Life360 Inc (LIF) 2021 Q4 法說會逐字稿

This is Jolanta Masojada This call is being conducted as a Zoom audio webinar. (Operator Instructions)

The agenda for this morning's call will include a business and strategy update by Co-Founder and CEO, Chris Hulls, which will be followed by an overview of the financials by CFO, Russell Burke. Chris will then 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 our call today. Before I move to the details of the results, I want to provide a high-level view of Life360's achievements and a landmark year for the company. We achieved accelerating operational metrics across the business, finishing the year with annualized monthly revenue of $135.7 million, a year-on-year increase of 51% and a strong leading indicator of the growth opportunity ahead.

Despite the continued disruption from COVID-19 in the U.S. and other countries, global monthly active users increased 34% year-on-year, with the U.S. delivering growth of 39%, and we delivered a 39% increase in Paying Circles with 3 consecutive quarters of record subscriber additions.

We also delivered 2 transformational acquisitions of Tile and Jiobit, and a key new data partnership with Placer.ai. Together with Tile and Jiobit, Life360 has taken a fundamental step forward in our vision of being the dominant platform for a much broader suite of family services.

We are now the only vertically integrated cross-platform solution of scale that brings people, pets and things together in a unified app. And our data agreement with Placer will enable us to spend less time navigating the rapidly evolving regulatory environment and Apple and Google platform changes, allowing us to focus on our core, while simultaneously reducing business risk.

Importantly, Life360 is in a very strong financial position to deliver on our growth aspirations for the company, with cash and cash equivalents of approximately $94 million following the close of the Tile transaction. Life360's impact in the real world continues to grow. The user metrics on this slide illustrate how we connect families and save lives with a dispatch of almost 20,000 ambulances in 2021.

Testimonials such as this one, demonstrate why our organic growth metrics are so strong as word of mouth is such a key driver. A high level view of our strong 2021 financial performance is outlined here on Slide 7. Revenue of $112.6 million increased to 40%, supported by 48% growth in direct revenue, 11% higher indirect revenue and the contribution from Jiobit in [September]. Total expenses, excluding stock-based compensation increased 49% due to growth investment and increased variable costs, reflecting higher revenue.

R&D costs increased 28%, while user acquisition and TV expenses increased 66% as we shifted from traditional performance marketing to new channels that also enable us to focus on our broader brand story. Variable commissions and cost of revenue increased in line with direct revenue.

Russell will provide greater expense detail later in the presentation. Investment in the business, together with the acquisition of Jiobit saw the underlying EBITDA loss increased to $13.1 million, and our ratio of expenses to revenue remained broadly stable.

Slide 8 shows the acceleration of our quarterly revenue in the third and fourth quarters as COVID impact has faded despite the emergence of the Omicron variant. In Q4, revenue increased 54% year-on-year with a small contribution from the Jiobit acquisition. As I mentioned earlier, annualized monthly revenue for December, which excludes Jiobit, increased to 51% year-on-year. To put this performance in context, AMR has more than doubled since our IPO in May 2019.

Turning now to the drivers of our revenue. Monthly active users increased 34% year-on-year to $35.5 million, with U.S. growth of 39% and international growth of 24%. While the U.S. has delivered strong and consistent growth all year, our December International MAU is slightly below June levels. It should be noted that this decline is not due to deterioration of fundamentals, but rather due to expected churn from a significant vital spike we had in downloads from low-value regions earlier in the year.

During our half year call, I spoke about this surge, which was primarily driven by memes on TikTok. This supported a #1 position in App Store charts in more than 11 countries in May and underpinned the 2.6 million lift in MAU as of June.

As a chart on the right highlights, this surge particularly pronounced in Spanish, Portuguese and Italian territories, which has since reverted to more normalized rates of growth. MAU trends in high-value Anglosphere have remained consistently strong.

Turning now to direct revenue, which increased 48% year-on-year, a significant acceleration from the previous year's growth. The 3 consecutive quarters of record subscriber additions I referred to earlier, is clearly visible on the significant step-up in Paying Circles on Slide 11. New membership subscribers increased 72% between June and December with our legacy subscribers remaining relatively stable. Membership now makes up 56% of Paying Circles and is the key driver of the continued uplift in our average revenue per Paying Circle in the U.S.

ARPPC for new cohort subscribers is 38% ahead of the first half of 2020 (inaudible) prior to membership launch. The drivers of the acceleration in our Paying Circle net additions over the course of 2021 are outlined on this slide. U.S. registrations have continued to strengthen with a particularly strong performance in the key back-to-school Q3. More importantly, we have seen a continued improvement in conversion metrics, which doubled in Q4 compared with Q4 in 2020. It's exciting to see the impact of the work our product teams in driving the accelerating -- acceleration in net additions, which you can see in each quarter of 2021.

While we expect strong growth to continue, it should be noted that we have seasonality in our business and we do know that Q1 to set a new record for subscriber additions.

In addition, we are heads down integrating Tile and Jiobit, and we expect their impact to be felt in the Q3 back-to-school and Q4 holiday periods, so the year will again likely be back half loaded.

Turning now to indirect revenue, which increased 13% year-on-year, representing 22% of 2021 revenue. Data revenue increased year-on-year ahead of expectations that had been moderated in anticipation of changes to iOS IDFA usage guidelines. The contribution from lead gen was consistent with the prior year.

We recently announced a new partnership with Placer.ai, to transition Life360 sales of solely aggregated data. As already mentioned, we believe this partnership will enable us to spend less time navigating the rapidly evolving regulatory and platform environment while preserving revenue in line with CY '21 results for the duration of the 3-year agreement.

We completed the acquisition of Jiobit in September, and we see an exciting opportunity to extend the market for our safety services to young children, pets and seniors. Jiobit's performance continued to bounce back strongly after the COVID impact in the first half of 2020 with year-end subscriptions increasing 42% and second half subscription revenue lifting 62% with the benefit of higher priced plans.

While the hardware business still faces significant supply constraints, our strategic goal of adding low-churn subscription is already being achieved and will be further enhanced as we integrate cross-marketing for 360 subscriptions. We're also excited to share that we were merging the Tile and Jiobit brands into a single lineup. We'll share more on that later.

Turning now to an update on our strategy. 2021 was a tremendous year of progress for Life360 with strong delivery against our strategic objectives. Our goal to build a large user base delivered more than 35 million monthly active users. This achievement was supported by a brand-new brand campaign and new user acquisition channels in concert with a range of new free features, including data bridge alerts, updates to our map and a number of small improvements.

Our goal to grow membership saw the delivery of more than 1.2 million Paying Circles. As I mentioned earlier, we saw 3 consecutive quarters of record Paying Circle additions, benefiting from product investment to drive conversion. And we'd be in the first stage of the international expansion of membership with the Canada launch. And finally, our goal to expand reach and revenue saw the acquisition of Jiobit and Tile marking a fundamental step forward in our vision of being the dominant platform for a much broader suite for family services.

These acquisitions dramatically expanded the use cases in total addressable market for Life360, and in particular, have the potential to hypercharge membership. While both businesses bring meaningful hardware revenue, what really excites us is our new dominant position in the ecosystem and now having the ability to bundle something that people can touch and feel as part of what was previously a solely digital experience. We believe this will give us the ability to conversion, raise pricing and reduce churn.

Integrating Tile and Jiobit into Life360 to drive higher membership growth and conversion rates is the first of our 2022 priorities. This means that our members will be able to find, connect and protect everything that matters to them, including people, pets and things. We expect the integration work to take place in the first half of the year, ready to take advantage of the back-to-school peak seasonality launch.

Should be noted this is a very significant undertaking, which in the short term means other revenue initiatives have been deprioritized. So as mentioned, growth for the year will be very backloaded after we complete this launch. We are also watching developments around the privacy concerns relating to Apple AirTag and risks. The scrutiny Apple is facing in the press is moderating growth of the category overall.

While this does not change our ability to drive subscription growth through integration with Life360, it may be a headwind for stand-alone hardware sales until the situation resolves and the category is able to more fully emerge. This slide provides details on why we are confident that integrating Tile and Jiobit will drive an uplift in key membership metrics.

First, we see the opportunity for higher conversion to paid and increased ARPPC as customers are more willing to pay for something they can physically touch. Our new bundled offering will enable to increased pricing as well as shift to higher tiers. We see the opportunity for conversion in ARPPC to increase by double-digit percentages.

Secondly, we see the opportunity for reduced churn and improved overall LTV. Subscriptions that are tied to physical devices have exceptionally high retention rates. Jiobit's retention rate, for example, at month 12 is almost double that of Life360 stand-alone. So we're excited about the opportunity to extend customer lifetime and increase LTV.

Finally, we see the opportunity for broader brand reach and expansion in our total addressable market as a joint offering appeals to additional demographics. Long term, we see additional markets opening up such as elder care. This expanded reach opens up additional pay channels and improve top of funnel.

I've spoken previously of our goal to deliver a more emotional connection with the Life360 experience and evolve from where are you to how are you? We did some very small improvements along this line in 2021, and we are significantly increasing resourcing to this initiative in 2022. We're doing a lot to make the app more fun and engaging and also provide to use Life360 that are U.S. utilitarian and more about fostering the together. We like to say less where are you, and more I love you.

Features like this will significantly differentiate us from the ever-increasing number of generic location trackers and grow the size and engagement of our user base, which ultimately translates into more paying customers.

Our Membership 2.0 initiatives deliver an expanded offering, which will drive upsell and ARPPC. They are designed to introduce customers to the broader Life360 feature set in new ways. Examples include our Driver Tab 2.0, which expands driving features will also bring them front and center. A physical welcome with in-app branding to reinforce value and in that message of seasonal marketing hopes to drive upsell.

Given the success of our U.S. membership model, our priority for 2022 is to expand into new geographies. We have established a dedicated international team, which focused on enhancing the user experience and accelerate the rollout of membership International. We plan to deliver a feature parity in key markets with free cash detection, SOS and data breach alerts.

Our Canada launch in late 2021 has achieved strong metrics with more than a 100% uplift in ARPPC for new membership sign-ups. Our plans for our U.K. launch build on the strong MAU performance in that market, with a 63% year-on-year growth rate in the fourth quarter.

Over the course of 2021, we scaled our spend in performance marketing into a broader area of channels. This investment was supported by the improved unit economics resulting from the strong conversion of subscription retention that I described earlier. As we see the benefits flow through the product improvements, we can scale spend profitably to accelerate growth.

Our expansion outside of traditional performance marketing included the brand campaign I mentioned earlier. In 2022, we plan to accelerate our marketing investment, including expanding high-efficiency streaming TV and broader brand campaigns which will incorporate linear TV and out-of-home during our back-to-school season.

As we invest in improving the user experience and rolling out membership internationally, we will unlock our ability to invest in international performance marketing, which has been limited to date. As I outlined earlier, Life360's core values of family safety and security are having a major impact in the real world as we connect families and save lives. We have made progress in formalizing this commitment to our community, our employees, the environment and government with the development of an ESG policy and the achievement of carbon neutrality for 2020.

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

Thanks, Chris. And thanks to everyone who's joined the call today. Please note that all of the numbers I will be discussing are denominated in U.S. dollars, are in accordance with U.S. GAAP accounting standards and are unaudited. Before I go through the financial results in more detail, I'll provide an update on some of the unit economics that I've discussed on previous calls with some additional perspectives. All of these economic slides focus on the core Life360 business.

Slide 27 illustrates the retention rates of our U.S. organic users and the retention of membership subscribers. Our organic user retention for March cohorts prior to 2021 shows an initial negative impact of COVID, followed by a bump of reactivation. There has been no COVID impact on our March 2021 cohort with retention rates running at all-time highs.

The longevity of our relationship with users is illustrated in the length of the lines. These now stretch out for more than 4 years and show consistently stable and improving retention rates.

The chart in the top right-hand corner measures month 1 user retention over time. While there's seasonality in this series, it illustrates the initial negative impact of COVID and the recovery to recent all-time highs. As we have invested in improving the user experience, we've seen engagement increase significantly over 2021, and this has resulted in improving user retention. We expect this to continue as we establish a dedicated team focused on the initiatives that Chris described earlier.

Turning from free users to membership subscribers. The charts at the bottom of the slide show the impact of membership on retention rates. The end of year 1 membership retention rates continue to deliver well ahead of pre-membership averages for both monthly and annual subscribers.

The investment that we've undertaken in enhancing the membership experience is clearly being recognized by our subscribers. And as Chris outlined, membership 2.0 is designed to further enhance our offering and provide more value to subscribers, which will further support retention.

This slide is a new addition and provides a deeper dive into the improving conversion metrics, which we've mentioned several times. The charts illustrate the first 4 months revenue contribution by quarterly cohort over time beginning in quarter 2 of 2017.

We show the cohorts by quarter given the seasonality in the business, particularly the back-to-school impact in Q3. The declines in Q4 -- in Q2 to Q4 of 2020 showed clearly the impact of COVID on these cohorts. However, our higher conversion is driving a significant uplift from Q2 of 2021 onwards, with revenue more than doubling compared with the prior year quarter.

The chart on Slide 29 show the cumulative revenue of our quarterly cohorts over time, also beginning in Q2 of 2017. The length of the line show the extended period over which we're able to monetize users, now extending out as far as 54 months. And apart from the COVID impacts of Q2 2020 to Q1 2021, each cohort has delivered an increasingly steep gradient and we've benefited from improving retention and higher price points. It's very encouraging to see that from Q2 2021, we're seeing a significant uplift in cohort revenue. This slide shows revenue retention by half year period for users who had signed up at the end of the previous period. While we experienced a modest COVID-related decline in the first half of 2020, you can see a recovery to historic levels at all subsequent periods.

Increasing success in driving free users to paid subscriptions and paid subscribers to higher price points underpins the delivery of revenue retention in excess of 100% consistently. This movement of free users to paid and paid subscribers to higher price plans is illustrated on Slide 31.

ARPPC has increased progressively over time, increasing for successive cohorts, which can be seen by the lines starting at higher price points each time. The upward slope of the lines shows that we're able to increase average pricing even within the same cohort. The launch of the membership plans in Q3 of 2020 saw a substantial step-up in ARPPC with a further increase to around $120 in subsequent quarters.

The current flatter curve for membership cohorts is a reflection of the recent surge in absolute subscriber numbers into the gold tier, somewhat diluting the proportion of higher-priced platinum subs.

The final unit economic slide I'll focus on is marketing ROI. The chart showed payback curves on investment across all marketing channels by quarterly cohort. While marketing spend was constrained by COVID impacts in Q2 and Q3 of 2020, we took advantage of the momentum of our user growth and improvements in conversion to paid to increase marketing investment in the second half of 2021. This included a national brand campaign during the back-to-school season and increased performance marketing spend.

We take a longer-term view of user monetization with the goal of achieving profitability between 12 and 24 months, and that's what's reflected in the lines on this chart. This high-level top-down view of blended spend across all marketing channels is related to, but different from the bottom-up ROI analysis of user acquisition which we undertake on each individual channel in each initiative. This top-down approach captures all spend in aggregate, including brand and TV spend, some of which may not be directly measurable.

Turning now to the details of our income statement. Total revenue increased 40% to $112.6 million, driven by 48% growth in direct revenue and 13% increase in the indirect revenue. Jiobit's contribution since acquisition is reflected in direct and hardware revenue.

Cost of revenue increased 47% and gross profit was 38% higher at $89.9 million. Gross margin was slightly lower at 80% due to the impact of hardware cost of sales as a result of the Jiobit acquisition plus higher technology costs. Operating expenses increased 49% to $121.3 million as we increased investment to help scale the business. Research and development expenses of $43.5 million increased 28% year-on-year as a result of higher headcount to support product development.

User acquisition cost of $7.1 million increased 6%, reflecting the increased investment undertaken in the second half that I referred to earlier. Sales and marketing expenses of $39.5 million include variable sales commissions paid to Apple and Google, which account for $22.1 million.

The year-on-year increase resulted from strong growth in our direct revenue with a proportionate commission increase and higher other marketing expenses, which reflect the investment in streaming TV channels and brand and other performance marketing. General and administrative expenses of $19.8 million increased 104% year-on-year, reflecting the scaling of headcount to support growth as well as insurance, facilities and public company-related costs and costs incurred for acquisitions.

Stock-based compensation of $11.4 million increased 48% year-on-year as a result of new hires and continuing competitive marketplace in which we operate. The statutory EBITDA loss of $31.4 million increased from $16.0 million, reflecting the investment in growth. And the underlying EBITDA loss excluding stock-based compensation and nonrecurring items increased to $13.1 million.

Now turning to the balance sheet. Cash and cash equivalents of $231 million increased from $56.4 million due to the proceeds from the capital raising associated with the Tile acquisition. The accounts receivable increase of $2.8 million largely reflects the timing of receipts from a channel partner. Inventory of $2.0 million, intangible assets of $8 million, goodwill of $31.6 million and the contingent liability of $9.9 million all relate to the Jiobit acquisition.

The current convertible note of $4.2 million and noncurrent of $8.3 million relate to the Bryant Stibel investment round and convertible note issued for the Jiobit acquisition.

And finally, turning to cash flow. Operating cash flow of $12.2 million increased by $4.9 million due to investment to grow the business. Net cash outflows from investing activities of $7.1 million are in connection with the Jiobit acquisition.

Net cash inflows from financing activities of $194 million reflect proceeds from the capital raising associated with the Tile acquisition and cash received on issuance of convertible notes in relation to the investment Stibel investment round slightly offset by the exercise of options. Life360 ended the period with a cash balance of $231.3 million. Following the close of the Tile acquisition, the cash balance is approximately $94 million.

Thanks for your attention, and I'll turn the call back to Chris, who'll to discuss the outlook.

Due to potential implications under U.S. federal securities laws, we are not currently able to provide specific guidance for CY '22. After a strong CY '21 performance, we 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 do so in ways that do not potentially raise U.S. securities laws implications.

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 Laf.

It's Lafitani from MST. I just wanted to ask a few questions. The first is in relation to the dual listing. Could you just remind the Australian user base, what the advantages of moving towards dual listing, particularly in the current environment?

Sure. I have to speak a little bit generically there. And formally, I cannot share plans in terms of what we're trying to do from a very specific standpoint. I can talk a little bit more generically about why we have had this long-term plan of becoming a dual-listed company.

The first is, long term, we are a U.S. company. We always saw the ASX as a stepping stone. And it just makes a lot of sense that we would eventually be domiciled in our home market, where most of our employees are citizens, where the investor base is much deeper as we grow bigger market.

And then we also do feel that the multiples even though they have come down across the board are still significantly higher in the U.S. So when we do look at what -- how we think we could be valued across borders, we do see a gap that we think we can take advantage of. And as we look to grow, we do want to look to where we think we can be valued in line with our peers. Russell, anything to add?

No, I don't think so. Just to your last point, Laf, again, speaking generically, anyone looking at a listing is clearly taking into account the overall marketplace and that's had an impact in the U.S. that we've seen so far this year. But that will just be something that everyone, including ourselves, will continue to monitor.

Yes, sure. Why don't I move on. So the comments that you made around Apple AirTag impacting category sales, can you give us a better idea through quantum because there's a few moving pieces, right? So when you announced Tile acquisition, some of the sales reported for last calendar year or financial year already included an impact from supply issues. And so there's a lot -- how should we think about the year ahead, taking into account what you just said is a category impact as well as the supply issues from last year.

So from last year to this year, would you expect it to be flat, up? I know it's sort (inaudible) on guidance, but it's -- there's a lot of moving pieces for us to take into account, and it's hard to sort of get a clear sight on what's happening under the business.

Sure. Let me start by answering your question more indirectly in recapping why we're very excited about the deal to begin with because it does tie into resource allocation where we're putting dollars. So there were 2 bets that we were making.

I'll start with what the biggest bet was in the most critical part, which is, can we use hardware to drive membership upsell, and will that give us a better position in the market with a much broader offering. Obviously, software revenue is far, far, far more valuable than hardware revenue. And what Life360 has is that very high-value annuity stream. So the broader category doesn't really impact our ability to drive membership dollars.

So when we look at supply issues, in particular, we're going to prioritize anything we can do to drive membership over direct hardware sales. Clearly, we'd like to not be supply constrained and that would enable us to also capitalize on the second portion of our bet, which is can this category emerge in its own right in the same way that AirPods made the Bluetooth headphone category emerged in a much bigger way that was good for all market participants.

That latter piece, I think, is going to be maybe a little bit slower than we hoped because Apple's essentially stopped marketing AirTag while they're getting through some of these privacy headwinds. So we think it's more of a wait-and-see moment. But given the supply already is somewhat limited, we will be deploying more of that moving membership numbers anyway.

So when we think about what it could look like, I think we need to be very careful on guidance, obviously, given some of the issues we mentioned. But I would not expect -- Tile stand-alone will probably stay in a similar band to last year. It won't be a huge, huge growth year. I don't expect it to be a huge down year either. I think it's more, again, consistent.

And we're going to be redeploying as much possible to driving membership when possible. So if we have a trade-off to make, which is, A, allocate tile devices to Life360 to drive membership; or B, allocate devices to Tile stand-alone to drive hardware sales, we're always going to take the bias towards driving membership.

Okay. Got it. Just moving to my next question. Could you update us on the Board and management's thinking around our pathway to profitability, not necessarily any specifics with any numbers, but just the thinking, is there more urgency in the current market environment to move to profitability quicker. Do you think now that you've got sufficient scale to move to profitability? Or are we expected to continue seeing heavy levels of investment over the medium term?

Sure. For starters, we try not to be driven by the market in terms of making decisions. And in general, if we can see ways to profitably spend to grow, we're going to lean in on them. Clearly, this year, as we've already discussed, it is going to be a build year where burn does go up meaningfully as we integrate these companies.

And there is a lot of R&D that we're putting into this that's largely going to show payoff in 2023. I can say very clearly right now, our anticipation is that 2023 will have significantly reduced burn to 2022. Clearly, if something absolutely hit us out of the park, we'll step on the gas and keep going. We have plenty of money in the bank. But our plan will be that this will be a peak burn year.

And I do hope that everyone recognizes that we have been able to get cash flow breakeven essentially at a moment's notice with what happened in COVID in 2020, where we had our first consecutive cash flow breakeven quarters. So if we ever need to do it, we maintain that option, we're prudent and disciplined in spend and I'm very confident that we will always be in a position if we need to adjust for, and we'll be able to do so extremely quickly.

Okay. And just moving on to the Canada full membership launch. Can you give us a bit of detail? There's not much in the presentation about how that's going?

Sure. So first off, it's pretty exciting. It's very -- it's early. We just launched at the end of December. ARPPC has more than doubled. Conversion obviously does come down a bit when you increase pricing that much. But we need to see churn over the next few months, but the team is feeling very excited about that, where a lot of what we did hope to see as early indicators have happened. And have shown that if we do expand the offering, people will start uptaking the new membership tiers and that will drive significantly increased LTV, which would in turn we can then put to paid marketing.

Canada is obviously a very [small] country in relation to the U.S., but it does reaffirm our playbook that we now can go to other regions and we have a model of what that looks like. So we are midstream, exploring what it will take to get the vendors propped up in the United Kingdom, and we hope that within next quarter, we'll have even more numbers around Canada, we can have a little bit more specificity around what that looks like. But again, the early numbers are quite promising.

Okay. Just finally, on acquisitions. You flagged other verticals in the past as an example, insurance. Could you talk through appetite given current workload.

Short term, we're very focused on execution. Well, I'll never say never. Clearly, if something amazing comes along, we'll look at it. We're an extremely ambitious company, a lot of what we are looking at with moving back to deeper markets with deeper pockets is having the ability to raise capital and do bigger, bolder acquisitions because we really do see the business as one where if we get the breadth and we get the users. That is how we added a zero or two zeros to our valuation.

But right now, we are much more focused on internal execution. Net-net, I would rather that we grow our business organically versus organically and focus is extremely important to us. And whereas I did mention previously that we don't like the market to dictate how we run the business. We do think, given the chop in the market and given what is now not particularly favorable to raise more capital, we would not really look at deals that we would have to dilute ourselves at the current valuation, which is probably just as frustrating to many of you recall as it is to us. but we have a full road map ahead of us. So we're not feeling like we're losing out to any opportunities we want to do right now anyway.

And Laf, I guess, just to add to that, the acceleration in the membership side of the business that we saw in the latter half of 2021, we feel that just gives us the -- an opportunity to really maximize that and thus, the focus in the short term on doing just that.

Up next, we have James. James, please tell us your full name and what company you're calling from.

It's James Bales from Morgan Stanley here. I just wanted to touch firstly on Slide 20, where you talk to the hardware opportunity. The comment in the bottom left, talking about the conversion uplift and the ARPPC opportunity. Should we interpret that comment as being that you want to see double-digit uplift in conversion and a separate double-digit uplift in ARPPC.

Yes. Absolutely. And I feel very confident that once the integration is done, we're going to be able to deliver on that. It's going to be a while until it's done, it's going to take us a while to dial it in. But I'm supremely confident in what Tile and Jiobit are going to bring to the membership tiers.

And there's kind of 2 parts of that, James. We're seeing -- we're already seeing the conversion aspect in several tests. The ARPPC will be probably more driven by the potential for price increases, but that's really part of the ability of putting these things together.

So when you say price increases, is that a like-for-like price increase on the existing tier levels? Or is that simply a mix of people trading up to more platinum and gold?

It's all of the above, and we're doing testing right now to figure out the specifics.

Okay. Got it. Okay. Then maybe on Slide 11. My interpretation of your earlier comments was that you expected membership Paying Circles basically to -- over time, see churn from your legacy subscriptions on to membership. But they seem pretty resilient, though, and not churning as much. Is that something that we should take into account in terms of those pre-membership circles sticking around? Or is the introduction of hardware going to sort of see more of those migrate membership pricing?

It's a bit of both. We obviously have very good long-term churn and you have some people that are grandfathered in. And if you are happy with what you have and your grandfathered in, why would you upgrade. And if you are getting this discounted gold, it's a pretty sweet deal to remain on that. So for longer-term customers, there will be hold outs for a while because they're very incentivized to stay. But as we grow the size of the overall base, all new users are coming in on membership. So percentage-wise, that will continue to go down. And we do look forward to using Tile and Jiobit as ways to attempt to get people to upgrade, but we are more focused on the new members coming in.

Got it. And maybe just one last one. Back on the -- following up on the international rollout in Canada. What do you expect to see there in terms of changes in monthly actives and Paying Circles. And how much capital will you put into customer acquisition in these new markets of Canada and the U.K.

So the U.K. won't be out, just to clarify, until very late in the year. With Canada, our hope is that we show metrics that start looking more and more like the U.S. And the real interesting thing for us will be, A, can we get Canada looking as good as the U.S. or possibly even better; and then B, how long does it take, and that will help guide how much we spend.

We will, in the short term, to establish a market experiment with what happens if we do a little more liberal spending just to see if we can get some of the -- rally going on its own. And it's such a small market, it won't be huge dollars. I don't have exact dollar budgets for you, but given Canada is less than tenth times of the U.S., it's not going to be meaningful changes, but it is going to be much very valuable learning. And on a per capita basis, we might lean in a little bit more aggressively to understand what does happen when we get more aggressive in a given country.

And the broader point to, James, is that as Chris said, Canada is a pretty small market. The next market that we're looking at the U.K. is much bigger. So the learnings that we take from Canada can be applied to the next rollout and really help those hit the ground quickly.

Up next, we have Chris. Chris, Please repeat your full name and which company you're calling from.

It's Chris Savage from Bell Potter. Just a couple of questions. Back on the potential U.S. listing, Chris, in the past, you said in conjunction with that, you'd look to do a raise something like a couple of hundred million to provide liquidity and get your shareholders on board. So in the current market environment, would you still look to do that?

So the -- I'm -- I have -- we have lots of lawyers who have told me to be very careful about anything around firm plans. So I am going to probably give you a little less than satisfactory answer here. So we want to make sure that if we do a listing, we do it right. And we have experienced what it's been like -- what it's like to be a bit of an (inaudible) it took us a while to get our sea legs on the ASX.

And we do want to make sure to the best of our ability that we don't repeat that dynamic in the U.S. markets. It is a little bit different. This is our home market from our early feelers with investors. It's great how many of them use the product. we do compare very favorably to a lot of our comps comp just in terms of how sticky the product is and how we haven't been massively subsidizing margins or anything to grow.

So we think it could be very well received. But we also do think to get interest from what are much bigger funds. We do need to have a capital raise associated with the listing. We obviously hope that this growth sell-off, which has been very indiscriminate in terms of who goes down [quarter x]. And clearly, if people see a line of sight to how we're going to be traded on a very different comp base, that might change how people even react in the Australian market.

If we were forced to do a couple of hundred million dollar raise at this price, I think we would really have to think deep if we would want to take that dilution. And quite frankly, probably we wouldn't. But nothing is happening over the next couple of months. This is a slightly longer-term game plan and a lot can change and we're, of course, watching the broader markets extremely closely.

And this is a bit of an inside -- when we have -- when I look at advice around just the feasibility of a raise, I ignore the lawyers because they get paid no matter what, they're billing by the hour, whereas the bankers when they're leaning in on a deal, they only get paid if it gets done. And I can say bankers are extremely excited to work with us and extremely excited, or maybe not excited I'd say that sanguine on the market in terms of the current headwinds being something that could be short-lived.

And I do believe them because otherwise, they're wasting a lot of (inaudible) and something that isn't going to happen. So we like the market to course correct and clearly, if the market keeps its current trajectory, it's not a good position for anyone out in the capital markets. But if you just look at a couple of months ago the world was very different. And a couple of months in the future, it could also look very different.

And in that respect, Chris, the only other thing I'd say is obviously, we have plenty of runway, but we have the ability to -- these processes take a little bit of time. we'll have the optionality to make the decision -- the right decision at the right time.

And one very last addition, through the process, we're obviously going to meet a ton of U.S. investors and we will be on the radar in a much bigger way regardless of whenever the trigger is pulled. And I think that's a worthy endeavor that is to the benefit of the business and all our shareholders, just having the profile of the company raised in general. And so we have optionality when the time is right to do whatever we want.

Yes. And just -- what would the couple of hundred million, say, be used for or tagged for? Or would it just be basically an additional buffer on the balance sheet?

So it will be a combination of things. We are very bullish in some of our new initiatives in terms of their ability to drive [increased] growth. If we do really get the international playbook dialed in, that is something where you're almost assuredly going to be upside down for a couple of years before you go in the green -- or in the black. So we would -- international is one.

Very, very promising signals on new paid acquisition. Our new CMO, Garry, has been really stepping up, and that team has been expanded. If we see a profitable payback, we do want to be able to capitalize on it and we know investors are supportive, but also want to make sure we don't get too close to getting a cash buffer that could be problematic.

And then the third thing is just increased R&D in general. There's a lot we want to get done, and we have a pretty good track record of doing what we say in terms of getting paid back on our investment. So I think if we can prove to the market that Jiobit and Tile is a success, we'll have even more leading way to lean in more on future R&D. And then lastly, if there are inorganic opportunities to grow more quickly, having a nice balance sheet gives us optionality from an M&A standpoint as well.

And second question, apologies that first one was a bit long. But on AirTags, I get that the 2 products, yours and theirs are quite similar, both use Bluetooth technology, for instance. But do you believe the security controls for Tile better than AirTags? And could that be something you can use as a point of differentiation?

Sure. So there are a few other points. The -- I'll highlight a few things more on what's going on. Our perspective is that this is largely an issue around the press. The average customer does not seem to have an issue with any of this. There are a lot of parallels to our data platform as well, where a small, but vocal minority is elevating an issue.

I do think this is a little bit more real than concerns around data because clearly there -- the devices can be used in more troubling ways, but that's just a lot of large numbers. I think it's an extremely, extremely, extremely rare edge case. So the dynamic that's been more challenging is that big companies, in particular, are very, very worried about bad press.

So there's been a little bit of a pause from partners and retailers from Apple marketing, the category was just kind of a little bit on ice, I think, for hopefully just a few more months as things normalize. So it's not a user concern as far as we can tell. It's a press concern and a partner concern.

When we look at our security versus AirTag, it's also not a security issue per se. I don't think anyone is saying that these devices are insecure, it's more the ease of being able to drop a device into someone's bag or car is very easy, in what AirTag has done that Tile stand-alone didn't do because they have every device -- every iPhone device essentially being a finder for those tags. So it does make it much more akin to a very low-cost, real-time tracking device.

Whereas with Tile, since the network isn't as dense, is much more conducive to finding lost things than people in real time. So we are looking at ways to capitalize and highlight, well, hey, Tile truly was built around devices. And some of that was just implicit on the technology, not having this network density. Life360 will increase the network density by a factor of 10, which is great and part of why we were a very natural acquirer.

But it still won't be like Apple, and we're thinking of a number of ideas where we can go a little bit more on the offensive and highlight the difference between our network and Apple's and where we're going to have really solid coverage Life360 customers across the entire U.S., but it's not going to be this down to the minute real-time thing which Apple is closer to.

So I think we'll be able to mitigate it that way. And we are also -- I want to save some of our excitement for later, but we have some new lineup plans, which we will share with the market in coming months that we'll hit on this much more directly and differentiate us from AirTags. Because what we do see with Apple is that when they enter a category, its lowest denominator, not very customized. Whereas we focus on families, can do a lot of custom tailoring to the audience, which I think will also tie in to some of the stalking concerns.

And if I am a betting man, I'm highly confident that this will pass, whether it's a few months or a year, I don't know. But I think long term, my faith that location is going to be and everything is largely undiminished.

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

Thank you, everyone, for joining. I appreciate everyone taking the time, and I'm looking forward to delivering on a very exciting 2022. Thank you all.

Thanks, everyone.