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

Good morning, and thank you for joining the Life360 management team for an update on the impact to Life360 of the recent failure of Silicon Valley Bank. This is Jolanta Masojada and I head up Investor Relations for Life360. This call is being conducted as a Zoom audio webinar. [Operator Instructions] During this call, we will be making comments on the forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about some of these risks, please review the company's SEC filings, including the section entitled Risk Factors and our Form 10 filed with the SEC on July 5, 2022, as updated by our subsequent filed quarterly results on the Form 10-Q. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements. We'll begin the call with remarks from Co-Founder and CEO, Chris Hulls; and CFO, Russell Burke, which will be followed by a Q&A session. I would now like to turn the call over to Chris.

Good morning, everyone, and thanks for joining this call at short notice. By now, you are all likely aware of the failure of SVB, which was closed on Friday by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation, FDIC as receiver. According to the FDIC, all insured depositors of SVB will have access to their insured deposits no later than Monday, U.S. Pacific Time. The FDIC has also stated that it will pay uninsured depositors in advanced dividend, which will be a portion of the amount of uninsured deposits they have at SVB. Uninsured depositors are expected to receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of SVB, future dividend payments may be made to uninsured depositors. There remains considerable uncertainty, however, as the extent and timing of any such dividend payments is unknown. The sudden failure of SVB has obviously had a major impact within Silicon Valley. SVB is the 16th largest bank in the United States at the time of its failure and was the largest bank by deposits in Silicon Valley. Our team has moved very quickly. And as you will see, we expected the way we've structured our investments has largely shielded us from exposure. Our intention here and going forward is to be as transparent as we can be, while acknowledging there's still a high degree of uncertainty. We believe that our exposure to loss may be between 0 and approximately $5.6 million. Notwithstanding SVB's closure, we do not expect this to have a substantial impact on our operations, and we continue to believe that we have sufficient cash, cash equivalents and cash flow from operations to meet our working capital, CapEx and any contractual obligations for the next 12 months. We look forward to releasing our CY '22 results to the market later this week. As we noted in our January market update, CY 2022 revenue and adjusted EBITDA are in the range of our guidance, and we have seen the resumption of the normalized growth in churn patterns since the completion of the iOS price changes in mid-December. As we noted in January, we expect CY '23 revenue growth in the range of 35% year-over-year with positive operating cash flow and positive adjusted EBITDA from Q2 and for the full year CY '23. With that, I'll hand over to Russell to run through the detail of our cash accounts.

Thanks, Chris. I'll refer to the slide in running through the specifics of our current cash balance accounts. All of the amounts that I'll be referring to are denominated in U.S. dollars. As of Friday, 10th of March, Life360 had cash and cash equivalents of approximately $95.1 million, including $6.1 million in deposits with SVB and $75.4 million held in shares of money market mutual funds managed by Morgan Stanley, BlackRock and Western Asset. These funds are invested in short-term AAA-rated U.S. Government Treasury and Government Agency securities. Although SVB acted as custodian of these accounts, we understand that they are not commingled with SVB's assets. As a result, we expect that the FDIC should act to liquidate the funds and disperse these amounts or otherwise make the funds available to us in the near term. However, the timing has not been confirmed by the FDIC. Outside of SVB, we have $13.3 million, which represents most of our restricted cash held by PNC Bank as escrow funds related to the acquisition. And we also have about $0.3 million with the Bank of Montreal in Canada. A total of $6.1 million was held in operating in collateral accounts with SVB and is, therefore, under the control of the FDIC. Across the 3 entities in the group, we expect to have access to approximately $526,000 on Monday U.S. time. As Chris noted previously, the FDIC has stated that it will pay an advanced dividend allowing depositors access to a portion of the uninsured funds. There remains considerable uncertainty as to the extent and timing of these dividends. The overall eventual recovery of these funds will depend on the success of the FDIC and selling the assets of SVB. Therefore, as Chris mentioned, we believe that our exposure to loss may be anywhere up to $5.6 million. While the bank's closure has been disruptive, we currently expect that the most significant impact on Life360 operations may be the timing of cash availability. We expect to have more information on this Monday U.S. time, and we'll update the market when we have more information to report. I also want to note that the closure of SVB coincided with the peak of our monthly cash flow cycle, including having received significant platform revenues last week, which were included in these balances. In the normal cadence, we would have significant outflows in the latter part of the month. So our expected cash and cash equivalents position at the end of the month and the end of the quarter will be in the range of $70 million, $75 million, including restricted funds. This is in line with our expectations as we move into being operating cash flow positive from Q2 CY '23. We remain confident that our existing cash and cash equivalents balance and cash flow from operations will be sufficient to meet our requirements for the next 12 months. With that, I'll hand it back to Melissa, who will run the Q&A.

Thanks, Russell. [Operator Instructions] First up, we have [ Daniel ].

Just wanted to mention it seems like there's been announcement from the Fed just a couple of minutes before the call started that depositors will have access to all their money on Monday. Just wondering whether you guys have heard anything more formal around that?

Thanks, [ Daniel ]. We -- this is all evolving very quickly as everyone understands. So we haven't seen that formal announcement yet. There's clearly been a lot of reporting about government really stepping in, but we haven't seen that yet, but the reporting, as I said, is all indicating it's moving in that direction.

I'll add one other thing. This is very much live, but there was an official announcement that came out minutes ago, which I'll put in the chat. We have not looked at this as a management team, but I am sharing it since it's top of mind. It does seem like there has been some official Federal Reserve announcement. I'm unclear who can see the chat, but I pasted in the link.

Next up, we have Chris. Chris, please repeat your full name and which company you're calling from.

It's Chris Savage from Bell Potter. I'm not sure how relevant this question now is, but do you know what cash you have available at present to sort of meet payroll obligations and others this month?

As you prefaced, Chris, this is changing pretty quickly, and it sort of sounds like with that recent announcement that we could well have all of our cash essentially avail tomorrow. That said, we've obviously been planning over the weekend and put plans in place to make sure that our short-term obligations are covered.

Can you just clarify Russell, when payroll falls for you? Or does it fall over multiple stages of the month?

No, we pay employees half monthly. So the next payroll date would be Wednesday.

Okay. And Russell, and Chris, you basically reiterated as far as I could tell, all your key guidance metrics for this year. Just interested in why you put that commenting, you believe you've got sufficient cash for the next 12 months. I would have thought once your cash flow positive from Q2 and for the full year that the runway would extend much longer. So I was just wondering why you put that 12-month commenting.

It's essentially a legal requirement, Chris, and it's sort of a standardized comment to just reiterate that the next 12 months, we have sufficient cash. To your point, as we move into our positive operating cash flow, we would have a broader picture, but that's the requirements.

Okay. And was that correct in saying that you've basically reiterated all your key metrics or guidance metrics for the year ahead in your preliminary comments?

Yes, we don't -- as we said, we'll be moving into the full earnings release later this week, but the previous guidance that we put out absolutely stands.

I am getting some messages that people could not see the link that I pasted, but I'm going to go off the script and I'm just going to read a relevant paragraph from the Federal Reserve release, which I think actually makes this entire call a bit of a moot point. But it reads, "After receiving a recommendation with the Board of the FDIC and the Federal Reserve and consulting with the President, Secretary Yellen approved actions, enabling the FDIC to complete is resolution of Silicon Valley Bank, Santa Clara, California in a manner that fully protects all depositors, depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer." I have not verified any of this as is coming in hot, but this is off the Federal Reserve website that anyone can see this themselves.

Next up, we have left...

Thank you for your time, everyone. I know that there's new information that's come, but you've also put some stuff in your release raises some questions. And the first one is, we don't typically get enough information or information about your intra-month cash balances, but it would appear that $95 million on the 10th of March, falling to around $70 million, $75 million seems like a reasonable drop. Can you confirm, is this the standard cadence that you would have intra-month -- or are there some one-offs in there? Or can you talk to that a little bit more?

Yes, [indiscernible], that's absolutely standard cadence. What happens is that the -- this has essentially hit us at the peak of our monthly cash flows and the timing of those are such that we, last week, received a very substantial payment from one of the platform providers that really peak that. And then in the rest of the month, we have a couple of payrolls. We have a significant payment related to our quarterly RSU settlements, and then we have standard accounts payable, including we typically do account payable runs at the end of the month -- end of the week, so that our Friday one will be essentially passed over to next week. So it's really just sort of pushing a lot of that cash outflow into the second half of the month, but all of it is completely as planned, which is why we're getting to that...

And so can I clarify that. So if all else being equal, and if your current guidance is still in place, that positive cash flow from the June quarter, we could expect that whatever the cash balance is at the end of June will be higher than where it is at the end of March.

Yes. We've definitely guided to positive operating cash flow. As we've talked about before, there are some financing aspects such as the outflow from the escrow that's been held as the last piece of the Tile acquisition.

Can you just clarify that on the Tile piece. Can you just confirm where we are with that? Would they get the full amount? You see some of that still up for grabs? Or can you just clarify [indiscernible] $13.3 million.

I think what I would say, [indiscernible] is that, that's timed for the second quarter, and that's something that we're sort of working through at this point.

As in you may not necessarily need to pay it all out.

I'm not saying that our current expectation is that we would be paying that out.

Okay. And can I just also -- it seemed like you fumbled on the guidance question before that the guidance sticks currently and it's absolutely true as it is today, but are we set to get revised guidance on Friday?

Well, I think what we said is that the guidance that we provided last, absolutely stands, and that will be reflected in the results that we talk about at the end of the week.

And so -- but I think you mentioned previously that you intend to give more color on guidance for the full year. So more detail, not just the revenue guidance. Is that the case?

You're talking about '23?

Yes. Yes.

We'll give more color as we talk about that, yes.

But it's going to be no worse than what you've already put on the table.

As we said, our one stands. Yes.

Next up, we have [ Daniel ].

Just a follow-up. I think, Chris, or Russell, maybe said that you guys have over the week and put in place contingency plans, which it sounds like now it probably won't be needed. But anything you can sort of elaborate on that because, yes, there's certainly been talk of other financial institutions coming in and providing facilities against deposits and things like that. Any color there?

I guess all I'd say there, [ Daniel ], is we've got good relationships with some of our bankers that we work with, and we've talked to them over the weekend. And we know that we would have arrangements in place if we needed them.

Okay. And as there are no more questions, I will hand it back over to Chris for some closing remarks.

We have taken the approach of being as transparent as possible at this point. We have tried to answer all of your questions this morning based on what you know right now. The ultimate impacts of SVB's failure are still unfolding, and we will provide additional updates as we know more. Thanks, everyone, for joining the call today.