Life360 Inc

NASDAQ:LIF

Earnings Call Transcript 2021-Q4

[Jolanta Masojada, Head of Investor Relations]

[Audio Gap]And I head up Investor Relations for Life360. The call will begin with some prepared remarks from 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 December 2021 quarterly business update call. This was another milestone quarter for Life360, where we set new records across many key metrics. We made significant progress on our strategic road map with the acquisition of Tile.We delivered our third consecutive quarter of record subscriber additions, reaching more than 1.2 million Paying Circles, with underlying revenue growth of 46% year-on-year and underlying annualized monthly revenue growth of 51%. Direct revenue increased 62%, driven by the continued success of our Membership offering, providing a strong leading indicator of our growth momentum.Monthly active users increased 5% from the third quarter to 35.5 million. Life360 is experiencing accelerating growth despite the impact of the Omicron variant in the U.S. and other countries. While Omicron has had some impact on movement, and therefore membership usage, in our primary markets, this appears to be much less significant than previous COVID-19 variants.Year-on-year, U.S. MAU increased 39% and international MAU grew 24% in the face of challenging external circumstances. We are seeing continued strength of retention and engagement from our users with the proportion of returning monthly active users reaching a new record.The acquisition of Tile and associated capital raising in November and December received pleasing support from our existing and new shareholders, with the transaction closing on January 6. Tile is undoubtedly the most impactful deal in our company's history and is a fundamental step forward in our vision of being the dominant platform for a much broader suite of family services.While global supply chain issues were a constraint during the quarter, Tile's performance is tracking to expectations with revenues in line and the business achieving positive EBITDA in its strongest seasonal quarter for the year. Tile recently announced further strategic deals including an embedded Tile tracker in Sumitomo Mitsui's Visa card in Japan and a partnership with Lenovo, which will embed Tile software to make Lenovo computers findable via the Tile app even when the laptops are offline.With the acquisition of Tile, Life360 will be the only vertically integrated cross-platform solution of scale that brings people, pets and things together into a unified app. We have already begun integration developing a plan to offer Tile products as part of Life360 Membership subscriptions. By increasing the value of the membership offering, Life360 expects to increase pricing, conversion and retention, resulting in significantly higher customer lifetime value.In addition, Tile will add Life360 Membership benefits into its premium offering, dramatically accelerating Tile's progress along its road map. Tile will also have access to the Life360 user base as a new plug-in ready distribution channel, an extension to its current finding network. Life360's global user base of more than 35 million smartphone users will boost Tile's finding network approximately 10-fold and provide very broad coverage with higher density, improving the overall experience.During the quarter, we took the first step in the international rollout of our Membership model with the launch of the complete Membership experience in Canada. Full rollout was reached in December, and early signs are promising with a greater than 100% increase in average revenue per Paying Circle for new membership sign-ups since launch. We expect the Canadian launch playbook to support the acceleration of our global rollout, including a planned launch in the United Kingdom in 2022.We're also pleased to announce a new partnership agreement with Placer.ai, a prominent provider of aggregated anonymous analytics for the retail ecosystem. This marks the beginning of Life360's exit from the traditional data brokerage business and transition solely to sales of aggregated insights.With this agreement, Place.ai will provide critical insights and analytics services to Life360, which will enhance the product experience for our users. As part of this partnership, Placer will have the right to commercialize solely aggregated data related to places visits during the term of the agreement. We have begun terminating our relationships with all other location data partners with the exception of Allstate/Arity, which will continue.Life360 recognizes that aggregated analytics, for example, 150 people drove by the supermarket, is the wave of the future and that businesses will increasingly place a premium on data insights that do not rely on device-level or other individual user-level identifiers. As a result, we believe this partnership will enable us to spend less time in navigating the rapidly evolving regulatory and platform environment while simultaneously reducing business risk.This agreement includes a minimum revenue guarantee based on the size of Life360's active user base, which we expect will preserve revenue in line with CY '21 results for the duration of the 3-year agreement. Life360 will also be receiving a 10-year warrant exercisable to purchase up to $25 million in Placer.ai, which recently completed a $100 million capital raise. The agreement also expressly excludes Tile and Jiobit device data to underscore our clear message that data from Tile and Jiobit devices is not and never will be sold or monetized.In line with our commitment to user privacy, we're pleased to announce the recent appointment of Kirsten Daru as General Counsel, Chief Privacy Officer and Corporate Secretary.Turning now to the detail of the quarter. As of December 2021, Life360's global monthly active user base was 35.5 million, an increase of 1.7 million from the September quarter and 34% year-on-year. U.S. MAU of 23.7 million increased 39% year-on-year and 7% from the September quarter. International MAU of 11.8 million increased 24% year-on-year and 1% for the quarter. Quarter-on-quarter, international growth rates were constrained by Spanish, Portuguese and Italian speaking countries, which have experienced a substantial TikTok-driven surge in Q2 and have subsequently normalized.In our listed home of Australia, the MAU base of 969,000 increased 47% year-on-year and 16% quarter-on-quarter despite continued COVID-related disruption.Revenue in the December quarter, excluding Jiobit, increased 46% year-on-year to $33.1 million and 13% from the September quarter. Including Jiobit, consolidated revenue was $35 million, up 54% year-on-year. CY '21 consolidated revenue, including Jiobit of $112.6 million, was at top end of guidance of $109 million to $113 million. For the month of December, annualized monthly revenue, excluding Jiobit, was $135.7 million, a year-on-year increase of 51% and above guidance of $125 million to $130 million.Direct revenue continued to deliver accelerating momentum, benefiting from the Paying Circles increase of 39% year-on-year to $1.2 million and an ARPPC increase of 22% year-on-year.The Membership model now has 564,000 new and upsell subscribers, accounting for 56% of U.S. Paying Circles. While legacy subscribers are grandfathered on their previous plans, the new membership cohort is delivering an ARPPC uplift of 38% versus the first half of 2020 prior to the Membership launch. Our direct revenue increased 62% year-on-year, providing a strong leading indicator of the growth momentum ahead.Indirect revenue, which includes data revenue and lead gen partnership, delivered modest growth year-on-year and quarter-on-quarter. Jiobit contributed revenue of $1.9 million for the quarter and $2.3 million from the date of acquisition, at the lower end of guidance of $2 million to $3 million due to supply constraints, which remain a factor.Although the quarter was partially limited by supply, demand continued to be strong, with the best Black Friday and Cyber Monday sales period ever. Jiobit's underlying EBITDA loss for the quarter was $1.6 million and $2.1 million since the date of acquisition, better than guidance of $3 million due to the benefit of cost savings.Paid user acquisition spend of $2.1 million increased from $1.7 million in the September '21 and December 2020 quarters. Total investment in paid user acquisition in TV channels of $4 million, and $4.6 million including Jiobit, increased from $3.1 million in the September quarter.Underlying EBITDA loss, excluding stock-based compensation and other nonrecurring adjustments of $3 million excluding Jiobit, and $4.6 million including Jiobit, were ahead of the September quarter due to a full quarter's contribution from Jiobit. The CY '21 underlying EBITDA loss of $13.1 million was better than guidance of $14 million to $18 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]

Thanks, 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.Life360 ended the December quarter with cash and cash equivalents of $231.3 million and debt of $16.2 million related to convertible notes. Following the close of the Tile acquisition in January, Life360 has cash and cash equivalents of approximately $94 million and remains in a strong capital position to invest for future growth.Cash used in operating activities of $11.7 million compared with cash provided of $4.4 million in the September quarter. Revenue of $35 million increased 46% year-on-year on an underlying basis and was $5.3 million ahead of the September quarter. Receipts from customers of $25.1 million reduced from $26.7 million in the September quarter, reflecting the timing of subscription receipts. Staff payments of $11.2 million reduced from $11.8 million in the September quarter due to the timing of bonus payments. At the end of the quarter, our headcount, including contractors, was 370.Advertising and marketing payments, which include paid user acquisition of $5.3 million, increased from $3.2 million in the September quarter, reflecting the new brand campaign, high user acquisition spend and a full quarter of Jiobit.Research and development payments of $5.4 million increased from $2.2 million in the September quarter due to the timing of vendor payments. Cost of revenue of $10.5 million increased from $1.8 million in the September quarter due to the timing of technology payments. Administration and corporate payments of $3 million increased from $2.5 million in the September quarter due to costs associated with the higher headcount.Cash used in investing activities of $0.2 million reduced from $4.4 million in the September quarter, reflecting the timing of the Jiobit acquisition. And cash received from financing activities of $192.8 million reflects the proceeds of the capital raising, slightly offset by the exercise of options and settlement of RSUs.Thanks for your attention. I'll now hand back to Chris.

[Chris Hulls, Co]

Due to potential implications under U.S. federal securities laws, we are not currently able to provide specific guidance for CY '22. That being said, we've had a terrific quarter and are confident in our ability to drive continued growth, in particular in our core Life360 subscription business. We anticipate that we will return to providing guidance as soon as we can legally do so in ways that do not potentially raise U.S. security law implications.With that, I'll turn it over to Mel to run our Q&A.

[Melissa Goodell, Executive Assistant]

[Operator Instructions] First up, we have James Bales.

[James Bales, Equity Analyst]

I'm calling from Morgan Stanley. So I'd just like to ask -- run through a few things. Firstly, you outlined the launch in Canada in December. How has that initial performance compared to plan? And do you have any timing for future international expansion?

[Chris Hulls, Co]

Sure. So, so far, very much on plan. We've seen the increase in ARPPC that we expected. It is very, very fresh, and we're going to use the next few weeks to process the numbers a little bit more and have a much deeper update at full year earnings in a full week and -- later in the month. And in terms of other regions, we're looking at the U.K. much later in the year. And of course, what we learned from Canada is going to inform that process. But early signs are all very promising.

[James Bales, Equity Analyst]

Got it. And then you spoke again about record subs for a third consecutive quarter, implying an ongoing improved conversion story. How persistent do you think that, that increased conversion to Paying Circles can be?

[Chris Hulls, Co]

So the conversion increase, I'd say, is permanent. Clearly, the bigger you grow, then you have more of a drag from the existing user base. So overall, it's continuing to go in the right direction. We think things like Tile and Jiobit are going to hypercharge that later in the year. We don't have any major product initiatives over the next few months that will necessarily do another step function. But we're confident that the relative ratios of conversion are going to maintain, and it was not just a flash in the pan.

[Russell Burke, Chief Financial Officer]

Just to add slightly to that, James, what I'd say is that we're seeing improvements right across the funnel, sort of top of the funnel all the way through in terms of conversions. So yes, that definitely looks very sustainable.

[James Bales, Equity Analyst]

And then you guys mentioned the Placer deal. Can you sort of help us understand the impact that we should expect on indirect revenue in FY '22 as a result?

[Chris Hulls, Co]

It essentially should be close to nothing. The overall deal, I can't share specifics. But as we've long shared, the data business has not been a strategic one and we're essentially replacing a very large number of partners with a single partner, with the exception of Arity, which is going to continue on the driver side. But net-net, you could imagine it will be very similar to what it was previously from a run rate perspective. There might be a little bit of a transition window where it's noisy either direction, but the overall business is going to remain steady.

[James Bales, Equity Analyst]

Got it. And I guess the last one that I wanted to check, you talked about giving guidance as soon as possible. Do you expect that to be possible at the results in February?

[Chris Hulls, Co]

Unlikely it's that soon, given to some of our broader plans, which due to the intricacies of the live, I have to be careful with what we share. But it is unfortunately going to be a little bit longer because we do have some things in the works that preclude us from doing that without possibly running foul of different rules. Russell, if you have a better way of describing that, feel free to jump in.

[Russell Burke, Chief Financial Officer]

No. Unfortunately, James, that does pretty much describe it. We've talked about our plans in the past, and it will take some time to work through the various processes.

[Chris Hulls, Co]

Yes. And we obviously are still going to give quarterly results and all that. And I'm very much looking forward to showing that we will be continuing to drive that core growth.

[Melissa Goodell, Executive Assistant]

Up next, we have Chris Savage. Chris, please let us know which company you're calling from.

[Chris Savage, Head of Research & Senior Industries Analyst]

I'm calling from Bell Potter. First one, Chris, are you still targeting a U.S. exchange listing by the end of next quarter?

[Chris Hulls, Co]

These are the types of questions I unfortunately cannot give you a direct answer on.

[Chris Savage, Head of Research & Senior Industries Analyst]

Okay. That was easy or quick. Any update on the supply chain constraints for both Tile and Jiobit?

[Chris Hulls, Co]

Sure. So Jiobit, in particular, is still choppy and constrained, but was able to get stock towards the end of December. But it is -- we think we see the light at the end of the tunnel. Tile was able to maintain stock, but had to do things like move to single packs versus multi-packs because we couldn't get enough inventory to say -- to have 5 Tiles in 1 package. So instead focused on having smaller volumes and things that are going to have higher margins. Obviously, it's higher margins when you only have a single device. So there's definitely still a bit of a drag, but we think it is going to be normalized over the year.

[Russell Burke, Chief Financial Officer]

And the impact continues to be more heavily weighted on Jiobit. I think Tile now sort of see a clear path going forward.

[Chris Savage, Head of Research & Senior Industries Analyst]

Okay. And I appreciate you can't say much around the guidance. I guess one question, I'm not sure maybe more for Russell. Do you still anticipate giving us a revenue EBITDA and AMR type guidance around key metrics? Or do you think there'll be some refinement of that?

[Russell Burke, Chief Financial Officer]

We're working through that. As we said, we'll be restricted from giving guidance in the immediate future. But the -- certainly we'll be most likely moving to this sort of traditional revenue and EBITDA guidance.

[Melissa Goodell, Executive Assistant]

Up next, we have Julian. Julian, please repeat your name and what company you're calling from.

[Julian Mulcahy, Executive Director of Small Caps]

Julian Mulcahy from Evans & Partners. Just a couple of questions from me. Firstly, you reported a much lower loss in...

[Melissa Goodell, Executive Assistant]

Julian, it looks like we may have lost you.

[Julian Mulcahy, Executive Director of Small Caps]

Am I back?

[Chris Hulls, Co]

You're back.

[Julian Mulcahy, Executive Director of Small Caps]

So the loss was a lot less than expected and even in your guidance and free cash flow negative was less than even you expected. So was that mainly like timing differences or you had really conservative guidance from the start?

[Russell Burke, Chief Financial Officer]

The primary factor, Julian, was the continuing growth in subscriber revenue and the flow-through impact of that. So we didn't necessarily raise the -- our marketing spend in the quarter. Most of that spend was online. We probably had slightly less hiring than we originally anticipated. But the biggest impact was the positive flow-through from the growth in the top line.

[Julian Mulcahy, Executive Director of Small Caps]

Right. Okay. And with the planned Tile offering across the Membership plan, can you talk through that, Chris, as to what's likely to be the offering? And I suppose it's mainly with the Platinum Membership?

[Chris Hulls, Co]

Sure. So we're going to be incorporating Tile and Jiobit across premium SKUs, and we're also going to have a free user experience for anyone who is going to be able to link a Tile. We're going to be doing a very heads-down integration period for all of H1, bleeding into H2. But the goal is by back-to-school and definitely for the holiday season have this much more integrated experience. And we'll be able to share a lot more details of what that will look like at the full year next month.

[Julian Mulcahy, Executive Director of Small Caps]

Right. And will that come so with quite a ramp in the sales spend in terms of advertising?

[Chris Hulls, Co]

We're definitely going to incorporate that as part of our upcoming brand campaigns. I mean our plan of record is to do something around each back-to-school. We had such a successful campaign last period. So obviously, being able to talk about the value prop in a bigger way, we think, is going to be very impactful.

[Melissa Goodell, Executive Assistant]

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

[Chris Hulls, Co]

Well, thank you, everyone again for joining. Very much looking forward to our full year earnings next month, and have a great day.