Life360 Inc (LIF) 2024 Q2 法說會逐字稿

Greetings, everyone, and welcome to our second quarter 2024 earnings conference call. This call is being conducted as a Zoom audio webinar. (Event Instructions) As a reminder, we will be making forward-looking statements regarding future events and potential financial performance during this call, which are subject to material risks and uncertainties that can cause actual results to differ materially from such statements.

A summary of these risks may be found in the risk factors section in our Form 10-Q filing with the ASX and the SEC dated August 8, 2024. These forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, August 8, 2024, and we have no obligation to update these statements as a result of new information or future events except from required by law.

Additionally, we will present both GAAP and non-GAAP financial measures on today's call. These non-GAAP measures are not intended to be considered in isolation from, a substitute for, or superior to our GAAP results and should be read in conjunction with the company's consolidated financial statements prepared in accordance with GAAP.

A description of these non-GAAP financial measures as well as a reconciliation to the nearest GAAP financial measures are included at the end of the company's earnings press release issued earlier today, which has been posted on the investor relations page of the company's website.

We will also post an updated investor presentation on the investor relations page later this evening, which includes additional complementary graphics and data. Please note that it has been provided as an additional reference and that we will not be using the presentation as an exhibit during today's call.

We will begin with a business update by Co-Founder and CEO, Chris Hulls; and then CFO Russell Burke, will provide detail on the Q2 financials. Chris will then provide some outlook comments, which will then be followed by a Q&A session.

(Event Instructions)

I would now like to turn the call over to Chris Hulls, CEO.

Good afternoon to everyone in the US, and good morning to everyone in Australia, and thanks for joining our Q2 results call. Life360 delivered excellent results for the quarter as we set new records in business and financial performance and completed our US IPO.

We achieved positive metrics across all of our key strategic priority areas. We've achieved impressive audience growth, increasing our free member base by 4.3 million monthly active users, reaching 70.6 million overall, a 31% year-on-year increase.

We continue to scale our paid offerings, increasing net paying circles by $132,000 compared with $96,000 increase in Q1. This delivered a new quarterly record for global net adds. Our focus on international growth also contributed significantly to our paying performance as we grew our international MAUs by 48% year over year, and our international paying circles by 42% year over year.

We believe that we're very early in penetrating our global market opportunity and that we have significant headroom to grow as we expand to new regions and launch new safety connection and location features that make everyday family life better throughout all life stages.

We launched triple tier membership in Australia and New Zealand in April, following the UK launch in October 2023, underpinning a significant uplift in average revenue per paying circle in both markets. Q2 revenue in the UK and New Zealand increased 76% and 69% year on year, respectively. This positive performance drove a 12% year-over-year increase in international ARPPC for the quarter.

US ARPPC increased 8% year over year, benefiting from Android price increases implemented in Q2 of '23. We also continue to make excellent progress in creating new revenue streams from our existing member base.

Earlier this year, we launched a new advertising offering, which is now live for US members and available soon globally. Importantly, we're focusing providing our members with contextually relevant ads, enhance the user experience by leveraging our extensive first party location data.

Following the rapid development of our programmatic ad capability and positive signals in early testing with both users and advertisers, we initiated our direct sales efforts in June. Revenue from our ad offering started to expand in Q2 '24, and we have been actively engaging with multiple prospective large advertisers and potential partners, which align well with our loyal base of families.

We continue to expect a noticeable revenue contribution from ads in the second half of 2024, as we build our ad sales measurement and tech capabilities and further enable our platform through service integrations like those in place with The Trade Desk, LiveRamp, PubMatic and Google Ad Manager. We recently hired a new VP for the ads business, who will join us very soon, and brings extensive experience in ads for us to leverage.

Today, we also announced expanded partnership agreements with two of our existing strategic partners, Arity and Placer.ai. Arity provides us with technology that enables our crash detection and driving alerts and also helps us provide often personalized car insurance costs for our members. Arity will now become more involved as a contributor to our advertising business going forward, both on-site and off-site, which we're really excited about.

Regarding Placer, we have extended our data partnership in a multi-year agreement, which creates opportunities for increased revenue in the near and long term. The 2024 impact is expected to be modest and is included in our updated outlook. However, we expect increased revenue in 2025 and beyond as a result of the updated agreement.

Additionally, we continue to move to the finalization process of our relationship with Hubble. We remained excited about the long term potential of their satellite to Bluetooth technology, combined with our own location network.

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

Thanks, Chris, and thanks, everyone, for joining the call today. As a reminder, all of the financials I'll be referencing are unaudited and denominated in US dollars. The strong operating metrics which Chris has outlined, supported an acceleration in Q2 revenue momentum.

Q2 revenue increased 20% year on year to $84.9 million, with particularly strong growth in subscription, which increased 25% year on year. Core Life360 subscription, which excludes hardware subscriptions, also increased 25% year on year, driven by the 25% increase in global paying circles and 6% higher ARPPC.

Hardware revenue increased 3% to $11.9 million, driven by the contribution from bundling and fewer discounts offered. Standalone units shipped were stable, with average selling price up 1% year on year. Other revenue increased 12% to $7.3 million, due to a combination of the ramp in advertising revenue and higher data revenue.

June AMR of close to $305 million increased 23% year on year, reflecting the performance of subscription and other revenue. Q2 gross profit of $63.6 million increased 16% year on year, with gross margin slightly lower at 75%, compared with 77% in the prior year.

Q2 '23 included a one-time adjustment in relation to the discontinuation of certain battery related membership benefits and that favorably impacted gross margin in that period. Excluding this one-time benefit, margins were stable year over year.

At the same time, Q2 operating expenses only increased 12%, demonstrating strong operating leverage, given the revenue uplift of 20%. R&D costs increased 17% year on year, primarily driven by higher personnel related costs, technology, and outside services spend.

Sales and marketing costs increased 4% year on year, primarily due to higher commissions, which increased in line with the 20% increase in subscription revenue. Paid acquisition costs were lower year on year and quarter over quarter due to an intentional shift of timing for marketing campaigns.

We plan to prioritize marketing investment for the back-to-school period and the launch of the new tile product line in Q3. As a result, we expect paid acquisition and other marketing spend in Q3 to be around $6 million higher than Q2. General and administrative expenses in Q2 increased 17% year on year, primarily driven by ongoing public company compliance costs.

The Q2 net loss of $11 million increased from $4.4 million in the prior year due to the costs associated with the IPO and higher income tax expense. Due to the changes in US tax laws impacting many companies, primarily around the requirement to amortize capitalized R&D costs over a five year period as well as the timing and limitations on NOLs, we saw a significant increase in the current provision in Q2 with the deductibility of these items deferred to future years.

In addition, under GAAP accounting guidance, the provision for income taxes during quarterly reporting periods is based on our estimates of the effective tax rates for the full fiscal year. The effective tax rate in any one quarter may be subject to fluctuations during the year as new information is obtained and that may impact the assumptions used to estimate the annual effective rate.

As a result of all of that, the prescribed method of calculating Income tax expense for the quarter resulted in a higher income tax expense for the quarter than for the full year. As a result we expect the annual 2024 income tax expense be between $2 million and $4 million.

Finally, and most importantly, we continued to make meaningful progress in expanding profitability. Adjusted EBITDA was positive for the seventh consecutive quarter, increasing to $11 million from $5.7 million in the prior year.

The EBITDA loss of $5.6 million increased from $2 million in the prior year due to transaction related costs associated with the US IPO of $5.8 million. We would have recorded positive EBITDA absent those costs.

Our updated guidance for the full year EBITDA loss of $13 million to $8 million includes the IPO transaction costs and incorporates an expectation of positive EBITDA contribution in Q4, reflecting our usual seasonal peak earnings.

We expect to be consistently EBITDA positive on a quarterly basis in 2025. The difference between adjusted EBITDA and EBITDA in the quarter consisted almost entirely of stock-based compensation expense and the transaction costs related to the US IPO.

Turning to the balance sheet and cash flow, Life360 ended Q2 with cash, cash equivalents, and restricted cash of $162 million, an increase of $87.4 million from Q1 '24. Operating cash flow was positive for the fifth consecutive quarter.

Q2 net cash provided by operating activities of $3.3 million was lower than adjusted EBITDA of $11 million, primarily due to the US IPO related transaction costs, as well as the timing of receipts and payments. Net cash used in investing activities of $1.2 million related to payments for internally developed software.

Net cash provided by financing activities of $85.4 million related primarily to the proceeds from the US IPO, partially offset by the $7.8 million in taxes paid for the net settlement of RSUs.

I note that the cash paid on RSU settlements was higher due to our stock higher stock price, and therefore fair market value at the time of settlement of the RSUs, and we expect this higher cash outflow to continue in the second half.

Thanks for your attention, and I'll hand back to Chris to outline our earnings guidance.

We are updating our 2024 outlook, which includes the following considerations. Starting with revenue, while we remain excited and optimistic about current trends in our subscription business, we are also careful to consider relevant risks, especially those related to shifting demand from possible recessionary pressures at retail for hardware, managing seasonal hardware inventory and launching new hardware products, which we have coming up this fall.

Turning from the top to the bottom line, looking our EBITDA can flow for the remainder of the year, as we discussed earlier, we have an intentional seasonal increase of expenses occurring in the third quarter and paid acquisition and other marketing costs of approximately $6 million to support our back-to-school and new products initiatives.

These expenses will impact our EBITDA and adjusted EBITDA land during the quarters in the second half of the year. With that in mind, we expect to deliver the following metrics for 2024 with upgraded guidance for revenue and adjusted EBITDA.

We anticipate consolidated revenue of $370 million to $378 million, with core subscription revenue growth of 25% year over year. We anticipate positive adjusted EBITDA of $36 million to $41 million and an EBITDA loss of $8 million to $13 million, which includes the $5.8 million in IPO-related transaction costs and positive operating cash flow for each quarter of 2024 and year end cash, cash equivalents and restricted cash of $150 million to $160 million.

The forecast includes expected significantly higher outflows from RSUs settlements as a result of the higher stock price, the anticipated investment in Hubble, IPO proceeds and related transaction costs, and timing differences in Q4 working capital related to hardware inventory and the new product launch.

The company expects to continue to be adjusted EBITDA positive on a quarterly basis going forward to achieve a positive EBITDA in Q4, reflecting our usual peak earnings and to be consistently EBITDA positive on a quarterly basis in 2025.

That concludes our prepared remarks, and I'll now turn the call over to RJ who will manage the Q&A portion of our call today.

Thanks, Chris. (Event Instructions) Mark Mahaney.

Okay, thanks, RJ. Chris, the number of the net adds in terms of the paying circles, it accelerated versus last quarter, I think you made accelerated versus last year. Talk about the sustainability of that? Is it something either through greater awareness, more marketing, better product, more functionality?

Do you feel like you're in a cadence now where the (inaudible) I don't know, you can't always accelerate, but yet you're in an acceleration mode in terms of just paid circles for the near term foreseeable future. Thank you.

Sure. So I'll answer it in a few ways. By start looking at our long arc, quarter-to-quarter things change and we're trying not to get too excited by great quarter or sad by an average or mediocre one. But if you think about the overall trends, millennials age into our category, people becoming more aware of the product, international in particular.

We do think there are long term overall winds that our back. We have been also investing -- we've been adding more optimizations this year improving our funnel. We hired a VP of growth, has been launching a bunch of experiments, have driven increased conversion.

And then of course, in a longer term horizon, we have different product features for different life stages. Right now, the premium product is very much tied to families with teens, whereas the overall user base is much broader.

So we're certainly excited by the forward march, we're feeling good about trends, and we feel very, very good about the long term, but quarter to quarter can be noisier. There's not a signal that is chopping out and we're off to a good start even in recent days.

Thank you, Chris.

Thanks, Mark. Chris Gawler.

No problem. Thanks, RJ. Good day, Chris and Russell. I just had one on advertising. Curious if you could let us know how much ad revenue is in that indirect revenue line in the second quarter and whether we should still think about the second half is around $5 million to $10 million from advertising? Thanks.

You want to take that one Russell?

Sure, it's a relatively small amount in Q2 as we projected. And I think we're still looking at the full year in that sort of range of $5 million to $10 million. I would say that we've put a lot of things in place and made a lot of progress in terms of the infrastructure for advertising.

As Chris mentioned, we've just also employed a VP for ad sales. We've got a lot of the pieces in place as well as just signing the Arity extension. So I think we have a lot more confidence as we go into second half.

Cool. Thank you.

Thanks, Chris. Maria Ripps.

Great. Thank you so much for taking my question. I just wanted to follow up on Mark's question. So as we look at the second half core subscription growth sort of implied in your full year outlook, how should we be thinking about sort of key contributors to accelerating growth here?

Sure. So we have our seasonality and we normally get a nice wave on back-to-school, which is obviously happening right now. We have more product optimizations, that's more of a steady drumbeat. We have some new features that we'll be launching in the second half.

We have a few. We have our new tile product launch, which is a little less on net sub adds, but could tie to that a little bit because we think we can use that to drive upsell. And the big one is international, just as I said, that's going to be less adds, but more revenue, because we are going to continue to expand there. And as you can see, we are in the early days there where our year-over-year growth has been extremely strong.

Got it. Thank you very much.

Welcome.

Thanks, Maria. Lafitani, MST Financial.

Hi, good day, guys. My question is in relation to slide 13, and just to sort of highlight it, it's the one where you show the respective US states and the level of penetration. Can you give us a little bit of color, in the past, Chris you said that you're still growing in the most penetrated states. Is that still the case, and at what rate?

Sure. So I don't have exactly precise numbers for you. And I have not looked at the latest numbers since the US listing. So everything I comment on here will be about two months out of date. But when we ran those numbers for the US IPO deck, those trends were continuing.

I don't have the exact numbers, but we still continue to see that once we hit that 3% tipping point ish, things seem to accelerate. There are some signs that's happening internationally as well. But the meta trends, at least as of two months ago, there were holding quite nicely.

I guess -- can I given -- it's not quite a complete answer. Can I follow up with a different question on the Placer AI renegotiated contract. You flagged $1 million to 2 million this year, but really overall, you're getting around $20 million revenue for Placer AI, and you fled a step up next financial year.

Can you give us sort of an idea? Because, you know, if we look at when you first signed the Placer AI contract, it's just under 3 years ago. Since then your MAU is more than doubled, so should we expect that kind of delta trajectory change? So are we looking at over $10 million new revenue next year? Or can you give us any color.

It's unlikely to be that high. But I do anticipate that the revenue from the partnership will grow more quickly than core subscription revenue because we have changed the partnership. And yes, we've doubled our MAU.

There's a J-curve effect where as you grow your network early on each from incremental users with a lot more than the additional ones. So we're pretty far out that J-curve, but a lot of what we are looking at with Placer other things that would not have that same impact.

So there's not a nice linear equation for you, but we are very confident that it is going to grow. And without getting into specifics of the contract, there are some mechanisms in there that do give you that confidence that it will grow faster than core subscription numbers next year.

Okay, thank you.

Welcome.

Mark Kelley, Stifel. Mark, are you available, Mark Kelley?

Sorry, take a second to get the unmute button. Thanks for taking the question. Appreciate the time. I want to go back to just the advertising business. I know it's super early, you're adding new partners and you're hiring a lot of folks to manage that business.

I guess, Chris, you talked about at some point, maybe that business would be could approach the subscription business. I guess what needs to happen over time in order for that to become a reality.

Sure.

That's all for me? Thanks so much.

So that is a very long arc. And to do that, we need to move beyond just giving banners, but really become a destination where people are coming to be matched with offers that are uniquely tied to the data we know about them. So the key example we have and we're very excited about the long term is car insurance.

If you think about what we can do, hey, Mark, you're better than 80% of drivers, safer than 80% of drivers. We got you to a point where we give you your real time quote without you having to go through any process, and if you have confidence that what we show you is real, why would you not be checking Life360 for how you get a better insurance rate.

And it would be the also will build trust by saying the inverse like, hey, did you know you're in the bottom 10% of drivers, you better be careful never to give your information to an insurance company. And I hope, as we build that trust, and we build these offers in a way that is contextually relevant with our customers, that will start driving the success we want, and the company we look to most is Credit Karma.

They did a very similar thing with your credit scores where they took your most private information far more sensitive than driving data, giving your Social Security number then they would match you with credit cards. It was just advertising, users knew they are being advertised to, but they liked it because they're getting match for their credit card for them and with a meaningfully smaller user base than us, they were able to generate over $1 billion of lead gen revenue.

And they actually now are trying to replicate that in the car front, not in a competitive way, but they just bought a company called Zendrive to do exactly what we would like to do in the long run with insurers. So I think people are realizing if you have a captive audience with proprietary first-party data and high engagement, there's a lot you can do.

So that's one of many examples, that the one I'm most excited about. You can also imagine like you moved to new home, we can sell your home security to homeowners insurance. You get a new pet, you'll buy our tracker, then we'll sell you a pet insurance policy there. There are many of these things that we'll feel like they're extensions of our product, and that's when I think we hit the true gold mine.

All right. Thank you, Chris. And being better than 8% of drivers sounds about right for me. So that I think you're in the ballpark. Thank you.

There you go. I am definitely not going to opt into that (laughter)

All right, thanks very much.

(inaudible)

Thanks, Mark. James Bales, Morgan Stanley. James from Morgan Stanley, you're still here? James, we don't catch you this round, we'll come back. Oh, did we catch you?

(inaudible)

I'm having a tough time hearing you.

Yes, we are.

Can you try just speak a little slower? (multiple speakers) your question or we can come back to you at the end.

My question was about can we make (inaudible) Placer? How much do you expect --

I got the first half of that sentence. Can I suggest we come back to the end and see if your connection improves? I was not able to hear that question.

James, you can also send it through by e-mail if we can't. But for sure, we'll come back to you.

Okay.

Chris Kuntarich. Hey, Chris, we're going to come back to you. James -- excuse me. Rob Sanderson, Loop.

Here we go. Can you hear me guys?

Loud and clear.

All right, one out of three. So two questions. Going back to just strengthen net paid additions, especially on the international side, like what do you think the strength is attributed to? Is it just more effective marketing, its feature improvement, is it sort of downstream of hitting that or approaching that 3% MAU tipping point or something else? What would you just -- what can you point to -- just better sales execution? What's driving the acceleration in your views?

Really all of the above. So if we go down the overall arc, one is the US usually starts trends first and then they tip. So I think there is a tailwind as the category just grows in awareness and people are more comfortable with location in general. So that's point one.

Point two is we just now have invested much more in the free user experience, our former COO, David Rice, to London to launch our international team. And so we call it T-Shape strategy, the top of the T is like let's just make the darn thing work well everywhere, so better translations, better infrastructure, making sure we work -- monitoring reviews. So that's happening everywhere, so that drives MAU.

Then we're launching our triple tier features, which is that's more of a revenue driver, the net add driver because the cost is so much higher, but we've now done that UK, Australia, New Zealand, and Canada. We are now having some very, very basic marketing, but it's honestly, very minimal top of funnel.

We are doing better product marketing. We're engaging our customers better, and we now are testing some individual upsell optimization, even in countries you don't the triple tiers. So it's really that entire every step of the funnel plus just general tailwinds. And we've got a bunch of PR, that was a bit of a surprise because it drove more downloads in the US.

And if I could follow up then on data and licensing. So you have some expanded partnerships announced today. You've got, I'm sure, many opportunities, some that you will pursue, others that you won't go after. Obviously, your members put a lot of trust in your service with sensitive data.

Yeah.

Very sacred, valuable position. I know you're well aware of how important and delicate trust is. So how do you determine what partnerships to entertain and which to (inaudible)

And your same question for advertising, really, like how do you make sure ads are not creepy, especially as you engage in third parties like Trade Desk and Google for demand generation? Like how do you control that sort of protect that sacred ground?

Yes. So there's a lot to unpack there. So I'll throw out a few things, starting with core philosophy. So number one, I would not do anything that I would not feel comfortable using without my own families, and we ask ourselves that around the exact table quite regularly, I have two daughters and I am fully comfortable with everything we're doing. That would be point one.

Point two is when we implement things, a big value is transparency and choice. So we want to let people know we're doing, want to give them opt outs. We want to be very liberal about that. We know 99% of people just don't care. And then we are a little bit sensitive to things that really put us at the top seat. So we did stop raw data sales.

We had never had even a single instance of misuse, so it was a bit sensationalized, but that was an example for the people that find the story for a while. We just had a just this revenue line could really be growing, but it's not worth it if it does risk that trust and that's why we have been a little more flat and indirect over the years as we gave up significant revenue specifically because of that.

And then when you think about things like auto insurance, I wasn't -- I was giving a fake illustrative example, but we wanted to -- we genuinely want to tell you like don't give your data if it's bad, we will be able to do that. We want to build, we want to actually help you feel like we're making decisions.

There's a transition zone right now where we are doing the banners, which I'm not exactly excited about them, more (inaudible) but we have -- Russell might know the exact stat, so I'm guessing probably don't Russell, but we have been very restrictive just in terms of what categories to use.

We are requiring people to do a native ad unit right now versus the system ad unit. So that gives us more control over the branding the colors (inaudible) and then just a lot of small things down the way, but high level, transparency and choice, things we're going to ourselves and we really do keep a pulse of the user and our users, not the average bay area or even New York tech person, it's Middle America. And so we spent a lot of time just talking to our customers and understanding how they feel about things.

Yeah, thanks, Chris.

Welcome.

Thanks, Rob. [Jennifer], Jefferies.

Hello.

There you go, yes.

Oh sorry, this is Wei.

Hey Wei.

Yeah, thanks RJ. So my question is in regards to the ad revenue rollout, right now, are we doing all US customers at this point in time? And just trying to think about how this ramps up over time and the rollout into the international user base, how quickly do we expect that to be? Thanks.

So we're on right now with the basic banner for all US users. We're exploring what goes next internationally and to the prior question we are requiring everyone to do native ads only get started, which really does restrict our ability to scale it, so we can open the floodgates tomorrow and do a lot better. But we do want to be very prudent and cautious about that.

The longer ramp will be as we get different hooks, different things, last question, I should mentioned this like Trade Desk and off-site, that's implied like off-site advertising, which I'll get a little bit more technical here, believe we have a very high opt-in rate to doing cross app tracking via IDFA.

So we think there's a huge ability to do off-site advertising using location data with explicitly opted in users. I hope next year, maybe middle of next year, that's generating real revenue. We're pioneering something a little bit new there.

And then of course, we have different campuses in the product that are not ads, which I think can get much more contextual relevance next year as well for that. But we have certain things that we're excited about and testing, and we feel very good about some numbers for this year, even with the more limited approach we're taking.

And Wei just to be a sort of a specific on the international where we're just starting to do some testing in international now and with the plan to roll that out to the international territories, that's said, we couldn't move sort of steadily on that process and international generally monetizes a little lower than the US, as you know.

In the longer term, we're sort of very excited about the areas of the world where we weren't necessarily quickly move to a sort of triple tier type launch and you're being able to monetize those areas more effectively. So it gives us a lot of opportunity for the future.

And just in terms of the small clarification, when we do think about ad revenues is dollar per MAU, a good way to think about it, and I don't know if you've got any kind of like early on statistics that you might be able to provide as to how effectively we are monetizing at this point in time and how we should think about that ramp going forward? Thanks.

Yeah. I think because of the different steps that we're sort of working through, it's a little more difficult to sort of put it down to a specific stat like that. In the investor deck, we included and we've done this before, we included a case study with Uber really just to demonstrate how over a period of time, they really built that up. And there's sort of several case studies there, out there.

As Chris said earlier, where -- we have the advantage really of being able to target deterministic cases and that -- because of that, we feel that our audience is much more valuable than many others. So over a period of time, we'll be able to really build that up. But there's various stages as we go through, I think as we get to a level of -- a greater level of maturity for this, we'll be able to sort of bring it down to a specific stat.

That's very helpful. Thanks Ross, Thanks Chris, thanks RJ.

Thank you.

Andrew, Citizens JMP.

Thanks much for taking my question. I wanted to ask about international. Now it's accelerated for four straight quarters. Is that certain markets tipping that 3% or can you help explain what is the driver of that acceleration? Thanks so much.

Yeah. So it's honestly identical answer to what I gave you with net adds. It's just that's a different part of the funnel. I think as we have just shown that we can make the product work overseas because it really was a poor user experience even 18 months ago.

And I've shared this example with some of you where our premium driving features are called driver protect and in some regions, we were literally translating as protect my chauffeur. If you translate that without the colloquialisms, that's what you get quite literally. So that's one example.

But there's just a bunch of low-hanging fruit that we've picked up to make the experience better and we are seeing more category awareness. And we're really the only game in town, in particular, cross-platform. Google's pulled back on a lot of their location initiatives, while Apple's helped popularize the space.

So we are just seeing that growth and I am excited about that. It's largely organic and we're not surprised per se, but it's nice to see that it feels like that pattern. And the assumption we had that's really a tipping point thing is holding true everywhere.

And Andrew, just to amplify something Chris said earlier. I think we're seeing that growth in both the territories that we've focused the triple tier launch on. We're seeing really good growth in both MAU and paying circles.

But also well beyond that in areas where we hadn't seen significant growth before, but that the user experience is clearly translating into a really strong growth in those areas, whether that's Europe or South America in particular.

Thank you.

Wei-Weng, RBC.

Hey, guys. Congrats on the good result. Just a question on net adds. So if I think about two things that you've historically said, first thing is historically, Q3 is your peak period for net adds. And then the second thing is off the periods of significant net adds. The following quarter can be a bit more muted. So how do we reconcile these two comments in the context of, I guess a record net adds in Q2 and then do you attribute any of the strength in Q2 to the IPO?

Yeah. I'll take the easiest part first. Zero to the IPO. We're of mass market consumer business as much as I would love to explode on Wall Street, but that has not happened yet. So we are -- I don't think any of our customers really know anything about that and the PR it in terms of stuff that drives stuff for us was quite minimal. So I think that I can say confidently.

In terms of the kind of the chunkiness in net adds is one lever and the back-to-school as another. Yeah. Historically, when we have a high quarter, it kind again get pulled down a little bit and vice versa. But again, it's a little bit stochastic in the sense that we don't -- we really can't predict that.

But I'm excited about back to school because it's a positive lever. So I don't know how those two forces might cancel out. And then again, it's not always the case that good net add order means the next one is not good because some of it is fundamental improvements just as much as it is just the organic noise.

And as we said on the call, we're putting more marketing resources into sort of back-to-school campaigns, not only in the US, but also to a limited extent in the UK and Canada. So we are pretty excited about that period.

Okay. Thanks so much.

Chris, UBS who I think is on Alex's line. Chris, are you there?

Hey, can you hear me okay?

Yes.

All right. Thanks for taking the question. Maybe just one for Russell. Would be great if you could just kind of level set us on your annual guidance philosophy. Just more specifically are you targeting the midpoint of the annual guide rather above? And then just more specifically to the fiscal year '24 guide. Just curious kind of what's implied at the high end versus the low end? Thanks.

Yeah. look, our approach is to trying to be as transparent as possible so that range sort of really does recognize the ranges in terms of potential outcomes and potential risks from our point of view. Yeah, that said, we're well aware that typically people take the midpoint. So that is what we work all along as well.

What I would say is, you know, as we looked at this, we looked at it sort of very carefully in terms of the trends, both in the subscription business, but also the fact that a lot of our business this year is a lot of our revenue as we've said before, is weighted towards the second half, and Q4, in particular, as we build up the advertising business.

And then the hardware retail business is very much focused on the holiday Q4 period, somewhat even that exacerbated this year by the fact that we're launching a new product for foot tile into that period.

And to add just a little bit to that since we have some newer people on the call, we've obviously been public for five years now on the ASX. And if you look at our ability to forecast subscriptions in particular, I am proud that I hope we've developed reputationally.

We don't sandbag nor do we oversell and the only time we were really far off was during COVID, we lost 70% of our downloads overnight. I don't like making excuses, but I do think we should get a bit of a hall pass on that one.

And the only other area where we've been a little choppier is hardware because there's a lot of unknown and we really buy tile to sell hardware. We did it to drive membership. So when they pull back in the downturn all that, that's where we leaned in.

So in general, I had a lot of confidence that let me have narrower time frames with subscription, we're going to we're largely going to be kind of smack dab because it builds more predictably, falls more predictably, and there is more unknown with any hardware, especially when it's new because it's a choppier business, one we're less expert in and also a little bit less important.

Got it. Very helpful. And maybe just one follow-up just on thinking about the back half of the year from a international versus the US perspective, could you just maybe lay out some of those priorities and some of those growth drivers for those two pockets? And kind of how we should be thinking about the contribution on those two fronts? Thanks.

So international is more incremental. There's no new major feature per se. It's continuing to improve the core. We have a couple optimizations and we're going to see if we can push people to convert more in our non-triple tier markets.

Russell, I'm not sure we have an exact date that we've announced yet for our next triple tier launches. An open question for us is going to be one of our first bigger years around back to school. We haven't done that back-to-school marketing nor have we had scale in back to schools, most of the world, obviously Northern Hemisphere, sinks to the US relatively nicely.

So, I am hopeful and also curious if there is a back-to-school effect overseas as well, that will start becoming more pronounced. But we'll know more in a quarter on that one. What we'll know more in a couple of weeks, we'll be able to share in the quarter.

And I think, Chris, you are aware -- we are remain very excited about international. There's no letup in the growth there. We're really seeing a really successful triple tier launch in the Australia, New Zealand region, that will start to flow through more where we're getting as we said earlier on overall, very strong growth internationally. So yeah, our expectation is we will get consistent increasing growth there.

Thank you very much both, very helpful.

Thanks, Chris. (Event Instructions) Julian.

Yeah, hi. Hi, Chris. My question relates to the advertising business. So you've started with banner ads. And I understand you're selling in clusters of sort of 10,000 names that have popped. What's the time line to sort of move into video, maybe carousel ads, so the whole screen has taken over and it's a bit more effective. And are there plans to sell on a more targeted basis in that sort of 10,000 name cluster.

The 10,000 name clustered, there's a little more complexity in that and it unpack that a bit more with you and I'm not up to speed fully on how we're chunking in that regard. Russell chime in if you have more specifics there.

As it relates to video, and that is not the direction we're going. Going back to the question of user trust, our lifeblood is our core free user base before we launched ads, I forced everyone in the company to even get a paid account to deliver them and try them.

So any Life360 employee, although they have premium accounts, they see the ads too and doing things like interstitials and videos, while our MAU US base is still growing, that would be a bridge too far for us. At some point that flattens out, we get in harvest mode. And one that I'm very, very confident on is when we're less focused on top of funnel growth, we will build a massively drive bottom line performance.

But right now that's not where we're going. We really want to go and things that improve the user experience. And we mean that, seriously there's not corporate speak when we can actually match you with products and services that are really good for using our data. I think that will be both more effective and it will be additive to the user experience versus taking it away.

And last comment on that, we look at what does the job to be done and how do we not get in the way of the workflow. For somebody like a Facebook and someone's using you online when they're bored or trying to zone out, they don't really mind to that, but Life360, you're much more in and out. So we need to think about it a little bit differently.

So that means like the advertising revenues going to be more about that sort of (inaudible) insurance, that sort of commission partnership thing rather than traditional advertising, which you see on other sort of platforms.

It's a bit more complicated than that. There's the whole page on off-site advertising, which for people who are not as familiar, it's a little bit harder to grab, but basically we will help target ads off the platform by doing IDFA matching for users who have opted in.

And that's actually something that Apple really helped us with the counter intuitively because now I'm sure everyone's seen the will you allow this app to track your across websites, pop up that is ubiquitous, that might have it in the past, been an area we thought would be a little hot to get into because of the trust and privacy concerns.

But we're seeing huge, huge opt-in rates that far exceed industry averages. So we do have visibility for that cross app and cross-site tracking that users will not even feel the experience. We're just using their data in a very privacy safe way to help target ads and very different than raw data because instead of us giving a third party raw GPS points, you could imagine parties saying, hey, these opted in IDFAs, can you show me people have been to target in the last seven days or even you can get to a real-time component at some point.

And those are things we'll be completely neutral and invisible to the user experience. And of course, transparency and choice, if you want to opt out, you can opt out.

Cool, thanks, Chris.

James Bales, Morgan Stanley.

(inaudible)

You are still choppy. If you ask the question very slowly, if I can hear it enough, I'll try my best to answer. Otherwise once you shoot RJ or Russel.

I do have his question so we can we can ask it. And then if there's -- But James, if you want to try one more time, then I can ask your question.

My question is about the (inaudible) investment in (inaudible) our advertisement business to scale over the next, say, three years, how much sales effort and how much comes from your main is required to get that business where you need it to be?

So I think I got about 80% of what you said. It was largely a better repeat it back to you. I didn't hear the first half of the sentence, but what essentially how much investment in engineers people timing to ramp up advertising, is that essentially the essence of?

(inaudible)

Yeah, I see RJ just pasted the question in chat for everyone who didn't see it. And it's specifically about reinvestment. So on the reinvestment topic, one that we'll show as we aligned with the team and also the market that anything with advertising will be contribution margin positive from year one.

And there are definitely living it up to that for this year. It's very different than a lot of projects where we build it for the year, second year, we kind of launch it, and barely break even and it takes the third year to become profitable. That is not the case with advertising.

So it is going to have to ramp up, but we are going to take that approach where I can say we're on a contribution margin basis, we will never be in the red on advertising. And of course, things could change and we would tell the market that would happen.

But we have line of sight and a roadmap that says as advertising ramps up, we reinvest it, but we will stay in the black. And it will be a very long game. I think it's -- if you look at Uber there, it has been accelerating, but it really started accelerating in years three and four.

And James, to the second part of your question, really goes back to what I was saying before. Yes, advertising definitely opens up opportunities in international. So if we look at territories where we actually do have pretty significant MOU, whether it's like territories like Brazil or India, where we wouldn't necessarily think about moving into a triple tier type product in the near future, it definitely gives us a major opportunity to start to monetize those users.

Thanks guys.

Thanks, James. With that, that concludes all the questions that are in the queue. So Chris, I'll turn it over to you to conclude.

I have nothing beyond what has already been shared, and I'm very excited that we've finished our first quarter's dual-listed company and thank you all for the time and looking forward to connecting with many of you in the days, weeks, and months to come.