Life360 Inc (LIF) 2020 Q2 法說會逐字稿

Good morning, and thank you for joining the Life360 2020 Half Year Results Conference Call. This is Jolanta Masojada and I head up Investor Relations for Life360. This call is being conducted at the Zoom audio webinar with alternative teleconference facilities. (Operator Instructions)

The agenda for this morning's call will include a business and strategy update by Cofounder and CEO, Chris Hulls, followed by an overview of the financials by CFO, Russell Burke. 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.

Despite the impact of COVID, I'm pleased to start by saying the early results of our membership launch are exceeding expectations and we're excited about the tailwind it will bring us once the world returns to a more normal operating environment. While the impacts of the pandemic are still significant, we're back to growth, and I'm looking forward to walking you through our half year results.

Before I go into the details, I'll highlight some of Life360's achievements in what was a uniquely challenging environment. Annualized monthly revenue for June of $77.9 million increased 26% year-on-year and 2% compared with March 2020 despite the COVID impact. Normalized first half revenue of $38.7 million increased 57% year-over-year. These results were underpinned by the performance of our Paying Circles, which increased 21% year-on-year to 845,000. This is due to excellent retention even as our core use case was significantly hampered and demonstrates the resilience of our subscription service.

The discretionary nature of our business model meant that we were able to respond to COVID by pausing the majority of our user acquisition spend in the second quarter. Combined with the strong revenue performance, this approach contributed to positive underlying EBITDA and positive operating cash flow in the second quarter. This achievement proves what we have long said. We can be profitable whenever we want. However, we remain convinced by the long-term value of investing to accelerate growth ahead of short-term profitability, so we are already launching new investments that are adapted to the current environment.

And finally, I wanted to highlight some impressive early results from the launch of our membership offering. We've long expressed our positive view of the opportunity to drive up an uplift in ARPPC as we broaden our service. In the first full month since launch in mid-July, we are seeing a 33% uplift in ARPPC for our new cohort of membership subscribers compared with first half results. As you know, our legacy subscribers are grandfathered on their previous plans, so it will take some time for this increase to be reflected in our overall ARPPC. This is a tremendous outcome that still has room to grow and highlights the scale of the opportunity in front of us.

Now let's take a look at our H1 performance. Normalized revenue of $38.7 million benefited from a 48% increase in direct revenue and a 94% increase in indirect revenue. Operating expenses increased 9%, significantly lower than revenue and thus continuing to scale the benefits of our model. Russell will provide greater detail later in the presentation.

At a high level, the mix of growth drivers changed with research and development costs increasing 17% while user acquisition expenses reduced 60%. Variable commissions increased in line with direct revenue.

Statutory EBITDA loss improved from $16.5 million to $7.1 million. Underlying EBITDA, excluding discretionary user acquisition, improved from a loss of $4.1 million to a profit of $1.6 million. Finally, the ratio of our expenses to revenue improved significantly from the previous 2 years.

Much of this push to make cash flow breakeven is due to our temporary pit to a defensive posture in these uncertain times. You can see that revenues still grew quarter-on-quarter despite the lockdowns, and for the first time, we had a positive underlying EBITDA margin. This will come back down as we return to growth, but as highlighted already, this demonstrates the flexibility of the business. We are well-positioned to weather the crisis even as it continues longer than initially anticipated.

Turning now to MAU performance. The first half saw a material COVID impact on new global registrations for mid-March as social distancing became the norm across the world. During April, new registrations declined more than 50% for March. While still off their prior highs, new registrations have been steadily improving since late April despite the near-complete pause in user acquisition spend.

In this environment, we're very encouraged by the performance of our U.S. MAU, which outperformed our initial expectations with a 20% year-on-year increase to 16.3 million. By June, U.S. MAU was in line with December 2019 levels. The COVID impact on international users was more significant with a 2.5 million decline between March and June. However, as highlighted on the chart on the right-hand side, these international declines were concentrated in developing markets which make an insignificant contribution to revenue. India, Mexico and Brazil were responsible for half of the international declines, with a further 23% from a range of other developing markets. International Paying Circles were considerably more resilient than MAU.

It should be noted that we are also impacted by Huawei losing their access to Google services, which makes Life360 incompatible on these affected phones. We do not know the full extent to which it's impacting these international declines, but we do see a correlation between the size of the decline and the prevalence of Huawei devices, which have their highest penetration in China where we are not supported in other developing regions. Given that supporting these devices would take considerable new engineering effort that would detract from core R&D, we have decided to seize support for Huawei phones for the foreseeable future.

Now shifting to revenue. We had an impressive 48% year-on-year growth in our subscription business, which is by far the largest driver of our performance. The drivers of direct revenue are outlined on Slide 10. As I mentioned earlier, Paying Circles increased 21% year-on-year to 845,000. Despite the impact of COVID-19 in the first half, Paying Circles were 2% ahead of 2019 -- December 2019, and we're proud that we demonstrated this full period growth in the face of difficult circumstances and a near-complete pause in paid spend. Average revenue per Paying Circle increased around 12% year-on-year. U.S. ARPPC continued to benefit from the shift to Driver Protect and a higher proportion of monthly versus annual subscriptions. This will continue to accelerate due to the new membership offering.

The charts on Slide 11 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 remain with Life360. For our organic users, you can see the initial negative impact of COVID, followed by a bump of reactivation, which shows that users return to the product even after a pause in use. You can see that net-net, we are maintaining our excellent retention even in older cohorts, which have very low levels of churn after the first year.

The churn developments for Driver Protect are also encouraging. While the most recent cohorts have seen an impact from COVID because there's less of a value proposition around driving when teams are not leaving the house independently, our older cohorts remain remarkably resilient. We're optimistic about the impact that our new membership model can have on longer term churn given our new premium offerings are now much broader than just driving.

Turning to Slide 12. Indirect revenue increased 94% year-on-year to $10.5 million and contributes 25% of group revenue. The chart on Slide 13 highlights that data made the largest contribution to the indirect line. Year-on-year growth was strong. However, we did see impacts from COVID on some data customers, and our expectation is that growth will slow in the second half.

As I've mentioned on many occasions, while data makes a valuable contribution, it is not our core focus. The market for high-quality data partners is limited and we're more focused on ways in which our use of data can enhance our own internal product offerings.

It should be noted that iOS 14 changes could have negative impacts on this business line as well. There's significant uncertainty around what changes will be made or what the impact will be.

Our auto insurance lead generation partnership with Allstate continued to make a monthly contribution of around $0.5 million. While COVID has impacted the pace expansion, we remain optimistic about this revenue opportunity.

We launched our new membership model on time on June 30 with the full rollout achieved over the first 2 weeks of July. Some of you may have been able to participate in the investor briefing we gave in mid-July to outline the products and features that form part of this new service. A replay of that presentation is available on our investor website. I won't cover every aspect of the new model today. However, I did want to provide an overview of the offering and some early results which we're excited about.

I've shown you this slide previously and I'm showing you again to highlight that the membership model is something that has been part of our vision for more than 10 years. We put the 360 into the Life360 name because our strategy has always been to be more than an app. Our goal is to provide a service that protects you physically while you are driving and in the cloud all simultaneously. We used the proceeds of the IPO to fully execute what we've been envisioning since the company was founded.

Prior to the membership launch, our product was focused on 2 life stages, families of teams and families with college-aged kids. Our premium offering was very appealing to families at the specific life stages where kids were becoming independent and were on the road with other teens. What is very exciting about the membership offering is that our reach expands significantly. ID theft is relevant to young adults who are becoming financially independent and our SOS feature is tied to physical safety, which is relevant to a broader array of people. As well as going older, our membership offering allows us to go younger with features like family safety, which are highly relevant for younger families. Our driving features may not be relevant if your kids are not of driving age. However, the 24/7 assistance is hugely useful if you're living with a chaos of younger kids and teens at home.

We see this offering as a beginning rather than the end of the value we can provide to families. There's the opportunity to roll more features into our offering and become an essential part of everyday life. Our goal is for our offering to become something that parents sign up for instinctively. Just as 20 years ago, people signed up for AAA in the U.S. or NRMA in Australia when they bought a car.

This slide provides an overview of the tiering of our membership service. The tiering was created to maximize both conversion and revenue. It supports our freemium model where users can access a free basic account with premium options starting with Silver at $4.99, all the way through Platinum for $19.99 a month. This tiering was based on considerable market research to identify psychological breakpoints and remove barriers to conversion. Conversion and upselling within the tiers will continue to be an important part of our value creation with the corresponding increases in ARPPC and ARPU. And as a reminder, our current users are grandfathered into these tiers to minimize disruption to the existing base. Plus users get Silver an additional charge and Driver Protect subscribers receive Gold. The revenue benefits of this new model will largely build from new users taking the new premium tiers, so the revenue benefit will take some time to build.

The following slide shows the profile of new subscriber sign-ups. It highlights that during the first half pre-membership, around 94% of new sign-ups were choosing Driver Protect. For the first full post-month launch, 73% of new sign-ups were to Gold, 16% to Silver and 11% to Platinum. The high rate of Platinum sign-ups benefited from a promotional pricing period where Platinum was available for $14.99 compared with its usual $19.99, which will go into effect on September 9. Our expectations for the whole of the second half are that 65% to 70% of sign-ups will be to Gold with Platinum in the 5% to 10% range, reflecting the conclusion of the promotional pricing period.

In order to illustrate the opportunity of the membership model, we have used the case study of Driver Protect, which launched in the U.S. in October 2016. Six months from launch, approximately 20% of the subscriber base for Driver Protect were from new sign-ups and upgrades from Plus. After 2 years, approximately half of the subscriber base was Driver Protect. This example illustrates the runway we see ahead for our new membership model.

This slide provides a profile of our total U.S. subscriber base. In the first half of 2020, prior to the membership launch, Driver Protect subscribers made up 76% of total with a balance from Plus and other. In the first month following full launch, we have more than 40,000 new and upsell subscribers in membership plans, making up around 6% of the total U.S. paid subscriber base. Our expectation is that by December 2020, 20% to 25% of the subscriber base will be new or upsell subscribers, with the remainder on legacy pricing.

This slide illustrates what the shift in our subscriber base means to our average revenue per Paying Circle. In the first half prior to membership, the annualized ARPPC for new subscribers was $86.70, which contributed to the $71.72 ARPPC we reported across the entire U.S. subscriber base in H1. ARPPC for the new cohort of subscribers in the first month from full launch is around $115, a 33% uplift for the new subscriber cohort in the first half. We're very pleased to see this tremendous outcome. Our expectation for the second half of 2020 is slightly lower, between $110 and $115. The proportion of subscribers signing up for Platinum is expected to be slightly lower in the second half than in the first month. The uplift to new cohort ARPPC is expected to underpin a 7% increase in ARPPC across the entire subscriber base when compared to first half.

With the membership model now fully in place, we're updating our road map strategy and business posture to adapt to both the current situation and the ultimate post-COVID world. There are 3 elements to our strategy. I'll quickly outline the pillars then dive deep on each.

First, we're already adapting our marketing strategy towards building new channels that will enable new avenues of growth when the operating environment returns to normal. Second, we'll continue to invest in further R&D towards enhancing our membership due to the strong early outperformance we've seen. And third, we'll evolve our features towards more emotional digital communication, a theme which has advanced dramatically as a result of the pandemic.

During COVID, top of funnel performance has been significantly affected by social distancing. As highlighted in this chart, we are pulling back on pace when COVID restrictions remain in place. We're encouraged that, with essentially no spend, organic traffic has returned and is driving MAU growth. We will maintain this disciplined approach to user acquisition until the environment normalizes. However, we are repurposing some of these savings to evaluate and experiment with additional growth channels just so we can quickly move back to acceleration post-COVID. New initiatives include web-based direct to premium sign-up outside of the app, regional TV campaign testing, brand campaigns that drive exposure to membership, enhanced SEO and influencer and celebrity marketing.

Early indicators are showing that membership is outperforming initial expectations and we have decided to invest to accelerate our R&D efforts on the initiative. We plan to use the second half of 2020 to complete phase 2 features that have long been in the road map such as the free version of Identity Theft and also accelerate related initiatives such as V2 iterations of core features and broader marketing inside the app. From a resourcing standpoint, some of this extra R&D capacity will temporarily come from other programs, including international and indirect revenue initiatives.

We have spent time considering our positioning in the post-COVID world. COVID is accelerating digital communication trends and supporting rapid uptake of alternate social interactions. This provides Life360 with a huge opportunity to accelerate our long-planned evolution from a platform that supports a "Where are you?" mindset to one that delivers a "How are you?" opportunity for communication. Progress in 2021 will demonstrate our expansion well beyond our initial pure location use cases.

At the same time, we are pivoting our branding and marketing initiatives to adapt to the new environment. We're expanding our audience reach through some of the initiatives illustrated on this slide. We are developing new marketing channels and using creative new content to shift brand perception. This is interrelated to activities, initiatives to reach out to a key component of our family circles, teens. In fact, we've already had success in connecting with teens and resetting their views of Life360 through engagement on TikTok. We're proud that our creativity is being broadly recognized, and our efforts on TikTok reached the front page of the print Wall Street Journal earlier this week.

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

Thank you, Chris. Before I go through our first half financial results, I wanted to spend some time providing some insights into Life360's business model.

Since I came on board as CFO, I've received mobile requests to provide more detail on the user economic side of our business model. The next few slides are intended to provide an insight into the economics of our freemium model and the features which distinguish it from traditional subscription models, including enterprise SaaS models.

There are multiple benefits and also costs in maintaining a free service. Firstly, we are able to monetize the entire user base through our data and lead generation revenue streams in addition to subscription. Secondly, the free user base operates as a top of the funnel for paid services. As evidenced by our flattening retention curves, we maintain engagement across our free user base for years. As a result, we continue to convert free users into subscribers over a significant period of time with little incremental cost.

I do want to highlight that in preparing the data, we've concluded that it makes sense to present a blended view, combining users from organic and paid channels in each cohort. We're including direct and indirect revenue across our entire user base. This is reflective of our business model where there can be movement between free and paid at any time over the life of the cohort and also eliminates marketing attribution issues. For these reasons, we believe that this is a more appropriate view of the business than focusing only on cash recovery for paid channels.

The power of Life360's revenue retention model is displayed on this slide where we focus on 1 quarterly user cohort with a long-term history as an example. The chart illustrates that revenue retention over time is much stronger than subscriber retention. This is due to the continuous refresh of free users into paid subscribers and the upsell of subscribers into higher price points. You can see that this occurs over an extended period of time, stretching beyond 27 months. The fact that net revenue retention for a user cohort is so dramatically higher than subscriber retention is what drives the long-term health of the business. The exact result will vary by cohort with different conditions, but the broad outcome is the same.

We'll now break that down into a few specific components. This chart show cumulative revenue for user cohorts beginning in the second quarter of 2017. We've grouped the cohorts by quarter to remove some of the seasonality impact, especially the back-to-school impact in the third quarter.

The chart illustrate key components of our business model. The length of the lines show that we monetize cohorts for a very extended period of time. The gradient shows our success in retaining revenue from each cohort. And as you can see, the starting point in gradient for newer cohorts becomes progressively steeper. Over time, we've become more effective at monetizing user cohorts by signing them up at higher price points. For the first quarter of 20 -- while the first quarter of 2020 cohort was affected by COVID-19, it's still running ahead of the previous year, demonstrating the resilience of our model.

This slide goes into detail of how we are driving subscribers into higher-value subscriptions over time. It shows our experience with the launch of Driver Protect in the U.S. and premium in international markets. The chart on the left shows the percentage of the subscriber cohort signed up to Driver Protect. In the older cohorts, somewhere between 30% and 50% of subscribers initially opted for the higher-priced Driver Protect. These percentages have trended up over time and include the impact of upsell from lower-priced products and free users moving into paid subscriptions. For our newest cohorts, well over 90% of new subscribers were opting for Driver Protect.

The impact of more subscribers choosing a higher-priced product earlier in their life cycles can be seen in the chart on the right. This shows the annualized average revenue per Paying Circle. While earlier cohorts were initially generating an ARPPC of somewhere between $45 and $55, the most recent cohort achieved an initial ARPPC closer to $80. What's important in this chart is that ARPPC has increased progressively for each cohort over time and for each successive cohort.

The net result of our success in driving higher revenue per cohort can be seen in the charts on this slide which show contribution margin over time, taking into account cost of sales and commissions. These charts are again shown by quarter to enable direct comparisons. They illustrate that cumulative contribution margins for each user cohort group have continued to increase over time as a result of the revenue retention that we outlined earlier and the improving mix of subscribers to free users, which reduces costs related to serving free users. The increasingly steeper gradients are due to the higher monetization of each cohort over time.

This chart shows marketing payback curves when we layer in investments across all marketing channels against cumulative margins for cohorts over time. We've always said that the business model is built around taking a long-term view of user monetization, and this graph shows that this is exactly what we've achieved. Some curves are slightly steeper than others, but as you can see, they're trending to our goal for this measurement of profitable cohorts, between 12 and 24 months.

It should be noted that this is a blended top-down view. It's related to but different from our direct payback from user acquisition that varies by channel and region. We decided to show this view as it captures all spend in aggregate, including brand and marketing, some of which is not directly measurable. This provides a way of looking at overall ROI without having to make assumptions around attribution, virality and other factors.

When we evaluate spending decisions internally, we continue to follow our bottoms-up approach, which looks at the performance of each individual channel and initiative and applies specific ROI tests against all of that spend. You can see on the chart that for the more recent cohorts, with the vision of launching the membership model, we invested heavily in paid acquisition and marketing to provide a growth engine and allow us to repeat our Driver Protect playbook. Following the membership launch, we do expect that increases in ARPPC will continue to improve the payback for existing cohorts as we upsell both free users and existing subscribers into higher-priced products. In addition, this upward movement in ARPPC will support increasingly efficient acquisition investment for new cohorts.

So far, the slides that I've shown have provided insights into our historical business model. This slide provides insights into our new membership offering with a high-level view of our expectation for contribution margins. While this level of disclosure is not planned as an ongoing element of our reporting, we believe it's useful in gaining an understanding of the new model at this current inflection point.

The table provides an overview of Life360's gross margin expectations across the new membership offering, U.S. legacy and international subscribers and our free users. Gross margin takes into account hosting costs, membership benefits, customer support, technology costs and allocated salaries. For our 3 user subscriber groups across membership, U.S. legacy and international, gross margins are between 85% and 95%. Taking into account the cost of serving our free users, overall gross margin is 65% to 70%. And then considering the cost of commissions, the contribution margin for our subscriber business is between 40% and 45%. This doesn't include the higher-margin data and lead generation revenues.

Turning now to our financial performance for the first half of 2020. I'll begin with some comments on the income statement. Total reported revenue for the first half increased 54% to $37.8 million. Normalized revenue of $38.7 million increased by 57%. There was a nonrecurring adjustment of $0.9 million related to the deferral of monthly subscription sales through a channel partner. As Chris outlined earlier, we saw strong growth in both direct and indirect revenue.

Turning to expenses. Operating expenses increased 9% year-on-year, a significantly lower rate than for revenue. Variable customer support expenses reflect membership benefits, including roadside assist. The $1.5 million expense increased year-on-year due to the increased size and engagement of our DP subscriber base.

Research and development expenses of $16.5 million increased 17% year-on-year as a result of our higher headcount. Despite the lower rate of expense growth from 2019, our engineering and product teams were highly effective in delivering the on-time launch of our membership offering.

User acquisition costs of $4.1 million reduced by 60% year-on-year. These costs were largely incurred through March. From April, we deliberately paused marketing investment to adapt to the COVID-19 environment.

Sales and marketing expenses of $9.6 million include variable sales commissions paid to Apple and Google. The year-on-year increase resulted from strong growth in our direct revenue with a proportionate commission increase, along with some marketing costs to support the membership launch.

General and administrative expenses of $4.6 million increased 36% year-on-year with increased overhead spend to scale the business as well as some incremental costs associated with public company compliance.

Technology expenses are $4.9 million, largely related to server costs. These expenses were just 3% higher year-on-year with much higher volume offset by a focus on cost reduction.

Stock-based compensation of $3.7 million increased 76% year-on-year. In line with our earlier guidance for a step-up in 2020 following the IPO, the full year impact of 2019 awards in 2020 as well as new hires and a continuing competitive marketplace in which we operate.

The statutory EBITDA loss of $7.1 million reduced 57% year-on-year, reflecting higher revenue growth underpinned by much lower growth in expenses. Underlying EBITDA loss, excluding stock-based compensation and the nonrecurring adjustment, reduced 82% year-on-year to $2.6 million.

Turning to the balance sheet. Cash and cash equivalents of $58.2 million reduced by $5.6 million from December 2019, reflecting the cash outflow from operating activities. Accounts receivable increased by $2.4 million due primarily to the timing of payments from a channel partner. The adoption of the new lease standard resulted in movements in other noncurrent assets, accounts payable and accrued expenses as well as other noncurrent liabilities.

Turning now to cash flow. Operating cash flow of $5.5 million reduced by $11.2 million due to strong revenue growth and the $6.2 million reduction in user acquisition spend discussed earlier. As we've previously mentioned, operating cash flow was positive in the second quarter. Life360 ended the period with a cash balance of $58.4 million.

Thanks for your attention. And I'll now turn the call back to Chris to discuss the outlook.

Thanks, Russell.

There remain significant uncertainties regarding general conditions in the U.S. and globally as a result of social distancing relating to COVID-19 as well as significant variations in how different jurisdictions are dealing with the pandemic. While our business model has proven to be very resilient and growth in U.S. MAU resumed after initial COVID-related decline in April, there's still significant uncertainty to the pace of recovery and specifically for the seasonally important Q3 back-to-school period.

Despite these challenges, the initial results of the new membership offering are very pleasing. New subscriber growth is strong with more than 40,000 new and upsell subscribers in the new membership tiers as of August 14, the first month since full launch. As expected, new cohort ARPPC is showing a significant uplift with a 33% increase versus CY '20 H1.

Although we have paused most paid acquisition in Q2, we have already resumed additional broad investment in new marketing initiatives. The pace of this investment, along with full resumption of paid user acquisition, will accelerate when the operating environment returns to normal. While we expect a continuing challenging environment, we are also assuming there is no significant increase in social distancing patterns related to COVID-19 in the U.S., and that there is no material additional downturn in the Data business either from iOS 14 or other factors.

In this environment, CY '20 is currently expected to deliver revenue in the range of $79 million to $82 million; underlying EBITDA loss, excluding stock-based compensation, in the range of $10 million to $14 million; operating cash outflow in the range of $10 million to $14 million.

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.

Thanks, Chris. (Operator Instructions)

First up, we have Quinn. Quinn, please let us know which company you're calling from.

Quinn Pierson from Crédit Suisse. Maybe just firstly on the new membership sign-ups, some helpful data there in terms of the buckets that those new members have been falling into since that's been launched. I guess what could you tell us about the propensity for a new user to sign up with a paid product? If you can give us some idea in terms of, I guess, the conversion to paying and how that compares with your typical cohort, free, per membership plan?

Sure. As of now, it's very, very similar, so numbers coming to the pipe will be pretty darn close. COVID obviously makes it tough to do like apples-to-apples because June versus July versus August is so different, but largely the same.

That's helpful. I mean, I think that was kind of an angle where potentially you could see some uptick, particularly with that Silver product, being able to capture maybe some of the kind of, I guess, more of the low-hanging fruit. Is there -- do you still think there's maybe some upside? Or are there some more levers to pull to maybe improve that conversion...

Over -- I was just going to -- over time, for sure. And obviously, given that everything has moved up, that's a -- it is a downward pressure and a much broader offering is a positive pressure. So we are very, very early here, similar to Driver Protect where it really ramped up after the product matured. So this is phase 1. So absolutely, there's a lot of room to grow and run.

Helpful. And you provided a little color that it sounds like users are now back to growth in your outlook commentary. Could you give us some idea in the kind of user growth assumptions that are underpinning the revenue guide for the second half of the year?

Russell, let me hand that one to you.

Yes. Basically, Quinn, we've taken a sort of somewhat a cautious approach given the uncertainty, but we're looking at that based on our sort of current growth rates and the sort of initial result from the membership launch.

So kind of an extrapolation then of what you saw in, I guess, July, which sounds like back to some MAU growth, but certainly not at the kind of pre-COVID levels, in summary?

At this point, yes. And as you know, there is some lag in terms of good growth to the flow-through to subscription revenue as well.

Yes. And then just lastly for me, if you could maybe provide a little bit more color in terms of how to be thinking about the CAC spend throughout the next kind of half of this year. It seems like the early stages of the membership plan are kind of as advertised, getting some great ARPPC uplift and hence, presumably spend more to kind of -- given the revenue offset. I guess could you just talk us through how to be -- how you're supposed -- to start as how kind of July and August CAC spend went? And then how do we thinking about that through the balance of the year?

Why don't I take that macro, Russell, and then you can give some specific numbers?

Sure.

So if you look macro, we're still going to be pretty cautious with pure paid user acquisition. Social distancing and kids at home is the norm. Bay Area, for example, no school, everything's shut down. Even Texas, which is the king of high school sports, they're starting to cancel a football season. So we're definitely not in a normal operating environment.

So while CAC -- user acquisition in terms of buying direct downloads in a very measurable and transactional way, that will stay down, but we are ramping up these other new initiatives I mentioned, which they're not exactly paid acquisition, but they do -- they are going to be a real expense. So as an example, that team to keep them -- we're going to do this next year anyway, but to just adjust the road map, we're doing a pretty robust new website, which is all about direct to premium acquisition on the web. So now the only way you can sign up for premium is to download the app, you are going to use an upgrade. We're going to have a new funnel, which is going to have you as a paid member day 1. So it's a combo of R&D and marketing behind that, but it won't show up in the paid spend line.

So Russell, I'll hand it to you if you want to share any more.

Yes. Just layering a little bit on that for you, Quinn. I think it's fair to say that we're going to continue to be both disciplined and opportunistic in terms of both paid acquisition spend and general marketing. Our systems and processes are built such that we can get a pretty good read on the ROI for specific channels for marketing. And we'll continue to do that. We'll -- we have increased paid acquisitions slightly, and we'll continue to do that where we see the payback in addition to looking at these other channels.

That's helpful color. Again, if I could just maybe clarify, so if you kind of add up together the direct CAC spend as well as some of these kind of brand building and website type spend as well, do you think that second half combined amount is above what the PCP CAC spend was? Or it's the combined amount, so less than what you have been spending?

I'd say, broadly, it's still less than we had been on a run rate previously. But again, we will be opportunistic on that.

Okay. We will now go to the telephone for questions. So I'll hand it over to the operator.

We're just getting connected now.

Have any good jokes, Russell?

None at the top of my head.

I'm trying to think if there's something to fill the awkward silence. I think one thing we have announced that I can talk about is that we are launching our first features for teens into beta next week.

So we will soon have a feature where you can ghost yourself -- we're calling it bubbles, though, to be less offensive to parents -- where you can set a zone and as long as you're within that zone, your exact location does not appear, but all safety features will still be active. And that has been part of the big shift to get the teens on our side, which has been working. And I know some of you have asked me about my very embarrassing TikTok account. And I have given up shame for traction. And so I hope that's a good testament to the lengths I will go to drive a good return for everybody on this call, so that is happening.

Chris, it looks like we are now connected to the operator.

All right. Perfect.

(Operator Instructions) We're showing no questions on the phones.

Great. As there are no more questions, I'll hand the call back over to Chris for some closing remarks.

All right. Well, an easy crowd today, but thanks, everyone, again for joining, and we look forward to meeting with many of you in the next few days, I guess, virtually this time.

And with that, have a great day. Thank you very much.

That does conclude our conference for today. Thank you for participating. You may now disconnect.