LiveRamp (RAMP) - 2023 Q4 - Annual Report

Part I Business LiveRamp is a global technology company specializing in data collaboration, enabling secure and ethical first-party data utilization for businesses - LiveRamp is a global technology company focused on enabling data collaboration for brands to build customer value while prioritizing consumer privacy and data ethics[19] - The company serves 920 direct customers worldwide, including approximately 25% of the Fortune 500, and thousands more indirectly through partnerships[39] - The core offering is the LiveRamp Data Collaboration Platform, which unifies customer data to create a single customer view for people-based marketing solutions like activation, measurement, and analytics[35] Industry and Our Approach The company operates in a data-driven economy, providing a trusted middleware platform for consistent and portable customer data - Key industry trends shaping the market include the shift to data-driven customer experiences, the growth of commerce media through data collaboration, increasing complexity of the customer journey, and heightened privacy regulations like GDPR and CCPA[21][26][32] - LiveRamp acts as middleware for the customer experience economy, providing a trusted platform to make data consistent, consumable, and portable between customer data sources and applications[34] LiveRamp Data Collaboration Platform The platform offers identity resolution, data activation, measurement, and analytics, leveraging a pseudonymized identifier called RampID™ - The platform enables data collaboration, activation, measurement, and identity resolution, leveraging a pseudonymized identifier called RampID™[36] - The Authenticated Traffic Solution (ATS) is a key part of its digital identity graph, with over 165 supply-side and demand-side platforms committed to bidding on RampID or ATS, and integration across over 14,000 publisher domains[36] - The Data Marketplace provides access to third-party data from over 200 providers to enrich customers' first-party data[37] Revenue Sources Revenue is primarily derived from annual subscriptions based on data volume, supplemented by marketplace revenue-sharing and transactional fees - Subscription revenue is the primary source, charged annually based on data volume (input records and connection points)[38] - Marketplace and Other revenue comes from revenue-sharing with data sellers and transactional usage-based fees[41] - Professional services, including implementation and analytics, account for less than 5% of total company revenue[42] Growth Strategy and Competitive Strengths LiveRamp's growth strategy focuses on expanding its customer base and global footprint, leveraging its extensive partner ecosystem and advanced identity technology - Key competitive strengths include a large partner ecosystem (>550 partners), advanced identity recognition technology (AbiliTec®), platform neutrality, and strong customer relationships[45][46] - Growth strategies include growing the customer base towards a target of the world's top 2,000 marketers, expanding existing customer relationships, and forging new sales channel partnerships with cloud providers and system integrators[46] - The company plans to expand its addressable market beyond marketing into adjacent areas like risk and fraud, healthcare, and government[49] Customers and R&D LiveRamp serves primarily Fortune 1000 companies, with significant R&D investment and revenue concentration among its top clients - The company had 920 direct subscription customers at fiscal year-end 2023, an increase from 905 in the prior year[51] - The top ten clients accounted for 29% of revenue in FY2023, with The Interpublic Group of Companies representing 12% of revenue[53] Research and Development Expense Trend | Fiscal Year | R&D Expense (in millions) | | :--- | :--- | | 2023 | $189.2 | | 2022 | $157.9 | | 2021 | $135.1 | Human Capital LiveRamp employs approximately 1,370 people globally, emphasizing an inclusive culture and commitment to Diversity, Inclusion, and Belonging - The company employs approximately 1,370 employees ("LiveRampers") worldwide[63] - LiveRamp has been recognized as a Best Place to Work and listed among Fortune's 100 Best Companies to Work For annually since 2018[66] - The company has six employee resource groups (BERGs) and a Diversity, Inclusion & Belonging Charter focused on three pillars: Workforce, Product & Customers, and Community[67][68][70] Risk Factors The company faces significant risks related to its business operations, evolving regulatory environment, and intellectual property protection Risks Related to Our Business and Strategy Key business risks include customer retention, reliance on third-party data, intense competition, and the industry-wide shift away from third-party cookies - The company is dependent on customer renewals and new customer acquisition; the top ten clients represented 29% of revenue in FY2023, with The Interpublic Group of Companies accounting for 12%[83] - The business relies on data from third-party suppliers, who may withhold data due to legal, competitive, or other reasons, potentially impacting service delivery[85] - The phase-out of third-party cookies by major browsers like Google Chrome and Apple Safari could materially impact the business, as digital advertising has heavily relied on this technology[111][113][117] - A November 2022 reduction in force involving approximately 10% of full-time employees was announced as part of a strategic reprioritization[90] Risks Related to Government Regulation and Taxation The company is subject to complex and evolving global data privacy laws, creating compliance costs and uncertainty for data transfers - The business is subject to evolving data privacy laws, including GDPR in Europe and state-level laws in the U.S. like the CCPA/CPRA in California and similar legislation in at least ten other states[125][128] - The invalidation of the EU-U.S. Privacy Shield by the European Court of Justice creates uncertainty and risk for data transfers from the EU to the U.S., a critical part of operations[130] - Changes in tax laws, including the U.S. Inflation Reduction Act and proposals from the OECD, could adversely affect the company's business and financial performance[134] Properties LiveRamp maintains its headquarters in San Francisco and leases principal office spaces across the U.S., Europe, and Asia-Pacific Principal Leased Properties | Location | Use | | :--- | :--- | | United States | | | San Francisco, CA | Office space | | New York, NY | Office space | | Little Rock, AR | Office space | | Seattle, WA | Office space | | Europe | | | London, England | Office space | | Paris, France | Office space | | Asia-Pacific | | | Shanghai, China | Office space | | Nantong, China | Office space | | Singapore, Singapore | Office space | | Tokyo, Japan | Office space | | Sydney, Australia | Office space | Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities LiveRamp's common stock trades on the NYSE, with no recent dividends paid and an active stock repurchase program - The company's common stock is traded on the New York Stock Exchange under the symbol 'RAMP'[147] - No dividends were paid in the last two fiscal years, and there are no short-term plans to pay them[149] - The common stock repurchase program was expanded to $1.1 billion, with $217.8 million remaining capacity as of March 31, 2023, running through December 31, 2024[157] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2023, LiveRamp's revenues grew to $596.6 million, but net loss widened significantly to $118.7 million due to increased operating expenses and restructuring charges Summary Results and Notable Events Fiscal 2023 saw revenue growth but a widened net loss, driven by higher operating expenses, restructuring, and increased stock compensation Fiscal 2023 Financial Summary vs. Fiscal 2022 | Metric | Fiscal 2023 | Fiscal 2022 | Change | | :--- | :--- | :--- | :--- | | Revenues | $596.6M | $528.7M | +12.8% | | Gross Margin | 71.5% | 72.1% | -0.6 p.p. | | Net Loss | ($118.7M) | ($33.8M) | +251% | | Diluted Loss per Share | ($1.79) | ($0.50) | +258% | | Cash from Operations | $34.4M | $78.1M | -55.9% | - In November 2022, the company announced a reduction in force of about 10% of its employees and a downsizing of its real estate footprint, expecting annualized savings of approximately $30 million[230] - The share repurchase program was amended to authorize an additional $100 million and extend its duration to December 31, 2024[231] Key Performance Metrics Key performance metrics for fiscal 2023 indicate a slowdown in growth, with Subscription Net Retention declining and ARR growth slowing Key Performance Metrics (as of March 31) | Metric | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Subscription net retention | 97% | 111% | (12.6)% | | Annualized recurring revenue | $423.8M | $399.5M | 6.1% | | Remaining performance obligation | $470.9M | $394.2M | 19.5% | | Current RPO | $337.6M | $308.5M | 9.4% | - The decline in Subscription Net Retention to 97% was attributed to down-sell and churn activity, partly driven by customer budget pressures, offsetting upsell revenue[252] - Based on the declining growth rates of these key metrics, the company expects subscription revenue growth in fiscal 2024 to be lower than in fiscal 2023[257] Results of Operations Analysis Total revenues increased by 12.8% in FY2023, but operating expenses surged 24%, leading to a near doubling of the operating loss Revenue by Type (FY2023 vs FY2022) | Revenue Type | 2023 (in thousands) | 2022 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Subscription | $482,807 | $428,617 | 13% | | Marketplace and Other | $113,776 | $100,040 | 14% | | Total revenues | $596,583 | $528,657 | 13% | Operating Expenses (FY2023 vs FY2022) | Expense Category | 2023 (in thousands) | 2022 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Research and development | $189,195 | $157,935 | 20% | | Sales and marketing | $202,437 | $182,763 | 11% | | General and administrative | $125,351 | $104,591 | 20% | | Gains, losses and other items, net | $35,316 | $1,479 | 2,288% | | Total operating expenses | $552,299 | $446,768 | 24% | - Gains, losses and other items, net increased to $35.3 million, which included $27.5 million in lease impairments and $7.8 million in employee termination benefits related to restructuring[271] Capital Resources and Liquidity Cash and cash equivalents decreased to $464.4 million, primarily due to $150.0 million in share repurchases, while operating cash flow declined Cash Flow Summary (FY2023 vs FY2022) | Cash Flow Activity | 2023 (in thousands) | 2022 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,441 | $78,077 | | Net cash provided by (used in) investing activities | $(28,999) | $7,578 | | Net cash used in financing activities | $(146,010) | $(66,981) | - Working capital decreased by $91.5 million to $539.7 million, primarily due to the $150.0 million use of cash for treasury share acquisitions[279] - During FY2023, the company repurchased 6.1 million shares for $150.0 million under its stock repurchase program[292] Controls and Procedures Management and the independent auditor concluded that the company's disclosure controls and internal control over financial reporting were effective as of March 31, 2023 - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at the reasonable assurance level[165] - Based on the COSO framework, management determined that the company's internal control over financial reporting was effective as of March 31, 2023[170] - No material changes were made to the internal control over financial reporting during the fourth quarter of fiscal 2023[171] Part III Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of March 31, 2023, over 5.4 million securities remained available for future issuance under LiveRamp's equity compensation plans Equity Compensation Plan Information as of March 31, 2023 | Plan Category | Securities to be Issued (a) | Weighted-Average Exercise Price (b) | Securities Remaining for Future Issuance (c) | | :--- | :--- | :--- | :--- | | Approved by shareholders | 5,228,795 | $19.15 | 5,425,842 | | Not approved by shareholders | — | — | 41,983 | | Total | 5,228,795 | $19.15 | 5,467,825 | - The weighted-average exercise price of outstanding options, warrants, and rights is $19.15[180] Financial Supplement Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on LiveRamp's financial statements and internal controls, identifying revenue evaluation as a critical audit matter - The auditor, KPMG LLP, issued an unqualified (clean) opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting[301] - A Critical Audit Matter was identified concerning the evaluation of the sufficiency of audit evidence over revenue, due to the subjective judgment needed for the company's non-standard revenue contracts[308][310] Consolidated Financial Statements The consolidated financial statements show total assets of $1.17 billion, a net loss of $118.7 million, and a net decrease in cash for FY2023 Consolidated Balance Sheet Highlights (March 31, 2023 vs 2022) | Account (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $464,448 | $600,162 | | Total current assets | $714,559 | $815,834 | | Goodwill | $363,116 | $363,845 | | Total Assets | $1,172,703 | $1,333,736 | | Total current liabilities | $174,829 | $184,566 | | Total Stockholders' Equity | $926,076 | $1,063,060 | Consolidated Statement of Operations Highlights (FY2023) | Account (in thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Revenues | $596,583 | $528,657 | | Gross profit | $426,499 | $381,230 | | Loss from operations | $(125,800) | $(65,538) | | Net loss | $(118,702) | $(33,833) | Notes to Consolidated Financial Statements The notes provide detailed disclosures on revenue disaggregation, restructuring charges, stock-based compensation, and income tax provisions - In FY2023, U.S. revenue was $556.2 million (93% of total), while international revenue was $40.4 million[388] - Restructuring charges in FY2023 included $24.6 million of right-of-use asset impairment charges and $7.8 million in employee-related severance costs[391][396] - Total stock-based compensation expense was $125.8 million in FY2023, a significant increase from $87.3 million in FY2022, including $22.6 million from an accelerated vesting of certain RSUs[438][439] - The company maintains a significant valuation allowance ($61.2 million) against its deferred tax assets, indicating uncertainty about realizing these tax benefits in the future[475][477]