LiveRamp outlines Rule of 40 target by FY '28 as AI and new pricing model drive growth

Earnings Call Insights: LiveRamp Holdings, Inc. (RAMP) Q2 2026

MANAGEMENT VIEW

* CEO Scott Howe opened by stating the company "delivered solid Q2 results with revenue and operating income surpassing our guidance," highlighting strong execution on near-term financial commitments and strategic investments in AI enhancements and a new usage-based pricing model.
* Howe reported Q2 revenue increased by 8%, with Marketplace and other revenue accelerating to 18% growth, and subscription revenue rising by 5% as anticipated. He emphasized that "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%."
* Howe noted momentum in Commerce Media, CTV, and Cross-Media measurement, with million-dollar-plus subscription customers growing 5% sequentially to 132. The company closed a multimillion-dollar new logo contract with a leading global auto manufacturer and a multimillion-dollar upsell with a major social media platform.
* Non-GAAP operating income climbed 10%, attributed to cost efficiencies from expanding offshore operations in India. Howe stated, “Our 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.”
* Howe discussed the company’s leadership in Commerce Media, with new networks for major brands such as Uber, PayPal, General Motors, and United Airlines, as well as expanding CTV integrations including international growth with Netflix.
* On AI, Howe described LiveRamp’s strategic positioning within the ecosystem and highlighted new tools such as an AI-powered audience segment builder and the AI Agentic orchestration platform.
* On the new pricing model, Howe said, "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."
* Howe reiterated confidence in achieving the Rule of 40 by FY '28, stating, “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.”
* CFO Lauren Dillard provided, “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.”

OUTLOOK

* Dillard announced an increase in FY '26 revenue guidance by $3 million at the midpoint, now expected to be between $804 million and $818 million, which is growth of 8% to 10%. Subscription revenue is still forecasted to rise mid- to high single digits with improving growth in the second half. Marketplace and other revenue is now expected to grow mid-teens.
* Gross margin is now expected to be approximately 72%, versus prior expectations of mid-70s, due to longer-than-expected platform cost optimization. Operating income guidance remains between $178 million and $182 million. The company continues to expect free cash flow to rise this year.
* For Q3, the company expects total revenue of $209 million to $213 million and non-GAAP operating income between $55 million and $57 million, with an operating margin of roughly 27%. Marketplace and other revenue is expected to be up low teens.

FINANCIAL RESULTS

* Total revenue was $200 million, up 8%. Subscription revenue reached $150 million, up 5%, with fixed subscription revenue increasing 6%. Marketplace and other revenue totaled $50 million, up 18%, with Data Marketplace comprising roughly 75% and growing by 14%.
* Gross margin was 72%, down 3 points year-on-year due to higher cloud hosting expenses. Operating expenses were $100 million, flat year-on-year. Operating income was $45 million, up 10%, with an operating margin over 22%. GAAP operating income was $21 million, up from $7 million a year ago, with margin expanding 7 points.
* Free cash flow was $57 million, with $50 million used for share repurchases. The company holds $377 million in cash and short-term investments and no debt.

Q&A

* Cal Bartyzal, Craig-Hallum: Asked about drivers of ARR improvement. Dillard explained, “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... we also had much lower customer churn in the quarter both on an absolute basis and particularly compared to Q1.”
* Cal Bartyzal, Craig-Hallum: Inquired about upsell opportunities in renewal-heavy H2. Howe replied, “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… we've got to deliver, but I feel really optimistic about our ability to do that.”
* Mitchel, Susquehanna: Questioned AI search impact on click-through rates. Howe responded, “Our exposure to the open web is low… The vast majority of our top 20 destinations… are simply not impacted by these open web shifts… our upside from AI is high.”
* Alex, Benchmark: Sought clarity on macro conservatism in guidance and pricing pilot impact. Dillard replied, “We have built in some conservatism here… But in short, we believe we've built in an appropriate level of conservatism into our guide.” On pricing, she confirmed no upside from the pilot is included in this year’s guide.
* Clark Wright, D.A. Davidson: Asked about platform investments. Howe noted, “We are confident about this driving incremental revenue in the coming quarters and years… we're investing in AI product capabilities… and… in our new usage-based pricing model.” Dillard added, "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."
* Clark Wright, D.A. Davidson: Asked about customer count trends. Dillard said, "I would characterize that it's stabilizing… the quality of our new customer adds continues to be very impressive."

SENTIMENT ANALYSIS

* Analysts focused on ARR momentum, upsell potential, macro guidance conservatism, AI impacts, and investment timeframes, with a tone that was neutral to slightly positive and probing for clarity on sustainability and growth levers.
* Management maintained a confident and optimistic tone in both prepared remarks and Q&A, often reiterating confidence in both short- and long-term objectives. Howe used phrases such as “we remain confident” and “I feel really optimistic about our ability to do that.”
* Compared to Q1, analyst sentiment remained similarly inquisitive, while management’s tone stayed highly confident and constructive, with more emphasis on execution and early positive feedback for new initiatives.

QUARTER-OVER-QUARTER COMPARISON

* Q2 guidance was raised by $3 million at the midpoint, compared to a $6 million increase in Q1. Management continues to signal incremental confidence, but with more conservatism reflected in gross margin expectations (now at 72% versus prior mid-70s).
* The focus shifted toward ramping AI product enhancements and the new pricing model, while execution on cost discipline and offshore initiatives remained key.
* Both quarters emphasized strong sales momentum and robust pipelines, but Q2 highlighted higher ARR growth (up 7% year-on-year) and the best net new ARR in 7 quarters.
* Analyst questions in Q2 focused more on the sustainability of ARR growth, upsell potential, and the tangible impact of AI and pricing changes, while management’s responses reflected increased confidence and detail around growth levers.

RISKS AND CONCERNS

* Management noted that gross margin improvements are taking longer than expected due to dual platform operations during migration, delaying cost optimization.
* Guidance includes conservatism for variable revenue streams due to macroeconomic uncertainty.
* Dillard confirmed that "no upside from the pricing pilot" is included in this year's guide, and macro deterioration could affect the lower end of the revenue range.
* Analyst questions also reflected a watchful stance on the sustainability of new business momentum and the timeline for realizing investment returns.

FINAL TAKEAWAY

LiveRamp delivered strong second quarter results that outperformed guidance across revenue and operating income, driven by robust sales momentum, expanding AI product capabilities, and successful execution of new pricing strategies. The company raised its full-year revenue outlook, continues to invest in key growth areas, and remains confident in achieving long-term Rule of 40 targets by FY '28, underpinned by ongoing cost efficiencies, a growing customer base, and positive early feedback from recent strategic initiatives.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ramp/earnings/transcripts]

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