Life360 Inc (LIF) 2019 Q4 法說會逐字稿

(Operator Instructions)

The agenda for this morning's call will include a business and strategy update by Co-Founder and CEO, Chris Hulls, followed by an overview of the financials by Chairman of the Audit and Risk Committee, David Wiadrowski. Chris will provide some outlook comments, 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 the call today. I'm excited to give everyone this update as it has been a year of tremendous growth for the company. Not only have we hit our most important key metrics, including new records for MAU and revenue, we were getting close to unveiling our new membership program, which we've been aggressively developing with the funds raised in our IPO.

Before I move to the detail of the 2019 results and a deeper dive into our upcoming membership program, I want to highlight some of the achievements of our first year as a listed company.

Our performance metrics reflect the achievement of impressive global scale with a monthly active user base of more than 27 million and annualized monthly revenue of more than $75 million. I'll also add that in our listed home here in Australia, we expanded even more quickly with MAU growing by almost 90%, largely from word-of-mouth.

During the year, we made big strides in expanding the functionality and quality of the Life360 service. Our first major product redesign improved the overall user experience, introduced lead gen into the app, expanded our core location features and increased user control of privacy and data. These features supported the rapid increases in average revenue per Paying Circle we delivered in 2019 as well as improving retention for free and premium users.

We also significantly expanded the scale of our platform. To give you a sense of this, during the year, we supported more than 1 trillion API calls to our servers, which you can think of as the number of touchpoints we have with our users' devices. This was no small feat.

We also built out significant international infrastructure and now have users in 195 countries with 12 languages officially supported and we are well positioned for continued global growth.

Perhaps even more important than the pure numbers we hit is the development of our brand. We are now synonymous with the market, and 2019 was the year we jumped from being a generic utility to a mainstream company. We had over 1,700 media stories in the last year in large publications, including The Wall Street Journal and New York Times, have established us as the dominant market leader for families.

And all this is having a real-world impact on people around the globe. We aren't just an app. When you sign up for our premium services, you are literally paying for something that can save your life. As just one example, we sent out nearly 10,000 ambulances last year. And in many instances, lives would have been lost, if it were not for us.

Even here in Australia, where we don't have Driver Protect, we are still having an impact. I'll quickly read a local testimonial about our Help Alert feature because it's so powerful. "Life360 saved my life yesterday. I'm an ecologist, and I was working remotely in Queensland alone when I succumbed to heatstroke and ended up being passed out in dense vegetation for 2 hours before I was found. POLAIR couldn't find me as well as ground search crew because of the dense vegetation I was in. But before I passed out, I triggered the Help Alert on Life360 and my family and partner used the app to find me. Feeling very grateful."

We get stories like this on an almost daily basis, and aside from being great motivation for coming to work every day, the ever-increasing frequency of these testimonials is contributing to our viral growth.

Now let's turn to detail of our 2019 performance versus prospectus expectations. We achieved a global monthly active user base of 27.2 million, 5% ahead of prospectus forecast with particularly impressive growth in the U.S.

Average revenue per Paying Circle performed strongly, with U.S. delivery numbers 13% ahead of prospectus forecast.

2019 revenue of $58.9 million was slightly ahead of prospectus forecast in spite of a $2 million revenue shortfall from the faster-than-expected wind-down of our legacy white label partnership with ADT. And statutory EBITDA of $28.7 million was 6% ahead of prospectus forecast with underlying EBITDA 12% higher.

Turning now to the 2019 year-on-year performance. Revenue of $58.9 million reflected a year-on-year growth rate of 84%. And annualized monthly revenue based on December 19 was $75.4 million, a year-on-year increase of 67%.

The increase in operating expenses reflects a step-up in discretionary spend on research and development and user acquisition as we continue to further cement our already substantial leadership position.

Underlying EBITDA loss of $22.9 million and statutory EBITDA loss of $28.7 million is a function of our investment in user acquisition and R&D, which is fully expensed. Excluding these items, adjusted EBITDA was positive.

As you can see, the ratio of our expenses continued to improve in 2019 as well.

Slide 10 shows the trajectory of our rapidly growing revenue on a quarterly basis. Direct Revenue has increased consistently, reflecting the growth in our Paying Circles and ARPPC. Indirect Revenue has grown strongly, offsetting the wind down of our legacy partnership with ADT.

I mentioned earlier the record growth of MAU we delivered in 2019, and you can see this reflected in this slide. Over the course of 2019, we added 8.7 million MAU, 6.3 million of which were in the U.S. Our emergence as a mainstream brand is a key driver of this accelerating growth trend. During 2019, we continued to intelligently deploy capital toward paid user acquisition, which is driven by our own internal LTV and cash recovery model. While we are continuing to invest heavily here and do expect increases over the next year, we were pleased with our team's ability to drive more efficient spending. And as the results show, growth continued to accelerate while spending declined. As a result, we were able to spend less than budgeted and redeploy these savings to R&D and infrastructure.

This efficiency also proves our thesis that we can choose to be profitable whenever we want by simply turning off the spend, and even after doing so, we would still grow. While deploying capital here is still the right move for the business, we are focused on aggressive growth, we like that this is in our control.

Turning to Direct Revenue. We increased 78% to $44.1 million with the majority coming from U.S. users. International numbers are still relatively modest at only 13% of total revenue, and we see this as an area for growth in 2021 as we look to adding more premium features overseas.

The drivers of Direct Revenue are outlined on Slide 14. Paying Circles increased 43% year-on-year to 827,000, and while under prospectus targets, this is not a miss because it was based on an intentional shift to our Driver Protect product, which is higher pricing and lower churn. As referenced, in December 2019, over 90% of new premium sign-ups were for this option, whereas 2 years ago, this was almost a brand-new feature.

This contributed to average revenue per Paying Circle increasing around 10% year-on-year. This reflected the accelerating growth in Driver Protect as well as a rebalancing of subscription packages from annual to monthly. This 10% increase compares with prospectus forecast for a decline of around 2%.

Looking forward to 2020, we are confident we will see continued ARPPC growth, particularly in the second half as we roll out our broader membership platform.

The charts on Slide 15 illustrate retention rates of our U.S. organic users and Driver Protect subscribers. Retention is a measure of how long a given cohort of users remains with Life360. You can see that we are maintaining our excellent retention and that, for free users, after less than a year, churn is essentially 0% as evidenced by the graph flattening and even turning positive. This is highly unusual and makes us an absolute best-in-class mobile app. While we get some initial drop off in the first few months, after that, churn stops.

The churn developments for Driver Protect are also highly promising. Our oldest cohorts are approaching 3 years of age, and churn is also rapidly approaching 0 with retention stabilizing at almost 40%. We believe that our upcoming membership offerings have a shot at making this even better as we provide increased value to our users.

Turning to Slide 16. Indirect Revenue increased to 105% year-on-year to $14.8 million and now contributes 25% of total revenue.

Going a bit deeper. Data made the largest contribution to Indirect Revenue as revenue scaled with MAU and the addition of new partnerships. Although this was exciting growth, I'd like to emphasize that this is not our core focus. The market for high-quality, trustworthy data partners is limited, and we are more focused on using our data in ways to enhance our product offering. So while that will continue to meaningfully contribute to our revenue, growth will likely slow significantly.

Our auto insurance lead gen partnership with Allstate formally launched in May. The partnership contributed more than $4 million of high-margin revenue. We are still in the early days of developing the user experience, which we expect to progress later in 2020.

Our legacy white-label partnership with ADT contributed revenues of $700,000 for the year, below prospectus forecast of $2.7 million, reflecting the early wind-down of the partnership.

Slide 18 provides a snapshot of our average revenue per user, or ARPU, which measures total revenue across our MAU base. Global ARPU increased 26%, reflecting the strength of Direct and Indirect Revenue. U.S. ARPU grew at a slower pace, reflecting the record growth of users that are early in their life cycle and yet to be monetized.

I'd like to now turn to discuss our strategy road map and the pillars that we're putting in place to drive future growth. In 2019, Life360 delivered global scale and users based on strong foundations of product, platform and brands.

2020 will be the year where we deliver the next step in our vision with the launch of our membership offering, and we will continue to develop that and our lead gen initiatives into 2021.

Instead of going into detail on this slide, I'd like to walk you through our membership vision, which is a key driver of everything we are building. The launch of our membership is a culmination of a 10-year vision for Life360. It's literally why we put 360 in our name. Our plan all along has been to be more than an app. We are now rolling out a service that protects you physically on the road and in the cloud all at once. Our excellent growth in recent years compared with the IPO proceeds from last year's raise have now given us the resources to fully execute on what we've been envisioning for the last decade.

Our new member offering will dramatically expand the scope and reach of Life360. Today, while we are useful to family of all ages, our emotional resonance is largely focused on families with teenagers. The current feature set is also similarly narrow with our premium offerings only focused on driving. With our membership offering, we'll be adding features that hit the emotional triggers of a much wider range of families and our services, in particularly, premium ones, will stay relevant as families age through their life cycle.

By the end of the first half of the year, we will be live with an identity theft protection product, a live SOS service and something we are calling family safety assist that gives you 24/7 access to worldwide assistance for everything from medical advice to emergency medical evacuation. The premium offerings we are launching are quadrupling the value we are giving to our members, and I'm confident they will increase our pricing power while also lowering churn. More importantly, it will further differentiate us from the generic location-sharing apps out there.

Slide 22 provides a time line of the membership services we're rolling out over the year. I won't go into full detail here, but the high-level takeaway is that we will be launching features over the course of the year with what I will call our inaugural membership launch at the end of June, at which point, we'll have most of these enhanced features out in production. We expect to have preliminary performance data shortly thereafter with the real boost to financials coming in the second half of the year as we scale the rollout and build out additional fast-follow items.

The following slide gives you an overview of our membership plans with a tiered offering ranging from free users all the way to platinum. We spent a considerable amount of time and resources deciding what services would go into each tier and how to price unlike our prior premium offerings, which were gut driven. For example, we engaged in a pricing and packaging -- with a pricing and packaging firm, Simon-Kucher & Partners, to identify a different psychological breakpoints to either stop people converting in the first place or opportunities to segment our packages for additional pricing leverage. If you look at our silver tier, for instance, you'll see we didn't include roadside assistance. This is because some people aren't ready to abandon their current provider, say, NRMA if this were Australia, even though we were providing more value. We included this, we have an opportunity to start the paying relationship now and then get the user to upgrade later. To follow this vein, you can see us in our platinum tier, we give you 50 miles of towing versus 5 in gold. We know very few people will request a tow over 5 miles, but some customers just want to pay for the best. So we now have a package that will let us capture this extra margin while also even -- while making us an even more compelling offering for our power users.

On a logistical note, our current users will be grandfathered into these tiers to minimize disruption plus users get free silver at no additional charge and Driver Protect will receive gold. So the revenue impact from the change will largely build from new users converting to premium, hence, why 2020 is a very backloaded year from a revenue performance standpoint.

I won't take you through each benefit line by line, but I'll quickly flip through a few examples of what you get on the next couple of slides. The first of our new products will be identity protection, allowing families to monitor and protect their identity and information in the cloud. Free users will be able to see if anyone in their family has had their information breached, along with information on how to fix it. For example, if your child's password was exposed in a hack, we would let you know. Premium users get restoration and reimbursement, or if your identity is actually stolen, we will help you repair it and reimburse it for actual losses suffered as a result. While this is not a huge concern in Australia, I suspect it will be soon, and it should be noted, this is a very large category in the U.S.

We're also expanding on the Help Alert service already in the app and launching a premium SOS button. Free users still have one-tap access to send a panic alert to their family members and emergency contacts, and premium users will be able to get access to a human monitored version with a safe-lock feature. Say you have a daughter in college who walks across campus at night. She can hold down the SOS button and if she releases it without entering a secret PIN code to signal she is okay, we will call her immediately and see if she needs help. If she says yes or doesn't answer, we will dispatch police to her location.

This is a great example of how membership will let us target different life stages. We go from protecting your kids when they start to become drivers and passengers of teens to then offering a service specifically tailored to their needs when they leave home. College kids drive much less, but parents worry about very different safety needs, which we will now be able to serve.

And to close out this overview, later this year, we'll be providing relevant curated content as well as deals and discounts for family-centered products and services. The idea behind this is that we truly want to move beyond subscription offerings to a membership, which makes you feel special.

H1 is all about the block and tackling and H2 is on polish points like this, which will help us continue to expand the perception of our brand. If we become a source of information, this will also help further advance things like our lead gen initiatives because people will seek us out to help them make purchasing decisions related to the family.

If you take all this together, what is good for the user is also good for the bottom line. The business pitch for membership is pretty simple: the broader offering increases our TAM and brand reach. The breadth of the offering will increase conversion and the tiered pricing will increase ARPPC. The better applicability and value will decrease churn. And in aggregate, this boosts LTV and revenue, letting us continue to spin up the flywheel that is already serving us so well.

With that, I'll turn the call over to David, who will run through the financials.

Thank you, Chris, and good morning to everyone. I'm very much delighted to be here this morning to bring out some of the key financial highlights from Life360's 2019 results.

I'll begin with some comments on the income statement on Slide 29. It shows a comparison of the 2019 financial performance versus the prospectus forecast that was issued as part of the IPO process in May 2019. Please note that prospectus forecasts shown on this page have seen some minor adjustments to align with our current presentation of operating expenses, and these are just really reallocations between categories and the overall operating expense number in the prospectus has not changed. A full reconciliation to the original prospectus forecast is contained in Appendix 2 of this investor presentation.

Total revenue for 2019 increased 84% year-on-year and was slightly ahead of prospectus expectations. Direct Revenue includes subscription-related revenue from Driver Protect and Life360 Plus. In the U.S., Direct Revenue increased 78% year-on-year and performed well ahead of prospectus forecasts. This reflected increases in average revenue per Paying Circle, delivering well ahead of prospectus forecasts. As Chris detailed earlier, this reflected strategic initiatives to shift users to Driver Protect, which supports much higher pricing and better retention.

ARPPC increased around 10% compared with prospectus expectations, which was for a decline of around 2%.

Our international Direct Revenue also grew strongly, increasing 74% year-on-year, in line with prospectus forecasts. Indirect Revenue is made up of data revenue, our Allstate lead generation partnership and legacy ADT partnerships.

In the U.S., revenue doubled year-on-year, reflecting strong growth in data revenue and the contribution from the Allstate partnership following its launch in May 2019. Overall, U.S. Indirect Revenue contributed below prospectus forecasts due to a $2 million shortfall from our legacy partnership with ADT, reflecting a faster than forecast wind-down of this situation.

Our international Indirect Revenue made a small contribution, but not included in the prospectus forecasts. This reflected the launch of our first international data partnership late in the year 2019.

Now turning to expenses. Operating expenses increased 63% year-on-year, a lower rate of growth than revenue. This is an indicator of the benefits of a scale in our business. Expenses also performed better than prospectus forecasts.

Variable customer support reflects membership benefits, for example, roadside assist. The $2 million expense increased year-on-year as a result of the increased size and engagement of our paid user base.

Research and development is our largest single cost item and includes the head count of our engineering and products team. The step-up in our investment in R&D to $28.7 million was largely as expected within the prospectus forecasts. It reflects our ambitious product road map and commitment to investing in a disciplined way in Life360's long-term growth strategy.

User acquisition costs of $19.4 million more than doubled year-on-year while remaining well below prospectus targets.

As Chris highlighted earlier, Life360 delivered very strong organic growth in the U.S. Every quarter of 2019 delivered a new record, notwithstanding the lower rate of spend in the second half of the year.

Looking forward to 2020, we expect to increase our investment in new channels that provide positive return on investment.

Sales and marketing expenses include sales commissions paid to Apple and Google and initiatives focused on building brand, improving retention and driving revenue.

Expenses of $14.2 million increased 49%, mainly driven by higher sales commissions from increased Direct Revenue.

General and administrative expenses of $7.3 million included incremental costs associated with now being a public company. These were largely unchanged year-on-year, reflecting tighter management of expenses. The higher-than-forecast outcome reflects legal and accounting-related costs.

Technology expenses of $10.2 million increased 77% year-on-year, largely in line with prospectus targets. This reflects increased server costs to support the rapid MAU growth, along with investments in developer tools and improved data management. Efforts are underway to capture lower unit costs as vendors recognize our current and future scale.

The EBITDA loss, excluding stock-based compensation for the year was $22.9 million compared with $18.2 million in the prior year. This outperformance versus prospectus targets reflects better-than-forecast cost outcomes.

Stock-based compensation of $5.8 million was ahead of prospectus targets of $4.3 million, reflecting our investment in people and the competitive marketplace in which we are operating.

The statutory EBITDA loss of $28.7 million compared with $20.1 million in the prior year was well ahead of prospectus targets of $30.4 million loss.

The statutory net loss of $29 million was ahead of the prospectus targets of $29.7 million. And the underlying net loss, excluding stock-based compensation, of $23.2 million was well ahead of the prospectus targets of $25.4 million.

Now turning to the balance sheet on Slide 30. Cash and cash equivalents of $64.1 million increased by $38 million during 2019 as a result of the IPO proceeds received in May 2019, partly offset by operating cash outflows. The increase in prepaid expenses reflects a multiyear agreement with a technology provider, which was undertaken in exchange for unit cost improvements.

Deferred revenue of $8.3 million was lower than the prospectus model, reflecting the subscriber shift to monthly versus annual plans.

Other changes in liabilities reflect the repayment of term debt of $5 million in June, which puts Life360 in a debt-free position.

Now turning to the cash flow on Slide 31. Operating cash flows of $30.5 million was above the prospectus target of $24.6 million but included $6 million of year-end prepayments, which were not included in the prospectus forecasts.

Deferred revenue was lower than the prospectus model assumptions. This reflected a shift in the monthly subscriptions as we move subscribers to the higher-priced Driver Protect product along with development guideline changes related to in-app billing. This shortfall was offset by noncash expenses and other items.

This net cash outflow from investing activities reflect minor investments in property, plant and equipment.

Net cash inflows from financing activities of $68.8 million reflects the receipt of the IPO proceeds in May 2019 and full repayment of the term debt in June 2019.

On the right-hand side of Slide 31, you'll see over the course of 2019 operating cash flows have reduced each quarter.

Life360 remains focused on continuing to deliver sequential reduction in quarterly operating cash outflows in 2020.

Thanks for your attention. I'm now going to hand the call back to Chris for comments on the outlook for 2020.

The 2020 calendar year is expected to be one of transition and transformation for Life360. We will truly be living up to the 360 in our name for the first time with the launch of the new membership experience by the end of H1. The benefits through increased average revenue per Paying Circle are expected to begin to contribute in H2.

For the 2020 year, Life360 expects to deliver: a monthly active user base of at least 35 million, an annual increase of around 8 million or around 30%; revenue of at least USD 90 million, which reflects a year-on-year growth rate of more than 50%; underlying EBITDA loss, excluding noncash stock-based compensation, below $20 million; a step-up in stock-based compensation from the 2019 base of $5.8 million primarily reflecting the impact of the post-IPO capital structure and the fair value of new employee grants; operating cash outflow below $20 million.

That concludes our prepared remarks, and I'll now turn the call over to Melissa who will manage the question-and-answer portion of our call today. Thank you.

Bear with us as we get Melissa set up.

We appear to be having some minor IT difficulties getting the Q&A going. If I had some good jokes, I would say them now, but I'm not paid to be a comedian.

We are working on the IT situation. Please stand by, and apologies for the delay. Thank you very much.

Can you hear me now?

Yes, we do.

Thank you. Thank you very much. (Operator Instructions)

First off, we have Quinn.

I guess, just firstly, on guidance in relation to the membership experience, which will be an impact in the second half. Can you just talk us through, please, I guess, what kind of an uplift your guidance numbers are anticipating in the second half? To what degree there is acceleration kind of post June in terms of MAU growth, conversion, ARPU, et cetera? Just trying to understand what the first half or second half change is going to look like.

Sure. So directionally, I would say H1 is going to be more linear and the acceleration will absolutely be in the second half of the year. So it is a very backloaded 2020 for us. And the metric I would encourage investors to watch, and we will start showing is, for new cohorts coming in, how is ARPPC changing because that will be the leading indicator for how the tiers are working. And then, of course, since we're subscription, will take time to build and flow through. So if you see the leading months, say, July, August, September showing the increases, it sets us up very well for the future.

That's helpful. Just kind of clear on that. So the guidance would assume some acceleration in both MAU growth, conversion and ARPU, I guess, starting after June? Is there any kind of idea in terms of quantum in terms of some of those metrics in terms of step-up that you can provide?

We can't go into more detail than what we have here already. But I would say the shape of the curve, if you will, should be one that you will see that acceleration, hopefully, pretty clearly around the back-to-school season because we have a couple of months out and we usually see that function changes, getting growth around that time period, which is August-September time frame.

That's helpful. Secondly, just on some of the new membership offering, that's a very helpful background and detail you provided today. Has there -- has marketing, consumer marketing, commenced on this yet? Has there been any, I guess, beta testing or kind of -- I guess, what I'm getting after is, if there's any, I guess, early indications in terms of customer demand? Or what gives you comfort that takeup will be strong?

Sure. So it's all market research, but on our existing and nonexisting users. So we did a survey with many, many thousands of people, a very deep one, this thing called a conjoint analysis, looked at different breakpoints. Both for people who are existing Life360 users to understand why haven't they converted to premium, what would -- why did they churn from premium, what would make them convert, what their needs are. And then we also did new surveys or surveys with new -- non-Life360 users just to understand, for parents who are not in our audience, would they become more attracted to what we're doing. So that -- so we do have real data in that sense, but we don't have any data from these features out live in production because it is something that we can't really market it until it's there and we have talked to our beta users, but it's research versus hard numbers.

That's helpful. Was pricing part of that survey?

Yes. Pricing was a massive portion of it.

Yes. And then just, lastly, if there's any update in terms of CFO search?

That is now getting kicked off in earnest. We're looking for a global set of candidates. We are also thinking if we -- well, we're obviously excited to be listed here on the ASX. At some point, we could look at U.S. markets given the very, I'd say, favorable valuation arbitrage. It's nothing short term. But when we do think of a CFO, we want someone that gives us that flexibility and versatility.

Thank you, Quinn. As there are no more questions, I will hand the call back to Chris for some closing remarks.

Thank you, everybody, for joining. We look forward to meeting with many of you in the next few days. Have a great day.