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

Good morning, and welcome to day 2 of Bell Potter's Emerging Leaders Conference. As James said in the first session, today we have a tech focus. We also have an international flavor with 3 of the 4 companies presenting out of the U.S. The first company we have today is Life360, which floated in May last year. I should note that Lafitani covers this stock, and it is his #1 pick. The stock has been a strong performer in the last few months, the share price doubling from $2 or around $2 to now over $4. We have Chris Hulls, the CEO, in San Francisco. So I'll pass over to Chris now.

Hello, everybody. Thank you for hosting me. Very excited to give everybody an update on the business today. I want to start -- although I know most of you follow the story and most likely have heard our quarterly earnings or half year earnings. Just a little bit about who we are. Oftentimes, people look at us and they think we're just an app. But I want to remind everyone, we're truly a global business. So for those of you who haven't seen us at all, the core in the Life360 service, it's the world's leading location sharing service for families. You can see where people are, you can keep them safe, you can see how they're driving. And now we have a whole host of membership services around safety, which I'm going to talk a little bit about. But just to get a sense of our size, we have over 25 million monthly active users in 195 countries. Almost 1 million of our circles, which is this family unit, are paying us, so 845,000 as of the end of H1. We're extremely well capitalized, more than $50 million in the bank, and about 200 people in the company. And as already mentioned, we're dialing in from San Francisco, although all of us are remote like the rest of the world. Very quickly looking at results. We ended H1 very strong in spite of COVID. We're obviously impacted when people movement is reduced. We're all about protecting and connecting your family members when you're on the go. But in spite of that, hit a $78 million annualized run rate, 57% year-on-year growth. And we were positive on a cash flow basis for the first time ever in our history. And we'll talk a little bit more about that, but as shown, we think part of the driver of our share price is that we have an extremely resilient business model. And we also recently launched what we call our membership service, which dramatically expanded our premium offering at a 33% uplift in our average revenue per paying circle, which is the key metric of our determinant. So very strong tailwind once the operating environment returns to normal. We also do have a very significant impact just in terms of truly saving lives and not just being another digital service, which just sits there, that might be fine, might be entertainment, but not really connecting to the real world. I just want to share a few statistics about some of the actual impact we're having. So these are all statistics from 2019. We sent over 827,000 help alerts, that's our SOS feature in a single year. We tracked more than 19 billion miles of driving where people were protected by our crash detection service, which is essentially a service where if you're in an accident, we can dispatch an ambulance, even if you can't ask for help. And in that here, we dispatched almost 10,000 ambulances to real accidents. And just in terms of being a useful product, you get a lot of alerts when your family members get home, leave the office, have a low battery, all that. We sent nearly 9 billion unique notifications. And although most of our user base is in the U.S. and the majority of our premium features, in particular, are also U.S. only, some things like a help alert do work around the globe. So the testimonial I have up here is a real Life360 user from Queensland who shared that if it weren't for this SOS service, they wouldn't be here today. So it's very motivating for us. It's amazing for recruiting. And it gives us a good sense of purchase they're coming to work every day because we aren't just that digital-only mobile app they use to waste time. So I mentioned a big emphasis on what we've been talking about this year is our membership service. And part of the vision of Life360 was always to have a very robust premium offering, which extended not just about location sharing, not just about driver safety, which is where most of our premium products have been focused over the last few years, but looking for a very holistic service that protects your physical safety as a person, your identity in the cloud, you protecting your home on the go, when you're traveling. And we just launched this new membership service just in the last few months. I mean it quite literally puts that 360 in the Life360 name. This isn't just a new idea or something we're testing, although we're a decade-old company, it truly is now that we're providing that full-rich service we envisioned and it is why we raised the IPO last year. We wanted the funds to dramatically increase R&D, so we could bring this more broad offering to light. And I'll show you in a minute, we now have over a dozen features, each of which could be companies in their own right. So before we launched a membership service, we had a bit of a narrow offering. Our location app was very much focused on families with teens and then families with their kids who are going to college. And all their attention was pretty good beyond that for the free service, our crash and roadside assistance product, which accounted for the vast majority of our revenue pre membership was very focused on this life stage where you, as a parent, were worried about your kids, either becoming a new driver or driving with other teens. And while people pay for things like AAA in the U.S. or NRMA in Australia, that emotional resonance really was set within this 5- to 6-year period of Life. With membership, though, we now have features that go much older and much younger. So a couple of examples now -- we now have an Identity Theft Protection service, which is very relevant for people getting their independence, opening their first credit card, getting their bank accounts and young adults. That goes from late teens up to even senior citizens. We have our SOS feature, which is very focused on physical safety. Single touch to get help in an emergency, a safe lock feature. If you let go of a button and you don't enter a pin, we send police to your location. Very applicable again to young adults all the way to senior citizens. And we now also have a service called Family Safety Assist, which is one-touch access to operator stringent specific use cases from -- there's a big natural disaster. My kids right in the Tile and I need to talk to a nurse. I'm stuck in a foreign country, I need to get home. So the deal with Family Safety Assist is that one touch for someone who can help you in any sort of contingency. It's also very useful for parents who have younger kids because they're in that phase of life where it's stressful and chaotic, and they just want one less thing to worry about. So these are all things that are Life today, but the idea with membership is, is our platform to build a whole host of new features as we expand, and we now are set up for that next decade of features that we want to build at Life360. I want to talk a little bit about it and just share a few things. Given this is a condensed presentation, I'm not going to go into full depth, and I'm not going to read this slide, but we now have 3 tiers of paying features for our users. So everyone starts on free and then we upsell you over time. And the idea now is we've gone from basically a single premium product, it was one size fits all, to something where we have lower price entry points for people who might not be ready for a full bundle, going all the way up to our marquee service for people who always want the best. Now we have a way to get people to pay extra in a way they didn't previously. And the reason I'm showing this chart is to say, hey, we are giving a lot of value at a drastically lower price than anything on the market because we're able to use mobile economics to bundle everything. And the reason we needed this big R&D increases, we're really supporting a lot for a 200-person company, and there was a lot of science and research that went into this, which is why we're unsurprisingly not having a lot of success early into this launch. So as a quick look, I'll draw your attention to the right. We've only been live about a month now. We're a bit over a month, but in terms of results we can share. We've already had 40,000 new people sign up for membership. About 6% of our U.S. subscriber base is already on a membership plan. And as I mentioned in the beginning of this presentation, we have a 33% uplift and average revenue per paying circle for these new subscribers, which will flow through and be a tailwind in terms of revenue growth for many years to come, and in particular, over the next year as people convert to these higher price membership offerings. And if we roll that all together, for looking at how does this drive our business, membership does hit almost all the key financial levers of the business. So we have new features that go beyond location, which means we can have a bigger reach because we're relevant to more life stages. We have a broader offering, more opportunities to convert, so higher conversion over time. The tiered pricing means higher revenue for average paying circle. And because we're giving so much more value, we think over the long run, we have potential for churn to decrease. So if you take this net-net, our LTV goes up, which means we can spend more marketing, which then drives that next wave of revenue growth. Now that membership is out and now that we're somewhat renormalizing after COVID, I want to share a little bit about our next steps in some of our upcoming strategy. I'm going to talk about each of these on the next few slides, but as a quick summary of what I'm going to talk about, I want to talk about how we're going to double down our investment in membership, given the early success. I want to talk about how we're evolving from something that's more of a pure location sharing more to a motion-based family communication, which is something that's accelerated due to the pandemic; and I also want to talk about how we're adapting some of our marketing spend and the channels we're going after because we have had a bit of the world change on us, and we're trying to position ourselves well for growth once we return to a more normal operating environment. So on that first topic, we've reallocated a significant amount of our R&D to making the next stages of the membership come to life. We have a multiyear road map for this, but given how well this is working, we're trying to accelerate these new features. So a lot of what we're doing is launching features that were already in the road map and also doing like product marketing in the app to get people to convert to these higher price plans. So I want to show one example here on this screen around our Identity Theft Protection product. So right now, we already have identity theft restoration, where if identity is stolen, we will help you fix it, and we'll also reimburse you for any out-of-pocket cash loss you might have up to $1 million. What we don't have now is the freemium funnel, which mean is starting as a premium user, how do we do that in a graceful way that actually ties them with the product. So what we're building now is for all our users, dark web monitoring, which will help monitor the dark web for your family members, like passwords breaches, financial breaches, data breaches, personally identifiable information breaches, show that to you for free. And then we say, "Hey, we saw that your kid's password is breached in this incident, are you protected?" It's a very natural way to convert someone instead of just saying, "Hey, sign up for Identity Theft Protection." So these are things that are going to come out over time and really drive that increased conversion, which will help churn, help ARPPC and help this overall acceleration of the services. I also mentioned we're evolving. So as part of COVID, as evidenced by even like me being here on Zoom, actually sitting on a couch with the background, the mix is you can't even tell what I'm doing is like, we are all as a world used to digital communications in a way that was obviously coming, but dramatically accelerated in the last few months. And one of the things that has always been clear that we needed to move from was this very parent-centric, where are you, to a more family-centric, how are you, to allow better communication, make the app a little bit more fun, less about just pure tracking. So our view that COVID has accelerated the market's readiness for this next phase in our service because parents and kids alike have had to use digital tools in very different ways to communicate just in these last few months. So a lot of what we're going to be doing over the next year or year-plus is putting emphasis and research into the free version of the communication elements of our app around that theme of moving to "How are you?" from this very utilitarian focus, "Where are you?" And the screenshot I have here, it's just a mock and it's an example, but it's a big theme we're going to be pushing on over the next year. As another part of that move from parent-centric to family-centric, we're also looking at features for teens. So as one example of that, we now have a feature in sneak-peak mode called Bubbles, which allows teens to keep all safety features active and set a zone that when they're in that zone, the exact location is covered out, they can have more of a sense of autonomy and freedom, but parents know they can always burst the Bubble in emergency, still use safety features. So we're having that conversation that gets everyone more excited about using the app. And there's more we're going to do here to be having the backs of the entire family. Part of the evolution we're doing with membership is also going from app-only to full e-commerce on the web and other channels. So we're working on infrastructure that will allow us to convert people directly to premium memberships before they even touch the app, do things like partner distributions with affiliate codes, so other people can give away, Life360 Premium; create a platform for future efforts around internationalization. It's a big, big heavy lift around doing this work, that once the world is back to normal, we can put a lot of dollars into finding new ways of bringing people into the platform. We're also adapting some of what we're doing in light of COVID. The biggest one is we've essentially stopped all direct performance-based marketing, while the top of our funnel is impacted. Social distancing is very much in effect. So that means our ability to acquire users efficiently is diminished. I will say that even though we're not spending anything, we're still growing completely organically, but we are repurposing some of that spend into some of these new channels. So once the world is back to normal, we can really hit on the gas. So I already mentioned the new e-commerce channels we're building. But from a marketing standpoint, we're working on over-the-top TV. So if you're watching your show on Hulu, you can see a Life360 ad, even traditional TV we're looking at. We're starting partnerships with influencers and celebrities and have a lot in the works they're going to be announcing here. That's more brand-based than performance-based, but still will drive downloads if we can successfully enter that broader conversation. We're also now marketing to all family members for the first time. So earlier this year, we launched the parody video on YouTube, making a little bit fun of us that reached over 1 million views on YouTube within 24 hours. It's fun, it's delight, it's not just about safety. And trying to say, "Hey, we're just a thing that exists versus this boring mundane tool." And there was another thing related to the pandemic where somewhat unintentionally tied into this, where teens went after us on TikTok and organized a kind of a joke campaign to rate us 1 stars, and it actually was getting our attention. And so we thought let's continue this avenue we're pursuing, and I became a bit of a caricature and character on TikTok, where I kind of did a funny presence around saying, "Hey, what are your teens doing? We're actually here for you. We're going to create things like Bubbles, which we call [indiscernible] on TikTok. And we have driven over 50 million views of Life360 content, and I personally have become a bit of a meme and household name with teenagers in the U.S. And it really has had a dramatic impact on our brand far more quickly than we ever anticipated. So it's one example of that. These are daily ratings of our app on the App Store in the U.S., where red is 1 star and green is 5 star. And you can see a few months ago during this campaign, teens were really hammering us. It wasn't too pleasant. But coinciding with our presence on TikTok and launching new features for teens, it completely flipped. And you can see on the right, we actually had days where there were negative 1 stars because so many teens were changing their views from 1 to 5 stars. And we still feel very much in the early days here, and we legitimately are trying to say, not just cheesy marketing, but how do we build features that make the entire family feel like we have their back. And so to summarize everything, I obviously didn't have a lot of time to go deep today. But when I think about why I'm excited about the future, our product is now massively expanded. In July, we launched membership. And now we do have a platform for our next 10 years of growth. And we're very much in the early days here and have not yet been able to push it hard with COVID, but as soon as we come out of that, we are extremely excited for how we can potentially grow very quickly when the world is back to normal. We're also simultaneously opening up new channels that dramatically expand our brand and are cementing the leadership we already have in this space and very exciting -- in an exciting way, moving beyond just the parents. And our hope is not only does the brand get stronger and bigger, but now we have new acquisition channels that can let us grow even quickly -- more quickly, specifically around membership, which will be ready to go by next year. And there's a whole range of things in the road map I didn't even talk about, some of which were a bit delayed from COVID, but we're not just having this one thing with membership, there's so much more we can do. From expanding internationally, to ramping up the lead gen projects which we've now been working on for quite a while, to a range of new app features which we have discussed today, they're all coming. So in summary, we're very well positioned for this next decade of growth. And we're in a very unique and exciting moment where, although we're 10 years into this, we're now transitioning from a very utilitarian app to that 360 in our name to be a very comprehensive family safety brand. And with that, I'll open it up for question and answers.

That's perfect, Chris, you're right on time. Thanks very much. I do have a few questions from the audience. I'll just start with those. What's the strategy, Chris, for other country expansion with membership?

Sure. So short term, we're very much focused on the U.S. Resources are limited, and we want to double down on what's working. And the U.S. has been very much outperforming. We also have seen international take lockdown and social distancing much more seriously than the U.S. And so international traffic has been disrupted far more than U.S. traffic. So we have been saying, "Hey, given we know that U.S. is coming back and working pretty well, we have put most resources there." So we have not made as much emphasis on international this year, as you might have planned at the beginning of the year. But once we come out of this, the order of operations is first to make sure all the free features work globally, then we expand to other regions with the membership. So we're going to start with Canada because we can use the same service providers, then it would be more U.K., Australia, EU. And then we think about that from there, but that is going to be -- this is definitely not a short-term thing. This is a longer-term strategy over the next couple of years.

Sure. This is a question from LAF actually. He's keen to know where wearables are on the road map and what specific areas?

Sure. So wearable is something we watch quite a bit. Our vision encompasses what we call people, pets and things. So we're obviously covering people with smartphones right now, but it could be your key, could be your dog, there's so much we can do with Life360 as a platform. Our view is that we probably would not be the wearable creator, but we can tap into the wearables that get popular. So Apple, obviously, with the Apple Watch in a pretty exciting way announced for the first time that, that watch is actually going to be much more explicitly marketed as a stand-alone. And we certainly hope they open up APIs to allow us to tap into that or even the air tags they have. And if they don't do it, they're companies like Tile, which we're in close contact with about plugging into our platform. An area I get particularly excited about, though, it's actually not the young kids, young kids are getting phones at a younger -- earlier and earlier age because they've been so much with even COVID is like -- my 5-year-old daughter is on an iPad with Zoom now for kindergarten. You can already see that it's going to pull the average age of a phone even lower. So when I think about wearables, I think, the big-dollar business is more on the senior side because it's such a huge industry with the iPhone, they can't get SOS alarms, now I can see a world where they all get a smartwatch, and we can build the service on top of it. So I think we're going to be well positioned to build the services on top of a hardware layer that most likely other people will innovate on. But we are always opportunistically looking for M&A. We've seen a range of smaller companies. It looked like it could be good bolt-on to our service. And we are happy that the share price is bouncing back. So -- we've long felt a little bit undervalued. And if we get back to -- I think we're still undervalued. But we have more normalized to our U.S. peers on multiple basis. I think we have a great currency to do smaller acquisitions to accelerate some of our growth into these new avenues.