Life360, Inc. ($360)

For joining us today on the second day of the Bank of America Tech Conference. I am Nitin Bansal, part of the Internet team here covering Life360. And I'm delighted to have with me Russell Burke, CFO of the firm; and Raymond Jones from the IR team. Thank you, Russell. Thank you, Raymond, for joining us today.

So maybe to kick off things, I want to touch on one of your recent announcement. So you recently announced a share buyback of $225 million. So -- and you're also investing in your core business where the growth is like fundamentally good. And like you're investing in the advertising business, new subscription initiatives like pets. So like help us understand like why do you think buyback is like the right use of capital today? And how are you weighing like repurchases against like the investment opportunities in the business?

And really good to be here with you. I appreciate the opportunity. So yes, look, when we think about capital management, the first thing is that we are still very much a growth company. We see -- we're very early, we think, in our stage of growth. We've got a huge number of opportunities ahead of us. And we will be investing to double down on that growth. There's no doubt about that. When we look at our sort of immediate capital management strategy, we have plenty of cash on the balance sheet. We have almost $460 million at last quarter end. We have really strong cash flow that we've demonstrated consistently now. But we did get some -- we took into account feedback from our investors who like to see the -- an offset to SPC in terms of dilution. So that's exactly what we're doing. It won't take away from our ability to invest in growth and really take advantage of those opportunities.

Got it. Got it. And as you lean into repurchases, it also suggests that you see a disconnect between like the market price and the intrinsic value of the company. So can you help us like understand like where you think market would be underestimating your growth or like the profitability potential of the business on the line?

I think in broad terms, perhaps what is not necessarily appreciated is just the opportunity ahead of us. I mean we've been growing very, very strongly for the last few years in the region of sort of 30% plus growth. And we expect to continue that and double down on that as we go. But we've got multiple opportunities here, and I suspect we'll get into some of them, but our subscription growth is still very strong in the U.S. We have a huge opportunity internationally. We're just really starting to scratch the surface in terms of expanding internationally. And we have an advertising revenue stream that is just starting to build, and we believe will be a major opportunity to grow that very strongly going forward. All of those sort of contribute to the ability to continue to scale very strongly. And that scale in itself, we've again demonstrated the last couple of years, we're able to use that scale to really maximize operating leverage and continue to improve the bottom line as well.

Got it. Got it. So moving gears here a bit. So on the 1Q call, you recently revised your user growth outlook from what appears to be like a temporary product-driven issue. So can you help us understand like what changes you have made since discovering the issue and fixing the issue on the product side and the operational side so that this kind of thing doesn't happen again? And what gives you confidence that user growth will return to like a normalized level by end of 2Q, early 3Q kind of thing?

Yes. And I want to start by putting it into context to you. We are approaching 100 million users MAU globally at this point. And we think of them in sort of 2 separate buckets. One that is a bucket that relates to higher-end devices in the more developed markets that we are monetizing and will monetize in the short term. There's another bucket of perhaps lower-end devices in less developed territories globally that is we do consider important for the long term, but will not monetize in the short term. And when you look at the sort of slight slowdown in growth in Q1, it's in that second bucket. So I just want to emphasize real no impact on short-term sort of financials. That said, we did have a slowdown in growth, and we identified a number of issues that caused that. There was an immediate one that we knew of related to a security vendor that they rolled out a new version, which unfortunately, it's designed to prevent bots from registering. It got a little enthusiastic and stopped real people from registering. We fixed that pretty quickly, but that identified some issues with Android, particularly those lower-end devices where there were a few issues that have now been addressed. And we've also put in place sort of monitoring at the right places, so that if any issues happen again, they'll be addressed very quickly. So all of that means that we've fixed those major issues. We see the trend starting to come back this quarter gives us confidence in the targets that we've talked about of sort of 17% to 20% for this year.

Got it. So just touching back on the user growth target. So help us understand like when you set that internal target of 17% to 20%, what's the thought process behind that? How do you -- like the key assumptions behind that? And why that is like the right level of growth for the business today? Like if the opportunity exists there, why not invest more on the marketing side and go for a more aggressive growth? Why just 17% to 20%?

So I'll answer that in a couple of different ways because specifically talking about marketing, our marketing has become more sophisticated and more efficient in the last 18 months in particular. And we've been getting better and better at identifying people at the top of the funnel who have a greater likelihood of converting to paid. And that, in addition to improvements and optimizations through the funnel result in that our record Paying Circle additions in Q1. We had the biggest improvement in Paying Circles in Q1 that we've ever had as a company. But coming back to the MAU side, it is important to get that MAU in at top of the funnel, and that will continue to be a priority for us.

Got it. So coming specifically to the U.S. MAUs. So in U.S., you have almost like more than 52 million MAUs at this point of stage, which is like a material scale compared to some of the consumer apps out there. And what we have seen is that after achieving a certain scale, the growth in the user growth typically slows down. So when we think about like your user growth for the next 3 to 5 years, how should we think about like the realistic obtainable user opportunity in the U.S.? And like what are some of the key areas in the U.S. like white space opportunities on the user growth front where your penetration is still pretty low that you could go after for the next 3 to 5 years?

Yes. So a couple of aspects there. One, the U.S. is obviously our primary and most mature market. But even as the most mature market, when we look at penetration across the states, even the most highly penetrated states are not in what we think of as a mature level. And even those most highly penetrated states are still increasing that penetration at a very consistent rate. So we're seeing continued growth even at the top end of that curve, if you like. And we don't see any signals of that slowing down. To your point, we do have an opportunity in some of the other states to catch up, and we are seeing a good level of catch-up growth there as well. We're often asked about the reason that there's differences between the states, and there's definitely elements in terms of the digital adoption in various places and things like driving distances that influence it. But we're doing things that will enable those use cases to be expanded, which sort of brings me back to one of our overall strategies here is to really broaden out the use cases and broaden out lifestyle -- life stages for our users. So when we think about penetration, even in our most mature market, we're building out a broader aspect. Our intention here is to be the super app platform for families to be the go-to digital platform to help make everyday family life easier. So in doing that, there will be more opportunities to give more people reasons to join Life360 beyond what they are at today.

Got it. Got it. So you talked about the super app platform, and you've also highlighted future potential growth opportunities in areas like elderly care, insurance, financial services. So like help us understand like how are you prioritizing those areas in terms of like rollout investment? And how should investors think about like the potential rollout of these features in 2026 or 2027? Tell us a little bit more about them.

Yes. And it's a good question because we see multiple opportunities to do exactly what I said, sort of expand those use cases, expand those life stages. And we're identifying each of those and prioritizing them. So this year, we have a focus on pets, for example. And when we look at our free user base, I knew, that's 100 million users, there are a lot of circles, for example, that couples with no kids, but they typically have a pet. So if we can give that couple a reason to subscribe, then that will be a huge plus both on conversion and on retention. So pets is where we're approaching in a couple of different ways. And just to sort of give an example of the opportunity, we created this free Pet Finder Network and enabled people to -- our members to sign up, essentially give details of their pet in case their pet was lost, in which case we can activate the Life360 members in their local area. We've had 7 million-plus people sign up for that. Again, it's a free network, but what it does is give us an indication of what that opportunity is and also obviously gives us a large base to market to for things like the Pet GPS device and other things that we're looking at for pets to bring pets into that family circle, again, broadens out that use case. So that's just sort of one example of what we're doing. We see many verticals that we've talked about from elder care, which would be our next one to the other things that you've mentioned, insurance, financial services, all of which we look to integrate into the platform and really build out a very robust ecosystem for the family.

Got it. Got it. So touching on the pet thing. So you launched out the pet tracker thing late last year. So tell us a little bit more about like you already shared some of the points on the traction. Like what does that traction tell you about the future demand in the rest of the year? And as you invest in scaling up the pet opportunity, how should investors think about like the incremental addressable market that opens up for you in terms of like paying conversions or monetization from the pet side?

Yes. On the last piece, we know, for example, that there's sort of 90-plus million households in the U.S. that have a pet. Now only a fraction of those will probably want a device to be able to track their pet, but it still gives an indication of what the potential opportunity is. To your point, we launched the initial device last year. We've had -- we've done a lot of experimentation since then. We've also had to deal with some supply chain issues. As you know, we've shifted our contract manufacturing from China to Malaysia, partly as a result of the sort of tariff issues. So that caused a little bit of disruption to the supply chain, but that's now fully in place. We're building inventory to have a really strong launch in the second half. But it's -- again, it's one plank in our strategy here. We don't necessarily expect to sell a huge amount of devices. But what it is -- the strategy here is to bring people into the Life360 subscription. So we're going to structure the go-to-market in a way that really helps to tackle that free user base plus bring new users into Life360.

Got it. And when you think about your paid conversion growth for the rest of the year and 2027, how meaningful do you think the pet tracker would be for the growth in that area?

I think it will over time become meaningful. I don't expect it to move the needle necessarily in the really short term just because we're getting so much traction from -- we added more than 200,000 paying circles in Q1. And that growth itself is definitely sort of structural, the way we see it at this point. So we would expect to see that pets plus our other initiatives will contribute to that over time.

Got it. You mentioned the 200,000 net adds in 1Q, that was a pretty strong growth. Help us understand like what's the durability of this growth, the structural factors behind this growth? And like as we look forward, like some of the puts and takes in sustaining this level of growth on the net adds?

Yes. So there's a few pieces to that. I talked before about our marketing and our optimization within the funnel. So we've seen conversion increase pretty consistently over time over the last 2 years in particular. So the net adds in Q1 were not an aberration. They were potentially seasonally high, but they weren't structurally an aberration because we've seen that conversion increase over time. For example, we've just sort of seen the number of trials increase pretty substantially. We've seen day 7 retention improve. And it's all a result of small pieces of optimization throughout the funnel, really taking out some friction in those decisions for members to become paid subscribers. And in fact, starting to access more of the total free user base as well. It's not just registrations that come in, it's activating people who've been free members for some period of time. So all of that points to it being a structural shift more than something that we wouldn't expect to reoccur.

Got it. Got it. And on the subscription side, if I were to think about like next 12 months, where do you see like the biggest opportunity to improve the paying conversion, whether it's like on the product side, user, like onboarding, like which initiatives do you think could make the most impact over the next 12 to 18 months kind of scenario?

Yes. And I'll pick up one piece from the previous question that I didn't mention, which is important, is the importance of our international opportunity. We're just scratching the surface of that rollout internationally. The triple tier territories, as we call them, U.K., Australia and Canada have really demonstrated that we can achieve strong growth internationally. And that international opportunity is very significant for us, both subscription and ultimately advertising. To your specific question, there's a number of things that we're doing in our product road map. And we're -- this is a continuous focus for us. One of the key priorities for the company is always continually improving the member experience. And that's been a key tenet for us, and that's a large part of why we've gotten to that 100 million-plus users. The -- within that, we're continuing to do small things, small tweaks, if you like, things like the icon that is used for members on the Life360 map, where you can see you're walking or driving. We're introducing more opportunities for things like trains or public transport. It's sort of small touches like that, that bring what we think of as the delight to our members and keep them coming back. We already have people coming back 5 times a day on average to the app. But we want to continue to improve that engagement with the app. And then specifically, we've got a project now where we're looking at really enabling some of AI tools to help us think about the next stage of this, how we get more proactive with helping our members sort of plan their family activities.

Got it. So talking about on the AI front, can you help us like understand like how are you integrating AI in the core platform, especially on the subscription side? And what kind of new features are in pipeline that could drive like an upside on the user growth, conversion side?

Yes. We're pretty excited about AI because it will definitely be an accelerator for us. And there's sort of probably 2 aspects for the product side. A, is the sort of the basic engineering. We're starting to use it more and more. We're seeing greater speed there. So we can get through product updates and product revisions more quickly. So just essentially moving more quickly at doing all the things that we want to do to improve the Life360 experience. And then secondly, on -- we're looking at sort of specific, as I said, sort of specific tools that we can build into the experience that will sort of double down on the benefit that our members already get help them with their family coordination and even help them with planning into the future, making sure that their family members are coordinated for activities next weekend, that type of thing that will essentially just continue to enhance the experience.

Got it. Got it. So moving gears here a bit, moving to another area that has been a growth focus for you and a focus area for investors, advertising. So on the advertising side, like help us understand like what makes Life360 platform and data unique for advertisers? Why do advertisers come to your platform? And like what advantage does that give you in terms of like higher pricing or like better targeting? Like tell us more about that.

Yes. We're in the early days of advertising. Prior to the Nativo acquisition, we've been building an advertising business from scratch essentially. What we learned very quickly is that the real-world, real-time data that we have for our members and the context within the family environment is something that advertisers really responded to. They saw that is incredibly valuable. Where we had limitations prior to the acquisition was just being able to execute on delivering that at a broad scale for advertisers. So for example, we had some large advertisers come to us, and they were excited about it, but they just didn't see the scale of the inventory that we had. What Nativo acquisition has done for us is it brought in a number of things that give us a step change in that business. So there's the advertising -- the ad tech tools and infrastructure. There's a whole sales team that are now the Life360 ad sales team. And importantly, there's relationships with advertisers with agencies and publishers, which are a critical part of what Nativo did. So it's brought in this whole range of ad tech tools and infrastructure that we now have the ability to use. And where that's really exciting for us is that we were largely focused on on-app advertising. This has broadened out the possibilities with off-app advertising and really expanded our reach to the potential universe very, very significantly. So that's -- we can now offer those large advertisers a scaled inventory for them to use, and we're starting to see that traction. But coming back to the start, the real value is the value of the audience, which we've proved.

Got it. Got it. So earlier this year, you also announced like the partnership with Uber. So can you help us understand like what are the rollout time lines for that partnership? How will the experience look inside the Life360 app and the Uber app? And more importantly, like for the investors, like what does that mean for your user growth or the paid conversion growth in the -- like whenever that partnership rolls out?

Yes. Uber is a great example of something that we've been able to expand and really use as a proof case for our strategy to build an ecosystem around Life360. It started with an advertising experiment and using a feature of the app that already existed where we notified our circle members when one of their circle landed at a major airport. We took that feature and we adapted it for Uber to deliver a message to that person, you've landed at SFO, would you like to book an Uber? Worked extremely well. Uber. We're very, very happy with the level of click-throughs that they were getting for that. And that led to this sort of expanded partnership. And the expanded partnership is both an advertising partnership and an integration of membership between Life360 and Uber One. So what that -- the benefit that, that gives us from a Life360 point of view is a real seamless acquisition where family members, for example, parents can see their teams in an Uber without having to leave Life360. They get that double-down security benefit. So it's part of a broad, again, enhancing the member experience and broadening out those use cases that will continue to help us expand the potential universe and subscription.

Got it. And when we think about like the partnerships, is there also opportunity to like partner on the ad side to accelerate the growth of that business? Or do you want to remain focused on like fundamentally building that business in-house?

On the advertising side. The advantage -- one of the other advantages of the Nativo acquisition is that it does allow us to control that because one of the absolute key things for us is our member trust that's been built up over a long period of time. And that's resulted in a high level of opt-in for things like advertising. But that's a critical asset for us and the ability to control what happens with the data and make sure that no personally identifiable data leaves out our network is a key piece. So in that respect, we want to control that part of it. We'll continue to partner with advertisers in forms that flow from that rather than let anything leave our network.

Got it. And when you talk about user trust, so help us understand more like as you ramp advertising for your free user base, -- how are you approaching like the ad formats, the overall ad strategy so that it's not like destructive to the core user experience and preserve that trust?

And again, that's been very important to us because of that member trust issue and the member experience. So right from the start, the member experience was the key priority here. So we initially rolled out fairly basic advertising within the app. But we looked very carefully at the metrics to making sure that wasn't interfering with the member experience. And we've made specific decisions not to advertise to anyone out great team, some categories that we won't work with in advertising that are not necessarily family-friendly. So we've made -- we've been very intentional in that respect because that member trust, that member experience is the key to what we do.

Got it. So we are almost at time there, and that brings me to the last question today. So this is definitely an investment year for you. But like in a more normalized environment and as the ad business scales up, how should investors think about like the operating leverage in the business model and the incremental margin potential for this business?

For the advertising business?

No, no, for an overall business.

Overall business, you can see margins in the subscription business, which is the key growth engine for the business are very high in the sort of 86%, 87% range. The advertising business will also be a high-margin business and will continue to increase in margin as the business scales. And then [ Brooks ], so they will be the 2 biggest top line drivers for the business. And as the business scales, we've demonstrated that already that we can really take operating leverage and drive that with scale. And it's pretty clear to us that as we continue to scale business, there's a level of fixed cost that will help us continue to drive that operating leverage. We have a very, very clear path to our stated goals for adjusted EBITDA margins, for example.

Got it. Got it. Thank you, Russell, for joining us today. Thank you very much for taking out the time.

Pleased to be with you.

Thank you, everybody.

Thank you.