerns I may have had melted away yesterday. Yesterday, after we announced the deal, we reached out to hundreds of clients and virtually every major publisher partner and we talked about this, and there was 0 concern across all of those conversations that this commitment would be upheld.

Yes. I think this is a critical point. Again, we were not worried at all, and we have good experience, but nothing replaced the client feedback. And on both sides of the equation, we actually sent, of course, a lot of e-mails. I personally sent like 500 e-mails yesterday.

And the answer we had from the clients was, of course, very strong, but you touched on the point you made, which is, first, and very importantly, and hopefully, you saw that in the presentation, every client understand that building the right data to build the right agent is mission-critical.

We were actually -- I was a bit surprised by how much we were clear on that and that we were really at the right place. But the point that Scott made about neutrality is very important. Honestly, it's easier on our side because, of course, we are bringing a new service, but we have a lot of Publicis clients that are LiveRamp clients. And of course, they trust us to keep this neutrality because they have seen it, of course, with others. And again, coming back on the fact that we are stronger together, the notion between data collaboration and data co-creation is very important. What they can do today is definitely starting to collaborate. But the ability that we're going to have together to create new sets of data, sets of data that will make our client agent kind of super competitive, unique, proprietary is something that they found very interesting and, of course, very appealing. And I would say, last but not least, and I know it's going to be a topic maybe when we talk about our cash allocation they so much feel the need for us to invest in new talent and new capabilities to make sure that we are still relevant in helping them in this AI world.

This is a point that comes from everyone. It is a challenging macroeconomic context at the moment, but they have never ever needed us to invest more in order to make sure that we can continue to be this most valuable player for them. Loris, hopefully, we gave you enough time to prepare the question on the synergy. it's a bit difficult because we are in New York and in Paris. So over to you, Loris.

Thank you, Arthur. Nicolas. So just a couple of points on the top line. The first one is very important is on a stand-alone basis, LiveRamp is an asset that is performing really well. I mean it delivered 13% on a 5-year CAGR. If you translate its Rule of 40 objective into the next few years, you can assume that it will sustain double-digit growth. Now when it comes to revenue synergy on top of it, it's a bit too early to say.

But what I can tell you is that we are expecting the integration of LiveRamp into our Power One model to generate some significant opportunities for LiveRamp clients, for our clients, for new clients.

And obviously, this would have an impact. And if you're looking for, obviously, evidence, look at the acquisition that we have closed in the last 5 years. As I said earlier in my presentation, they have surpassed our initial expectation, both at Epsilon and all the bolt-on acquisition we've closed. So we feel pretty confident around unlocking growth on top of the strong performance that LiveRamp has already been delivering and will continue to deliver.

The next question is from Tim Nollen of SSR.

Congratulations to all parties. And also, thanks for giving us a lot of preemptary answers to the questions that we've got. I wonder if you could expand a little bit maybe, Arthur, on what the addressable markets are that you referred to. There's a lot of AI discussion here. I think you're talking about Agentic AI opportunities. But really, what are these addressable markets that you referred to? And Scott, if you wouldn't mind just explaining why have you decided to sell LiveRamp now and why to Publicis?

Thank you, Tim. Look, I'm not going to come back on all the story about why data co-creation is so important to build the right agent. But happy to take that offline because this is absolutely critical because as I said, and you have seen that in Carla's presentation, we are talking about roughly $1 trillion by 2029 that is going to be spent in agent transformation by our clients, $1 trillion. It's going to be more than advertising. And as you can imagine, one will grow faster than the other. The question there is that there is no way you can capture a part of this investment if client doesn't have the right data. And this is where we see a big opportunity for us is to start capturing this new addressable market. And to be clear, and that's a very important point. We absolutely do not need LiveRamp to win in the marketing space. I think we made a clear demonstration over the last year that we can massively outperform our peers and winning new business with our existing structure. And by the way, with the partnership we're having with LiveRamp. But coming back to this addressable market of more than $1 trillion, our ability to co-create within the same environment with LiveRamp, new products and services that we can sell end-to-end is, we believe, a big for our growth in the future.

And Tim, maybe I can address the why now from the LiveRamp perspective. As you know from covering LiveRamp yourself, you know that clients have always been our North Star. And when Carla walked through the 3 examples around how different sectors are starting to think about AI, she could have just as easily given 30 examples.

Literally, there is not a client that we work with that is not struggling with some of these same issues, how to harness the power of AI, how to move quickly. And you know what, it's hard. It is so hard for them to do that. And there's a couple of reasons for it. One is the data that they need isn't necessarily stuff that sits within their own walls. We can solve that problem for them.

But in addition, the technology that they need is so disparate and it's often hard to bring together. Well, together, this combination solves that problem for them. And so it came back time and time again as it always has in LiveRamp's history is how do we solve the problems that our clients have and do it at scale and generate better performance for them. And the answer kept coming back to, hey, together, we can do this more effectively than LiveRamp could on its own.

And if I may add on that, I think Scott made the right point, which is it was the right time because it is the right time for our clients. And again, everything we have heard since yesterday is a good example of that. And of course, we tested the water in the past to make sure that this was the case. But it's also, I think, the right time for both Publicis and LiveRamp. I mean this long-term partnership that we have been accelerating since the beginning of the year help us to realize how much we knew each other, we were sharing things and we were ready to go. I mean, again, you know us.

We have a very good track record in terms of integration. This integration starts with the people. And the fact that from day 1, we'll be working with people that we are already working with makes a big difference. I think the second thing that is very important is that we are talking since 3 years now about the ones that are winning in this new AI world and the one that are losing.

And the truth is when you look at the performance of both companies, Publicis and LiveRamp, today, the number shows and again, today with the partner of LiveRamp that we are winning. And that makes a big difference because we have nothing to fix.

We just have to make sure that we grow more together and that, by the way, we bring to clients what they need. And finally, honestly, and that's what gets me very excited is that the complementary products and services we are adding are just a perfect match. And hopefully, you saw that in my chart. They are very different. They are serving very different purpose. They will have their own way to go to market. But when we come to clients that today are looking for end-to-end solution in this new Agentic world, we come with a perfect fit.

Thank you for the explanation and please keep the ramp-up conference going.

The next question is from Ciaran Donnelly of Citi.

A couple of questions from myself. Firstly, revenue. I think looking through the accounts, it's 95% U.S.-based. Can you talk about the effectiveness of the platform outside of the U.S.? And is there any reason for not expanding historically outside of the U.S.? And then two, can you just talk about, I guess, in terms of Sapient, is this going to be a positive tailwind for Sapient? And if so, do you expect this to come through in 2027? And maybe just finally, can you provide a split of revenue for LiveRamp from the other holdcos?

Maybe I take the first here, which is expanding outside the U.S. So you're correct. Our business is very concentrated in the U.S. And that's disappointing in some respects because if you look at our client base, our clients are global. If you look at our publisher partners, the Metas, the Googles, the Disney, the Netflix of the world, they are global companies. And if you look at our technology, it is globalized and can be deployed any place in the world. And so we have clients and partners who have actually been pushing us to expand with them internationally.

And we just didn't have the footprint to do that. So I think there's a really nice opportunity here given Public's global footprint and client connections to tap into that over time. And I will tell you, we had a we had an announcement yesterday with our senior leadership, the biggest smiles in the room were the folks that were joining from overseas because they look at this as the opportunity that they've been waiting for, for a decade.

Yes, that's part of our plan, of course, the international expansion. And I think it's interesting to see that both in this case, Sapient and Epsilon, when we acquired them, were roughly 5% international. And you have seen the growth we have been able to deliver on the international side. So this is very promising.

If I understood well your first question about the split on holdcos, we don't give those numbers because we don't disclose any client number to be clear. But what I can tell you is that it's roughly 5% for all holdcos together, except for Publicis, of course. Your question with Sapient, allow me to tell you a bit more about how we see things.

Again, each of those operations fit a very different purpose, okay? And so you have to think about Sapiens as how we're going to be able to modernize the mainframe of our clients. And that's a very big topic because the other big reason why AI is not working with most of our clients today is because they don't have the modernized framework. And this is where we can do a lot of work, and this is where today Sapiens is really starting to do an inroad. The second thing which comes on that is once you have the mainframe, you need identity. I mean I think that now the market has understood, and I'm talking about the financial market because our clients understood that very early. This is why we have been striving with Epsilon and other group is that identity is the qualifier for AI. If you don't have the identity, you just don't win with AI.

Just look at all the platforms, not talking about Publicis, but outside, you don't win if you don't have identity and everyone has understood that. Where LiveRamp adds something great is that data co-creation, meaning collaboration to get new set of data is going to be the multiplier.

It's going to be what makes client win. You get qualified with identity, you win by creating new sets of assets and new set of data. And that's why those 3 things with Marcel on the top, make a difference. So to come back on your question, they will stay independent.

But yes, they will collaborate. And we are, of course, planning in the future for clients to look for an end-to-end solution. But this is not also what we're going to push for. First of all, because most of our clients already work with different suppliers, and we want to make sure we can adapt -- and second, because we have a huge belief that -- sorry, is a bit technical, but absolutely key is that all of this has to be built into our client environment.

Where we're going to make a big difference is that we're not here to sell something that will be apart from their business. We want to make sure that it's core to their business in order for them not only to grow, but to prepare the future. We still have like 10 minutes, and I'm sure there is other questions.

The next question sir is from -- the next question is from Adrien de Saint Hilaire of Bank of America.

I've got a couple of questions, please. Arthur, perhaps can you talk on how much of -- or how many, sorry, of your top 100 accounts currently are using LiveRamp? And maybe a couple of questions for Loris. Why would you raise bonds when you actually have access to EUR 4 billion of gross cash today on your balance sheet? And then I apologize if it's early in the morning, but you've raised your 2028 constant currency growth by about 100 basis points. But I think LiveRamp is going to account for, call it, just about 5% of revenue. And as you said, it's growing like low double digits. So how are we getting to like 100 basis points of like revenue growth accretion?

I won't give you a precise number on how many clients out of the top 100 use LiveRamp, but I can tell you a big part of them. The reason why I won't give you a number is that it can go from a very small service to a very big relationship.

So it won't give you a real idea of that. What I can tell you is, first, 100% of our top 100 clients know LiveRamp and have a great image of LiveRamp. This is something that we check. Second, 100% of those top 100 actually answer to our e-mail yesterday and feel very confident either to reinforce the relationship or to know more. And now, of course, there is nothing we can do until the period that is going now is over. And I see my general counsel saying yes, yes, yes, we will. But we feel very, very confident that in a way or another, it will serve most, if not the totality of our clients. Maybe Loris, I give you 2 and 3, I guess.

Yes, sure. Adrien, -- so I'll start with the question on the top line assumption. So as I said earlier, when it comes to net revenue growth at constant currency, we are expecting 7% to 8% versus the 6% to 7% previously. I mean the real assumption here will be on the timing of the acquisition.

As I said, we are assuming that it will close at the end of '26, which essentially means that you should see a full impact from the acquisition on reported growth in 2027. In '28, we will include the impact of LiveRamps on organic growth. combined with what will be the normal effect of incremental bolt-on acquisition, which we would resume and that would close in that year.

Of course, timing as well as what we should assume for LiveRamp soly growth are 2 important variables. So probably the easiest way for you to look at the objective for '27, '28 is an average range for the period, mindful of the fact that if our assumption is correct on timing for the closing, you're right, we are definitely on a conservative end for '27, given that we have to be very clear on one fact that we are not changing our assumption for Publicis stand-alone. On your first question, which was the financing, I mean we will evaluate in H2 what are the financing requirements and decide how we tap the bond market. I think you have to look at it for us, which is financing is about maturity. And so we're looking at our overall debt structure and also any other needs that we might have, working capital funding and all the other requirements of the business. So this is not only specific to the LiveRamp acquisition.

Thank you. We're going to move fast. We have 10 minutes a bit less. So Sherry, back to you.

The next question is from Conor O'Shea of Kepler Cheuvreux.

A couple of quick questions from my side as well. Just firstly, maybe for Scott, just who would you consider your main direct competitors? And in particular, would you consider InfoSum, which I think one of the other agencies acquired about a year ago as a competitor? Do they do the same things as you do or to what extent? Then second question, I think, Loris, you said you expect LiveRamp's margins to be equivalent to publicis at a group level within the first full year. Can you just indicate what the starting point for LiveRamp's margins are in terms of equivalent accounting policies for operating margins for 2026 or 2027? And then the final question, just in terms of how you plan to integrate LiveRamp.

Would you -- are you going to take an approach similar to what you've taken to Sapient in the sense that they are very autonomous within the Publicis Group or more like the Epsilon model where they're closer integrated to Connected Media? What would be the approach there?

Yes, Scott.

Maybe I'll start in terms of competition. I mean, listen, we play in a competitive market. I will tell you that you're direct question was on InfoSum. They're not a company that we run across very often. However, like we do with other clean rooms, we can certainly make them part of our integrations or our networks in the rare instance that a client would want us to do that. I would tell you that I often think about our main competition as our clients just doing it themselves because they're not very sophisticated.

And therein is the challenge, but it's also the opportunity for us because in a connected world where clients are going to need ever-increasing amounts of relevant data to power their models, they're going to need to connect.

And so if someone doesn't choose to work with us today, maybe it's because they're going to integrate directly with Google or directly with Meta. It's just such a small number of integrations that they can manage that degree of complexity on their own. I think over time, as companies have to be more sophisticated about this, the number of integrations actually increases. And we've certainly seen that in our portfolio where the number of connections, the number of collaborations increases over time. And that just fuels additional revenue growth and makes even more use cases available for our clients.

Thanks, Scott. Loris?

Sure. So on the margin, if you look at the consensus for 2026 and you look at it on a calendarized basis because, as you know, LiveRamp's fiscal year ends in March, and you include the cost of share-based compensation of $80 million for LiveRamp, you get to a margin of roughly 14.2% for 2026.

On top of that, when you look at '27, you build the acceleration, the stand-alone acceleration that LiveRamp is forecasting as part of this Rule of 40. And the savings that I mentioned that will be partly realized, actually mostly realized in 2027 and you very quickly get to a margin for LiveRamp, which is at or slightly above Publicis Group's margin in 2027.

Okay.

Thank you, Loris. We're going to -- now I've got to answer your question on integration, which is very important. I mean the truth here, and you can see that in all the acquisitions we have done is that each operation is special. And for each operation, we have an integration that is really tailor-made and definitely in the case of LiveRamp for everything we discussed. So clearly, LiveRamp will remain as a stand-alone business -- it will be led by Scott and his team.

And Scott, as you might have seen, will report to me. For reporting purpose reporting purpose, sorry, as we said, I mean, we will map LiveRamp into our technology Pillar simply because when you look at this model and his capabilities, this is where it belongs. It is a tech business. Maybe a last question very quickly, if we can, Sherry.

Yes, sir, the final question is from Julien Roch of Barclays.

So you already had a commercial agreement with LiveRamp and LiveRamp will stay neutral. So what does ownership brings you? What will you be able to do that you could not do before? I know there's a slide in the presentation, you say addressable market, data co-creation and complementary model. But why would you not be able to do that with a commercial agreement? That's my first question. The second one is if LiveRamp stays neutral, why can't other holding company do data co-creation as well? And then the last question is you said Epsilon was 5% international when you bought them. How much international was Sapient in 2015? And how much Sapient today and Epsilon today? So 3 numbers, please.

Okay. I'm going to go fast. I'm going to leave the last question to you. So again, hopefully, we explained pretty clearly why this deal makes a lot of sense in getting together.

I won't come back on everything we just said and you wrapped up. But if you want to look it in a very simple way, we want to capture the growth of this huge market that is coming. We want to make sure that we can grow, thanks to that.

And second, we want to start building product and services together that no one else could bring, okay? That's basically the 2 reasons why we want to make this deal versus just a partnership. And again, when you look at the potential of the data co-creation market and more importantly, the potential of the agency transformation, you understand why there is growth. And when you look at our product and our model, you understand why it makes sense. Why other can do it? Let me be very clear on that if I haven't before. We are not talking about the marketing space here. Again, as we just said, we did not need LiveRamp to be part of Publicis to win in the marketing space where we make a difference and where we think we're going to bring something very unique. It is in the combination of Sapient plus Epsilon plus LiveRamp plus Marcel to go for this agentic transformation market that is roughly $1 trillion today and that is only going to be growing versus other industries. Loris, maybe?

Yes, sure. Julien. So if you look at Sapient and Epsilon, so I mean, as Arthur said, when we acquired those businesses, they were primarily U.S. domestic base. And if you look at the trajectory, today, Sapient is roughly 40% international. Epsilon is probably closer to 15% to 20%. The difference also is that the starting point on Sapient was slightly higher outside of the U.S. and also the fact that when it comes to Epsilon, they are servicing a number of international clients or the market from the U.S. But take those numbers, 40% for Epsilon and close to 20% -- sorry, 40% for Sapient and close to 20% for Epsilon.

All right. We are almost out of time. We have just a couple of minutes. So if you don't mind, I would like to close with a couple of takeaways. First, as you have seen, and that's a very important point for us, we continue to invest in new talent and innovation.

This is what our clients are expecting from us. I guess you hear it from Scott, you heard it from me. The reaction has been overly positive because they need more than ever partner that can help them in this AI journey. Second, hopefully, we made the demonstration that we know how we are going to be able to continue to thrive and to make sure that LiveRamp thrives as a neutral and interoperable platform. We did it for others. We will do it for LiveRamp today. We feel very confident. Third, and that's come back to your last question is that with this acquisition, we are opening up a new addressable market, which is data co-creation. We're going to be able to fuel smarter agent for our clients and win over a part of this $1 trillion market that Carla described. And last but not least, we went fast on the number, but there will be a lot of news coming next. I mean LiveRamp will allow us to accelerate across all of our financial KPIs. It will be accretive to our EPS, and it will drive faster top and bottom line growth. Well, I hope we've been clear in exactly 1 hour. I'm sure there will be a lot of discussion in the coming days. Of course, Jean-Michel and his team are here for you. Thank you so much for joining us so early. Thank you so much for taking the news yesterday on a Sunday. The reason why we did that is that we need to communicate at the moment where both financial markets are closed for LiveRamp and Publicis. So it has to be early in the morning. And this is why, again, we put the press release yesterday. Have a great day and talk soon.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.

Thank you for joining us. I'm Drew Borst, Head of Investor Relations. Glad you could make it out to RampUp 2026. We're excited to have you and have you at this briefing and Q&A session. So let me just kind of give you an overview of our agenda for today. We're going to start off with our CEO, Scott Howe. He's going to talk to you a little bit about why we really believe AI is a tailwind for our business. Second, we're going to have Travis Clinger, who is our Head of Partnerships and Connectivity, speak about how we're adding new AI nodes to our network.

And then he's going to hand it over to Matt Karasick who's our Chief Product Officer, and he's going to speak to you about Agentic Advertising, how the marketing workflow and advertising ecosystem is changing by adopting AI agents to accelerate their entire process. And then after that, we'll go to Q&A. We'll have you out of here by 8:00, so that you have plenty of time to get to the RampUp programming. So without further ado, I will hand it over to Scott Howe.

All right. Are you going to give me the clicker? Okay. Perfect. Listen, I can talk to this slide. I would tell you, if you have a chance, go watch Matt Karasick's keynote when he was on stage yesterday and demoing our product because when you actually see like what it does and you hear Matt talk about it so simply and eloquently, it's actually more powerful than anything you'll hear me say right now. I always talk about how we're in the center of things, and we really kind of are. And that's true of the last 10 years. It's true of the next 30 years because every company needs to make good decisions and drive good results. I mean that's why they're in business. And the only way you can do that is by being more intelligent than your competitors. And the way you're more intelligent than your competitors is collecting and analyzing the right data.

The problem that every business on the planet faces, bars, maybe Amazon and OpenAI is none of them have all of the information that they'd like to see. And the problem is that the information that each of them has is probably unique to them, their CRM files, their purchase histories, their web-viewing information. But the things that they want that would allow them to make an even better decision, well, that information is owned by someone else. And so metaphorically, you can kind of think, and I'm speaking to this picture here, LiveRamp's hosted a dinner party. We have a really big table, and we invited everyone on the planet.

And by virtue of sitting at that dinner table, they have the ability to communicate and work with anyone else who has a seat at the table. So we've done integrations, set up the data governance, set up the Data Collaboration technology for anyone who has data to use it at the destinations that matter or ingest data from partners who may have complementary pieces. And so you can see whether it's brands, agencies, publishers, consumers, tech partners, data providers, all of them have been invited to the party.

And if you've spent any time at RampUp yesterday, or you have a chance to today, you will see that come to life. because when you look at the attendees here, it is -- I think Meta has 20 people here, including the head of their business. Google is well represented. I met with OpenAI yesterday. We got Microsoft. We have Publicis. We have like literally every company that matters is here, represented at a senior level, and they're all talking to one another about what they should be doing together. And we're not even part of many of those conversations, well, at least not in the conversation, but our technology underpins everything.

And so whatever they decide to do together out of their conversations, our business is going to grow. Now that said, we're at this inflection point, and it has a lot of investors a little bit anxious. I think as they take time to understand who the winners and losers in an AI world will be, they will come to the conclusion that we have built for a long time, which is we're going to be one of the winners. And what we see is 3 megatrends. Number one, consumers are changing how they behave.

And all of you probably experienced this yourselves, like instead of going and submitting a 3-word search query buy luggage, instead, you're writing a much more eloquent query, probably 20-plus words. It's very descriptive. Hey, I want a new carry-on bag. I don't want to spend more than $300. I want something that's top-rated. And then lo and behold, Google AI Shopping gives you choices and you can buy straight there. And so consumer behavior is shifting. The second thing is the way that work is done is shifting.

So yesterday, I talked about our Publicis partnership. Well, Publicis has built a whole AI layer called CoreAI. And the way they plan media, the way they distribute creative, that's changed. The way that Meta makes their ad-decisions, that's changed. The way that virtually every company that's represented in this conference, the way they're doing work is changing. It's becoming more streamlined, more intelligent, more automated, and more effective. But the third change is that data and identity are the fuel that make both 1 and 2 happen, and that's our business.

We're the intersection of data and identity for all of these companies. And we just expanded the dinner party because we invited a whole bunch of AI applications to have a seat at the table as well. And so just as for a decade or more, we have been working with folks who have data and activating that data at the places where they want. Well, AI has a lot of data, and they want a lot of data to make their models more effective. And so we have 20 some -- you'll hear this, 20 some AI applications live already. I suspect in a year's time, that number is going to be in the hundreds. Our clients are helping prioritize which AI partners they want us to sign up.

And just as we can activate data in Meta or Google or Microsoft, so too now can we activate data in these AI applications safely and securely, use it in clean room such that our clients are protected and their data is not misappropriated. Finally, I'll just say why is our moat really deep? Well, 4 things. Number one is identity. The fact that different companies have different datasets. It's really hard to comingle all those datasets. You need a matching key, essentially, a Rosetta Stone, a translation layer. That's what identity does.

And we have the largest Identity Graph. And so whether you're an AI provider or a legacy provider, it doesn't matter. You need to have that translation layer that we provide. Second is interoperability. If you look at the companies that we work with, it's all over the map. It's every major cloud, it's every agency, it's all the major publishers, and we make things fungible across all of those companies so they can work together. Data Governance, super important in the world going forward.

Everyone knows that they need additional data, but they're all scared to death that their data will go into the public domain and become part of the base LLMs, be commoditized and used for their competitors. And so they are all requiring safeguards before they do any Data Collaboration. That's what we provide. And then finally, but really most importantly, it's scale. Like we're one-of-a-kind. And even all of our competitors, we power. And so that is incredibly powerful and a real reason why no one ever takes a run at us because the time it would take for them to duplicate what we've built just can't be done.

You can't put -- nor can you put a group of 20-some-year-olds in a room together and say, "Hey, build this using technology, because you actually have to go have the conversations with the gazillion different companies, earn their trust, put the safeguards in place. It's not something you can just immediately stand up. So we really like our business. We liked it a year ago. We like it even more going forward. Our margins continue to increase. Our revenue continues to grow. We're going to -- as we look forward, we think that continues, and we think it accelerates.

I would tell you my biggest disappointment as a CEO over the last year is the fact that last quarter, our revenue is growing at 9%, and it kills me because I know that the difference between 9% and 10% growth is like one client in a few million bucks. The difference between 9% and 10% growth to Wall Street and valuations is ginormous. And our eyes are firmly on being a Rule of 40 company and beyond. To us, that means mid-double-digits growth, 13% to 15% locked in quarter after quarter and much higher margins than we have today. We said we'd be Rule of 40 by FY '28, and we're going to get there by then, if not sooner. So that's what I got, and I'll turn it -- give you the clicker, my friend.

Good morning, everyone. So I will talk a little bit about our AI partnership and ecosystem strategy. And then I'm going to turn it over to Matt, who's going to talk about what this industry looks like as AI modernizes every workflow. So diving into kind of where a consumer is spending time, we are seeing kind of for the first time in a while, a massive shift in how consumers interact with the world, how they spend time online and how they think about the world. And so you see this today with ChatGPT, with Perplexity with all of the different AI tools, but you're also seeing this permeate into the B2B workflows as we think about Agentic Workflows across the board, new ways to buy and sell media, new ways to do creative.

And so we're really seeing a massive change here. And so at LiveRamp, we see this all as a massive opportunity to unlock new use cases. If you go back 10 years ago, LiveRamp's main priority at that time was how do we connect into social platforms, so Meta and Google. TikTok wasn't a thing back then. So it wasn't on our list. And open web, right? We talk about cookies and MAIDs. In a conversation in 2016, you would tell people how many cookies do you have? How many MAIDs do you have? I don't know how many cookies we have today because we don't even share that anymore.

We don't ever get asked that. That time has passed. In 2018, 2019, we started to see the rise of FAST and CTV. And we saw folks saying, okay, how do I get on the big screen? And then you had some players out there, and they said, we're never going to do ads. Netflix was famous for this. We will never do ads on CTV, we're a premium product. Disney was famous for this as well. 2022, May of 2022, Disney announced they're going to do ads. Well, Disney became a key part of our network. Disney+ is a popular node today. July of 2022, Netflix announced we're going to do ads.

We met with them about 1 month later. They hired a Head of Advertising. They said, one of our first priorities is we got to build an ad server. We don't know how to sell ads. We're like that seems fair. And then priority #2 was how do we bring in audiences and measurement. Today, Netflix is our fastest-growing destination. And so you had this wave of CTV. And then you had new social channels emerge. One of our top destinations now, TikTok who didn't exist a decade ago. influential, 1 in 3 Americans use TikTok every single day. They use it for an average of 2 hours a day. It's a lot of time on TikTok. And so as we look at the future, we see this as just another iteration of this journey.

Just as our ecosystem has evolved from 2016 to adding CTV in 2018 to 2022, we're now going to add all these AI nodes. And so Scott mentioned Google Shopping AI. We'll do a little deep dive into that. But as you think about Copilot, OpenAI, Perplexity, Graph, all of those are consumer surfaces that we are going to enable as nodes for our brands to activate, measure and collaborate. We see them as activation but also Clean Room nodes in our network. But then there's a couple of other names in here, Scope3 and Chalice. And that gets to -- we see the AI network is not just limited to search experiences.

By far, the most exciting thing here is that group on the top-left, those search experiences. We think those are meaningful and they're the most talked about. But there's all this other innovation happening in our network. So our brands are thinking about how do you change how you do creative. Creative is a really expensive process, right? You've got to take a product, you've got to A/B test it, you've got to have designers build it. We now work with a partner now who can take a picture of a product and make 10,000 creatives out of it in almost no time and then A/B test those in real time. This was not possible in the past, and they can do it for almost no cost.

And so you see all of these companies coming out in the AI-creative space. And so dynamic creative kind of rotating into AI creative. These are all destinations. As Scott mentioned, we have over 21 destinations available using AI today for our brands. We see that rapidly expanding. We think AI is going to massively change commerce. This may merge with those search experiences. You can now execute buys on ChatGPT. As we'll talk about with Google AI Shopping mode, we're seeing more shopping move to there. We're super excited about that. All of that signal for activation, but also for measurement and for Clean Room.

We're seeing a huge rise in Agentic Trading to us. Each of these would describe what they do a little bit differently. But what they're trying to do is redefine the media-buying experience. So today, whether you're buying a direct deal with a publisher or whether you're using a DSP, there's lots of inefficiencies. There's extra take-rates in there. There's extra people in there that are inefficient in that workflow. And so each of these companies is looking at it and saying, okay, I can make this step agentic, where a person picked up the phone today, call or bought a direct I/O, an AI agent can do that, and that can create this much savings.

Well, I can create the savings in a workflow and take the take-rate down. And so each of these are partners where our brands are sending destinations. We have live case studies here today. We're also seeing Measurement. Measurement hasn't been disrupted in a while, and it's ripe for disruption. And so we're seeing new companies. Newton Research is one that's going to be on stage later today. If you have a chance to see them, they're a pretty incredible company. As someone who has no data-science background, you can use their tool and make an impressive Measurement report. And so they are making Measurement available to everyone.

And they're doing it on top of clean-room technology like ours. And then you've got conversation tools. So we talked about the famous ones, the ChatGPTs, the Copilots, the Google AI Shopping. But you've also got all of these brands who are saying, well, hold on, if I'm an airline, people are messaging me every day, hey, what's my flight status, where is my gate? AI can answer all of this. What's the gate change? What's the flight status? Oh, you need to rebook, here's the next flight to your destination.

But you also have so much data the consumer is telling you. Am I happy that you rebook me to the destination? Or was it 3 days later and I'm really annoyed I'm spending 3 days in a connecting city? Well, all of that can then be translated by AI. In the past, a human would have to read them be like what's the tone? AI can take that, segment it. That's more data for activation, more data across AI. If you're running ads on Google AI Shopping and the consumer just had a bad experience on your chatbot on your website, we link those 2 things together.

And so we're seeing more tools like that roll out. This is the first iteration. I suspect next year, you're going to see -- we'll have to figure out how to fit it on the side, Wave 2 as we add more beachheads in our AI ecosystem. And real quick before I turn it over to Matt, I just want to highlight one of these kind of in reality. So Scott mentioned AI Shopping. This is Google AI Shopping mode. You're looking to find a suitcase. You can tell we all travel as all of our examples of travel on this.

But here, you are typing in a pretty long query. Again, the average Google term is 3 to 4 words. The average AI term is 12 to 14 words, so a totally different search term here and then promoting that. We have a dozen-plus brands using this today already. We have our first case studies coming out. This is pretty exciting. We plan to do this across all of the different LLMs.

And with that, I turn it over to Matt.

All right. So that's sort of the ecosystem side. But on the Enterprise side, what are our customers doing to augment how they do their marketing process, what their marketing stack looks like to do this. And so I tell this story when I first did it as an Eagles fan, the Eagles were still the Super Bowl champs. They're not anymore, but I'll still go with the Saquon story. And so imagine Saquon is in a marketing group at a company like Reebok, he has an idea. He's trying to gain some market share with a new product line, and he knows that the partners he needs to be able to execute his vision are the retailers who carry his products and competitive products and adjacent products. And so he has this campaign idea.

What he is going to need to do to execute this to reach out to all of these retailers and to say, "Hey, here's my idea, what data can you make available to me? Can I use it? Can I execute these queries? Listen, we've done a great job building a platform that enables this to happen that enables this brand to work with many different retailers who have this data then to the media ecosystem where these ads would run and get a feedback-loop. And the way we do this is we then make it easy for everyone to connect their data. We make it easy for everyone to put the rules about what can and can't happen in that data for them to be able to go back-and-forth and iterate on these ideas.

We then go and build our UIs, and we try to build the perfect 6-step wizards that will make it so that Saquon and his entire team can click through, do all these things and then someone on the retailer side, they have a different set of 6 screens for them to be able to do this or maybe Saquon is one of the handful of really, really sophisticated customers who can march in a software engineering team and say, I don't want to use your eyes, your UIs. I want to build my own 6-step wizards that are perfect for just our company. And so we'll all say that's going to be great because once they do, we're so embedded.

But the other side of us can say this is going to take a while, right? And I hope they don't miss a comma, because then it won't work when they go to build all this. And so when you hear us get really, really excited and talk about AI as a real tailwind for us, it's because all of that whole process, all of that friction, all of these UIs and 6-step Wizards and e-mails and phone calls were in the way of Saquon getting access to the data that he needed to be able to have this vision come to life. And so AI is removing huge amounts of that friction and accelerating how much data he can use to gain these insights -- and so here, we have certainly more than 12 or 14 words for Saquon to type this idea out, but it's certainly fewer than 36 Zoom meetings and attorneys and redlines for him to be able to type in and say, here's what I'm trying to do.

Can you help me? And so here, you can see this notion, and you may have seen this demo I did yesterday. But really what's happening behind the scenes to get a little bit geeky around it is he doesn't know this, but he's interacting with the first agent, this Orchestrator Agent who's saying, okay, I see what you're trying to do. I'm going to help you make a plan. And so here, this agent is coming back and saying, here's the plan I think you want. Here are the campaigns I think you're focused on. Here is the joint business plan summary that I'm looking at that gives me context as to what it is you're trying to do.

It then when said, great, I now know that there are 3 particular Clean Rooms where partners have made a bunch of insights to you. Now, Saquon, you don't have to go and call your analyst team and tell them that the next 2 weekends are canceled, so they can go and crunch all of this data. We'll go and summarize all of this. And you can give that analyst team, hey, here's a set of recommendations that it's -- that this data is telling us. Then it takes these insights out, and you'll notice this magical moment that's going to -- we think it's so magical today. I promise in a year, we'll all just take this as a given. That insights agent handed it off to a Segmentation Agent, right? Because an agent that's good at insights is going to be very, very focused and purpose-built there.

And then it's going to hand it over to a Segmentation Agent that knows exactly what to do with those insights. And so it moved on from there. Another really important piece of all of this is that as we build these agents, LiveRamp is not going to win because LiveRamp builds better agents than anyone else. That is not what's going to happen here. Much more, it is that what all of these agents need across that entire ecosystem that you heard Scott and Travis talked about is those agents need access to the right data. That is the most important thing here.

And that data is in our network, and it's connected with a layer of governance in front of it. And so it is much more that we'll let the ecosystem, be it Saquon's’ team can go build these agents, Saquon's’ partners can go build these agents. And so here in this example, we had our own -- we built a Reference Look-Aike Model Agent. But more importantly, you'll see partners like Chalice that you saw on Travis talk about in our ecosystem, building their own agents that access the data in our ecosystem. And so this is the paradigm you're going to see.

We're going to -- certainly, LiveRamp will -- in addition to continuing to build those 6-step Wizards, we will build reference agents that make it easier for users to do what they're trying to do in our platform. But also much more importantly, we're going to see our customers build these agents, and we're already watching this today. Travis talked about Newton. They've built agents on top of our Cross-Media Intelligence Clean Room. Measurement is a means to an end. There's 2 ends.

First, it's to go tell their CFO, you gave me this much money. This is what happened. I can -- you should keep giving me money. But really, the other end is it's for optimization. It is for, hey, did this work well or not? And what would I have to have done better? And so Newton being able to build its own purpose-built agents, this team is Measurement Experts. They've built agents that know how to pull the signals that come out of those Cross-Media Intelligence Clean Rooms -- and those Cross-Media Intelligence Clean Rooms can only exist because we were able to get -- Sakequan is able to go to his entire media plan, social platforms, CTV platforms and say, I need to be able to measure and query across all of your data at once.

And the only reason that these companies are able to say yes to that is because of the Governance that are in place, the rules that they're able to enforce and because that data is connected with that Foundational Identity. And because of that, that's a great ground for companies like Newton to then be able to bring and build their expertise on top of our ecosystem. And so this is why we're very, very excited is all of this using of this data and turning that data into value, what is mostly in the way is human processes. The amount of time it takes for e-mails and Zoom calls and redlines and AI is an accelerant that just allows you to use much more data and get much more value out of it.

So Matt, you just said we're excited. I will throw my editorial on, which is yesterday, Matt and I were on stage together. And it was kind of humbling because I probably had a follow-up conversation that went the same way 100 times, where someone came up to me and said, "Hey, I really enjoyed your presentation earlier. I said, well, thank you. And they said, Matt was amazing. And they always talked about 2 things. Number one is yesterday, he did this demo. It was a live demo. And what people were blown away with was that he did about 8 weeks of work in 8 minutes in front of everyone.

And it was like demonstrating the processes that literally every marketer in the room has been doing for 30 years with armies of people, and he did it in 8 minutes. And secondly, we had a bunch of tech platforms in the audience, ranging from agency partners like Publicis to major DSP partners to a lot of the big cloud providers. And the thing he said that about enabling creators is a new thing for us because for a decade, our users have been captive to LiveRamp technology. They've been constrained by it. And now we're saying, you build whatever you want around it on top of it using our APIs. And so already, those partners are seeing opportunities to work with us in ways that they never thought was possible before.

Yes, it's a great tailwind. The -- it allows us to say we are open for builders, and it is drastically lowering the bar for who can be a builder, right? There's always been that sort of middle segment in every company in LiveRamps and every one of our customers and every one of our partners. You have the business and salespeople all the way at one end. You have the software engineers all the way at the other end, but there's that huge group in the middle of those people who are better at Excel and Excel formulas than anyone else. people who can think analytically in a data-driven way, but they couldn't actually build real product. That's changing. That whole middle group now can actually produce things and those things that they're going to produce need data. And so that's a great tailwind for us.

And so in order for all this to work, this is why fundamentally, that differentiator that we have, our moat is the network. And so us basically telling the world, the agents, that Agentic Workflow that you're imagining, the data it needs is available. It's available programmatically, if it's able to get it. But it is only there and available. That network -- we've only earned the right to that network by being able to connect it with Identity, it only matters -- data from disparate sources only matters if you can join it. It only matters if you don't have to first say, all right, which cloud or which data schema format should we use? Those are blockers. And so we've abstracted away those differences. It doesn't matter your cloud, doesn't matter what your data stack looks like. It all just works.

And the only way people are going to connect it is with Governance. If we can guarantee or those teams can guarantee to their leadership team, to their legal and privacy and Governance team that the only thing that will happen with our data is exactly what we said we can. There are technical guarantees that prevent anything else from happening. So this doesn't have to be because there's a contractual relationship. It doesn't have to be because there's a neutral third-party Switzerland that everyone trusts. Rather, there are technical guarantees that the only thing that occur is what everyone handshook and said, this is -- we're okay having this happen.

And because of that, we have the Network Scale. We get to say the retailers who have the data you want are connected to our network. The place where this campaign will run is connected to our network. And so we can put all of these things together. And so I can't wait to be sitting here a year from now where we can all think back to some of these things and say, remember when we were at the beginning innings of all of these things because it is going to be amazing to watch how much more efficient and how much -- how many greater outcomes our customers can get from the potential of data. Everyone's always known there's more potential in the data. We're just limited by how many minutes there are in a day to extract it, and that ceiling is growing unbelievably.

I wanted to ask, you spoke a lot about what you can do with your data, what you can do on the back-end with all these new AI tools. And clearly, you've embraced that. I guess there's still a lot of worry on our end as investors. What's the entry point to the Internet now? And how are we capturing the user with this -- if people are moving to one-click shopping or their first stop is OpenAI or Gemini or whatnot, is that still allowing you to capture that interaction? Or is the Open Web just going to die and it's going to be difficult for you to do that?

Yes. I can start out on this one. I think the Open Web is going to evolve. So I think if you look at the Open Web today, you are definitely going to see disruption in the search-side. So, as Scott mentioned, we're in conversations with all of the major LLMs at this point, including OpenAI around how that does. We are one of the partners with Google AI Shopping mode. So that is an LLM-driven workflow that we are powering with data today. So I think our view is it's going to really disrupt search, but we're going to power it just as we power search today. Google Search, Microsoft Bing, Yahoo! -- are all top destinations of ours. We believe that AI-search will be the same. I think the other thing it's going to do is it's going to cause the evolution of the Open Web, the evolution of kind of CTV and social.

And as the ecosystem disrupts, I think we are super well positioned for that. So we have over 300 different ecosystem partners today that we actively work with. If that becomes 500, that reinforces our Network Scale and our Network Moat. So for me, I think the disruption of the Open Web, like there's definitely going to be some websites that don't exist a few years from now. I think it's actually going to be good for consumers. We're going to see a more premium Open Web. We're going to see a better one. And I think we're going to see LiveRamp really thrive as we connect all of the different sources of kind of consumer-content out there.

Complete non-sequiter, but I just want to say it. One of the great things about working at LiveRamp is I think we have amazingly talented and committed people. And this man to my left, Travis, he is here at RampUp and he's having a gazillion meetings. Tonight, he's getting on a flight, taking a red-eye to Mexico, so he can get married on Saturday. So he's very unpopular with his future spouse, but I love this guy.

This is Shyam Patil, Susquehanna. So I wanted to follow up on Amit's question because it is probably the main question that we're getting from investors. If we kind of assume that the Open Internet does get displaced, I know you said it's going to evolve, but let's say it does get displaced and a lot of the traffic activity happens within AI Walled Gardens or Walled Gardens. Can you maybe share more specifics on how you guys will maintain your value prop and continue to operate in that environment? And the transition from here to there, is that something you feel like you figured out? Or could there be some pain along the way? If you could talk about that, that would be great.

I think 100% is something we figured out, Shyam. It's one of the reasons that starting a couple of years ago, we started to move to a usage-based pricing model, particularly for new clients because we think this is going to be a tailwind. And it may be that the way we think about activations really changes because what's going to be the case is all of the AI activity is going to burn even more data. And so by moving from a -- to a usage-based pricing model, it allows us to participate in that upside. We have seen for the last decade, as you know, like the tide has always risen. But underneath that, we've had a glimpse into who the winners and losers are going to be. So we know when Meta is going to have a great quarter or a bad quarter before they announce it because we see where the data is flowing.

And so I do think that we're going to see social continue to soar. We're going to see CTV, which cannot be replaced by agents, continue to soar because just Netflix is better than going to broadcast. Kind of the comScore 50 open web publishers, they're going to be the ones that really have to rethink their business. And we know already 50% of their traffic is nonhuman because they're getting scraped all the time and their content is going into the LLM feeds. And as consumers increasingly use the LLM as the starting point for their journey as opposed to going directly to that comScore 50 publisher, there will be a disruption in traffic. I suspect that group may lose.

But again, like we feel really good because the explosive growth that's happening in AI and not just in terms of where the -- where someone's consuming -- consumer is looking at content, but also in where the work happens. So it could be the dynamic creative. It could be chat. It also could be like the search stuff that travels. Each one of those 6 categories will contribute to our growth. So we feel really good. We feel also, though, that we need to start to publish a metric out to you that shows that adoption. In our last earnings call, we did some back of the envelope math and estimated that about 10% of our data now is going to AI applications. And probably more so to things that you've heard of like a Google, who's just replacing their existing algorithms with AI than some of these Greenfield Applications. But we'll harden that metric, and we'll start to report back. And I don't know if that will be the exact metric, but we want to show to everybody that we're benefiting from that AI such that we can just take this worry off the table.

I can add 3 stats here to just add a little bit of context. If you look at our top 2 destinations, none of them are Open Web. So like today, the Social, CTV. Our top 50 destinations, 70% of those are CTV. And if you look at our fastest-growing destinations, we have things like Netflix in there. There's not a single open-web property in there or open-web DSP. So today, when you look at the growth of our network, there's definitely DSPs in there. I don't want in any way to diminish them, but they are not the part of our network that our brands are most interested in or the growing part. Brands are focused on Social, CTV, and as Scott mentioned, the new emerging AI destinations. That Google AI Shopping mode got a dozen customers in just a couple of months.

Well, even in the DSP space, again, we can see who the winners and losers are going to be. And I will tell you, the winners are the folks that have a lot of data. And then they're looking to us to supplement that. So like why is Amazon growing so rapidly? It's because they have a data advantage. And so you will see a mix-shift in the DSPs, and you're already seeing that play out as they announce their results.

Can I just add one, you just talked about some of the social platforms where spend is going. even as Travis talked about, we've always sent data into Meta and kind of some of the social platforms, but some of that spend kind of goes to Meta Advantage or TikTok plus us or Google PMax. We have a value proposition as spend goes to those AI-driven platforms. We're able to connect our data from the network. There's models built in that to create like a scoring that actually influences the bidding decisions in those platforms as well, which is available through us because the data comes from us into those platforms as well as you actually have to measure the outcome.

And those platforms can't measure the outcome. It only happens off platform kind of through our network. So we can both influence how the spend happens in those -- where those big dollars are kind of going as well as measure the outcome and optimize the next step in the whole journey. So the whole point is that we'll have a continued growing role even if kind of spend continues to kind of grow in those platforms.

It's Mark Zgutowicz with the Benchmark Company right here. Scott, you talked about an expanding AI Ecosystem. And I'm curious if there's a linear relationship to that expanding ecosystem to revenue. Meaning is there incremental data that you get usage that you'll be selling as these expand? Or are these incremental AI partnerships just going to be table stakes? And -- or are there other subscription tiers that can evolve here as well as you expand your AI Ecosystem?

Yes. We think it's going to expand. If you saw me speak yesterday, I had -- I talked about how data models are built in one section. And it always looks like an S-curve that when you start cooking data, you get very little lift initially until you get to sufficiency, in which case, you get a massive performance improvement, but then you start to flatline because the incremental piece of data just duplicates what you already know. And this is the problem with the LLMs is they are all built on publicly available data. And so they've already started to reach the limit of how effective they can be.

And I had a quote from Satya Nadella, who talked about this, but Larry Ellison has talked about it. I mean the CEO from Databricks has mentioned this as well. Everyone is seeing this play out. And so there's a war. It's a war for signal because what everyone recognizes is the best data isn't the stuff that's in the public domain that's commoditized, it's available to everyone. It's all the stuff that sits in the private domain. And so if you can control the usage and limit it to enterprise use as opposed to allowing it to go into the public LLM, there's a tremendous opportunity here.

Think about it as the fuel that feeds all those AI models. And so like when we talk about the growth of AI, like for anyone to think that, that doesn't mean the entire private data sector is the biggest beneficiary, like that's the only reason the LLMs work. And so I think in ways that we probably can't even anticipate right now, like I don't know like in measurement versus search versus chat, which one of those is going to take off most rapidly. They're all showing explosive growth. And my guess is it's going to be a decade of crazy growth driven by AI.

Aaron Samuels from Susquehanna. I had a question yesterday at the keynote, I think Matt and Scott, you had the 3 things that are going to change or evolve in the future. And one of them was the Data Marketplace going from licensing Audience Segments to predictive -- licensing the models to do Predictive Audiences. And then it kind of ties into what Dave was saying about how you can measure in the platform, even if the spend goes into these platforms, you're still involved. I'm curious how that changes financially, how that -- how you charge for that, how that accelerates the business? What does it all mean really strategically?

Yes. I'm happy to start. The uptick in the marketplace is additive. The business that we have in the marketplace today, the predominant usage of people licensing or getting access to segments of users that are good acquisition targets for them that they don't have already in their own system, that is not going away. That is healthy and growing or people licensing data conversion signals for measurement if all of the conversion for their product doesn't happen in their own store or app. And so they need to use a partner to get access to that data. That isn't going away. That is growing and healthy. These are just new expanded use cases that we haven't had historically or I should say, happened in very, very small pockets versus something that was becoming much more mainstream and is a category worth even talking to you all about, which is, hey, now I might want to license data simply to train or tune a model.

And maybe that's in marketing use cases and maybe it's beyond marketing use cases or the licensing no longer of a dataset, but of a model itself. I may -- I have a particular new product category, and you can look at this in health care, in financial services, in automotive, where I think I know who I'm trying to reach and rather than get a list of 10 million identifiers to say, "Hey, why don't you go show them this offer? I'm much more interested in someone who has built and trained a specific model for what it is I'm looking at, and I want to license that model for a variety of use cases.

Or you saw the likes of Chalice and Newton. -- maybe I don't have a Data Science and an Engineering team myself. I don't know what to do with the model. I actually need the whole application that is powered by a model. I still need a 6-step wizard. And so someone being able to just more easily go in and license that application. And so in the end, it all ends up still just being utilization and usage based of the underlying data. These are just new consumption modalities that make it easier to meet our customers where they are. And so again, these are just expanded use cases.

And from a pricing perspective, similar to how we price Data Marketplace utilization today, it's a take-rate paid to us by the data provider or seller of that data. And so maybe to connect to Mark's question, I think our Data Marketplace is where in the near term, there should be a very linear correlation between kind of AI usage and revenue growth.

Clark Wright, D.A. Davidson. I wanted to touch on identity and your guys' Identity Graph. As we think about -- the prior questions have really been asked around the consumer-interface piece, but understanding the changes that are happening to identity and who is you. A lot of the conversations I had yesterday with customers were trying to understand how your guys' Identity Graph is inherently changing in order to account for that change. I would love to understand your guys' thoughts on that matter.

Yes. I'm happy to go first here. There's 2 pieces to it. One is Identity is always a means to an end, right? The end-result of Identity, resolving Identity or finding out who you is doesn't accomplish anything. You're doing it for a reason. You're doing it to impact personalization, to impact Measurement, what happened. And so that is the outcome. And so what all these surfaces need, whether it's a closed Walled Garden, whether it's a Social Platform, they don't have all of the information in order to get to that personalization and in order to have it be measurable, whether that is a person or whether that is an agent on their behalf.

And so our Identity Graph in and of itself, it isn't changing beyond us just having far more signals that are getting fed into it. The thing that's changing the most is it used to be that the way we power this entire ecosystem, is by making sure we can have all of these identifiers be joinable, so that on that surface, someone could go do that look-up to do that Personalization or add that row to that log that would resolve later for the purposes of Measurement. It is just now how much more information beyond just the identifier that can get passed around. And so this is where you see industry standards emerging.

And so you've heard us talk about what we used to call User Context Protocol. It's now Agentic Audiences, which is something that the IAB is powering. We developed it and gave it to the IAB to push for industry standards. And that is around how the ecosystem can now be passing more than just identifier signals to add far more context to lead to that more Personalization and to that Measurement. And so it's less about what are the rows and columns changing in our ID graph, and it is much more in addition to the ID graph, what other context signals can get passed around in a governed way, and that's what's evolving the most.

Alec Brondolo from Wells Fargo. I think a lot of what you guys demonstrated today is improving the ease-of-use of the tool set. I also think that you've implemented a new pricing model that's supposed to lower the barrier-to-entry for new customers. Scott spoke to a 13% to 15% growth, I guess, aspiration. Can you maybe help us think, could new customer growth more significantly contribute to that 13% to 15% than it has to growth over the last several years?

Yes. And I'll just -- I'll clarify because what we've stated publicly is 10% to 15% revenue growth. I think, Scott, just kind of upped to the ante, but in the near term, we're targeting to get back above 10%. And as we mentioned on our past earnings calls, we think we've got clear line of sight to that in the near term if we can continue to execute in the way we have over the past handful of quarters. To your specific question, I do think New Logo has the potential to be a much bigger growth-contributor in the near-term than it has been over the past handful of years. In our most recent earnings call, we talked about net new logo growth or Customer Count increasing pretty meaningfully, and that was a nice trend-change from what we've seen in prior quarters. That was in part driven by the new Pricing Model, which introduces a lower upfront fixed cost and is particularly appealing with mid-market customers. So if that continues, we do expect New Logo to be a more meaningful growth contributor.

Good morning, and thank you, everybody, for joining us at the TMT Conference. My name is Lucas Cerisola. I'm on the U.S. software equity research team here at Morgan Stanley. I'm here on behalf of Elizabeth Porter. Today, I have the pleasure of hosting LiveRamp's CEO, Scott Howe; and CFO, Lauren Dillard, Welcome, guys.

And before we get started, just a few disclosures for more disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please direct them to your nearest Morgan Stanley sales representative. And with that, thanks for joining today.

Thank you for having us.

And a shout out to Elizabeth if she listens to these, we miss her.

We miss Her as well. So for those who aren't as familiar with the LiveRamp story, give us a quick overview of your business and your customer base.

Yes. We were about $800 million in revenue. We work with a huge slice of clients, most of whom you've heard of, and they use us for data collaboration, i.e., how to take data that they or others have and use it at the moments that matter. And so that includes big destinations, the likes of which you're all familiar with, Meta, Google, Trade Desk.

Increasingly, I think what's interesting is it includes a rapidly growing array of AI applications. And so what's interesting is we're one of the rare software plays. It seems like the market is hammering all of software, but we love AI because we catalyze it and we should benefit. It should be a real tailwind for us.

Awesome. That's super helpful. And this week, you're hosting your user conference RampUp. What are customers most focused on right now? And how are you positioning LiveRamp to better align with those trends?

Yes. So RampUp is like 5 blocks away from here in San Francisco. And if any investors want to swing by, you're more than welcome. We'll have a few thousand clients and partners there. And my guess is a lot of overlap between other companies in which you may be interested. So it tends to be a couple of great days of content. We're rarely on stage. We put our clients and partners on stage because after all, what we do is run a data collaboration platform. And so it's a chance for them to share their insights and observations with one another.

As probably comes as no surprise, Lucas, the big theme this year, it's AI, AI, AI because all of our clients and partners are impacted by it. And if I think about the market overall, we really see the impact of AI happening in 2 important areas. One is AI is shifting consumer behavior. And so the way that each of us as consumers interact with content is changing. Many of you, like me, probably don't go to search as your [ NAV page ] anymore. Maybe you're using ChatGPT or Anthropic, something like that and using that to find information.

And so consumer behavior is shifting. At the same time, marketing and company behavior is shifting. The way work gets done is transforming from very automated, unchanging to increasingly agentic, the concept of agents automation. Now regardless of whether we're talking about door 1 or door 2, there is a tremendous benefit for LiveRamp there because all of that AI activity to perform well, it needs data. And anybody can harness the data available in publicly available models, but then your performance is no better than anybody else. It starts to flatline after a while.

What differentiates all of these models is inserting private data into them, first-party and second-party data and enter LiveRamp because that's been our business for the last 15 years. We're -- we have kind of 4 things that we do, Lucas, as you know. And number one is we help companies figure out identity that makes disparate data sets usable and it allows you to co-mingle data. That concept of identity, hey, Drew, becomes more important in the world going forward because in AI. I mean, who wants a nameless, faceless algorithm making decisions about them, you need to give consent. You need to have deterministic identity that plays to our strength.

The second big piece is interoperability. We work with virtually every destination, every major marketer. Our share of wallet is still far from what we'd like it to be, but that interoperability allows data to be utilized at any AI application at any destination or you can ingest data from one of your partners as well. The third piece is data governance and it is so important in AI. I read a stat recently that 50% of traffic on major websites is coming -- 50% plus is coming from nonhumans. And publishers are concerned that some of those AI agents are scraping their sites, stealing their content and not giving them any compensation for it.

Well, if that's the case, it stands to reason that everybody in the industry is equally paranoid about is their data being safeguarded. And so to use AI appropriately, you need to have a clean room, you need to have the right data security in place, and that's what we offer. And we do it all at scale. And that's the fourth thing and probably the most important thing, we are the scale leader. We work with everyone in the industry, and that's super defensible because whether you're a buyer or a seller of data, whatever you're trying to do, you want to work with us because we have the most partners that you can do it effectively with. And those partners, as I mentioned earlier, increasingly include a bunch of AI applications.

Very interesting. And in the landscape, AI agents have become very popular. And you recently launched an Agentic orchestration platform that positions LiveRamp to enable AI agents to access identity, segmentation and measurement in a governed way. What are you seeing in early use cases? And how differentiated is this versus what clean room competitors are building right now?

Yes. For us, it's another step in a journey that's been underway for well over a decade because if you have data, having the data itself isn't useful. It's actually being able to activate it in the places that matter. And so as these AI applications take flight regardless of who's creating them, they're hungry for data. And so if our most popular applications historically have been Google and Meta, probably in a decade, it's going to be more of the AI applications. And we're already starting to see that.

We have over 20 AI partners active. About 1/3 of those partners are what I would call greenfield AI. They range from companies you've heard of to some of you haven't. There's a company called Chalice that does AI data segmentation on top of our stack. Everything is through APIs. There's a company called Scout that does a Agentic AI buying, Scope 3, Agentic AI buying. And then 2/3 of them are companies that you've heard of. So as an example, Google has AI shopping. And if you want to go to Google Shopping and turn on AI, you get a better result.

And we have a dozen clients that are kind of the alpha or beta partners in that effort already. And I expect our entire client portfolio will turn that on over time. Likewise, a company like the Trade Desk, so much more of their decisioning in terms of who gets ads will be done by AI in the future as opposed to legacy algorithms. They're a major partner of ours. And so we'll consider that an AI activation. And so that's really starting to take off. And again, I think it gives us a tailwind. We've never been a seat-based model.

And increasingly, the way we charge clients is usage-based. So the trends that are rattling the markets are kind of crazy. Lauren and I look at what's going on in the broader software market, and we scratch our heads because as people take the time to understand LiveRamp, they will see that we should be a major beneficiary of these megatrends.

Completely agree. And you've also expanded the data marketplace to include AI models and training data sets. How do you envision that evolving? And could this become a more meaningful revenue stream? Or is it more of a complementary capability?

Yes. And I think to Scott's point on kind of orchestration being just a natural evolution. I mean we also see this as a natural next step for our data marketplace. For those of you who are less familiar with LiveRamp, in addition to our core platform or Subscription offering, we also operate a data marketplace. So think about this as a virtual marketplace and Apple App store for data, if you will, that enables our marketing customers to buy data from third-party data sellers to basically enhance or refine their ad targeting efforts.

The model here is we take a transaction fee or rev share on each transaction paid to us by the seller. And for reference, our data marketplace has been growing high teens over the past several years and now represents about 20% of total revenue. So from that position of strength, we're excited to expand our marketplace to include data licensing for AI model building and training as well as the licensing of AI models and agents themselves.

We think this transforms our data marketplace into a centralized hub for AI-enabled marketing and importantly, it should allow customers to really easily and seamlessly kind of bring AI capabilities to bear. On our most recent earnings call, we gave a couple of examples of this. So we have a gaming customer who is licensing data off our marketplace right now to build a model to predict in-game behavior, which is allowing them to better tailor and personalize the in-game experience for their users.

Scott mentioned Chalice, they will be on stage with us at RampUp. They're also licensing data off our marketplace to kind of build and provide models that allow for better audience segmentation, specifically for customer acquisition. So we've seen some kind of real-world examples that give us a lot of optimism for kind of where this could go.

Great. And shifting gears to product depth. You have clean rooms, CTV and Cross-Media Intelligence across your product portfolio. And touching on the clean room specifically, they sit increasingly at the center of the privacy safe collaboration. How is clean room adoption changing the way customers expand across the broader LiveRamp platform?

Yes. If I think back a couple of years, clean rooms really enabled data collaboration in the retail and commerce media space because if you're a packaged goods provider and you want to collaborate with, say, a Walmart or an Amazon, you want to have a clean room such that your data is protected. Likewise, if you're a retailer, you want to have a clean room, if you're at Albertsons or a [ Roundel, ] you want to have a clean room.

So your audience is protected from your merchant partners. And so clean rooms really started to become a purchase essential at that point. Serendipitously, what we realized through the explosive growth of AI is our presence in clean rooms was equally essential there because no one but no one trust one another. Everybody thinks that their data is a unique asset, and they're right. And so they want to protect it from being misappropriated by whether it's a technology partner or an AI technology, clean rooms keep it safe.

And our advantages that I talked about earlier, whether it be identity or interoperability or scale are super important in clean rooms because by virtue of spinning up a clean room, you're basically telling the world, hey, you want to work with different partners. And so by virtue of working with the scale leader, it's much easier to make that clean room work with the destinations and the partners that matter.

Got it. And then CTV, this now represents a more meaningful portion of marketplace revenue. And as CTV buying becomes more automated and identity-driven, how important is that channel in reinforcing LiveRamp's role in AI-enabled workflows?

Yes, it's a great question. And we see CTV driving our business in the near term in a couple of areas. So first is, as you mentioned, Lucas, our data marketplace, where TV data sales today represent 20% to 25% of the data volume through the marketplace and are outpacing the growth of overall data marketplace revenue. And then the second, and Scott's touched on this a little bit today, but CTV is driving an increased need for brand customers to collaborate with publishers, whether it be for the basic use case of ad targeting, but also increasingly measurement and specifically cross-channel measurement.

So today, roughly 70% of our largest integrations or destinations as measured by data volume are either pure-play CTV providers or media platforms where CTV can be purchased. A year ago, that number was closer to 50%. So I think that really does speak to the growing importance of CTV nodes in our network.

Definitely. And on Cross-Media Intelligence, you launched this offering about a year ago with a few marquee customers. What does adoption look like today? And when customers layer this capability on top of connectivity and clean rooms, what kind of uplift or stickiness do you see?

Yes. To me, AI is about a battle for signals that the smartest companies are going to emerge as the winners. And so too often when you think about signals, people are thinking about their own CRM first-party data. But the other side to that is whenever you're activating data at a destination, you want to get back some measurement capability, the measurement signal back to describe did it work or not.

And if you're like most advertisers or marketers and you might be activating across dozens, if not hundreds, of different destinations, having an apples-to-apples comparison of which techniques are working and which are not, so you can optimize to the things that are working most effectively or start to think about what is the recipe of different techniques that's going to work most effectively. Well, that becomes really important. And so our Cross-Media Intelligence capability, we've gone out and not only do we activate at all these different destinations, but we also bring signal back.

And so that's a capability that more and more of our marketers are starting to embrace. And we think in an AI world, in a CTV world, it's going to be more important still. That said, we're in the early stages. It's crazy to me. There's been so much over rotation to AI that last year's flavor, CTV seems to be forgotten. Well, if you want to do audience targeting on Netflix, you got to work with us because we provide the technology underneath Netflix, great company.

And yet we still don't have all of our advertisers activated on even Netflix and bringing back measurement signals. So we look at that as a real area of continued growth for us and one in which, quite frankly, the CTV providers, like I don't see a world where that's replaced by an agentic agent. If you want to watch content, you're going to Netflix, you're probably not doing it through your agent. So I really like that as a vector for growth for us as well.

Great. Let's talk about pricing. You're shifting from fixed subscriptions towards a more usage-based model tied to data activation and platform consumption. What customer behaviors are you trying to drive with this change? And as we lean further into usage-based pricing, how should we think about net retention evolving?

Yes. I'm happy to take that. And Scott mentioned it earlier, but I think it bears repeating. We've never been a [ seat-based ] based model. Our pricing has always been tied to data volume across our network. And with this new pricing model, we're trying to drive a couple of different behaviors depending on customer type. So with existing customers ultimately, we're trying to reduce the upsell and cross-sell friction. So the new model introduces the concept of a usage token that can be used fungibly across our product suite.

And hopefully, that enables customers to more easily explore, identify and attach new product capabilities or use cases available through our platform. The tokens are also valid across an entire 12-month contract period as well, which is a change from our previous model. We've had a couple of really nice customer wins with existing customers, transitioning them to this new model. We've talked about American Airlines and McDonald's on recent earnings calls. And both of them were really drawn to the flexibility that the new model enables for them.

And then with new customers, we're introducing a lower entry price point and the option or flexibility for a less fixed, more usage-based structure should they choose to opt into that. We're finding that, that is particularly appealing with midsized brands as well as media platforms and data providers whose models are just inherently more variable. We've been in a pilot for this new model for the past 6 months. We've seen a lot of traction, specifically with new logo -- a new logo acquisition. And in fact, in our most recent quarter, we reported a nice tick up, and you noted this in net new customers, in part driven by this new model. So early signs are really encouraging.

That's really exciting. And then zooming out a bit, you've outlined the $13 billion TAM today in data collaboration for advertising with a path towards a $35 billion TAM as you move into new channels and verticals. If AI increases how frequently and deeply data gets used, does that accelerate TAM expansion beyond these original assumptions?

Yes, we think so. We're not unique in -- I would say we saw AI coming. But even a year ago, when we talked about those TAM numbers, that didn't really factor in AI. And we think AI is just going to fuel more and more data usage. And to the extent that we have usage-based pricing, that's really good for us. And so I think it accelerates our path to growth. We've been following kind of a Rule of 40 mantra. We talk about it all the time. We pay our people that way. And part of that Rule of 40, the most important part is double-digit top line growth. Last quarter, we're at 9%. I think this gives us greater conviction that we will get back to strong double digits.

Got it. And that's a great segue to my next question around the Rule of 40 goal that you have in mind. Last year, you delivered a Rule of 31 and have outlined this ambition to get back to Rule of 40. What are the key pillars that get you back to 40?

Yes. And starting with the top line, and I think we see a path to getting Subscription revenue growth back, as Scott mentioned, to kind of high single, low double digits in the near term. And that's going to be driven by a lot of the things we've talked about today, whether it be the cross-sale of our clean room or AI catalyzing greater data volume across our network. And then from a new logo acquisition standpoint, we just mentioned kind of the new pricing model.

We think that in combination with some very targeted changes we've implemented over the past year, 18 months with our sales force should continue to allow us to grow our customer base. And then data marketplace. So as we mentioned, that business has been growing double digits over the past several years. We expect that to continue over the next couple of years and hopefully over the long term as well. We think we've got a large runway here, especially as we expand the use cases for our data marketplace to include AI as we just discussed.

And then on the margin front, I think we've got a really strong track record of driving margin. So in this year alone, we'll deliver 4 points of margin expansion. We see clear line of sight to a similar level of performance in fiscal '27. We've got an offshoring initiative underway that's unlocking a lot of cost efficiency. And then the continued use of AI in our business to unlock productivity and especially in engineering should give us dollars that we can either drop to the bottom line or reinvest for future growth. So I guess a long way of saying we're on track to be at Rule of 40 by fiscal '28, which is the commitment we've outlined.

Yes. And the one thing I'd add is one of the greatest margin improvements comes from our ability to increase our top line because as a network-type business, our marginal profitability is off the charts. Our fall-through rates are extremely high. So as we do better on revenue growth, we do disproportionately better on margin expansion.

Got it. And then one of the things that Morgan Stanley is most excited about for LiveRamp is embedding more AI directly in the platform to then expand customers to more nontechnical users, and that should expand the customer base. So where do you believe LiveRamp needs to invest further to facilitate that expansion?

Yes, I think you just hit it, which is to be a network business, you got to serve the entire network. And historically, we've been really good with a very sophisticated both clients and partners, companies that you've heard of. But some of the growth going forward has to come from smaller advertisers. An example, we work with Uber up the road. Well, for Uber to really take advantage of its data and its customer relationships, it's got to extend their insight to its universe of Uber Eats partners. Well, for every McDonald's or Burger King that is a major Uber Eats partner, there are a number of smaller restaurants that are regional or even local.

And so to the extent that we can make LiveRamp intuitive and simple, easy to use, we're going to attract a legion of new partners. And even if those aren't major revenue drivers, and they will contribute to revenue, they contribute disproportionately to the density of our network. By bringing on those SMBs, we make the experience better for Uber. We make the experience better for our payments partners, whoever works with SMBs or companies that aren't in our network today will benefit from our ability to build more network density over time.

Great. And then speaking about partnerships, you announced the extended partnership with Publicis beyond simple connectivity to encompass your broader platform. What friction points still exist today? And what has to improve to unlock further partner-driven growth?

Yes, Lucas, it's interesting. If I think back over the evolution of LiveRamp's history, for a long time, since we invented a category of data collaboration, we had to spend a lot of time educating, evangelizing, teaching our clients and partners how to use our products. Increasingly, what we're realizing is there's also an opportunity as they've gotten smarter to work with other intermediaries major tech platforms and allow them to build using our composable pieces of our platform.

And so Publicis is a great example of that because the technology that they're building to automate the way an agency works actually is fueled by our platform. And so look at this as the first of potentially many, we hope, many of these kinds of partnerships because what we did with Publicis, we can do with every other agency. We can do with every major DSP. We can do with every AI tech platform.

And so I talk sometimes internally and people kind of glaze over when I talk about Intel Inside. Those of us of a certain age remember that Intel prided itself on being a key component of a whole bunch of partner technology. Well, that's who we are. We don't necessarily need to be out in front of the stage. We can be behind the curtain and our partners will grow for us. And Publicis, again, coming back to that, great example. The ability for them to bring us clients, we get paid through usage-based pricing. In this instance, when they use us, someone has to have LiveRamp paper, but I don't envision that always being a requirement. That will make it easier for us to attract new clients because our partners will be doing the selling for us.

Let's go back to the broader opportunity set as you expand beyond your core retail strength into verticals like health care and the public sector, what are the biggest execution challenges that you face?

Oh gosh, it's a timely question because later this afternoon, I'm going to a health care conference here in the city by one of our partners, Schafer, who invests only in AI and health care. Typically the convergence of the 2. And as you can imagine, as we expand into some of these new verticals, there's an opportunity for us to parlay our strength, which is -- one of which is data governance, another of which is scale. So to the extent that the things that other regulated industries need is to consume massive amounts of data, make sense of it and activate it in the places that matter in some of those industries, the whole concept of data governance is even more important because it's sensitive data.

And so in health care, it's HIPAA, I mean, there are also things in financial services. They play to our strengths. And we're already finding even in generic categories like retail, increasingly the business that we serve started out being retail advertising, but increasingly, it's operations. People are using our data collaboration platform to think about how do they merchandise their physical in-store inventory more effectively. So we didn't call ourselves an advertising collaboration platform. We're a data collaboration platform. And we think that there are opportunities well outside of our traditional advertising and marketing strengths.

Great. And one last one to wrap us up. We've seen a lot of disruption over the past decade. What has made LiveRamp resilient over that time frame?

Oh, I think more than anything, it's our ability to transform complexity into simplicity. And if I think about Lucas, you at Elizabeth's time here, people were scared about this cookie deprecation, is that going to change the industry? COVID, is that going to change the industry. CTV or the invention of new IDs, is that going to fundamentally change the industry.

And the one thing that is always the case is that despite all this disruption, data matters that smart companies make better decisions than those that don't have the data. And if you want to do something with the data in a complicated world, LiveRamp is your best partner to do that because we have such experience with all the destinations that matter, with all the data sources that matter and with all of the regulatory complexity that increasingly matters. All this to say, we think everybody in the world should be using LiveRamp.

Great. Thank you for the insights.

Thank you, Lucas.

Thank you. Thanks for having us.

[ Thanks everyone. ]

Thank you.

Thank you.

Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2026 Third Quarter Earnings Call.

[Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Drew Borst, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining our fiscal 2026 third quarter earnings call. With me today are our CEO, Scott Howe; and CFO, Lauren Dillard.

Today's call and the earnings press release 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 investors.liveramp.com. Also, during the call today, we'll be referring to the slide deck that is also available on our IR website.

With that, I'll turn the call over to Scott.

Thank you, Drew, and thanks to everyone joining us today. You'll hear 3 main themes during my remarks today. First, our business continues to demonstrate durability, predictability and scalability as evidenced by our solid performance in Q3. Second, AI is a tailwind for our business since we provide critical foundational infrastructure that allows our partners to utilize AI more effectively. And third, our focus on Rule of 40 is unwavering, and we intend to achieve membership in this exclusive club in FY '28.

Let's start with the quarter, yet another proof point of the durability, predictability and scalability of our business. We delivered a solid third quarter with revenue and operating income exceeding our guidance for the 11th consecutive quarter. Overall, our team is executing well, and we made notable progress with several key growth initiatives, including expanding our data marketplace to include AI models, agents and applications and strengthening our go-to-market by expanding our usage-based pricing model to reseller customers. More on these in a minute.

First, let me hit the highlights from Q3. Q3 revenue growth was 9%, inclusive of a 4-point acceleration in Subscription revenue also to 9%. ARR increased $11 million quarter-over-quarter and 7% year-over-year, driven by use cases for Commerce Media, CTV and cross-platform measurement. Total customer count increased by 15 quarter-over-quarter, the largest increase in more than 3.5 years, and our $1 million-plus customers increased by 8 to a high of 140. In Q3, we signed several million-dollar-plus upsell deals, including with the world's largest e-commerce retailer, a major social media platform and a leading QSR. The deals were mostly for expansions for connectivity and clean room insights. We had record quarterly operating margins on both a non-GAAP and GAAP basis and record quarterly free cash flow. We continue using the bulk of our free cash flow for share repurchases. Clearly, there was much to like about the Q3 results, and we'll provide additional details.

While the quarter's performance highlighted our durability and predictability, I'm bullish on the future. In contrast to what Wall Street may believe about the software sector overall, we believe AI is a tailwind, a true force multiplier for our platform as the advertising ecosystem looks to adopt AI in a trusted, secure way. While AI is capturing headlines, its real-world impact in advertising depends on something far less visible but absolutely essential, a trusted data network that allows AI to operate across partners, clouds and platforms while meeting rising privacy and regulatory expectations.

And this is where LiveRamp plays a critical role. We are starting from a position of strength with competitive advantages that become even more powerful in an AI-driven world. Some of you will recall the 4 strategic moats we outlined at our Investor Day just last year. Each of these directly maps to what AI systems require to function effectively in marketing environments.

First, identity. We have the largest, most accurate consented identity graph in the industry, enabling a precise consumer view across channels. And this is foundational for AI-driven personalization, targeting and measurement. Second, interoperability. We operate the industry's only truly interoperable platform, connecting data from anywhere to everywhere across any cloud and any partner. As AI workflows increasingly span platforms and data collaboration becomes the norm, this interoperability becomes even more critical.

Third, data governance. We provide enterprise-grade data controls and protection, and we are a leader in privacy-enhancing technologies, including clean rooms and advanced encryption. These capabilities are prerequisites for deploying AI responsibly in regulated environments.

Finally, and most importantly, network scale. We operate the largest data collaboration network in the industry with thousands of interconnected customers and partners stretching from advertisers to publishers and commerce media networks and all the major ad tech platforms in between. Our network scale provides the data AI needs for relevance, reach and compounding value. Each of these competitive moats is difficult to replace at the scale we have achieved and even more so collectively.

Enter AI, which is fundamentally resetting the advertising landscape. For LiveRamp, AI doesn't replace our platform, it amplifies it by increasing the velocity, frequency and value of the data moving across our network. Simply put, our value proposition is increasingly differentiated in an AI-driven world. Our customers and partners are focused on 2 major dimensions of AI adoption. First, on the consumer side, AI is creating new context-aware services that are reshaping how consumers discover, evaluate and transact with brands, shifting the moments of awareness, consideration, intent and conversion. Second, enterprises are adopting AI-powered applications to run their marketing organizations more efficiently and more effectively, delivering faster execution, lower cost and better outcomes.

AI is streamlining, if not eliminating manual workflows, accelerating the iterative advertising cycle, plan, activate, optimize, measure, plan, activate, optimize, measure, rinse and repeat. AI enables this loop to run faster, more frequently and with increasing precision. Both dynamics directly benefit LiveRamp because they result in more data moving across our network, and our revenue scales with this data activity without a proportional increase in cost. Our revenue model is not seat-based, it never has been, and we're taking steps to embrace even more usage-based pricing. AI surfaces, applications and agents become new nodes in our network. AI-powered workflows are sending far more data more quickly, more frequently and delivering better marketing outcomes.

At the impression level, every exposure can be more personalized and context aware. At the portfolio level, entire media plans can be continuously optimized and budgets dynamically allocated and reallocated based on real-world outcomes such as reach and frequency, conversions, that is actual sales and customer lifetime value. In short, AI improves outcomes, better outcomes drive spend, increased spend drives more data across our network, and that drives our revenue, a real flywheel.

Our platform, with our 4 competitive advantages is exceptionally well positioned to serve as the core data network for AI-powered marketing. While still developing, we are making steady progress. We have enhanced our architecture so AI applications and agents can securely access our network alongside humans and APIs. Expanding our network to new advertising surfaces is something we've always done like we did with social media, retail media and CTV, helping emerging advertising platforms scale their advertising businesses more quickly and responsibly.

We are actively partnering with the AI ecosystem, having signed over 20 AI partners to date. Now this group includes AI natives, where a representative example would be the start-up Scout, which offers AI tools to optimize advertising in major walled gardens. It also features established incumbents such as Google, where we are connecting brand loyalty data to deliver a better consumer experience in its AI shopping mode. Right now, no one truly knows who the winners and losers in AI will be. But like we've done throughout our history, we're taking a portfolio approach, partnering with a broad array of companies so we help power whichever emerges as the winning use cases and AI providers.

Our value proposition is strong, and it's differentiated. AI tools depend on scaled trusted data to deliver impactful results, making us a desirable partner for innovators. We have a robust pipeline of additional AI partners that we expect to bring on to our network in the coming quarters. We've also expanded our data marketplace to support data licensing for AI training as well as licensing third-party AI models, applications and agents. This transforms our data marketplace into a centralized hub for AI-powered marketing, helping our customers quickly and easily deploy AI.

For example, we work with a gaming company that is licensing data to build AI models that predict gamer behavior and deliver a more personalized experience. Another example is Chalice, a nascent data company that will be on stage at our RampUp conference next month. They are licensing AI models to help brands build higher-performing audience segments for customer acquisition and other marketing outcomes.

To better capitalize on greater data volume, we continue our pivot towards a usage-based pricing model to unlock incremental revenue growth. We are in the final quarters of a year-long pilot with our brand direct customers, and we are seeing benefits to both our land and expand sales motions. The new model enhances our land motion with a lower cost of entry and a more flexible usage-based structure, which is of particular interest to midsized brands. It also accelerates our expand motion by utilizing fungible usage tokens that can be seamlessly applied across all of our platform capabilities and are valid across the entire 12-month contract period rather than being limited monthly.

Given the positive customer feedback from the pilot, we're excited to deploy this usage-based pricing model more broadly in FY '27. We are also implementing usage-based pricing with our reseller customers such as ad agencies and ad tech platforms. Our recently expanded partnership with Publicis exemplifies this shift. This new agreement is a significant expansion functionally and financially covering all of our platform capabilities moving beyond just connectivity. Since it came up on the recent Publicis earnings call, I'll highlight a few key points that really reflect how we're thinking about industry partnerships more broadly.

First, our Subscription usage revenue will now be more directly linked to the growing use of our platform by the partners and customers. Consequently, we are now economically neutral on whether a customer uses LiveRamp directly or indirectly. Second, we're encouraging partners to innovate using our foundational technology. For instance, the Publicis partnership integrates their AI model library with our measurement solutions to deliver off-the-shelf cross-platform measurement and optimization solutions. This is potentially a really nice benefit for their clients and one that should stimulate incremental demand for our clean room products.

Perhaps most importantly, as we've upgraded our capabilities in recent years, we're able to work more flexibly across all partners, agencies, ad tech platforms, data platforms, where we provide the foundational components of identity, clean room and a scaled network while each partner brings their own unique capabilities and services to differentiate their offering to customers. Another example of this partnership model is Uber Advertising, who also mentioned us in their earnings call this week. Our technology underpins its new Uber Intelligence platform, a new planning tool that allows brands to close the loop with data-driven audience insights. We are in active talks with a handful of other resellers about implementing this expanded usage-based model. It will take some time to negotiate and integrate these deals, but we believe this will both unlock greater value for clients and also accelerate our future growth.

So let me end my prepared remarks by returning to our Rule of 40 ambitions, where our focus is unwavering. Let me reiterate. Our target is to achieve Rule of 40 by FY '28, consisting of revenue growth of 10% to 15% and a non-GAAP operating margin of 25% to 30%. Our operating plan and goals are almost maniacally focused on accelerating revenue growth and improving long-term operating margins. With 1 quarter remaining in this fiscal year, we expect to achieve Rule of 31 in FY '26 with 9% revenue growth and a 22% operating margin.

Given the strong momentum in ARR, growing tailwinds from AI and our pivot to usage-based pricing, we are confident that we can get back to 10-plus percent revenue growth. With that level of revenue growth, our operating margins should naturally expand because our costs are highly fixed. Plus we have ongoing cost efficiencies from our offshoring initiatives. We have a strong track record of driving operating margin under a range of top line conditions. Over the trailing 5 years, inclusive of FY '26, our operating margin has expanded annually by an average of 3 points. In the current fiscal year, we are on track to deliver 4 points of margin expansion while still prudently investing in key growth initiatives to support future top line growth. In summary, we remain firmly on track to reach our Rule of 40 target by FY '28.

So in closing, let me reiterate my key takeaways. First, amidst seeming market anxiety about everything, we're doing what we've always done. We tune out the noise, we focus on the performance of our clients and partners, and we just keep grinding away. Our business is durable, it's predictable and it's scalable. And our Q3 is just another proof point. We posted strong customer growth, meaningful net new ARR for a second consecutive quarter, record quarterly operating margin and free cash flow while continuing to prudently invest to support future revenue growth.

Second, as Wall Street works to decipher the winners and losers in an AI world, we like our position. AI is a tailwind for our business, creating new nodes for our network and accelerating data volume growth. To better capture this, we continue our evolution to usage-based pricing models with brand direct customers as well as with reseller customers such as agencies, ad tech and data platforms. Finally, we're not satisfied, not even remotely satisfied. We're unwavering in our commitment to achieve our Rule of 40 goal by FY '28, an increase from Rule of 31 this year, fueled by incremental revenue growth from AI and ongoing cost efficiencies.

Before turning the call over to Lauren, let me mention 2 last points. First, I would like to personally invite all of you to attend our annual customer and partner conference, RampUp, taking place in San Francisco on March 3 through 5. This is a perfect opportunity for our investors to see LiveRamp and so many marquee advertisers, publishers and partners throughout the marketing ecosystem who benefit from using LiveRamp's data collaboration network. Please reach out to Drew if you are interested in attending.

Second, I just came back from the IAB's annual convention. It's a gathering of thousands of clients and partners in the advertising industry. While there, the IAB gave me some really nice recognition, a lifetime commitment award for impact to the advertising industry. To me, it's really an acknowledgment of the impact LiveRamp has made on the ecosystem we serve and all of our achievements are simply the result of the company we keep. So many thanks to our exceptional customers, partners and all of my colleagues here at LiveRamp. We only succeed by making the industry around us successful.

With that, I'll turn the call over to Lauren.

Thanks, Scott, and thank you all for joining us. Today, I'll review our Q3 financial results and then discuss our updated outlook for FY '26 and Q4. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth is relative to the year ago period. I will be referring to the earnings slide deck posted to our IR website.

Starting with Q3. In summary, we delivered strong results, exceeding our expectations on the top and bottom line, reflecting strong execution by the team and continued sales momentum. Revenue increased by 9% and was $1 million above the midpoint of our guide. Non-GAAP operating income increased by 36% and was $6 million above our midpoint. GAAP operating income more than doubled. For a second consecutive quarter, net new ARR was $11 million plus. And finally, we had strong growth in total Subscription customers as well as $1 million-plus customers.

Let me provide some additional details. Please turn to Slide 6. Total revenue was $212 million, up 9%. Subscription revenue was $158 million, also up 9%. Within Subscription revenue, fixed grew 8%, accelerating by 2 points and solidly in the high single-digit range, and usage increased by 13% year-over-year. ARR increased by $11 million quarter-over-quarter and 7% on a year-over-year basis. Our $1 million-plus Subscription customers increased by 8 quarter-on-quarter to a new high of 140. Total customers increased by 15, the best performance in the past 12 quarters. This improvement was driven by both lower customer churn and higher gross adds.

Next, Subscription net retention was 101%, in line with our 100% to 105% near-term expectation. Total RPO or contracted backlog was up 23% to $710 million, and current RPO was up 9% to $471 million. RPO and CRPO increased nicely sequentially, consistent with the historical pattern driven by seasonality in contract renewals, which skew to our fiscal second half.

Turning to the selling environment. We delivered a strong quarter overall with healthy demand across the business. While performance naturally varied by product and sales channel, we saw notable strength in our reseller channel, including the Publicis upsell Scott highlighted and continued momentum in our clean room Insights offering, which is increasingly supporting commerce media and measurement use cases. Customer churn remains a bright spot, reflecting the durability of our relationships, and we maintained stable average deal cycles and conversion rates sequentially, underscoring consistency in execution.

Marketplace and other revenue increased 8% to $54 million, landing modestly below our expectation due to timing-related dynamics, including slower data marketplace growth early in the quarter and the sequencing of certain services projects. Importantly, data marketplace demand reaccelerated meaningfully in mid-November, returning to a double-digit growth territory that has persisted through December and into January, reinforcing our confidence in the underlying demand environment. In addition, we expect services revenue to show strong growth this quarter based on the projects coming online.

Moving beyond revenue. Gross margin was 74%, a few ticks higher than expected due to the timing of customer migrations to our upgraded back-end platform. Operating expenses were $95 million, down 6% year-on-year and lower than expected due mostly to the timing of project-related spending. Operating income was $62 million, up 36%, and our operating margin expanded by 6 points year-over-year to a record of 29%. GAAP operating income was $40 million, up from $15 million a year ago, and the margin expanded by 11 points to 19%, driven in part by a more disciplined approach to stock comp. Free cash flow was a record $67 million, of which $39 million was used for share repurchases in the quarter. Fiscal year-to-date, we've repurchased $119 million in stock compared to $108 million in free cash flow. We have $137 million remaining under the authorization that expires on December 31 of this year.

Our balance sheet remains in a very strong position with cash and short-term investments of approximately $403 million, and we have 0 debt. In summary, Q3 was solid, coming in ahead of our guidance on the top line and especially on the bottom line. Record operating margin and free cash flow, a second consecutive quarter of strong net new ARR, strong growth in Subscription customers and ongoing returns to shareholders through our buyback.

Let me now turn to our financial outlook for FY '26 and Q4. Please turn to Slide 12. Please keep in mind, our non-GAAP guidance excludes intangible amortization, stock comp and restructuring and related charges. Starting with the full year. We're increasing our FY '26 revenue guidance by $1 million at the midpoint, passing through the Q3 beat. With just 1 quarter remaining in the fiscal year, we've narrowed the range, mostly by lifting the low end. We now expect revenue of between $810 million and $814 million, which equates to roughly 9% growth.

We expect gross margin to be in the 72% to 73% range, down 1 to 2 points as we complete the final phases of our back-end platform upgrade in Q4. We expect non-GAAP operating income to be approximately $180 million, unchanged from the midpoint of our prior guide, reflecting the pushout of some project spending from Q3 to Q4. Operating income is growing 33% this year, and the margin is expanding by 4 points to 22%. The combination of offshoring and general cost discipline continues to afford us the ability to invest in key growth areas while at the same time, driving significant margin expansion. Stock comp is now expected to be approximately $81 million, a 25% decline year-on-year, again, reflecting a more disciplined approach to stock-based comp. We now expect GAAP operating income to be approximately $84 million, equating to a record margin of 10%, up 10 points year-over-year.

Lastly, we continue to expect free cash flow to be up slightly this year with savings from the new federal tax legislation offsetting a normalization in working capital compared to Q4 of last year. Our EBITDA conversion rate is expected to be above our 75% target rate. We will deploy a substantial portion of this year's free cash flow towards share repurchases, consistent with our recent practice. And as always, we will be opportunistic depending on market conditions. Like last year, our repurchases will more than offset the shares issued for SBC, driving a reduction in our share count.

Now moving to Q4. We expect total revenue to be between $203 million and $207 million, non-GAAP operating income of approximately $38 million and an operating margin of approximately 18%. A few other call-outs for Q4. We expect Subscription revenue to be up high single digits. Marketplace and Other revenue is expected to be up in the low double digits, reflecting the growth rebound in the trailing 2 months. And finally, we expect gross margin to be approximately 72% as we complete our platform upgrade and customer migration efforts.

Let me wrap up before Q&A. In summary, we delivered a strong quarter, exceeding our expectations, posting record margins and free cash flow, strong ARR and notable growth in customer count. We are seeing strong and broad-based sales momentum, driven by a value proposition that is increasingly differentiated in an AI-driven world and by continued improvement in our go-to-market execution. Beyond product market fit, initiatives like our new pricing model are helping us sell more effectively and consistently, giving us clear visibility into 10% plus growth next year if current execution holds.

Finally, we're on track for 33% operating income growth this year and 4 points of margin expansion. We continue to balance margin with investing in growth initiatives like our new pricing model and platform upgrades to support future top line growth. The strong OI growth is resulting in strong free cash flow, which will be primarily used for share repurchases, underscoring both our confidence in the business and our commitment to long-term shareholder value.

Thanks again for joining us. We're excited for what's ahead and grateful to the customers and teammates who make it possible. Operator, we will now open the call to questions.

[Operator Instructions] Our first question comes from the line of Jason Kreyer with Craig-Hallum.

Great. Nice quarter, guys. Good to see the growth in customer count. Scott, I wanted to double-click on your comments on Publicis. Maybe if you can just talk about what key features or functionality that LiveRamp brings to the table that was kind of the reason why they selected to work with you guys.

Yes. Well, first, Craig, thank you. And I would tell you that this is probably a few years in the making, not with Publicis but just our readiness for really expanding our partnerships with all potential resellers. If you recall, over the last few years, I've talked a lot about our efforts in terms of modernizing our platform. And then more recently, over the last year, we've been rolling out changes to our pricing model. And the combination of those 2 things really makes us ready to work in a different way with these reseller partners and not have any fear of cannibalizing ourselves. And in particular, Kreyer, if you remember the old Intel Inside campaigns from, I don't know, what, 15, 20 years ago. I mean, we kind of have a similar philosophy here at LiveRamp. We want every major platform and agency to use our modular composable platform and innovate on top of it.

And so I talked about how they are -- how they're working with us in a really different way that's going to add value to their clients. And Jason, I think that there's an opportunity to do this with dozens of these kinds of partners, each of whom are already competing in their own unique way. But by building on top of LiveRamp, by building using LiveRamp pieces, they can deliver better products to their customers.

That's great. Maybe a Lauren question here. So we're solidly into the back half of your fiscal year. We know that you've got a lot more customer renewals in the back half of the fiscal year. Maybe you can just give us a little bit more on what kind of the upsell, cross-sell conversations, how those progress? And again, what kind of capabilities like cross-media intelligence or what kind of capabilities customers are looking for?

Yes, happy to. And maybe just to rehighlight something I mentioned in my prepared remarks, Q3 was a very strong sales quarter for the business. In fact, our bookings were up in the quarter strong double digits. And this was mostly driven by expansion with existing customers. And specifically, to your question, the cross-sell of our clean room to support things like Cross-Media Intelligence but also just to support broader commerce media use cases as well as other measurement use cases. So we continue to see clean room be a catalyst for expanding with existing customers upon renewal.

Our next question comes from the line of Shyam Patil with Susquehanna.

Congrats on the results and really appreciate all of your commentary on AI. I wanted to focus my question there. Scott, with all of the AI partnerships that you guys have and just kind of how you talked about the importance of it and being a tailwind, can you just talk about your approach to prioritizing these different opportunities, especially given kind of how large and dynamic the market is?

Yes, Shyam. On this, we are remarkably consistent because we have always been all about client and partner-led innovation. And so in this case, we already know what we need to do, and that's ask our clients and partners what use cases they find most important. And so we prioritized that. Not surprisingly, as a result, if you look at the 20 or I guess, it's 21 different live partnerships that we have active, the majority of them, call it, 2/3 are kind of legacy companies that you've heard of that have built AI. And so there's just an opportunity when you're talking about Google is the example I gave in the prepared remarks. Our clients are already working with companies like that. They're spending a lot of money there. And so naturally, those are the first priorities in terms of AI adoption.

But at the same time, we're also making a real effort to prioritize some of the native use cases. And so those account for about 1/3 of the partnerships that we've signed, and we have a lot more of those in the hopper. Those are things that either our clients tell us are important or we believe are going to grow in importance as they roll out their advertising models. And so we think you have to have a portfolio approach here because across the incumbents versus the new start-ups, I don't think anybody in the market as evidenced by the chaos on Wall Street this week, knows who the winners and losers are going to be. The good news is we're betting on all of them. And so we know that we will be affiliated with the folks who emerge as the winners.

Our next question comes from the line of Elizabeth Porter with Morgan Stanley.

Scott, Lauren, this is Lucas on for Elizabeth Porter. So the first is, as you expand Commerce Media with new partners like Uber and PayPal, in which other verticals are you seeing the most growth? And then could you talk about the revenue opportunity from these non-retail commerce networks compared to the traditional ones?

Yes. I think these are going to grow very fast because they're coming off a smaller base right now. And we're seeing it in a few areas. So travel, nearly every major airline has launched a commerce media network. It just makes sense because they already have their travel partnerships in place. They have a captive audience when you're flying with the seatbacks. So that's one. A second would be kind of the food delivery, the Uber's DoorDashes of the world. Once again, they have a captive audience sometimes when you're traveling where you're looking at the back of a screen or you're looking at your phone and maybe potentially ordering food. So there's a lot they can do there. And then finance is a really nice one for us.

Now in each case, it exposes us to very different type clients that we've historically worked with. And this is what gets us back to why the pricing model we talked about, super important for the resellers. It's also really important for all these commerce media networks who we look at as potential reseller partners as well because so often they have smaller SMB type clients with food delivery, it might be the local or chain restaurants and travel, it could be any number of different hotels or travel partners. And in payments, it's anything, any vendor that a merchant that a user spends money with. So all of those become potential clients.

Historically, we couldn't have served those clients because our product didn't have enough self-serve capabilities nor did we have the pricing model. But the things that we've done over the last couple of years, we feel have positioned us to really take advantage of this. And so I think those 3 areas will be really interesting for us in the next couple of years.

Great. That's super helpful. And then I was hoping that you guys could talk a little bit more about CTV with the Netflix integration gaining strong momentum over the past couple of quarters. It'd be great if you could share more about how many brands are leveraging the integration, the typical spend levels and then how it compares to other CTV platforms in the network?

Sure. I'm happy to take that. And I would just note that CTV continues to be a very strong growing component of both our data marketplace and then just traditional activation network. We talked about Netflix earlier in the year as well as a handful of other new CTV integrations, they continue to perform very well for us, scaling nicely, albeit off small bases today. With respect to our Data Marketplace, we continue to expect CTV data purchased off our Marketplace to outpace the growth of overall data marketplace growth. And of course, this is just one of many areas where CTV is benefiting our business. As an example, across our activation or connectivity network, about 70% of our largest -- our 50 largest integrations today are either pure-play CTV providers or ad tech or media platforms enabled to buy CTV.

And then a final point I would just make is it continues to also be a catalyst for clean room adoption, especially for measurement use cases. So taken together, it's a nice tailwind for our business this year and one we expect to continue into FY '27 and beyond.

Our next question comes from the line of Timothy Nollen with SSR.

Sorry for the background noise, I hope you can hear me okay?

Yes, Tim.

We can, Tim.

Okay. Great. I've got a couple, if I could. One is a follow-up on the AI topic. Again, I appreciate you addressing it head on, Scott. I'm curious, one of the concerns, I guess, is that AI will disrupt the software Subscription business model, if that's maybe a very general statement. And I just wonder if you could maybe give us some assurance that your customers are doing well, everything is going well, spending looks intact. Just any comments you could make as to that concern to help maybe ease some of the worries that are out there? And actually, indeed, maybe if you could talk to any acceleration that you may be able to see in your business to respond to that.

My second question is to come back on the topic of agentic AI and the universal context protocol, if I remember the name right, UCP that you've developed and made available to organizations like the IAB. Can you just talk if there's any progress toward commercialization of these and what the status of those efforts might be? Because I think it's very important for the future of ad transactions.

Yes, Tim, we agree. So handling your questions in turn. First off, on I think judge us by our track record. And there, we just continue to grind. And that should be what gives everybody a lot of confidence that we just constantly are improving revenue and improving margin. And if you think through what I was saying in terms of Rule of 40 and what our targets are, I'm very firmly committed to getting back to double-digit growth. I think AI helps us do that because after all, even if AI does disrupt elements of software, for AI to perform, you need to have data in the marketing space. And if all you're doing is using models that are based on the world's publicly available information, then you're going to be accessing the same models that everyone else is, and there will be no competitive advantage. The advantage comes from every client's ability to bring their own first-party data. But to bring your own first-party data, you better be darn sure that you have control and visibility over it. And that is what we do. And so you should think about us as an enabler of AI. We are essential for safe AI usage. And so as these AI use cases expand, we think that is really good for our business.

Now in your second question, you get to what one of the conditions of more widespread adoption of AI in the marketing space. And that is standards control and visibility. We developed something that we gave to the IAB, which has continued to commercialize it. They talked about that a lot in their annual meeting this week that I was at. In addition, there's another standard out there called ACP that one of my Board members has developed, Brian O'Kelly. I will tell you, we don't care which standard is adopted. It is good for the industry to have common standards about how data is going to be organized such that it can be ingested by large models.

And so again, there are at least 2. There may be more. We don't care as long as one standard emerges. And the fact that we have line of sight to 2 of them suggests that one of those, if not a combination of them, is ultimately going to emerge as the standard of choice.

And Tim, I might just provide a little bit of quantitative color against your first question, which was around whether or not we're seeing AI impact demand for our products. The short answer is we're not. As I mentioned in my prepared remarks, we had a remarkably strong sales quarter in the third quarter. Conversion rates, deal cycle length consistent sequentially. Our average deal size was up double digits, individual rep productivity up as well. And so we're not -- we're simply not seeing that dynamic right now.

Yes. The last data point that might be useful, and it's a little squishy. There's a little squishy math, I'll tell you. But we tried to look at all of our different activations and say, all right, what percentage of the activations are already going to things that we would consider AI. And if you look at either AI partnerships or AI-enabled partnerships because we don't always have visibility into what algorithmic logic is driving a decision at a partner. We think there's probably 10% of our activations already going to AI.

And again, it's a little bit of a squishy number but we just wanted to get a sense of what that looks like and start to extrapolate what that looks like over time because I think it's going to be an important stat to share with Wall Street something like that because we don't see a threat here, and we want to make sure our investors understand that this is a tailwind, not a headwind.

It just seems like you could be a good gauge on this health of the market here. And so to hear those comments from you is helpful.

Our next question comes from the line of Mark Zgutowicz from Benchmark Company.

I wanted to maybe address just the pricing tests that you're doing. And maybe you could just back up a second and just talk about sort of the go-to-market there. Like how are you going after these clients? What's the -- what are the, I guess, the challenges there in terms of finding those clients, acquiring those clients versus the pricing itself? And then if you think about next year in ARR incrementality from SMB, if you have something that you're targeting or if there's a point in time where you think you might have better visibility on what kind of incrementality you expect from SMB, that would be helpful.

And I'll start here and then Lauren will, I'm sure, come in with some analytical support. But I would tell you that since we launched the pilot, we've taken a very methodical approach to how we are communicating this. And more specifically, we're not going to clients who are under contract and retrading their deals. Rather, our priority to date has been new logo opportunities. And the new pricing has helped us land those new logos. What we found historically is one of the sticking points in a conversation has been the presence of a large fixed upfront commitment -- and so to the extent that we can lower that and have more of the ultimate value be usage-based, then we win together, and they can scale into the opportunity.

Over time, we think that will improve our churn as well because we're not going to be in a position where we're renegotiating with a client that signed up for a large fixed price contract and then didn't grow into that. This is particularly important as we approach those smaller type clients. And in fact, you see that in the numbers like so far, like the average contract for someone on one of these new usage-based pricing is a lower ACV than a legacy contract. Well, that stands to reason because they tend to be smaller and they're newer and we haven't grown them over time yet.

Now based on what we've learned, it's going to be -- it's going to put us in a position to, again, be very methodical as how we roll this out with existing clients. So as clients come up for renewal in the coming year, then we will introduce this as part of the renewal process to existing clients, and we'll continue to use it as, I think, a really attractive feature for new clients.

And then just with respect to revenue incrementality, Mark, I would expect we'd have more to share on our May call. It's certainly going to take a few quarters for this to play out in our results, but we do expect some modest upside in the back half of next year as a result of this pricing initiative.

That's helpful. And maybe just a couple of quick follow-ups, if I could. Lauren, your OpEx guide looks like upper teens sequentially. I'm just curious what may be driving that in this quarter specifically. And then if you can or else we can take it offline. I'm just curious if you look at your S&R and adjust that for the 2 large clients that churned earlier in the year, what that might look like -- might have looked like in the quarter?

Yes, happy to. And you're right, sequentially, OpEx is growing about $15 million quarter-on-quarter, and this is very consistent with the step-up we've seen in prior years. So in FY '25, that sequential increase was about $12 million, in '24, $18 million. So as a reminder, Q4 is our seasonally high expense quarter due to events and conferences like ramp up as well as just some compensation-related step-ups. This accounts for the majority of the sequential increase. In addition, and I noted this in my prepared remarks, we also had some project spend related to our growth initiatives that shifted from Q3 into Q4. All that said, we're still projecting very healthy year-over-year growth in op inc, north of 50% in the fourth quarter and a 6-point margin improvement year-on-year in the fourth quarter. And for the full year, expect op inc. to grow north of 30% and for a 4-point margin expansion. So rest assured, we're in a good position to deliver on our operating margin targets and continue to do so as we look ahead to FY '27.

And then on S&R, I would expect if you normalize for the couple of large contraction events in the early part of the year, S&R would be closer to the high end of our 100% to 105% near-term range.

Our next question comes from the line of Alec Brondolo with Wells Fargo.

Trade Desk is implementing a new data pricing model. You white labeled their current data marketplace. I think both their model and the broader industry trend appears to be shifting from purchasing data on an a la carte basis to data and audiences automatically being appended to campaigns by AI. Could you help us what that trend means for the data marketplace business, either on kind of a Trade Desk specific basis or the broader industry trend?

Yes. I think you're referring to some of the changes that Trade Desk announced in the fall of last year, which I believe were implemented in December. So not really a factor in Q3 and would likely take some time to scale. At a high level, we're aligned with Trade Desk on these initiatives to stimulate incremental demand from customers who didn't historically purchase data either because it was too complicated or costly in their view. From our perspective, if this scales, it would represent incremental transaction volume above our base case and shouldn't change our take rate. So potential upside but not anything we're seeing in our numbers today.

Our next question comes from the line of Peter Burkly with Evercore ISI.

This is Peter Burkly on for Kirk Materne. Scott, maybe to start with you kind of on the topic of AI again. You've talked fairly explicitly in the past about not being an AI company but rather being the pipelines and the plumbing that sort of enables your customers to have success with AI, just given the increased volume and velocity of data that AI requires. So I'm curious if you could just give us any updated thoughts on that front. Any change in your thinking there? Does that sort of continue to be the core strategy?

And then, Lauren, maybe for you, really nice solid accelerating ARR growth. It sounds like really continued strong bookings. Just curious with the CRPO growth sort of decelerating a little bit. And again, understanding that you're up against a tougher compare in 3Q. So mechanically, that's an impact. But I'm wondering just if you could help bridge that gap, maybe if it's the mix shift towards the usage-based pricing that's not being captured in CRPO or if there's anything with timing of renewals or any duration changes that might be impacting that?

Yes. Boy, Peter, I hesitate to make the comparison I'm about to make, and you'll realize why when I talk about Apple. And when they launched the iPhone, you'll remember that they built an app store and you could access anything, and they enabled all kinds of functionality on top of the iPhone. But at the same time, what did they have like 7 or 8 organic native apps that they built. And in part, it was because they thought it was core or no one else was building them. And so I would tell you, our philosophy is very similar that the vast majority of the AI functionality we think our clients are going to unlock is going to be through our partners, it's their business. And what we do is enable the data utilization of the signals that make the models better into those AI applications.

At the same time, don't for a second think that we don't talk about AI all the time internally in our own product builds. In fact, I am pulling up on my own computer screen a slide that someone gave me yesterday right now of the 12 Hackweek projects that we have underway that our engineers are working on, and all of them are improving our core capabilities and allow our clients to extract better value from working with LiveRamp. Things like automated error signaling. So if someone like writes the wrong query, it immediately flags it and corrects it or I talked in my prepared remarks about building more AI models into data marketplace. So there's a lot we can do internally.

And I'll talk about that if it's interesting to people. But make no mistake, I don't want anybody to think that we're trying to out AI companies that specialize in AI. We're trying to accelerate their growth. We're trying to catalyze their success by connecting to them.

And then, Peter, with respect to CRPO, as we've discussed in the past, our RPO metrics are very sensitive to the timing of renewals and the length of contracts, you called those 2 factors out. Specifically, this quarter, CRPO was impacted by the runoff of some large multiyear deals that are in their final year ahead of their next renewal cycle, and we expect these deals will renew. Importantly, though, I would point you to the strength of total RPO, which was up 23% in the quarter and reflects the recent sales momentum Scott and I talked about today.

Thank you. at this time, we have no further questions. I will now turn the call back over to Lauren Dillard for closing remarks.

Great. Well, thanks again for joining us today. We're very pleased with the quarter we reported and with our building top line momentum. As Scott mentioned, investors and analysts are invited to join us at RampUp in San Francisco on March 3 through the 5, where we plan to host a Q&A session for analysts and investors. We'd love to have you. Please reach out to Drew for more information and to RSVP.

So with that, I appreciate your time today and look forward to catching up over the coming days and months. Thanks.

This concludes today's conference. You may now disconnect your lines.

Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2026 Second Quarter Earnings Conference Call. [Operator Instructions].

I would now like to turn the call over to your host, Drew Borst, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone, and thank you for joining our fiscal 2026 second quarter earnings call. With me today are Scott Howe, our CEO; and Lauren Dillard, our 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 investors.liveramp.com. Also, during the call today, we'll be referring to a slide deck that is also available on our Investor Relations website.

With that, I'll turn the call over to Scott.

Thank you, Drew, and thanks to everyone joining us today. We delivered solid Q2 results with revenue and operating income surpassing our guidance. This quarter showcased strong execution of filling our near-term financial commitments whilst strategically investing in growth drivers like AI product enhancements and our new usage-based pricing model. Q2 revenue increased by 8% and led by a notable acceleration in Marketplace and other to 18% growth.

Subscription revenue grew by 5%, as expected, based on bookings a year ago and what we foresee to be the low watermark. The good news, as we anticipated at the start of the year, a growth upturn appears to be on the horizon as evidenced by ARR, which is the best leading indicator of our subscription revenue.

Net new ARR in Q2 was $14 million, the largest organic increase in the past 7 quarters and equating to year-on-year growth of 7%. We are seeing good momentum across a range of use cases including Commerce Media, CTV and Cross Media measurement. Million-dollar plus subscription customers increased by 5% sequentially to a new high of $132.

In Q2, we signed a multimillion dollar new logo contract with 1 of the largest global auto manufacturers and signed a multimillion-dollar upsell with a leading social media platform. Our non-GAAP operating income climbed 10%, a testament to improving cost efficiencies achieved through expanding offshore operations in India.

GAAP operating income more than doubled and the margin expanded by 7 points to a record quarterly high, driven by sustainably lower stock-based comp. Overall, it was a strong second quarter, particularly in our revenue leading indicators. Lauren will provide further details, we'll all focus on 3 key areas: First, our data collaboration platform's impact on Commerce Media integration benefits with CTV and other major publishers in catalyzing effect for AI; second, an update on our new pricing model rollout; and third, our commitment to achieving our long-term Rule of 40 financial targets.

Commerce Media, CTV and AI. I spent much of September and October on the road. Meeting with customers and prospects around the world at a variety of industry conferences and LiveRamp hosted events. In addition to dozens of one-on-one customer meetings, I participated in Ad Week in New York in Canada, Synchrony's Partner Summit in Chicago, ramp up on the road conferences in London and Sydney and our AI in marketing forum in New York City and a handful of other industry events.

Throughout my many conversations, a common theme emerge, our customers recognize the immense value and expansive reach of our data collaboration network by seamlessly integrating first, second and third-party signals across diverse platforms and partners, we empower brands to execute and measure exceptional experiences throughout the entire customer journey. The tangible excitement and impactful potential of our network are evident in several key areas.

Commerce Media, LiveRamp has long been the pioneering industry leader in retail media networks. Over the past year, our success has evolved into what we call commerce media. We are powering new networks for industry giants like Uber, PayPal, General Motors, United Airlines and many others. Each of these companies boast vital commerce partners from quick-serve restaurants and small business to local auto dealerships and travel partners. Presenting unparalleled opportunities to revolutionize the customer experience through data-driven collaboration, robust measurement, innovative media channels and expanded off-platform audience reach.

CTV and deeper publisher integrations. Collaboration is thriving through deeper publisher integrations and CTV partnerships. For instance, we recently introduced new Meta attribution insights for retail media networks, including Albertsons and Target Rondell. By connecting MetaTampaign results with our first-party sales data, RMs and their partners can now clearly see how off-property sites, including Meta, drive sales orders and return on ad spend.

These insights help RMMs grow value to merchant partners, improving campaign performance visibility and enabling data-driven budget allocation. CTV remains a key focus for our customers given the growing consumer engagement across various ad-supported CTV and streaming services. Our network is fully integrated with all these services, providing brands with seamless connectivity and comprehensive measurement, including de-duplicated comparative analysis across platforms.

Through a clean room, unique publisher audience insights can be combined with unique advertiser insights to discover new prospects and drive superior performance. We are particularly excited about our expanding partnership with Netflix, which encompasses a range of integrations across our connectivity, data marketplace and measurement solutions.

This quarter, we extended our Netflix connectivity integrations beyond the U.S. to 10 new international markets, exemplifying the type of network expansion we are pursuing with all CTV and streaming platforms. and serving as a steady source of growth for our business now and in the future. I AI is integral to every discussion as customers navigate its transformative opportunities and challenges. We are uniquely positioned to guide them through this evolving landscape. -- our scaled data network with its comprehensive links to all of the critical data signals empowers customers to unlock AI's full potential for superior marketing outcomes.

We are excited about our strategic positioning to help the entire ecosystem harness AI's power. By extending our collaboration network, we're seamlessly integrating with a wide array of AI partners. Our efforts are categorized into 6 distinct areas, each featuring multiple AI application partners, search, conversation on in chat, commerce, creative, measurement and a genetic trading. These partnerships span from industry leaders like perplexity to niche innovators like Dabir, -- in every instance, we connect our network to these AI-powered search experiences, enabling personalized advertising.

While partner integration is a key scaling strategy, we also introduced our own AI tools for clients. For example, our new AI-powered audience segment builder is an industry-first solution, allowing marketers to instantly create precise multisource audience segments using natural language prompts, activating them in minutes.

Furthermore, we've launched our AI agentic orchestration. LiveRamp is the first platform to empower autonomous AI agents with governed access to identity, segmentation, activation and measurement solutions, enabling marketers to plan smarter campaigns, optimize investments, improve impact across all touch points.

New pricing model. Turning to our second major topic. Let me now give you an update on our new pricing model. We are actively rolling out a usage-based pricing model designed to unlock incremental revenue growth by significantly boosting both our land and expand sales motions. This new model enhances our land motion with a lower cost of entry and a more flexible usage-based structure, which is particularly beneficial for midsized brands, media platforms and data providers.

It also accelerates our expansion by utilizing fungible usage tokens that can be seamlessly applied across all platform capabilities and use cases. This allows customers to explore additional features at no extra cost, and these tokens are valid across the entire 12-month annual contract period rather than being limited monthly.

Since launching our customer pilot in July, which runs through March, we've been steadily onboarding customers to the new pricing model. The feedback from both our sales teams and customers has been overwhelmingly positive. So much so that we are strategically expanding the pilot beyond our initial target list. We have a robust pipeline of customers perfectly positioned to benefit from this innovative model.

The key selling feature for customers is a lower upfront fixed commitment, combined with the fungibility of usage across platform use cases and months. Let me share 2 compelling customer examples. One new customer, a rapidly growing beverage company perfectly illustrates how our new pricing model attracts new logos. They start with a relatively low annual contract value or ACV, but have significant upside as their business growth drives increased customer data and advertising budgets, leading to greater use of our capabilities.

These factors can quickly transform a 5-figure ACV customer into a 6-figure success. In another example, we recently signed a leading domestic airline through our new pricing model. This is an existing 7-figure customer who secured an early renewal with a 20% upsell. They leverage various platform capabilities, including clean room insights for social media measurement. For them, the fungibility of usage tokens across different platform capabilities was the decisive selling point.

In short, the early feedback on our new usage-based pricing model is incredibly encouraging. Consequently, we are opportunistically expanding the pilot beyond our original target list. We anticipate this new model will drive incremental revenue growth by improving our land and expand sales motions and better aligning our variable data costs with subscription revenue.

Rule of 40. Moving to my final topic, let me briefly comment on our long-term financial targets. While once again hitting our short-term financial targets this quarter, we remain focused on our long-term objective of being a rule of 40 company by FY '28. Based on the midpoint of our updated guidance, we will achieve Rule of 31 this fiscal year. with 9% revenue growth and 22% operating margin, with sales productivity and ARR trending up and AI creating incremental growth opportunities for our business.

We are confident that we can get back to 10% plus revenue growth. And with that level of revenue growth, our operating margin should naturally expand because our costs are highly fixed and we have ongoing cost efficiencies from our offshoring initiative. All of this to say that we remain confident, confident in our ability to reach this rule of 40 target by FY '28.

In closing, let me reiterate our strong financial performance and future outlook. Q2 success, Q2 delivered solid results, exceeding both top and bottom line expectations with double-digit operating income growth and the highest organic net new ARR in 7 quarters.

Strategic leadership. Customers are actively seeking our guidance in navigating AI, Commerce Media and CTV. We've launched innovative capabilities, including cross-media intelligence, expanded CTV integrations and new AI capabilities. Positive pricing model. Early feedback on our new usage-based pricing model is consistently positive, leading to an expanded pilot. We anticipate this model will drive incremental revenue growth and better align data costs with subscription revenue.

Confidence in Rule of 40. We remain confident in achieving our Rule of 40 goal by FY '28, an increase from Rule of 31 this year, fueled by incremental AI revenue growth and ongoing cost efficiencies. Thank you again for joining us today. We extend our gratitude to our exceptional customers, partners and all LiveRampers for their unwavering dedication and support. We look forward to updating you on our continued progress in the coming quarters.

And with that, I'll turn the call over to Lauren.

Thanks, Scott, and thank you all for joining us. Today, I'll review our Q2 financial results and then discuss our updated outlook for FY '26 in Q3. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth is relative to the year ago period. I will be referring to the earnings slide deck posted to our IR website.

Starting with Q2. In summary, we delivered solid results exceeding our expectations, reflecting strong execution by the team and ongoing sales momentum against a relatively stable macro backdrop. Revenue increased by 8% and was $3 million above our guide. Non-GAAP operating income increased by 10% and was $6 million above our guidance. GAAP operating income more than doubled. Net new ARR was a 7-quarter high and we posted a strong upturn in million dollar plus subscription customers.

Let me provide some additional details. Please turn to Slide 5. Total revenue was $200 million, up 8% ahead of our guide and consensus. Subscription revenue was $150 million, up 5%. Fixed subscription revenue was up 6%, in line with our expectation and usage was down slightly. ARR increased by $14 million quarter-on-quarter, which was the best organic result in the past 7 quarters.

On a year-on-year basis, ARR was up 7%, pointing to an acceleration in the second half. Our $1 million-plus subscription customers increased by 5% quarter-on-quarter to a new high of 132. Subscription net retention was 102% and in line with our 100% to 105% near-term expectation.

Total RPO or contracted backlog was up 29% to $652 million and current RPO was up 15% to $430 million. RPO, CRPO declined sequentially, consistent with the historical pattern, driven by seasonality in our contract renewals. And which skewed to our fiscal second half.

Turning to the selling environment. It was a solid quarter overall with signing strongly year-on-year. We had an especially strong new logo quarter and churn was better than expected. Our average deal cycle was stable sequentially at roughly 9 months and for the second consecutive quarter, our conversion rate of pipeline into contract signings was several points above the recent trend line.

We're seeing good momentum with our Clean Room Insight solutions including use cases for commerce media, CTV and cross media measurement, and this gives us increased confidence heading into our seasonally high renewal period in Q3 and Q4. Marketplace and other revenue increased 18% to $50 million.

Data Marketplace, which accounted for roughly 75% of Marketplace and other revenue grew by 14%. As expected, data marketplace growth accelerated by approximately 5 points sequentially, driven by a stable ad spending environment and new CTV integrations.

Moving beyond revenue. Gross margin was 72%, in line with our guide and down 3 points year-on-year due to higher cloud hosting expenses related to our platform modernization. Operating expenses were $100 million, roughly flat year-on-year and lower than expected due mostly to the timing of project-related spending in G&A.

Operating income was $45 million, up 10% versus a year ago, and our operating margin edged up to over 22%. GAAP operating income was $21 million, up from $7 million a year ago, and the margin expanded by 7 points, driven in part by a more disciplined approach to stock compensation. Free cash flow was $57 million, of which $50 million was put towards opportunistic share repurchases in the quarter. Fiscal year-to-date, we've repurchased $80 million in stock. We have $177 million remaining under the authorization that expires on December 31, 2026.

Our balance sheet remains very strong with $377 million in cash and short-term investments and 0 debt.

In summary, Q2 was solid, coming in ahead of our guidance on the top line and especially on the bottom line, record GAAP operating margin, the best net new ARR quarter in 7 quarters, strong growth in million-dollar plus subscription customers and a sizable return of cash to shareholders for our buyback.

Let me now turn to our financial outlook for FY '26 and Q3. Please turn to Slide 12. Please keep in mind our non-GAAP guidance excludes intangible amortization, stock comp and restructuring and related charges. Starting with the full year. We are increasing our FY '26 revenue guidance by $3 million at the midpoint, passing through the Q2.

We have narrowed the range by lifting the low end to reflect less macroeconomic risk now that we're halfway through the fiscal year. We now expect FY '26 revenue to be between $804 million and $818 million, which is growth of 8% to 10%.

Let me now provide some color on the revenue components. Subscription revenue is still expected to be up mid- to high single digits. Fixed subscription is still expected to be up mid- to high single digits with improving growth in the second half. Subscription usage growth is now expected to be up high single digits, driven mostly by the above trend growth in Q1. We assume second half usage is roughly flat year-on-year.

Marketplace and other revenue is now expected to grow mid-teens, outpacing digital ad market growth and benefiting from the new CTV platform integration Scott and I mentioned. Beyond revenue, we now expect gross margin to be approximately 72% versus our prior expectation of mid-70s. We originally expected second half gross margins to rebound to the mid-70s, driven by savings associated with migrating customers to an upgraded back end.

The migration remains on track for completion in Q4, the cost optimization is taking longer than expected as we continue running 2 platforms to ensure stable customer experience. That said, we reiterate our guidance for non-GAAP operating income to be between $178 million and $182 million.

Our operating income guide is unchanged despite an increase in revenue, reflecting the lower gross margin I just mentioned, offset by incremental OpEx efficiency. At the midpoint of the guide, operating income is growing 3%, and the margin is expanding 4 points to 22%. The combination of offshoring and general cost discipline continues to afford us the ability to invest in key growth areas, while at the same time, driving significant margin expansion.

That comp is expected to decline 23% year-on-year to $83 million, again reflecting a more disciplined approach to share-based compensation over the last couple of years. We now expect GAAP operating income to be between $83 million and $87 million, equating to a record high margin of 10% to 11% and a year-on-year increase of 9 to 10 points.

Lastly, we continue to expect free cash flow to be up this year with savings from the new federal tax legislation offsetting a normalization in working capital. Our EBITDA conversion rate is expected to be above our 75% target rate. We expect to deploy a substantial amount of this year's free cash flow towards share repurchases, consistent with our recent practice.

As always, we will be opportunistic depending on market conditions. Given the decline in stock-based comp, combined with our repurchase activity, like last year, we are again expecting to more than offset dilution.

Now moving to Q3. We expect total revenue to be between $209 million and $213 million, non-GAAP operating income between $55 million and $57 million, an operating margin of roughly 27%. A few other call-outs for Q3, we expect subscription revenue to be up mid-single digits. Marketplace and other revenue is expected to be up low teens.

And finally, we expect gross margin to be similar to Q2 as we work through the final phases of our back-end upgrade and migration effort, which will be completed in Q4.

Let me wrap up before Q&A. Our second quarter featured strong execution and healthy demand with results ahead of expectation across the board and double-digit growth in operating income.

We're seeing sustained sales momentum and a robust pipeline heading into our seasonally high renewal quarters in the second half. Our focus remains on converting that pipeline into signing and keeping churn low to set the stage for accelerating revenue growth in FY '27.

And finally, we remain on track for another strong year of free cash flow, reflecting more than 30% growth in operating income, benefits from the recently enacted tax legislation and continued discipline in balancing growth investments with efficiency. We plan to deploy a substantial portion of that free cash flow towards share repurchases and underscoring both our confidence in the business and our commitment to long-term shareholder value.

Thanks again for joining us. We're excited for what's ahead and grateful to the customers and teammates who may get possible. Operator, we will now open the call to questions.

[Operator Instructions]. And we will take our first question from Jason Kreyer from Craig-Hallum.

This is Cal on for Jason tonight. Maybe just to start, can you elaborate on some of the drivers of the improvement in ARR in the quarter?

Sure. I'd be happy to, Cal. This is Lauren. A few things I'd highlight. First with respect to the strength of gross new ARR cross-sell and upsell of our clean room solution continues to be a big driver here. And these are for the use cases that Scott mentioned. So measurement and, in particular, CTV measurement cross media intelligence and to support just a growing number of retail and commerce media use cases.

We also saw a really nice uptick in new logo activity in the quarter, which was encouraging, specifically for our connectivity or data onboarding use cases. And we think this is a reflection of an increase in focus as we've rolled out now a dedicated new logo sales team, as well as the new pricing model, which allows us to address a larger ICP.

In addition, we also had much lower customer churn in the quarter both on an absolute basis and particularly compared to Q1, which was impacted by the couple of unusual events we discussed last call. Importantly, though, we believe these trends are durable. And while 7% ARR growth is solid and certainly trending in the right direction, it's not our final destination.

We believe we have the product and market demand for faster growth over time. And that's exactly what the team is focused on here in the back half.

Great. And then as a follow-up, you alluded to some of this on the call, but your renewal cycles, they're a little skewed towards the second half of your fiscal year. So with these new solutions and integrations coming to market, how do you feel about the upsell opportunity here over the next 2 quarters?

I think we feel really good about it. And I'll reference again the road trip I just took. There are so many different levers of growth and depending on which client we're talking to, they're excited about something a little bit different. So we have XMI across Media Intelligence. We have our commerce media networks that are taking us in completely new directions with new types of clients. We have CTV expansion.

And we have some really exciting opportunities in AI. So I was talking to a sales rep just last night, and he told me, I can't remember being at LiveRamp and having this many things that our clients are excited to talk about. So we've got to deliver, but I feel really optimistic about our ability to do that.

Our next question comes from the line of Shyam Patil from Susquehanna.

This is [ Mitchel ] on for Shyam. There's been a lot of debate about how AI search and reviews are hurting click-through rates to the open web. How are you thinking about the implications that this dynamic might have on your business?

Yes, [ Mitchel, ] this is Scott. I'll take that. And thanks for being on the call today. I recognize to everybody who's on the call that this is 1 of the busiest earnings weeks and you're juggling a lot of balls -- 2 thoughts come to mind with your question. First off, I would tell you our exposure to the Open Web is low. I mean throughout LiveRamp's history, we've always seen changes in our activation profile. We see the winners and losers sometimes far before the market as a whole does.

And if some things don't work as effectively, the money just flows to the things that do work. And we've seen that in recent years. We've been the beneficiary of that with the growth in CTV, and social media and commerce media as well. I looked at our top destinations actually just earlier today. And the vast majority of our top 20 destinations, I mean in no particular order. Companies like Meta, Roku, LinkedIn, Spotify, Disney+, Pandora Twitter X, I guess, and TikTok, they're simply not impacted by these open web shifts that people are talking about.

And then the second point that I'd make is our upside from AI is high. AI models are only as effective as the signals that power the underlying intelligence of those models. And first and second-party data, the kind that empowers everything we currently do is the great differentiator that makes any model even better.

Our clients want to standardize and control how their data is used, which puts us right at the center of a long-term future growth driver. And the investments that we've made that Lauren and I both referenced, modernizing our stack, creating AI readiness and usage-based pricing, they build the foundation for our success as AI starts to take off.

Our next question comes from the line of Mark Zgutowicz from the Benchmark Company.

This is Alex on for Mark. I have 2, if you don't mind. First one, just on the degree of macro conservatism baked into the guide on the revenue guide for the year. Curious if you can provide an update there. and how you're thinking about potential incrementality from these pilots in addition to working with AI labs?

And then second question. Curious if you can elaborate on the mix of retail in CPG versus non in terms of incremental ARR in the second half as you point towards an acceleration?

Sure. I'm certainly happy to take the first. So with respect to our guidance, kind of at this point in the year, the swing factors are mostly in our variable revenue sources, so specifically subscription usage and data marketplace. And as we typically do, we have built in some conservatism here, which is -- accounts for the relatively wide range in the back half.

At the midpoint, we're assuming the macro remains fairly consistent with what we've seen recently. The low end of the range assumes a pretty major deterioration in the macro in the back half. But in short, we believe we've built in an appropriate level of conservatism into our guide.

Yes. In terms of the retail versus nonretail commerce media stuff, I don't know if I have those specific numbers because I don't know if we broke it out, did the math. We can get that. But I would tell you that if I just think about what I believe is happening. We're seeing growth in both places.

And our kind of traditional retail media, what we're trying to do is build density. So it's usage increases. We're trying to scale the number of merchant partners that are working with each major retailer. And then from a new logo, new starts perspective, that's where we're really excited about expanding from retail to commerce media. Some of the things I talked about, like PayPal or Uber, the airlines, that just exposes us to really different businesses. And instead of just thinking about merchant partners it's causing us to think about, well, how do we connect with quick-serve restaurants or restaurants as a whole, how do we connect with SMB merchant partners that are driving payments usage. How do we connect with travel partners.

And so all of that opens up new TAM for us. And so I think that will be an even greater accelerator for our growth next year than even maybe the traditional retail media side where we've long been strong.

Alex, really quickly. There was a second part of your first question, which is on the pricing pilot, and I didn't answer it. So on to now. We have not baked in any upside in this year's guide to account for pricing upside. I may just take the opportunity to reiterate what Scott mentioned, which is at a high level, our hypothesis is, over time, the new model will unlock incremental revenue growth by benefiting both our land and expand sales motions.

As Scott mentioned, on the land front, it offers a lower entry point, which should allow us to address a larger ICP. And on the expand front, due to the fungibility of the tokens, enables customers to more seamlessly grow into our product suite. Right now, we're in the middle of the pilot, which we expect to run through the balance of this fiscal year. we're learning a lot. We expect to continue to learn a lot, which will help us fine-tune the model and approach ahead of rolling it out in the early part of next year.

And we expect to roll it out very thoughtfully and for the benefit to accrue over several quarters. So this is something you -- we would expect to see some benefit from as we move through next fiscal year. But so far, nothing baked into this year's guide.

[Operator Instructions]. Our next question comes from the line of Clark Wright from D.A. Davidson.

Maybe to start, can you elaborate on the step-up in platform investments this year? Is this something that stretches into fiscal 2027?

Yes. Clark, I'll start, and Lauren will certainly probably jump in here. But yes, we have actually stepped up our investments recently. We are confident about this driving incremental revenue in the coming quarters and years. The investments are in 3 critical areas. First, we're upgrading our platform both the front and back end to provide our customers just with a better experience, more intuitive why, faster processing, more stability.

Second, we're investing in AI product capabilities. I mentioned that. AI-powered segment builder, Agentic orchestration, I talked about those in my prepared remarks. AI is really reshaping the digital advertising ecosystem. And so these investments ensure we're ready to capture the opportunities that are emerging from these changes.

And then third, the kind of companion piece with this is the investments we're making in our new usage-based pricing model. And that ensures that we'll have the optimal revenue model as the volumes kind of expand from what we're seeing in terms of increased collaboration and the AI opportunity, we're going to monetize that through this new variable usage-based pricing model.

And Clark, I would just simply add that while we're making these investments to fuel future revenue growth, we're not sacrificing bottom line growth in the short term. Again, we're guiding to FY '26 operating income growth of over 30% and 4 points of margin expansion and finally, we just mentioned to the earlier part of your question, we believe this investment period will abate by the end of this fiscal year, which puts us in a really strong position for both revenue growth and continued margin expansion in FY '27.

That's helpful. Appreciate that color. And then turning to the growth picture, direct subscription customer count has effectively stabilized after declining for 5 straight quarters. Do you have the visibility to call this the trough or a potential inflection in growth going forward? Or is that still yet to be determined given some of the other moving factors?

Yes. I would characterize that it's stabilizing, especially now that we've worked through the international headwind that we've discussed on past calls, and you saw that in the results this quarter. In addition, I mentioned this a bit earlier, we saw a nice uptick in new logo activity in the quarter, which we think is durable. This is a combination of building out a dedicated new logo sales force and also having a pricing model that allows us to serve a larger TAM over time.

As we look out over the medium to long term, we do think there are a couple of meaningful levers for customer count growth, the pricing model, which I just mentioned. And then also our clean room strategy. As Scott discussed as kind of these big clean room networks to support use cases in retail or commerce media take hold, we have the ability to pull customers through these large anchor nodes that we're supporting.

And we think that can be a source of sustained new logo growth over time. The final point I would just make here is that the quality of our new customer adds continues to be very impressive. It certainly was again in Q2. GM, Uber, Constellation brands. I think this is a real testament to the criticality of what we do and to the value we deliver to our customers.

We have no further questions. I will now turn the call back over to Lauren Dillard for closing remarks.

All right. Thank you. I'd love to close with just a few remarks. So first, our second quarter featured again, strong execution and healthy demand with results ahead of expectations across the board and double-digit growth in operating income. We're seeing sustained sales momentum and a robust pipeline heading into our seasonally high renewal quarters in the second half.

Our focus, of course, remains on converting that pipeline into sales and keeping churn low to set the stage for accelerating top line growth next year. And finally, we remain on track for another strong year of free cash flow reflecting more than 30% growth in operating income and continued discipline in balancing growth investments with efficiency.

We plan to deploy a substantial portion of that free cash toward share repurchases, underscoring both our confidence in the business and our commitment to long-term shareholder value. Thanks again for joining us. We look forward to speaking with many of you in the days ahead.

The meeting has now concluded. Thank you all for joining. You may now disconnect.

Good afternoon, ladies and gentlemen, and welcome to LiveRamp's Fiscal 2026 First Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Drew Borst, Vice President of Investor Relations.

Thank you, operator. Good afternoon, everyone, and thank you for joining our fiscal 2026 first quarter earnings call. With me today are Scott Howe, our CEO; and Lauren Dillard, our 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 reconciliations to non-GAAP financial measures is available at investors.liveramp.com. Also, during the call today, we'll be referring to the slide deck that is also available on our Investor Relations website.

With that, I'll turn the call over to Scott.

Thank you, Drew, and thank you to everyone joining us today. Q1 was a good way to start the year, balancing both strong performance and optimism for the future. We had a very strong start to fiscal 2026 with first quarter results exceeding our expectations on both the top and bottom lines. We can also see opportunities to improve our performance that could impact the back half of the year and the years to come.

Total revenue increased at a double-digit rate for the sixth consecutive quarter with double-digit growth in both subscription revenue as well as marketplace and other. Looking ahead, we have a robust new business pipeline and good sales momentum across several solutions on which I will elaborate in a minute. On the bottom line, non-GAAP operating income increased by 34%, driven by 3 points of margin expansion to a record first quarter high of 18%. Our organization continues to become more and more efficient, thanks to initiatives like our growing offshore presence in India and our forthcoming new pricing model.

Q1 GAAP operating margin also reached a record high, expanding by 7 points, driven in part by lower stock-based compensation, reflecting new grant policies to rationalize these costs and better align with performance. Finally, we increased our FY '26 guidance for revenue and free cash flow. There's a lot to like in Q1, and Lauren will provide additional details later in the call. My remarks today will cover 3 main topics. First, an update on the products driving our current sales momentum, including Cross-Media Intelligence, Commerce Media Networks and CTV.

Second, insights into our new pricing model and its potential to accelerate growth. And third, our perspective on how AI will transform digital advertising and its implications for LiveRamp's long-term significance and prospects.

Let's start with the drivers behind sales momentum. Our data collaboration network is experiencing strong sales momentum, evidenced by an above-average conversion of pipeline into signings, a reduction in the average sales cycle length and an increase in average deal size during the first quarter. This momentum is primarily driven by our Cross-Media Intelligence, Commerce Media Networks and CTV solutions, which I will now discuss in detail.

Our new Cross-Media Intelligence solution is surpassing initial expectations. Marketers often contend with outdated measurement tools that provide an incomplete and distorted view of effectiveness within today's fragmented digital ecosystem, leading to suboptimal decisions. Cross-Media Intelligence powered by state-of-the-art clean room technology addresses this by offering the most extensive collaboration network that seamlessly connects an array of ecosystem participants from advertisers and publishers to Commerce Media Networks, data providers and measurement partners.

An identity foundation that enables privacy preserving data connectivity across the network, governance tools to implement and enforce unique data sharing policies between various collaborators. And finally, seamless interoperability across all major cloud environments. Launched in the first quarter Cross-Media Intelligence has already attracted several high-profile customers, including the largest social media platform, a leading CPG manufacturer, the largest consumer and enterprise software company, and a significant financial software provider. This strong start signals continued momentum in upcoming quarters.

While Cross-Media Intelligence is our newest solution, Commerce Media Networks remain a significant growth driver. This quarter, Walgreens leveraged our technology for their new clean room solution, enhancing ad personalization, scaling real-time audience insights and increasing transparency and control for brand advertisers. We also secured a multiyear multimillion ACV upsell with a leading U.S. department store. Our Commerce Media growth extends beyond retail with airlines, casinos, automotive and real estate brokers actively launching networks. We expanded our partnership with Western Union, connecting their media network audiences to those of others for enhanced on and off-site advertising personalization.

A new case study, one of several client success stories we highlight in our earnings presentation highlights our work with Lyft, connecting rider insights with advertiser first-party data. We anticipate continued growth in Commerce Media as we establish more partnerships in new industries, leveraging our work with food delivery companies for QSRs, payment plans for smaller merchants and travel sector clients for broader partnerships.

CTV is another key driver of recent sales strength. After a year of integrating major CTV and streaming platforms into our network, we're seeing strong momentum with brands leveraging these growing ad destinations by connecting their first-party data to media exposures. For example, our Netflix integration has scaled a dozens of brands in just 4 months, offering the high-quality inventory every TV advertiser desires. This flywheel effect from adding large CTV nodes is expected to fuel continued growth. To reinforce our product discussion, it's worth noting that 2 leading tech research firms Forrester and IDC recently published reports independently validating our data collaboration platforms effectiveness.

Forrester's Total Economic Impact Study, which we commissioned found that a representative LiveRamp customer achieved a 313% ROI and approximately $10 million in business benefits over 3 years with a payback period under 6 months. Additionally, for the second consecutive year, IDC recognized LiveRamp as a leader in its market scape vendor assessment for data clean room technology. More information on both reports is available at liveramp.com.

My second main topic is pricing. We're modernizing our pricing model to offer customers greater flexibility and align costs with usage. Last month, we launched a pilot program with up to 40 customers. In just the first few weeks, we find several new customers to the new pricing model, including the world's largest quick-serve restaurant. This 6-month pilot will gather feedback before a broader rollout in FY '27. We have outgrown our existing pricing model, which has become overly complicated, both for customers and for us internally.

The existing model also did not facilitate customer usage flexibility across our different capabilities. And certain customer types, namely media platforms and data providers, have been asking for a more flexible usage-based model. The new model addresses these issues by standardizing pricing with fungible tokens across all products, enhancing upsell opportunities. offering lower upfront costs to attract small and midsized new customers, particularly media platforms and data providers.

Scaling pricing directly with customer usage and variable costs like cloud hosting, reducing billing SKUs and metrics with automated reporting to improve operational efficiency and lower our own operating costs. We anticipate sharing more details as the pilot progresses and the full launch nears.

Finally, let me spend a few minutes on where we think advertising is headed with AI because this is going to fundamentally change how businesses connect with customers. We are not just seeing another advertising platform shift. We have been through these before, desktop to mobile, linear TV to streaming, print to digital. This is different. AI agents will change how consumers discover products and make purchase decisions. Think about it this way. Instead of people browsing websites or searching across different platforms to find products, they're going to ask an AI agent to find what they need. The agent does the research, makes the recommendation and maybe even completes the purchase. This is a very different customer journey, and businesses will need to adapt.

First, brands must reach consumers with personalized messages across new destinations and new devices. New platforms are emerging, while existing platforms are evolving rapidly. Every major media company is embracing agents to enhance their consumer experiences and influence them across a growing array of devices, the myriad of screens we all use today plus a future, which may include watches, glasses or voice assistance. Businesses need to influence consumers wherever they are spending time.

Second, there's a whole new set of tools emerging. An array of specialized agents, some for media optimization, others for measurement, marketing analytics, creative optimization, even personalized product recommendations. Businesses need tools that can integrate and help them leverage all these different agents. Third, and this is where it gets truly interesting for LiveRamp and our clients. The future will be fueled by data. The companies that win are going to be the ones that can feed these AI systems the richest signals, not just public information, but rather their own proprietary customer data as well as permission signals from across their partner ecosystem.

Others see this also. For example, Salesforce recently announced an $8 billion acquisition of Informatica to bolster its data integration and management capabilities. And that's big, but I'm not sure there is a company that works across more fragmented, diverse and valuable customer data than LiveRamp. The future will be modeled from a mixture of first-party CRM data, transaction data from retail partners, behavioral signals for media platforms, contextual signals like prompts and environmental data, a myriad of second and third-party data. It's fragmented, complex and somewhat overwhelming for many companies, compounding the challenge.

The most valuable signals won't be freely shared between competitors. Brands need trusted infrastructure that gives data owners control over how their proprietary information gets used and also facilitates turnkey scalability for all the various AI use cases each of our clients desires to utilize. As we've modernized LiveRamp's data collaboration platform, we've designed it for an AI future with the requisite capabilities and network to help marketers easily and effectively navigate this period of change. Data is fuel for AI models, agents and recommendations, and our data collaboration platform connects fragmented data across partners, creating a network effect where data scale compounds AI intelligence.

Our platform also provides the governance and standardization necessary for the complex agentic era, offering shared identity frameworks, clean room interoperability and trusted measurement for secure and compliant connections. We will continue to enhance our network to be more programmable and real-time, supporting the secure flow of data that powers AI advertising. This represents a significant long-term growth opportunity for LiveRamp and clients view us as a critical partner for their AI ambitions.

In closing, let me reiterate my key points. First, we delivered strong financial results in Q1, beating on the top and bottom line, delivering double-digit revenue growth for the sixth consecutive quarter and even more robust 34% operating income growth. We also increased our revenue and free cash flow outlook for the year. Second, we're advancing key growth initiatives. We're seeing strong sales momentum across our collaboration network, driven by Cross-Media Intelligence, Commerce Media and CTV.

We also launched a pilot program for our new pricing model, which we believe will attract new clients and boost efficiency with benefits expected in the latter half of the fiscal year and beyond. Third, LiveRamp is well positioned for the AI-driven future of advertising. In this new AI era, we believe data connectivity, interoperability and strong partner networks will differentiate winners. We are well equipped to capitalize on this disruption, and we'll continue investing in our platform to be more programmable in real time, supporting the secure connection of data that will fuel AI advertising agents.

Thank you again for joining us today. I also want to thank our exceptional customers, partners and all LiveRampers for their ongoing hard work and support. We look forward to updating you on our continued progress in the coming quarters.

And with that, I'll turn the call over to Lauren.

Thanks, Scott, and thank you all for joining us. Today, I'll review our Q1 financial results and then discuss our updated outlook for FY '26 and Q2. Unless otherwise indicated, my remarks pertain to non-GAAP results and growth is relative to the year ago period. I will be referring to the earnings slide deck that is available on our IR website.

Starting with Q1. In summary, we delivered solid results, exceeding our expectations due to strong execution amidst a more favorable macro and selling environment. Revenue increased by 11% and was $4 million above our guide. Non-GAAP operating income increased by 34% and was $3 million above our guide. Operating margin on both a GAAP and non-GAAP basis were record first quarter highs, expanding by 3 and 7 points, respectively. And finally, our free cash flow outlook for the year is materially better, driven by the recent tax legislation.

Let me provide some additional details. Please turn to Slide 5. Total revenue was $195 million, up 11%, exceeding our expectation and consensus. Subscription revenue was $148 million, up 10%. Fixed subscription revenue was up 6%, in line with our expectation. Subscription usage revenue was up approximately 40%, mostly driven by an easy year ago comp and a couple of onetime positive items that benefited the quarter.

ARR was up 5% year-on-year. This was in line with our first half expectations due to the softer selling environment in the first half of last year and some unusual but known churn events, such as Oracle exiting their ad tech business. We expect net new ARR to pick back up starting in Q2. Subscription net retention was 104%, stable with the prior quarter and in line with our 100% to 105% near-term expectation. Total RPO or contracted backlog was up 29% to $690 million, and current RPO was up 14% to $451 million. RPO and cRPO declined sequentially, consistent with the historical pattern, driven by seasonality in our contract renewals, which skewed to our fiscal second half.

Turning to the selling environment. I'd characterize the quarter as generally positive. We had a good quarter with new logo and upsell signings. Although as I mentioned earlier, our dollar churn was higher than we like due to some unique customer events and not related to anything in the broader economy.

Our average deal cycle ticked back down to 9 months. Our conversion rate of pipeline into bookings was several points above the recent trend. And finally, our average deal size was also above trend. Looking ahead, quarter-to-date sales activity has been strong, including several million dollar-plus deals. As Scott shared, our Cross-Media Intelligence solution got off to a strong start, and our clean room strategy is clearly resonating with customers, which gives us increased confidence in improving growth as we progress through this year.

Marketplace and other revenue increased 13% to $46 million. Data Marketplace, which accounted for 76% of Marketplace and other revenue grew by 9%. Data Marketplace growth was a few points below our expectation as we work through an isolated issue with a new integration feature. This issue has been resolved. And as a result, data marketplace growth has rebounded strongly quarter-to-date in Q2.

Moving beyond revenue. Gross margin was 72%, in line with our guide and down 1 point year-on-year due to temporarily higher cloud hosting expenses related to our platform modernization. Operating expenses were $105 million, up 2% year-on-year and in line with our expectations. Operating income was $36 million, up from $27 million a year ago, and our operating margin expanded by 3 points to 18%.

GAAP operating income was $7 million, up from a loss of $5 million a year ago. Our GAAP operating margin expanded by 7 points year-on-year, driven in part by our more disciplined approach to stock-based compensation. Free cash flow was negative $16 million, reflecting typical seasonality and changes in working capital. We repurchased $30 million in stock in the first quarter and have $226 million remaining under the current authorization that expires at the end of calendar 2026.

Our balance sheet remains very strong with approximately $370 million in cash and short-term investments and 0 debt. In summary, Q1 was a strong start to the year, marked by double-digit revenue growth, record first quarter margins and continued discipline in both execution and capital allocation.

Now let me turn to our financial outlook for FY '26 and Q2. Please turn to Slide 12. Please keep in mind, our non-GAAP guidance excludes intangible amortization, stock comp and restructuring and related charges. Starting with the full year. We are increasing our FY '26 revenue guidance by $6 million at the midpoint by increasing the low end of the range. This increase reflects the $4 million beat in Q1, plus a $2 million increase over the remaining 3 quarters in subscription usage.

Even with this increase, the guide continues to capture some conservatism in our variable revenue in the fiscal second half to account for the possibility of slower U.S. macro growth. We now expect FY '26 revenue to be between $798 million and $818 million, which is growth of 7% to 10%.

Let me now provide some color on the revenue components, focusing on the midpoint of our guidance range. Subscription revenue is still expected to be up mid- to high single digits. Fixed subscription is still expected to be up mid- to high single digits with improving growth in the second half. Subscription usage growth is now expected to be up mid- to high single digits in light of the strong Q1. We assume usage growth is flat year-on-year over the remaining 3 quarters.

Marketplace and other revenue is expected to grow in the low to mid-teens, outpacing digital ad market growth and benefiting from new marketplace integrations. We expect gross margin to be roughly consistent with FY '25. We continue to expect first half gross margins to be in the low 70s and in the second half, normalize to the mid-70s as we finish migrating customers to our new back end.

We reiterate our guidance for non-GAAP operating income to be between $178 million and $182 million. Our operating income guide is unchanged despite an increase in revenue, reflecting slightly higher costs to support the back-end migration as well as some incremental investments in our services function to support higher demand for our Cross-Media Intelligence solution.

At the midpoint of the guide, operating income is growing 33% and margin is expanding 4 points to 22%. The combination of offshoring and general cost discipline, including leveraging the acquired Habu expense base, is affording us the ability to invest in key growth areas while at the same time, driving significant margin expansion. Stock comp is expected to decline 21% year-on-year to $85 million, again, reflecting a more disciplined approach to share-based compensation over the last couple of years.

We expect GAAP operating income to be between $81 million and $85 million, equating to a margin of 10% to 11%, a significant increase over the roughly breakeven results of the last couple of years. Lastly, we now expect free cash flow to increase this year. As you may recall, we had very strong free cash flow in FY '25, up over 50%, driven in part by favorable working capital movements in Q4. We expect working capital to normalize this year, but the benefits from the new tax legislation should more than offset that normalization, resulting in an EBITDA conversion rate well above our 75% target and driving cash flow higher year-on-year.

We expect to deploy a substantial amount of this higher free cash flow towards share repurchases, consistent with our recent policy. As always, we will be opportunistic depending on market conditions. Given the decline in stock-based comp, combined with our repurchase activity, like last year, we're expecting to more than offset dilution.

Now moving on to Q2. We expect total revenue of $197 million, non-GAAP operating income of approximately $39 million and an operating margin of approximately 20%. A few other callouts for Q2. We expect subscription revenue to be up mid-single digits. Marketplace and other revenue is expected to be up low to mid-teens. And finally, we expect gross margin to be similar to Q1 as we work through the final phases of our back-end upgrade and migration effort.

Before opening the call to questions, I'll conclude with a few final thoughts. First, we delivered a strong start to the year, exceeding our expectations on both the top and bottom line with double-digit revenue growth and record Q1 operating margins. Recent sales activity has been encouraging, and we expect growth to accelerate beyond Q2. This momentum, particularly in Cross-Media Intelligence, is a strong validation of our clean room strategy and the value we're delivering to customers.

Our teams are focused, our sales execution is sharp, and our ambition is clear, to deliver progressively stronger performance as the year unfolds. And finally, we also expect another strong year of cash flow, driven by over 30% growth in operating income and benefits from the recently enacted tax legislation.

We plan to deploy a substantial portion of this higher cash flow toward opportunistic share repurchases, reflecting both our confidence in the business and our commitment to driving long-term shareholder value. Thanks again for joining us. We're excited for what's ahead and grateful to the customers and teammates who make it possible.

Operator, we will now open the call to questions.

[Operator Instructions] Your first question comes from the line of Shyam Patil with Susquehanna.

Congrats on the strong first quarter and increase to the full year guide. I just had a quick question. Just when you look at the second quarter, can you elaborate on the assumptions behind the revenue growth?

Sure. Shyam, Lauren here. I'm happy to take that. So as you may remember, we always expected growth in the first half of this fiscal year to be lighter than the second half. And as it turns out, we outperformed considerably in Q1 on subscription usage. It was up 40% year-on-year in the quarter. And again, some of this was simply timing related. We're not forecasting the same level of performance for usage in Q2. In fact, we're conservatively guiding it flat year-on-year.

And this is really the delta or bridge or kind of key assumption you're probably looking for. All that said, we're happy to be able to raise our outlook for the full year. And given our recent sales momentum, we have even more confidence sitting here today than we did in May in our back half and in our ability to drive higher revenue growth as we move beyond the second quarter.

Your next question comes from the line of Jason Kreyer with Craig-Hallum.

This is Cal on for Jason. So maybe first, great to hear about the ongoing momentum in Commerce Media Networks. Just wondering if you can expand on the outlook and what gives you confidence that the strength can continue?

Yes, Cal, thanks for the question. This is Scott. I hope everyone on the call has a chance to visit our website because on it, you'll find a bunch of press releases I referenced some of them today and case studies on Commerce Media. I think we're really seen as the leader in the space. And that started with kind of classic retail. This quarter -- that continues, this quarter, we talked about WAG, Walgreens Advertising Group. WAG has 101 million loyalty members. And that generates literally billions of useful signals about which -- all of which can fuel partner efforts.

And it's not just retail, and I think this is the big aha. What started in retail is really spreading to commerce. So many of our companies, so many prospects have incredible audiences, customer interactions and even captive screen time. And so this quarter, I talked about RE/MAX, for instance. They have nearly 8 million users per month going to the website. And so you can just imagine the melange of other activities someone looking to buy a home might also pursue. But then there's just so much more.

So like we work with the major food delivery companies, and that should give us access to partner networks of all the local restaurants. We're working with the major payments platforms, and that's going to give us access to SMBs and QSRs and other merchant partners that we haven't historically had relationships with. We're starting to work with the connected car companies, which gives us access to the regional and local dealers and all of their partners. And we're working with a variety of the big travel companies, including some of the biggest airlines in the world, and they all have just enormous partner networks.

And so this network flywheel is just getting started. And this gives me confidence, along with the other thing I talked about, the new pricing model that we can really accelerate our business flywheel. And as we do, we help all of the participants in the network make their signals easily and securely available, but with the appropriate security and controls. And that's the fuel, if you will, that will power all of the most useful AI models that are going to be developed.

So it gives me confidence for the near term, back half of the year, but also far beyond it. And so I'll leave everyone with one last call, which is check out our website on the case studies. But while you're there, also take a look at the other study I referenced, the Forrester Economic Impact study, I really like what they did. We commissioned it, but they went and talked objectively to a handful of our clients to arrive at their findings. And those included a bunch of the Commerce Media Networks. Clients use us because above all, we deliver great ROI. And that is the takeaway from that report.

And in an uncertain environment, and we're still in it. I mean, like this summer, every day when I read the newspapers, there are more tariffs, less tariffs, no one knows what's going on. And our clients see that. And the one thing that they can depend on is if it works, keep doing it. And so our ability to go in with a nice ROI story really matters to our clients and prospects right now.

Great. Appreciate that. And then maybe secondly, you touched on this a little bit earlier, but particularly now that upfronts have largely ramped up. Just curious if there's any perspective on how more budgets moving into CTV and programmatic execution may be resulting in things like deeper integration of publishers or more advertiser adoption of clean rooms.

Yes, sure. And going to the guidance, I mean, I think where you really can start to see it will be the back half of the year. We've had a lot of success doing the CTV integrations. But this is the slow quarter for television spending overall. That said, what we're going to continue to see is a lot of what we have seen, which is a flow from linear into accountable television, the kind that you get through CTV. And that also plays to our clean room capabilities in as much as you can combine audiences and develop new segments in concert, an advertiser and their publisher partner.

A major CTV provider has rich viewing information, all of it permissioned and authenticated. And then when that can be combined with the rich CRM files of some of our clients, really interesting things could happen. And then on the flip side, it's not just the segment, the precision targeting, but it's actually the measurement capabilities. And so the ability to actually understand who actually saw an app? What did they do? Maybe even link that to downstream activities that occurred at the advertiser's own dealership or cash register, that becomes fascinating.

And so again, it all plays to what our advertisers are looking for right now in a period of economic uncertainty. They want greater targeting. They want to reach their consumers wherever they are, and they want to know what they're doing actually works. And so CTV relative to linear delivers against all those things.

[Operator Instructions] The next question comes from the line of Mark Zgutowicz with Benchmark.

Just a qualification I was hoping for in terms of relative momentum that you're seeing across clean room, CMI and Commerce Media. It sounds like you're adding some nice scaled customers. However, I also saw that you had a slight sequential downtick on $1 million-plus revenue customers in the quarter. So perhaps you can provide a little balance on those dynamics.

Yes. I'm happy to address the $1 million-plus customer question, and then maybe Scott can kind of tackle the relative contribution from the different initiatives he spoke about in his prepared remarks. With respect to $1 million-plus customers, I called out in my prepared remarks, a couple of large known churn events with what we would characterize as atypical circumstances that impacted the quarter. For example, one of the churn events is Oracle as a result of them exiting their ad tech business.

We knew this was coming. It hit in Q1. It impacted our $1 million-plus metric in the quarter. That said, I also spoke about our sales momentum quarter-to-date and the success we've had signing large multiyear deals so far -- multiyear, multimillion dollar deals so far in Q2, which should benefit our $1 million-plus customer count in Q2 and beyond. So in terms of the quarter, I wouldn't read too much into it. We feel confident that this metric will rebound next quarter and throughout the remaining quarters of this year.

And then Mark, in terms of your other question around relative size or contribution to growth of Cross-Media, CTV and Commerce Media. We don't break it out that way because it's all just subscription growth largely for us. But what I really liked about the quarter is when I look ahead, all of these things are still in the early stages. So the cross-media insights initiative is one that we just launched this past quarter, and it's off to a strong start. And so I'm hopeful that the case studies that emerge from that start to go viral because I think virtually all of our current customers should be availing themselves of cross-media insights.

And I think it could be a really good way to attract new prospects as the year progresses because it just -- it makes everything accountable. On the Commerce Media front, the way I view that is we're planning the tent poles, the major nodes. And then you got to fill in the density around it and you get a flywheel effect going. And so the wins that we talked about even this quarter or more broadly, what I was sharing just a second ago with Cal, those are flywheels that over the back half of this year and in the coming years could really take off for us.

And so even CTV, the flip is happening as linear increasingly flows to CTV. But you look at a company like Netflix, they are an amazing partner. I mean I just -- I can't say enough good things about Netflix, and we worked really closely with them as we've scaled, as we've stood things up over the last quarter. We got dozens of clients live. But I would imagine a year from now, that number should look more like hundreds because if you're doing any television advertising, a really good place to start is Netflix. And so I think there's a really nice opportunity there as well.

That's helpful. Separate question just around where we're at with offshoring, the initiatives there and perhaps even automation leverage. Perhaps, Lauren, you might share sort of the leverage that we've seen there last 12 months and what you maybe expect this fiscal year? And also, if you're ready to start qualifying sort of the pricing incrementality that you expect later this year or if there's a plan to provide more tangibles on that?

Yes, happy to. And with respect to offshoring and automation, our offshoring initiative continues to just go really well for us, Mark. And while it's hard to perfectly measure, we believe the combination of offshoring plus just general smart cost management, in part driven by automation is driving low double-digit millions of cost savings for us this year. This is really what's giving us the ability to decrease OpEx slightly year-on-year, drive 4 points of margin expansion while at the same time, continuing to invest in the areas that we believe will support our future growth.

And then with respect to pricing, first, we haven't included any upside to our revenue guidance this year associated with our new pricing model. As Scott mentioned, we're in the very early stages of our pilot, but the reaction from both sellers and customers has been very positive. In fact, it was a key selling point for the couple of customer wins Scott discussed in his prepared remarks. As we move through the pilot and round out this year, we expect to have more specifics to share. But at a very high level, we believe this model will unlock meaningful benefits for both our customers as well as for us internally. And just a few highlights I'd call out.

With respect to our land and expand motion, this model should benefit deal velocity. It has a lower cost of entry and if customers so choose a more flexible usage-based option. We believe it will also help our expand motion because the new model has usage tokens that can be seamlessly and fungibly used across the entirety of our platform and for different use cases. And then finally, and we've talked about this before, it should unlock some internal efficiencies as well as it will enable us to streamline our deal desk and billing processes.

So to summarize, the pricing initiative is off to a great start and expect to share more specifics as we move through the year.

Your next question comes from the line of Clark Wright with D.A. Davidson.

Sticking to the pricing changes, I would love to understand how conversations around the actual pricing and all changes are impacting new deals or potentially reducing friction in the new business process. And I have a follow-up.

Yes, Mark, I would tell you it's viewed as very favorable. Most SaaS companies have a usage-based entry-level product where clients can try and then you can scale together. We've been slow to offer that. This is a game changer for us. And a couple of clients, the new logos that we won and arguably the world's biggest QSR, we were doing a little bit of work with them. But this is a much bigger opportunity for us. I mean they specifically called it out as one of the reasons they chose us because they didn't have to make that big upfront commitment. There was a way to grow into it together and so that, coupled with the opportunity that we see in terms of getting some of these network flywheels up and started, it solves the problem for us.

There's kind of 3 things going on. One is the network flywheel. Two is the platform modernization that should make our products simpler and more accessible to anyone, lowering our cost to serve. And then three is the new pricing model. And so although it's early, we're pretty optimistic about this. That said, and I think this is an important thing, we are going to be very methodical about how we roll this out to our existing clients. And so we know when our renewals are scheduled. We'll start those conversations well in advance. And we're not going to do anything that impacts our financials or hurts our clients. So we're going to be really smart and very methodical step-by-step about this with existing clients and very opportunistic with new prospects.

Got it. Appreciate that clarity. And then, Scott, maybe another one for you here. There's -- you talked about the fact that several technology providers are competing for a share of brand's AI budget to solve for data-driven marketing and advertising use cases. What do you think LiveRamp's right to win is in this rapidly changing environment?

I love this question because it allows me to say something definitively to the market and to all of our folks internally as well. We are not an AI company, all right? We're just not. We are utilizing AI in a lot of the things that we do and building in to make our products better. And so for example, at RampUp this year, we had a demo of something that will go live next quarter. I'm really excited about it. Instead of creating segments using Boolean logic and SQL queries, you literally use AI.

And we're going to be the only company in the world that can allow a client to combine first-party, second-party and third-party data to make really amazing AI segments. That's an example of how we use AI to improve our current products. And we'll do that in our queries. We'll do that in our reporting. We'll do that in our QA. We'll do that to enable our engineers to code faster, a whole host of things.

But in terms of how we interact with all of the AI companies that are out there doing amazing things, we're an enabler. We're not an AI company. We're an AI enabler because the big challenge that all of our clients have is that they're looking at all the things they can do. And the common denominator is if you build AI using the world's public information, you hit an asymptote, the models aren't good enough. If you start to fuel it with your own proprietary information, then you can unlock significantly better performance, greater personalization, everything just performs better.

But the threat there is the complexity of wiring your data to all those different touch points and also the security will enter us because our clean rooms can be configured to go right into AI. And so we can configure -- I have a vision of like if someone is doing something interesting in AI that matters to our clients, we're going to have an integration partnership with them with the right controls in place such that our clients can very easily activate their data into those models.

Now I have a view that there won't be a single company that wins on all these models. And we already see that, that it's hyperfragmentation. A couple of companies might buy all the companies that build these models over time, over the next 10 to 20 years. But there's hyperfragmentation, and so that really plays to our advantage. That complexity is exactly the problem that we've always solved with data activation. And now we're just extending data activation to AI activation. So I think it's a really interesting opportunity for us. You can see that we already announced like our partnership with Perplexity. We announced with Chalice. And I think you'll see a host of other partnerships because literally, it's a big priority for our business development team.

And it seems that we have no further questions. I would now like to turn the conference back over to Lauren Dillard for closing remarks.

Great. Well, thank you. First, to close, Q1 was a strong start to the year, marked by double-digit revenue growth, first quarter -- record first quarter margins and continued discipline in both execution and capital allocation. Second, recent sales momentum has been strong, and our clean room strategy is landing, and we're on track to deliver progressively stronger top line performance as the year unfolds.

And finally, we expect another year of strong cash flow and plan to deploy a substantial portion of this higher cash flow toward opportunistic share repurchases, reflecting both our confidence in the business and our continued commitment to driving long-term shareholder value.

With that, thanks again for joining us today. We look forward to speaking with many of you in the days and weeks ahead.

This concludes the conference call. You may now disconnect your lines. Have a pleasant day, everyone.