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

Welcome. You're watching NWR Investor Conference November 2020. On the line, we have Life360. Life360 operate the platform for today's busy families, bringing them closely together with smart tools designed to protect and connect its members. The company's core offering on Life360 mobile app is a market-leading app for families. It features a range from communications through driving safety and location sharing. Life360 is based in San Francisco and has more than 28 million app monthly active users located in more than 195 countries. Russell is on the line with us today. Russell Burke, he's the CFO. Russell joined Life360 earlier this year, building on his broad and extensive experience across entertainment, technology, and digital media, coupled with finance, business ops, and strategy experience. He is an experienced CFO of both public and private companies and was the former CEO of Weight Watchers in Australia and New Zealand. As always, if you have any questions today, please pop them in the Zoom chat function as Russell is presenting. Over to you, Russell.

Thank you, Laura, and good morning. I'm very pleased to be joining you at the NWR conference. I am joining you from San Francisco, and it's a pleasure to be joining the presentation. For those unfamiliar with Life360, we are the world's leading safety service for families. The family is at the center of everything that we do and this is what differentiates the products and services that we provide. We're San Francisco based, but we're listed on the ASX. Just to mention that all the references I make in this presentation to dollars are in, in fact, U.S. dollars. So as at September 2020, we had more than 25 million monthly active users across 195 countries. We had 884,000 Paying Circles or subscribers. Net cash of more than $59 million and around 200 employees. Our third quarter results delivered annualized monthly revenue of around $81 million, a 24% year-on-year revenue growth despite the impact of COVID. Our second consecutive quarter of positive cash flow and a very strong early performance from our new membership offering, which launched on June 30, with around a 30% uplift in average revenue per Paying Circle, which is our measure of average subscriber revenue. This slide gives an overview of Life360's freemium consumer model. As you can see in the diagram, we are able to monetize our entire user base through indirect revenue, which includes data and lead generation revenue streams. Importantly, the free user base also operates as the top of the funnel for our paid subscriptions, which provides our direct revenue. And in fact, we maintain engagement over our free user base for years and are, therefore, able to convert users into subscribers over a significant period of time with little incremental costs. In the first half of 2020, direct revenue contributed 73% of total revenue across the U.S. and international markets, with indirect revenue contributing around 27%. As I mentioned earlier, we launched our new membership model in the U.S. market at the end of June. This slide highlights that the launch is actually the culmination of a more than 10-year evolution in the vision for the company. We put the 360 into the Life360 name because our strategy has always been to be more than just an app. Our goal is to provide a service that protects you physically while you're driving and in the cloud all at the same time. We used the proceeds of our IPO on the ASX in May last year to fully execute what we've been envisaging since the company was founded. Today, I'm going to provide a high-level overview of membership. If you'd like more detail, we have a replay of our investor presentation, specifically focused on the membership launch on our Investor Relations website. Prior to the launch, our product was focused on 2 life stages: families with teens, and families with college-aged kids. Our premium offering was very appealing to families at those specific life stages, where kids were becoming more independent and were on the road with other teams. What is really exciting about the membership offering is that our reach expands significantly. ID protection is relevant to young adults who are becoming financially independent. The SOS feature is tied to physical safety, which is relevant to a much broader array of people. So as well as going older in our reach, our membership offering also allows us to go younger, with features like family safety assist, which are highly relevant for younger families. We really see this offering as the beginning rather than the end of a range of valuable services that we can provide to families. There's an opportunity to roll out more features into our offering and become an essential part of everyday life. Our goal here is to -- is for our membership to become something that parents sign up for instinctively. Just as 20 years ago, people signed up for the NRMA or RACV in Australia or the AAA in Australia when they bought a car. This slide provides an overview of the tiering of our membership service. The tiering was created to maximize both conversion and revenue and was the result of a significant amount of research. It supports our freemium model, where users can access a free basic account with premium options starting with silver at $4.99, all the way through to platinum for $19.99 a month. I won't go through all of the products offered at each level, but you can see here that each tier provides a bundled value well in excess of the subscription price. Our current users were grandfathered into these tiers to minimize disruption to the existing base, plus users receive silver at no additional charge and Driver Protect subscribers receive gold membership. The incremental revenue flow from this new model will largely come from new users taking the new premium tiers. So the revenue benefit will take some time to build. This slide gives a summary of the ways in which membership will directly benefit Life360's most important financial drivers. There's a significant increase in the total addressable market as our new features are relevant to families at all ages. This broader offering also provides a greater opportunity for premium conversion. Since the full rollout in mid-July, we've got -- we've had about 93,000 new and upsell subscribers, which is a great outcome and now represents around 13% of U.S. subscribers. Our expectation of a meaningful increase in average revenue per Paying Circle was also confirmed with a 30% uplift in the new membership cohort, which I mentioned earlier. Over time, we expect the longer relevant life cycle and substantially greater value will reduce churn as well. All of these factors combined to deliver significantly higher user lifetime value and company revenue and underpin to long-term growth opportunity for the company. While the worsening COVID situation, both worldwide and in the U.S. has brought multiple challenges, Life360 is in a stronger position to navigate in this difficult time. We're seeing organic growth in users and in Paying Circles despite a near-complete pause in user acquisition spend. We've created significant trust in our brand with a growing recognition of our leadership in the family space. And this has been particularly enhanced as safety has become even more important in the COVID environment. Added to that, we have a stable balance sheet with more than $59 million in cash and no debt. With the membership model now in place, I wanted to talk to the strategies we're following to position Life360 in the current environment and more importantly, in the post-COVID world. I'll provide a quick summary of the 3 pillars of the strategy, and then dive into a little bit of greater detail on each. First, we are investing in R&D to leverage the strong membership launch and bring forward new features. Second, we're planning to evolve our features to more emotional digital communication, something that's gained significant traction during the pandemic. And lastly, we're adapting our marketing strategy to build new channels to drive growth when the environment normalizes. One example of our invest strategy is the launch of freemium Identity Protection. Essentially, what we're doing is offering a subset of premium features to free users. So they gain an understanding of the value of membership. In this example, we'll show ID breaches for free and then provide solutions through a premium upsell. This strategy is one of the ways in which we can greatly expand the addressable market beyond just families with teens. Given how well membership is performing, we've decided to prioritize this investment ahead of some of the other initiatives on our road map, such as international rollout and lead generation. Turning now to our strategy to evolve some of our key features. As I'm sure you can all relate to, COVID is accelerating digital communication trends and supporting a really rapid uptake of new and different social interactions. This provides Life360 with a huge opportunity to accelerate our own long-planned evolution from a platform that supports a where are you mindset to one that delivers families, a how are you opportunity for communication. Progress in 2021 will demonstrate our expansion well beyond our initial pure location use cases. Another important initiative is Life360's evolution from a parent-centric model to a family-centric platform. While maintaining our core focus on safety, the launch of our Bubbles feature provides teams with the option of greater location privacy. Parents are able to burst the bubble in emergency situations, and they can also decide which family circle members can use the feature. Through this and other features, we're looking to balance the needs of teens and the parents, facilitate better communication within the family, and really enhance the value that we provide to families. Another area that we are looking to evolve is from purely ad-based approach to a fully -- full e-commerce offering. While implementation is likely to take effect over a long-ish period, we're excited about the opportunities this opens up. This web-based sign-up allows users to directly purchase a premium plan. It opens up new acquisition capabilities and the opportunity for customer segmentation and retargeting. In addition and importantly, it opens up affiliate marketing options and provides a platform for future localization plus international expansion. Finally, I wanted to talk about how we are looking to adapt our marketing strategy to take account of the external environment as well as the new features that we've got in the pipeline. As you can see in this chart, we've significantly pulled back on user acquisition spend over the course of this year. The good news is that despite this pullback, we're seeing strong performance from our organic traffic. While we intend to remain disciplined in user acquisition spend until the operating environment gets back to normal, we do plan on investing some of these savings into establishing new marketing platforms, such as TV and influencer and celebrity channels, which extend our audience reach and build brand credibility and trust. We're also adapting our marketing strategy to include all family members. Some of you may be aware of the teen campaign earlier this year to drive down Life360's rating on the app store 1-star reviews. We've been able to completely turn that around by directly engaging with teams on the TikTok platforms. In fact, our CEO, Chris Hulls, has become something of a TikTok celebrity himself. And we intend to use that engagement with teens to broaden our entire relevance to the family. This slide shows the impact that this engagement he has had with teens. Our campaign on TikTok has resulted in more than 4 billion views, and in turn, achieved the result of turning around the trend of app store reviews. You can see that turnaround here, the red bars show 1-star reviews with the green bar showing the transition to our more accustomed 5-star reviews. So in conclusion, Life360 is well positioned for the next decade of growth as we transition from a world-loved app to a comprehensive family safety brand. We have an expanded product with membership offering, providing the platform for our next generation of services. We've got broader reach with new channels that are expanding our brand and cementing our product leadership. And we have a robust road map that includes international expansion, lead generation, and new app features. Thanks for your attention, and I'll now pass back to Laura, and we'll be happy to take any questions that you have.

Thanks so much, Russell for that wonderful presentation. We do have a few questions that have come through in the last 20 minutes or so. Firstly, the last quarterly update mentioned the deferral of changes to the identifier for advertisers by Apple. What does that mean to data -- for data revenue at Life360?

Yes. And I didn't spend much time in the presentation on data revenue. It's certainly been a good source of revenue stream for us, but we don't consider it a core product by any means. It's certainly been useful for us, and it is high margin. But we're not banking on that at all as we look to our longer-term strategies. But particularly to the changes that were proposed by Apple, that is basically a risk. It's a bit of an unknown factor. They were originally going to introduce it in the latter part of this year. It's now being deferred to next year. We knew that there are some concerns with our data customers related to that. And we -- I guess, we would view it as having the potential to have a moderate impact on that piece of the revenue. That said in the past, we -- and our data customers have always been able to adjust to these things. So we just need to see what happens. But as I say, it's a risk. It's a risk to that part of our revenue, but certainly not a core part of our overall strategy.

Right. And you're obviously on the ground over there in the U.S., Russell. It is Election Day. We're speaking on the U.S. Election Day. There is a chance that there could be a restart of some lockdowns we're hearing if Biden gets elected, that is. We're heading into potentially a second, third wave of COVID in the U.S. Do you foresee an impact on new user registry similar to the April, May lockdown? Do you anticipate that that could potentially happen with Life360?

Yes, look, it's a very, very interesting time. The whole COVID situation is obviously a major issue across the board. And yes, we're seeing major spikes and perhaps new waves across a lot of the U.S. And we've seen that over -- increase over the last few weeks. The good news from our perspective is that even with those spikes, we haven't seen the sort of impact on -- even on the top of the funnel from our perspective. With the initial COVID wave back in March, April, we did see a pretty substantial short-term decline in new registrations. And even -- and that has recovered and has successfully sort of continuously ticked up since then. But we've continued to see organic growth in both usage and in our subscription base, and that's been helped by the membership launch in June, July. And even in the last few weeks, we can continue to see that organic growth. So we're not hugely impacted at that level by it. It will obviously dampen movement and dampen the overall environment probably for some time, the way it looks at the moment. But we're in a very strong position to be able to navigate that.

I noted that you have a couple of different membership options. Someone has a question about the gold membership. So they're wondering if you factor that into the modeling to be the most popular of the options going forward over the long term. Is that where you see most users -- what most users will buy, that's around USD 850, I believe, per month.