Life360, Inc. (360) Earnings Call Transcript & Summary

All right. Chris, we might get started. Thanks so much again for joining us from San Fran. It's nice and leafy in the background there. Just for those that have joined, if you've got any issues in terms of hearing or audio, just refresh the screen, and that should settle any issues. But Chris, I'll hand over to you. Obviously, we've got a short space of time to fill what is quite a bit of content that has been shared with all the attendees later as well. So any questions, just pop them down in the right-hand corner, and I'll try and get them to the end. But Chris, I'll hand it over to you. Thanks so much.

Great. Well, thank you, everybody, for having me. And greetings from lockdown in San Francisco. For today, I'm going to quickly flip through what's largely contained in our earnings deck. Given that we have a relatively short slide for today, I won't be hitting on all the slides in the deck, but we did release it publicly for everyone's browser at home if you want a little more detail with some of the numbers. But I'll hit on the main points here to give everybody just a sense of the business, how we're doing, how things are trending. And then for those of you who are not as familiar with us, also just start with a quick intro, a little bit on who we are. So before I jump into the business overview, I'll just give everyone a quick refresher of the business for those of you who might not have heard the vision before. And very simply, if you want to take the 100,000-foot view of Life360, we are trying to build for families what Facebook did for friends and what LinkedIn did for professionals. So we want to be that digital hub and digital brand for your family. Although that sounds like very much a social network analogy, we take a different approach. And our insight was that if you want to build that hub for families, don't build something socially. You're going to see everyone at the dinner table and be under the same roof with them at the end of the day. What families are really looking for and if you ask any parent, you hear something very similar. My life is stressful, it's chaotic, and I'm constantly worried about the safety of my children. I just want to get through the day. So the core of Life360 app for people who haven't used it, it's all anchored on location sharing. So similar to a Find My Friends, but far more robust and with a bunch of features specifically for the family. So all sorts of alerts to let you know when people come and go throughout the day. Have they finished a safe drive, is their battery low, being able to check in into place, get help in an emergency. We even do things like send you an ambulance if you're in an accident and can't ask for help. So think of us as this coordination device with your family plus a bunch of safety features on top of it. And a whole lot more is coming, which I'll be covering a little bit later in this presentation. A few quick stats that I'd like to share, though, just to give you a sense of our real-world impact. We have a very big user base, over 30 million active users. And in the last year alone, we have had some huge success having impact in the real world. So these stats here are real numbers from our user base. We helped almost 1 million people through Help Alerts, collected over 19 billion miles of driving covered by Crash Detection and dispatched 10,000 ambulances to real-world accidents in the last year. And this testimonial here is from a real Australian user who we're able to save in a real emergency situation. A funny thing is I sat outside for this presentation, and it started raining. So Murphy's law is striking. I'm going to move just a little bit, so my computer does not fritz and call inaudible here. Hopefully, that saves me, under an awning now. Sorry about that. And a lot of what's driving our growth is that we have become a very mainstream brand. So in the last year, we have changed from something that's much more a generic utility into something that's very well known. So while we're not as well-known from a brand standpoint outside of the U.S., at our home turf, we have become very much a -- not quite a household name, but within parents, pretty close to it. So we're very much listed as the market leader by far and as mentioned at almost 2,000 press articles in the last year. If you look at some highlights from the business, we ended 2019 with over 27 million active users. That was almost 50% year-over-year growth. And the revenue behind that was also $75 million, so growing very quickly. I am going to have to move inside one more time. Apologies for this. I was not expecting it to rain. It's the - it must be the single cloud in the entire Bay Area decided to go over my house just then. So we did lockdown-style presentations here. We're now going to -- now looking at quarterly revenue. You can see that's growing very quickly. The majority of our revenue is coming from our direct line, which is subscriptions, which I'll talk a little bit about later. And then we also have indirect revenue, which comes from a data platform and a lead gen partnership with Allstate, which I'll talk about in a minute. This revenue growth is largely driven by our monthly active user base, which is also growing extremely quickly. You can see we ended the year, as mentioned, over 27 million actives, the majority of which were in the U.S., but international also growing nicely as well. It gives us a great opportunity to further monetize the base as we grow. Well, most of our growth is purely organic. About 80% come in -- comes in through word of mouth. We do have a paid user acquisition arm as well. And for those of you who have known the business for a while, when we were doing our IPO, spend was very much increasing because we were in the early days of that line of marketing. But in the last year, we've been able to significantly reduce marketing while still growing. So the growth of the business has been primarily driven by this word of mouth, and we've been able to redeploy some of that savings and paid spend to things like R&D and new feature initiatives. Direct revenue is the majority of our business, as I mentioned. And we do have a line of indirect that I can talk about in a bit, but I'm not going to spend too much time on this for the sake of time -- the limited time we have. Our premium revenue, though, looking at Paying Circles, this is the bread and butter of the business. Most of our customers are coming in through something called Driver Protect. So that grew 43% year-over-year, and you can see that's a very high price point product versus our previous lines. So we were able to grow average revenue per Paying Circle significantly in the last 12 months. And we're going to talk in just a little bit about some of these other products we're launching, and we expect this to be continued growth. Now looking at our churn very quickly. Churn is something we're extremely proud of. This is very much best-in-class where if you look at our free user retention up top, you can see that people come in early on. And we do lose some people in the first month of the life cycle, but then it very quickly flattens out, and churn goes to 0. So very quickly, you can see that once that initial churn happens, it's flat, and it completely stops. On our premium side, we have Driver Protect down below, that churn is also looking really good. So when we did the IPO, we really didn't have very much history in terms of what that user churn would look like. But now we do have a second annual renewal period. And you can see that after month 24, churn is also very flat. Looks very much like a traditional SaaS business, where once that flattens out, we keep those users for a very long time. Indirect revenue, again, as I mentioned, I won't talk much about this but that grew quite a bit in the last 12 months. And that's going to continue to be a large source of our business but not a core focus of what we're doing. So we don't expect this to be as much of a growth driver going forward into the next year. I'll leave this slide for people to look at later if they want, but this just breaks down where the revenue is coming from. So now I want to quickly talk about the membership model, and I'm going to go back to my outside spot because I think the rain has passed, and I don't want my young daughters interrupting the flow of the presentation. So I'm going to move back outside quickly. Again, this is a lockdown-style conference presentations here. So we're launching what we're calling our Life360 Membership, which is really a culmination of our 10-year vision to build this much broader hub of not just protecting you when you're out and about and driving, but really build a holistic service that protects you of everything from protecting you in the car, protecting you when you're browsing the Internet and your identity in the cloud, your physical safety, everything you worry about under one place. And this is really what we've used those IPO proceeds to do, and we need a pretty significant capital to do it because some of the features I'm going to talk about, they could be businesses alone in their own right. So if you look at -- to give a little bit more color about that, the app as of now, it is useful to all different life stages. But the strong emotional resonance of the product is very much families with teens and then college-age kids. So for free users, they do retain after their kids leave the house, but the emotional resonance of like staying top of mind does go down, in particular around our premium products. So in the next few months, actually June 30 is the target launch date, we are going to move from the premium product to being very much around crash and roadside assistance to things like identity theft protection, premium SOS, disaster, medical, travel assistance and more. And I'll be talking about a few of these features on the next slide. So first, this is a quick look at everything we're going to be launching. I won't go into each of these lines. But to summarize what we're trying to do, the idea is you become a Life360 member. And then across these primary things you would worry about as a family organizer, our membership plans, to go silver to platinum, will have features that will help you cover those sets of needs. So I won't explain how we decided to build each of these features. But the idea is that across either any of these price points, you are going to get coverage very holistically across some of the main things that you would be worried about as a family organizer. So a few examples. Starting with Identity Theft Protection. This is a screenshot of what we're going to be launching around identity theft, which is a very big segment in the United States. So many multibillion-dollar companies specifically focus on this. Our angle is that we're going to roll this up into a bundle. We're going to have a freemium part as well. So for free users, we'll be able to monitor your e-mail and phone number and social security number to see if your information or anyone in your family's information has been breached. So let's say your kid's information was stolen on a hack on TikTok, we would be able to let you know what was hacked, where it happened and how to fix it. And then if you're a premium member, we will actually let you have access to our trained operators and specialists who will restore your identity and lawyers if needed to do any damage control or recover any stolen funds. And if you do have an out-of-pocket loss, we'll cover it up to $1 million. We're also launching a premium SOS service. And the idea behind this is the Driver Protect stuff and the roadside that we already have live today is very focused on people just starting to be a driver or a passenger with other teens. But then you go to college, it's a whole different set of things you might worry about for your kids. So this new version of the product, we already have a free version of Help Alert right now. The premium version, you'll be able to do push a single button and get help or use our safe lock feature where, let's say, you have a daughter in college. And you're worried about her going across campus at night, there's drinking, there's parties. What she'd be able to do is hold down her finger on the safety button. And if she lets it go, she has 10 seconds to enter a PIN. If she doesn't enter that PIN, we will then call her and see if she needs help. If she says yes or doesn't answer, we'll dispatch police to her location. So fortunately, that's a feature that won't be used that much. But it's one of those things that gives you that emotional peace of mind, very specific to that life stage. And then to round out the member offering -- and I'm not going through all the features, just more just trying to give you a taste of it. We will be launching deals and discounts and perks and content because we are trying to transition the company from utility to something more holistic. And a big thing about being a membership service is actually helping you feel like you belong to something, and you get perks for being part of the program. So that's going to be part of the package soon, where if you're a premium member, discounts around home security, even like hotels when you're traveling is very much in line with being on the go, all will be part of the package. I approach that more from the consumer angle. But if you look at how that's going to drive our key business, it will increase total addressable market and brand reach. That's because we have new features that are going to go beyond location and will be relevant to all life stages. We'll have increases in premium conversion. This broader offering will give us more opportunities to convert, so a very natural way of getting more people into that funnel. And then average revenue per Paying Circle will always -- will also increase because the tiered offering and segmentation will let us support higher pricing. And then our hope is that because we are giving you this longer life cycle relevance and just more value, that will reduce churn. So net-net, we hope that drives up LTV, lets revenue go up and then more firepower to build more features and increase the reach of our brand. Quickly going to finances. I won't spend too much on this, but I'll quickly share that if you look at our discretionary cost base on the top right, our cost base on the top right, a lot of it is discretionary in the sense that paid user acquisition, we grow almost organically. So we don't need it to grow, and then R&D will naturally drop off as a percent of burn over time. We move into a maintenance mode versus innovation mode. And if you look in the bottom left, if it weren't for those 2 line items, we would have had $25 million of positive underlying EBITDA, which we define as EBITDA excluding stock-based comp. So we do think these areas of spend are important for the business, but we highlight that we have a very efficient capital structure should we so choose it. And it is actually paying off right now with this COVID lockdown because we are scaling back some of these discretionary costs while people are holed up under one roof. If you then look at that and compare it to our prospectus as well, we are very proud that we did achieve essentially every key metric from our prospectus as you can see here, all within a few percent as well. So I'll quickly go to outlook and then open it up to Q&A. So I'm going to read this more verbatim because this is a bit more of a legal statement. Life360 reported CY '19 results on 27 February 2020 and provided guidance for CY '20 business and financial performance. CY '20 Q1 results are expected to be broadly in line with internal forecasts. However, there are considerable uncertainties over the duration of the current environment with negative impacts on the business likely in Q2. Consequently, directors believe it is prudent to withdraw previous guidance. Life360's discretionary expenditure model provides the opportunity for cost management, particularly in paid acquisition to at least partially offset revenue shortfalls. Life360 remains confident that we'll reduce operating cash outflow in CY '20 versus '19. Life360's priority remains the safety and well-being of its employees. Business continuity plans, including remote working, have been in place for some weeks and are working well. So if I take a little bit of the color behind that, first off, the company is operating very much as normal. Over 40% of our staff is already outside of San Francisco. So we are very well set up to work when we can't go into the office. Obviously, a little bit chaotic with kids at home, but we expect any impact in terms of progress of the company from a roadmap standpoint to be quite minimal. When we talk about challenges in the business, it's really as you'd expect and hopefully and expectedly short-lived, where if all families are hunkered down and locked down and can't go out and about their routines, the usefulness of the product goes down. So that means our registration rate has fallen, and our paid spend efficiency was going down as well as part of that. So we ratcheted that back. We're waiting for the lockdowns to finish, and then we expect to bounce back to where we were. And you can see in countries like Japan, where they're able to flatten the curve, so to speak, in line with what everybody has been talking about, traffic already has rebounded. So our view is that Q2 will likely be one of diminished growth, which will probably have some impact on full year. But the reason we remain confident that our CY '20 cash outflow will decrease is because we do have this very discretionary spend, and I'm very confident when we come back out to the market with our next update, we will be able to show that we've weathered the storm very well. And any concerns people have around COVID actually being existential risk to our business, we'll see, if anything, it's more of a delay than anything permanent. And to close, if you look at the membership offering, a lot of what we are trying to do with having this one-touch button to get help, part of that actually was ironically or perhaps very presciently focused on pandemics and emergency evacuation. So if this -- if we had our Family Safety Assist service live now, if you were stuck in a country and needed an evacuation out, that is something our agents would be able to help with. So net-net, we remain very, very bullish even through this difficult time and have a very strong balance sheet. And if anything, we think burn will be going down, not up next month while we're in the midst of this crisis. And with that, I'll open it up to Q&A.

Awesome. We've got one question. Hi, Chris. Does the current environment influence how you'll manage the current level of recruiting specifically and cash burn more generally?

Sure. So I think I already hit on cash burn. We expect that it will not be going up in Q2. If anything, will be going down because we will be pulling back on some of that discretionary spend. When we think about recruiting, we are -- it will probably naturally slow down because it is harder to hire when you just can't meet people in person. I think we did hire 3 new people last week, so it is still continuing. We obviously want to make sure we get a CFO in place, which is an important hire for us. We're also doing a Chief Product Officer search because our goal is to continue to plan for success, and we see this as a temporary blip. We also hired a very senior GC recently right when this whole crisis started. So we hired the GC from Pandora, which we're quite excited about. So it will definitely slow it down a bit. That will reflect in some cash savings because we don't want to rush to hire when things are so chaotic. But if I take that to the more general point, we feel very confident around cash burn. And as a reminder, with the $60 million we have in the bank, even at current burn, which we're still very confident will go down, that's 3 years of runway. So unless this becomes this -- a permanent lockdown, which I don't think anyone's forecasting, more of a blip than anything else.

Next question. Are you likely to delay timing of new product launch?

If we do have a delay, it will be minimal. So productivity thus far has been high. All the schools now are shut down. So clearly, when people have kids running around and especially dual -- 2 working parents where you can't have nannies and babysitters over, that is clearly a headwind. But one thing we did put in our update was we're very confident any delays on new product launch will be less than a month. And we don't necessarily think that we will be delayed. We're more just trying to say that is an upper bound to show that if we do get any hits in productivity, we expect them to be minimal. And that is largely because we were already set up for this type of work environment.

Next question. Did I hear correctly that you said you had over 30 million active users?

Yes. Yes, right in that -- let me not give an exact number there. I was probably giving a rounding number there. I probably should not have given an exact number, but it's right in that ballpark. And we ended the year at the 27.2 million, but our growth in Q1 was in line with forecast expectations. Obviously, we have another week left, but as of now, very much as expected.

And next one. Has the lockdown impacted on churn?

As of now, we have not seen an impact on churn. If you look at things, there's premium churn, and that's unchanged. We have monthly, weekly and daily active measurement. And so the proportion of people using the app daily versus monthly has gone down because the daily routine is obviously much less. Weekly is very, very modestly affected. It could almost be noise, but it does show on a weekly basis. We're still very much part of the routine. And then monthly by definition, we wouldn't know yet because it's 30 days backwards looking. But as of now, that is completely fine.

And final question. Just regarding the TikTok campaign and the rating, does that have much impact on you?

There's a short-term and a long-term one. As of now, we have not seen much of one. And with the coronavirus, like that's really been -- the lockdowns are what's driving any impact. So what we have done to see if the TikTok campaign has hurt us at all, we -- it's really only been English language countries because that's where -- it's been English-speaking teams have organized. So the decreases in usage and top of funnel have been relatively consistent comparing English-speaking regions to non-English-speaking regions. So as of now, we have not felt too much of an impact. Clearly, if -- longer term, that could be problematic. But we note that Google already took action to remove the reviews from that campaign, and reviews are exactly back to normal on the Google Play store. And we're in conversations with Apple about it, and they've acknowledged the problem. And App Store manipulation is against the terms of service. So we have good signs from Apple that they are going to step in to help us as well.

Awesome. Chris, thanks so much for being flexible, on the run in lockdown in San Fran. You covered it up really well.

You're welcome.

If there's any more questions, just feel free to send them through. But thanks very much again, Chris, and take care.

Great. Thank you very much, everyone.

Cheers. Thanks, Chris.