Life360 Inc

NASDAQ:LIF

Earnings Call Transcript 2021-Q1

[Jolanta Masojada, Head of Investor Relations]

The call will begin with some prepared remarks from our Co-Founder and CEO, Chris Hulls; and CFO, Russell Burke, followed by a Q&A session. This call is being conducted as a Zoom audio webinar. [Operator Instructions] I would now like to turn the call over to Chris.

[Chris Hulls, Co]

Good morning, everyone, and thanks for joining our March quarterly business update call. We are excited by Life360's accelerating growth momentum in the March quarter particularly in the U.S., where the benefits of the vaccine rollout are beginning to be felt. We are encouraged that the early signs of recovery in Australia are now being replicated our largest market, the U.S. Globally, new registrations at their highest level since March 2020 prior to the onset of COVID. In the U.S., organic registrations increased 13% versus the December quarter. Additionally, the month of March delivered the strongest growth in Paying Circle additions since November 2019, and this is with our much higher-priced membership plans. It is very encouraging to see that as COVID infections and restrictions reduce, we have seen a corresponding positive impact on our growth rates. This reinforces our confidence that as COVID subsides, we will continue to accelerate growth and the recovery will become an ever-growing tailwind into the rest of 2021. We're also very encouraged by the strength of the metrics the business delivered in the March quarter and the foundation this provides to drive future growth. We are progressing against the strategic road map we outlined with our 2020 full year results. We're building our user base by expanding marketing beyond peer performance channels. We've built on our early positive results in streaming TV and are now scaling spend in the channel, which is not only resulting in accelerating user growth but also the development of our mainstream brand centered around membership. Our goal to leverage the success of the membership launch is being supported by the development of new features such as free dark web monitoring to encourage upsell to premium tiers. And later this year, we will undertake the first international launch of membership in Canada. We are also testing new verticals to expand reach and revenue. For example, we ran a test for Coin, a debit card for teens and project to have over 100,000 customers on the waiting list. While we've not decided when to bring this to market, we believe the test success demonstrates our ability to move our users into new products and services. We stated as part of our earnings release in February that a review of strategic alternatives was being undertaken that may include acquisitions of strategically important businesses. We're pleased to announce we have taken our first step in this process by signing a term sheet for the acquisition of Jiobit, a provider of wearable location devices for young kids, pets and seniors. We're excited about this potential transaction for a number of reasons. A key pillar of membership has been to expand our product line to all life stages and this very naturally fills that need. Their primary customers are parents with young kids who will naturally age into our core demographics as their families mature. So we're now able to target families soon after they have kids. And it should be noted that these new parents are largely digitally native millennials who we see as our ultimate core audience. And while Jiobit is primarily focused on younger kids today, they are already having success with pets which is also a natural fit with our user base and the shift to seniors is something in the works and a great addition to keep our members on the other end of the age spectrum engaged. Jiobit is still relatively small with $6 million of annualized revenue. But we believe that we can supercharge this through selling Jiobit devices through the Life360 platform as our users, by definition, understand the power and benefits of location sharing. Perhaps even more importantly, we see the ability to use Jiobit devices to get our members to upgrade to higher tier premium plans. For example, we could offer a free Jiobit to members who upgrade to Platinum and include the Jiobit subscription at no charge in this tier. There's also serendipitous timing to this acquisition as it relates to Apple's announcement of the AirTag. We believe that Apple will make hardware location devices ubiquitous in the same way that they help bring location mainstream with Find My Friends, which although overlap with our services to some degree, created an inflection point in growth for the entire category. Because AirTags are so focused on device tracking and are explicitly disabled for use on people, we have an opportunity to be a key player in this next generation of IoT devices. We believe our strong focus on family use cases and on devices with our own stand-alone GPS and cell connection, which then do not need to be tethered to a device will differentiate us from the upcoming wave of devices that are focused on Bluetooth item tracking. While this marks the first step in our strategic review, it is not complete. We are continuing to look at additional assets that will accelerate our vision including larger acquisitions that could be funded with vehicles that would simultaneously result in our dual listing on the U.S. exchange. We specifically honed in our search on companies in the insurance vertical which is a sector that is currently getting significant attention from investors in our home market, the U.S. Turning now to the detail of the quarter. Life360's global monthly active user base was 28 million at March 2021, an increase of 1.5 million for the quarter. U.S. MAU of 18.1 million increased 8% year-on-year, which was impressive given the COVID headwinds. But more importantly, U.S. MAU increased by 6% or 1 million in the last quarter alone. International MAU increased 400,000 since December. And in our listed home of Australia, the MAU base of 705,000 increased 17% year-on-year and 7% quarter-over-quarter. As I mentioned earlier, we're very encouraged by these accelerating growth rates in countries that have successfully navigated COVID which is in strong contrast to regions like Europe, which have shown more tepid results as the pandemic has grown out of control. Revenue in the March quarter increased 20% year-on-year to $23 million. Annualized monthly revenue for March was $95.8 million, a year-on-year increase of 26% and 7% ahead of the December 2020 AMR of $89.7 million. Direct revenue grew strongly, benefiting from a 6% year-on-year increase in Paying Circles to $916,000 and a 14% uplift in ARPPC. The success of our membership model is reflected in 226,000 new and upsell subscribers accounting for 30% of U.S. Paying Circles. While legacy subscribers are grandfathered on their previous plans, the new membership cohort is delivering an ARPPC uplift of 36% versus the first half of 2020. Just as importantly, I'm excited about the material uplift in the top of funnel registrations that we were seeing in the last few weeks. This reinforces our confidence for accelerated growth as the U.S. continues its recovery from COVID. Indirect revenue, which includes data revenue and our lead generation partnership, delivered year-on-year growth. Lead Gen contributed revenue of $1.5 million, consistent with the December 2020 and March 2020 quarters. Data revenue growth remained strong year-on-year, but reduced quarter-on-quarter as expected, primarily due to platform changes that we were making in anticipation of iOS IDFA. We expect a further impact to this business line in Q2 as the IDFA changes roll out. And as an important emphasis, our more strategic new lines won't be materially impacted by the change. During the March quarter, the majority of paid user acquisition spend remained paused with investment of $1.2 million compared with $1.7 million in the December 2020 quarter and $4 million in the March 2020 quarter. While the performance of traditional user acquisition channels remains challenging, new channels such as streaming TV are working well with the additional benefit of building brand. Total investment in paid user acquisition in TV channels was $2.2 million in the March 2021 quarter, in line with $2.3 million in the December 2020 quarter. As we see increased activity and return on investment, we are reactivating marketing spend earlier than planned. Our continued disciplined spending approach delivered an underlying EBITDA loss excluding stock-based compensation of $1.5 million. I'll now turn it over to Russell, who will share more details on our cash flow performance for the quarter.

[Russell Burke, Chief Financial Officer]

Thank you, Chris, and thanks, everyone, for joining the call today. Please note that all the numbers I will be discussing are denominated in U.S. dollars, are in accordance with U.S. GAAP accounting standards and are unaudited. I'm emphasizing again that none of our results that we talk about today include Jiobit. Life360 ended the March quarter with cash and cash equivalents of $53.5 million and no debt. This compares to $56.6 million at the end of December. We remain in a strong capital position to invest for future growth. Cash used in operating activities was $3.0 million compared with $2.7 million in the December quarter. and $6.2 million in the corresponding March 2020 quarter. Revenue of $23.0 million increased 20% year-on-year and was slightly above the December 2020 quarter. Subscription revenue continued to grow strongly, but was partly offset by a decline in data revenue, reflecting the IDFA changes Chris mentioned earlier. Receipts from customers of $15.8 million decreased from $21.7 million in the December quarter, reflecting the timing of subscription receipts. Payments in the quarter increased 2% year-on-year, while decreasing 23% versus the December quarter, which included a number of year-end prepayments. Before I discuss the individual cost categories, please note that comparisons versus the previous corresponding and prior quarters have been impacted by our introduction of a new income statement presentation which separates our cost of revenue. Staff payments of $9.5 million increased from $8.2 million in the December quarter due to the timing of bonus payments. At the end of the quarter, our headcount, including contractors, was 252. Advertising and marketing payments, which include paid user acquisition of $2.9 million reduced from $4.2 million in the December 2020 quarter and $5.0 million in the March 2020 quarter. Research and development payments of $2.4 million reduced from $2.8 million in the December 2020 quarter, largely as a result of the new cost of revenue presentation. Cost of revenue in itself of $2.0 million reflects this new presentation. Administration and corporate payments of $1.6 million reduced from $2.7 million in the December quarter, again, largely due to the new cost of revenue presentation. No cash was used in investing activities and cash flow used in financing activities reflects exercise of employee share options and settlement of restricted stock units. With that, I'll hand back to Chris.

[Chris Hulls, Co]

We are encouraged by the recovery on top of funnel, MAU and Paying Circles as COVID conditions improve, particularly in the U.S. These trends reinforce our confidence in Life360's ability to take full advantage of the key back-to-school period in the U.S. from August and to achieve the guidance provided to the market in February. We continue to expect that by December 2021, Life360 will be delivering an annualized monthly revenue in the range of USD 110 million to USD 120 million, a 23% to 34% year-over-year growth rate. Based on the planned investment growth, in CY '21, we expect an underlying EBITDA loss excluding stock-based compensation of no greater than $15 million. This guidance excludes any impact from the proposed acquisition of Jiobit. That concludes our prepared remarks, and I'll now turn the call over to Melissa, who will manage the Q&A portion of our call today.

[Melissa Goodell, Executive Assistant]

Thank you, Chris. [Operator Instructions] First up, we have Quinn.

[Quinn McComas Pierson, Co]

Quinn Pierson, Crédit Suisse. Can you hear me, okay, Chris?

[Chris Hulls, Co]

Yes, loud and clear.

[Quinn McComas Pierson, Co]

Great. A couple of questions for me. I guess, firstly, so the top of the funnel raise does appear to be working quite well. I guess, are there any correlations or patterns that you've noticed on the downloads over the period? For instance, was it relatively linear growth over the period as the vaccination rollouts occurred? Or perhaps did you see a bit of a skewing to the March period over that kind of spring break holiday period? Any correlations that you could call out would be quite helpful.

[Chris Hulls, Co]

Yes. It's absolutely skewed more to the March side of things. In January and February, January in particular was in that surge of all surges. So it's absolutely been a backloaded period in terms of growth, which is part of why we have the very strong confidence that we're coming out strong versus something just linear. And also, this isn't exactly or well, maybe it is your question, but an interesting correlation that on the face of its negative, if you do look at some of the places in Europe where they've had these big surges, we haven't seen similar rebounds and it's been a little bit tepid, as mentioned earlier. So clearly, we'd like all numbers to be growing, but the fact that it is so correlated to recovery from COVID makes it very clear to us that as we continue to get COVID becoming something that's the thing of the past in key regions that we'll continue to have that as a tailwind.

[Quinn McComas Pierson, Co]

That's helpful. And so is it fair to say that April has kind of continued the March trends? Or did March maybe overtrade, if you will?

[Chris Hulls, Co]

No, we're -- The growth is strong and obviously aren't disclosing April numbers yet. But we are continuing to see that as COVID subsides, we're looking good.

[Russell Burke, Chief Financial Officer]

We're definitely seeing consistent trends there, Quinn.

[Quinn McComas Pierson, Co]

That's helpful. Maybe secondly, just on some of these new verticals that you're currently testing, you mentioned Coin and with 100,000 users on a wait list. I guess kind of firstly, can you give us maybe some hints on some of the other verticals that you're currently testing? And then secondly, on Coin specifically, 100,000 users, you don't need particular aggressive assumptions on -- to turn that into a pretty decent potential revenue pool. Could you just maybe talk us through how that particular vertical could play out?

[Chris Hulls, Co]

Sure. So we've really been looking at 3 primary verticals. We obviously pulled the trigger on Jiobit. So that is a very, very big bite that we're taking. So in terms of our focus, that's going to take a lot of our attention in terms of new market entries. The Coin results were also very, very promising, and it's been a space that's been really heating up. I think Step just raised $100 million series C today just after only a few months of -- between funding rounds. You've seen Greenlight at $1 billion valuation with relatively small user numbers. So it makes us very excited to look like, all right, what do we do next? And then we're also, of course, looking at the insurance vertical very closely, we already have the stuff that we've been doing. But as mentioned, when we look at what's another very big bite that space excites us quite a bit. So when we look at Coin in particular, thematically, we're looking at 2 things. Where are there interesting revenue opportunities that we're seeing, and it does seem like the entire neobank space is obviously doing very well. Older consumers are not necessarily being served by their existing banks. And now that we are digitally native, you are seeing these new banks pop up for younger consumers and our niche there, we think, is teens in particular. And when we think about why we like that space as an area to test, given what had happened with TikTok and now it is an extremely high brand recognition with teens, arguably even higher than parents, we are trying to find ways how do we make Life360 a company that gives value to all family members? And so we think something that helps kids with their money is something that would help build the brand. I won't go into insurance because we obviously talked a lot about that already, and we've had the early successes there and looking for ways to accelerate. So between those verticals, we feel like we're pretty -- if anything, we're a little overextended and it's a timing issue for us because we also -- not a new vertical, but we do have international that we're looking at too with our Canada launch coming up this year. So for us, it's very clear now with Jiobit, that's going to consume our primary new vertical focus for this year. But if we continue to grow in the way that we're seeing and hoping, when we look to 2022, what is that next big thing? And our view is that we can support entering hopefully, one new major vertical per year. And so we have a couple of exciting options in front of us, given what some of the tests have shown.

[Quinn McComas Pierson, Co]

That's really helpful. And third and lastly, just on the data sales revenue angle with the Apple IDFA changes. I guess I've kind of 3 -- you made some helpful comments in the release, but I kind of 3 subquestions around this, which is firstly, how big is the potential delta of outcomes in terms of that data revenue line? Or do you have a pretty, I guess, accurate view on what that looks like? Secondly, could you explain to us why the expected decline is less than you had previously thought? And then third, what was kind of your assumption for the decline in that line in your CY '21 AMR guidance?

[Chris Hulls, Co]

Sure, I'll break it up in a few ways. So starting with your first question, how big is it going to be? What's changed there? I think we're confident now that the disaster scenarios are not going to happen. We've been working with our partners there to find ways to work within the Apple restrictions and guidelines to continue to do our data partnerships in privacy-centric ways and the industry as a whole has been able to adapt. Some of the decline is the fact that some of our partners require IDFA, and so it's going to be tougher to work with them, but the big ones we feel very confident are going to be fine. And we've also done some testing if we need to go through the full opt-in policy and go through the process of getting additional permissions. We have some good data there that would say that if we need to pull that trigger, we can do it as well, but there's still some ambiguity around what those requirements will be. And to your question of how is this factoring into our guidance. It's largely as expected, a little bit better than expected. We were always going in with some optimism. So it's not necessarily a huge win and there was a decline, as you mentioned -- as you saw because we are trying to get ahead of that. Another thing we did do also to stay ahead on privacy as restricted government access to the data, which was one of the hotter button privacy issues. So we preemptively got ahead of that. So the general theme is we've tried to make the changes ahead of time, so we won't have major surprises when the changes actually are implemented. And as many people might know, iOS 14.5 is rolling out as we speak. So we already are seeing some customers on the new platform. So we now have hard data in terms of what that impact could be. Russell, do you have anything to add in terms of the exact quantum?

[Russell Burke, Chief Financial Officer]

No. I think what we'd say, Quinn, is that the delta has narrowed in terms of our confidence in handling this. There are still some uncertainties, which is why we haven't really changed the range in our outlook at this point.

[Melissa Goodell, Executive Assistant]

Up next, we have Matthew.

[Matthew Chen, Equities Research Analyst]

It's Matthew Chen from Foster Stockbroking. I just wanted to clarify, you sort of mentioned earlier in the call that the kind of broad target for the time line is so one new vertical per year. But just wanted to clarify that statement.

[Chris Hulls, Co]

Yes. Our view is that we -- the biggest risk for us is overextending ourselves. We have a huge amount of headroom to grow with what we're already doing. And one thing we have emphasized that sometimes people look at us as a simple mobile app. But if you look at our membership offering, every one of the features we offer as part of that bundle is an entire company in its own right. So we're still a relatively small team in the 200-something employees. We would much rather do a small number of things well than do a bunch of things in a half-baked way. And so we feel one new vertical a year is aggressive but realistic. And clearly, at some point, if we reach certain scale, we could explore doing more, and we continue to expect to grow the team. But for now within -- with our assumption that we continue to have very good and very solid growth, we think that is the right approach.

[Matthew Chen, Equities Research Analyst]

Yes. Okay. And can I get a sense of sort of how much of the headcount will be devoted to kind of folding in that recent proposed acquisition of Jiobit? I was just trying to get a sense of -- sorry, go ahead. Yes.

[Chris Hulls, Co]

So there is largely -- go ahead.

[Matthew Chen, Equities Research Analyst]

I was just trying to get a sense of if there was something to happen potentially in the insurance vertical, sort of shortly or imminently, if you had the resources to be able to devote to that or you would sort of look to aggressively grow so that you could accommodate that?

[Chris Hulls, Co]

Sure. So with the Jiobit team, first of all, we are going to keep them largely independent. Most of the integration work will come next year. I'd call it more of a marketing integration this year. So the more immediate things, just as an illustrative example, if you want to upgrade to Platinum, you can get a free Jiobit. So we think Jiobit is going to be a great tool to move people to those higher-priced tiers, which has been a big part of that vision of membership where we know Platinum conversions will be relatively low early on. But if you have good hooks to get people into the higher tiers, we think that's going to be a great way of moving people into those higher ARPPC categories. So that's the Phase 1 of Jiobit and then we'll have a deeper location and app integration in 2022. And we will be having some portion of our team doing that, but it's primarily going to be driven from their internal team because it's more of an API integration. So API being the protocols for 2 different software companies to interact with each other essentially. So we're going to keep them somewhat self-contained and leave them even on some of their same infrastructure, whereas there might be some cost savings if we loop them in. We think the benefits of keeping them more agile are -- outweigh the potential synergies in at least the short term and probably somewhat in the midterm. On the insurance front, we have 2 parallel things going on. We have our existing road map, which is going to have some very meaningful improvements regardless of anything additional we do this year. When we look at some of the bigger swings, that would come with much bigger funding and much bigger financial moves. I do want to be clear, we are not giving any sort of hint that anything is imminent. We more just narrowed the search and we're excited about what's out there. But I would not expect -- there's definitely no imminent announcement there. But over the next few months, we're going to continue to work those to ground, and we think there's a -- there are some exciting things there. But again, if we're going to do something major, it would include much bigger increases in headcount that would come with new funding.

[Melissa Goodell, Executive Assistant]

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

[Chris Hulls, Co]

This will be a very short closing remark. Thanks again, everyone, for joining, and have a great day. We're extremely excited that the COVID headwind is turning into a tailwind and excited to show some great growth for the rest of the year.