Earnings Call: Q3 2020

Oct 27, 2020

Quarterly report

This is Yolanta Masciata, and I head up Investor Relations for Life360. The call will begin with some prepared remarks from Co Founder and CEO, Chris Hulls and CFO, Russell Burke, followed by a Q and A session. This call is being conducted as a Zoom audio webinar. All participants will be in a listen only mode until the Q and A. In order to ask a question, you will need to be connected to this call through your browser. Please raise your hand by pressing the raise hand icon at the bottom center of your screen and your line will be unmuted in turn. Participants who have joined by telephone will be in a listen only mode throughout. I would now like to turn the call over to Chris. Good morning, everyone, and thanks for joining our September quarterly business update call. While the resurgence of COVID has been challenging, in the face of these difficult circumstances, the business has performed admirably and proved its resilience. We're excited that we're able to continue growth in revenue and paying circles while also delivering our second quarter in a row of positive cash flow. Much of this success has been due to our new membership offering, which has significantly broadened the applicability of Life360 and continues to deliver a 30% uplift in average revenue per paying Circle for new subscriber cohorts versus the first half. Beyond the business results this has driven, we are also delivering real value to our users and thousands of families have used our new Family Safety Assist features in real times of need. Although families have not returned to their normal routines and are impacted both by social distancing and new lockdown restrictions, MAU has continued to hold stable and even grow. This is despite less than $1,000,000 of paid acquisition spend in the quarter showing the strength of our brand and word-of-mouth effect. This is a considerable achievement given the worsening of COVID-nineteen, which has a far more negative outlook than just a quarter ago. Getting into specifics, Light360's global MAU base was $25,800,000 at the September, an increase of $05,000,000 versus June. U. S. MAU of $16,700,000 increased 16% year on year and 3% versus June. International MAU was in line with the June reflecting the strong resurgence of COVID-nineteen in many territories and a modest to moderate impact of some platform changes on Android. Our Australian MAU based buck to trend increasing 22% year on year and close to 2% for the quarter. Globally, new registrations were materially impacted in Q2 as excessive lockdowns were implemented in response to COVID-nineteen. While Q3 new registrations remain below the previous corresponding quarter, they've increased 24% from Q2 with a 30% increase in The U. S. For the September, revenue increased 24% year on year to $20,200,000 For the month of September, annualized monthly revenue was 81,200,000.0 a 20% year on year increase and 4% ahead of June AMR of 77,900,000.0 For the September, direct revenue benefited from the 17 year on year growth in paying circles to 884,000 the encouraging ARPPC performance of our new membership offering. We now have around 93,000 new and upsell subscribers in the membership tiers accounting for around 13% of U. S. Paying circles. This new membership cohort delivered an ARPPC uplift of around 30% versus the first half. Overall ARPPC increased 8% year on year as legacy subscribers are grandfathered on their previous plans. We've always been optimistic about the ARPPC opportunity coming from the membership launch and it's exciting to see this become a reality. Indirect revenue, which includes data revenue and our Allstate lead generation partnership delivered solid but moderating growth for the quarter. The Allstate partnership contributed revenue of $1,500,000 in line with the September 2019 quarter, which was the partnership's full quarterly contribution. Data revenue growth moderated due to the impact of COVID and timing issues. The deferral to 2021 of any potential changes to IDFA or identifier for advertisers previously considered for iOS 14 is favorable short term to the data business, but Apple's ultimate plans remain unknown. During the September, we continued to pause the majority of paid user acquisition spend to adapt to the COVID-nineteen environment. Investment of $900,000 was slightly ahead of the $200,000 undertaken in the June and well below the $5,200,000 in the September. Other expense management initiatives continued reflecting the discretionary nature of i360's business model. We expect to resume investment in growth in the fourth quarter to support the strong momentum being achieved by our membership launch. While investment and user acquisition spend will remain well below normal until the operating environment recovers, we are investing ahead in new channels that could drive future growth. We are excited that the broader membership offering is conducive to things like direct to premium acquisition on the web and traditional TV, which were not as much as a tip for our legacy offering. I've previously spoken about the teen campaign to generate negative reviews of the Like three sixty app via TikTok. We have continued to engage with teens and during the quarter have launched a new Bubbles feature which provides the option of greater location privacy while maintaining all the safety features that are important to parents. Our recent TikTok hashtag challenge has generated more than 4,000,000,000 views and overwhelmingly positive sentiment from teens. We are seeing encouraging early signs of a recovery in iOS App Store ratings, which have now increased to more than four stars. I'll now turn it over to Russell, who will share more details on our cash flow performance for the quarter. Thank you, Chris, and thanks to all of you for joining us today. Please note that all the numbers I will be discussing are denominated in U. S. Dollars are in accordance with U. S. GAAP accounting standards and are unaudited. Life360 ended the September with cash and cash equivalents of CAD59.3 million and no debt, an increase from $58,400,000 at the June. This provides the company with a strong capital position to continue to invest for sustained growth. Cash provided by operating activities was $1,000,000 compared with $700,000 in the June and the use of cash of $7,100,000 in the corresponding September 2019 quarter. Revenue of $20,200,000 increased 24% year on year and 4% versus the June. Receipts from customers of $15,700,000 reduced from $16,900,000 in the June with some impact from the timing of data revenue receipts. The difference between Q3 revenue and receipts reflects commissions, which are not included in the latter. Payments in the September reflected disciplined spend in responding to the COVID-nineteen environment with reduction of 29% year on year and 9% versus the June. Staff payments of 8,300,000 compared to $7,500,000 in the June. At the end of the quarter, our headcount was 186. Administration and corporate payments of 1,200,000.0 reduced from 3,000,000 in the June, mainly due to the timing of payments of annual insurance premiums. Advertising and marketing payments, which include paid user acquisition of 1,300,000.0 was slightly higher than June payments of $800,000 However, we're down from $8,200,000 in the September 2019 quarter. Research and development payments of $2,100,000 were in line with the $2,200,000 in the June and technology payments of $1,400,000 reduced from $2,400,000 in the June, primarily due to the timing of prepayments. Cash used in investing activities reflects minor purchases of capital assets. And cash flow from financing activities reflects modest proceeds from the exercise of employee share options. And with that, I'll hand it back to Chris. Although the ongoing COVID pandemic has worsened and caused significant uncertainty, our strong organic growth, retention, brand and balance sheet position us well to weather the storm. In the current environment, we intend to maintain our disciplined spending approach and we'll focus on stability until there is a clear line of sight to normalcy. For CY twenty twenty, we expect to deliver revenue in the range of 79,000,000 to $82,000,000 underlying EBITDA loss excluding stock based compensation in the range of $10,000,000 This compares with our previous guidance of a loss between 10,000,000 and 14,000,000 Operating cash outflow in the range of $10,000,000 This compares to our previous guidance of a cash outflow of between 10,000,000 and $14,000,000 That concludes our prepared remarks and I'll now turn the call over to Melissa, who will manage the question and answer portion of our call today. Thanks, Chris. As a reminder, to participate in the Q and A, please raise your hand by pressing the raise hand icon at the bottom of your screen within the Zoom app. You will need to unmute yourself to ask your question. Also, once unmuted, please tell us your name and what company you're calling from. First up, we have Quinn. Quinn, please your name and which company you're calling from. Hi, good morning. Quinn Harrison from Credit Suisse. Maybe just firstly, so U. S. Users are back to growth, which is great to see. You added about 5,000,000 U. S. Users in the quarter. Could you talk us through the slope of that growth through the quarter and how October is trending so far, please? Sure. It's I wouldn't say there's necessarily a clear trend. We've obviously had a strong uptick. So it's been a little bit noisy. And I wouldn't say there's been a clear direction, but I'd say we've had a lumpy return to growth and a lot of that is in line with people going back to school, lockdowns happening, not happening, so no clear trend other than that Yes, for the understood. And it looks like the lower end of your CY twenty twenty revenue guidance only needs a similar revenue outcome as Q3. I would have thought with Christmas seasonality, the general increasing levels of activity, of physical activity, I would have thought that would be a very conservative figure other than the usual COVID headwinds, of course, are there any other headwinds or or, you know, gives and takes to be cognizant of, for that for that, you know, q q q four revenue number? Sure. A few things. So first off, we usually have a very large back to school bump, which was definitely moderated with COVID, and COVID has gotten a lot worse since September, not better. Q four until Christmas is actually historically one of our slowest quarters. So that's unrelated to COVID. That's normal seasonality. Christmas does have a very large spike, but it's short one and the impact on revenue is forward looking. So even if we had a massive number of sign ups at Christmas, we'd only book we actually book any revenue because there's a seven day trial period and then we prorate as well. So, this is actually historically our slower period of the year. I guess just to layer in on that a little bit, Quinn. We certainly have been a little cautious because of the COVID environment. It's there's certainly unknowns there. And particularly in terms of the data business, there's real unknowns there. We're looking at that being somewhat flat in the fourth quarter, while the subscription business is consistent growth, modest at this point. That's helpful. And just lastly from me, of some of the new products and services, and particularly those in the gold and platinum packages, can you talk us through usage data where you're seeing the best uptake, things like phone coverage or credit monitoring? I guess to what degree you're seeing usage of those? And travel, for instance, is using your travel assistance services, I would imagine those are potentially getting less used than they would in normal times. But it's just beginning to hear kind of how you're actually seeing customer demand from the new services. Sure. So a few things. So IdentitySep, you automatically get opted into. So you're sort of just using it and it sits in the background once you start paying. The other services across the board are largely ones we don't expect high usage of per se because these are outlier events. It's sort of if you ask an insurance company how often are people how much uptake you have in your homeowners' claims, the answer is always going to be a very small number relative to the overall base. It's a very similar effect here that a lot of the new platinum tier services, with the exception of roadside, which we already had, there are they're really truly contingency events. So they are being used for sure. We've had many thousands of calls across the board for medical to travel and all these identity but relative to the base it's lower. We're much more interested in what is the sentiment of users, are they feeling protected, are they feeling like they're getting a benefit much more than the actual usage? With some of the upcoming product work we're doing, which we talked a little bit about on our last call, there's a big emphasis on product marketing and tweaks to the flows in the app where we actually might make users take setup steps to quote unquote activate these features. And they honestly wouldn't truly be activating anything. It's more just making them activate to help them understand the product and reinforce them that we are giving them that value. Because right now, it's still relatively easy to actually have benefit from these services and you might not be fully aware of it. So that's all stuff that's coming up soon. That's helpful. I appreciate your time. Sure. You're welcome. Thanks, Quinn. Thanks, Quinn. Next up, we have Las Las. Please repeat your first and last name and which company you're calling from. Hi. It's, Lefitani Sicterio from Bell Potter. I've just got a few questions, if I may. The first is in relation to the new memberships. It looks like you're getting good traction. Are you able to add a little bit of color as to what the mix is that is new completely to memberships versus upgrades? Vast majority of those new adds are actually new subs versus upgrades, Lev. Oh, wow. So I would have thought the mix the other way around. So it's actually new people completely to the products. Yep. Remember that we are grandfathering people in. So if you're already paying, kinda got a sweet deal moving into those tiers. So the the Oh, I understand that. The only I remember you provided some incentives for people to upgrade and some specials, so I thought that they would have made up a reasonable amount of the of the the overall people on the new memberships. But the fact that there's new ones, the mix is is actually encouraging. Just on the attrition sorry, go on. Yeah. Just agreeing with you that we're we're very pleased with that. Just on the attrition rates, is it has it changed much now that people have got a broader, app? I know it's only early days, but the three month, four month period, that they've been using these additional features, Have you found that less people have been dropping off? It's relatively stable ish. Our expectation though has been when you have higher pricing, you're always going actually have a little bit more early on. It's the out years that will be better because we need to start reinforcing this value over time. And as you might recall from the membership update, the idea is to have different triggers at life stage that we can now hit. So when people have kids and they go off to college, they might be driving less, they don't turn there. So the short answer is that it hasn't changed all that much either direction as expected. And when we have COVID, it's just very hard to have an Apple store and just kind of comparison because we have no clue how much of an effect COVID is having an early retention because it's a little bit tougher to get habitualized to the product. But what we can very clearly say is, it's performing very well and in line with expectations. And again, that litmus test is going to be in the further out periods where we would often have life stage based churn. Okay. And just finally, on the product road map, can you just add a little bit more specific examples as to what is currently being worked on and rough timeline? And where are wearables on that as well? I'll go in backwards order. So wearables is much more in the future out years. And one of the things we have done in response to COVID was temper a little bit the growth in R and D and hone in on the core because we have felt that given how crazy the world is, we should have a bias to a little more stability and cash management, which we've obviously done extremely well with. So there's nothing short term there. I will say though very quickly on that topic that Apple's new watch is exciting in the sense that we certainly hope it becomes mainstream and they open up those APIs because it's so much better for us that there's an iPhone moment around wearables where we just don't have to really bother with the partnership or development of our own device. So that's something we're watching very closely. If I get into specific things you will see as a user, the biggest one is to this is a little more indirect but just to emphasize the point, we did shift our roadmap pretty aggressively in response to the big wave of what was initially negative sentiment from Teams. We've done a lot of new Team features including our Bubbles feature which is now fully live in production on the second iteration of that. We're also working on the free version of our Identity Theft product which will bring the dark web monitoring experience to everyone and also do a much better job of introducing what this means, how it works and giving people value within the app. And then the other things we're working on are a little bit longer term but really revamping the communication elements of the app, focusing on three users is another. And then a lot on the product marketing side, which might not sound like product or roadmap work, but we see it that way, like how do we bring the features to life in the app? Because right now a lot of the membership features, you have to kind of explore to interact with them and discover the value and we're trying to bring them front and center. We're also, a pretty large initiative we're having is our direct to premium website which is exciting because it's opening up a new channel for us. But for the first time in the company's history gets us off the App Store for that first download and brings us more new channels where we can bring people in as paying customers directly, is also much, much easier to measure from a ROI spend basis. So most of this will be coming in q one. It's more incremental over Q4, although we're getting some of the identity stuff out and some smaller individual features. Then very big changes coming over 2021 and beyond obviously. All right. Excellent. Thank you. Thanks, Sean. Next up, we have Matthew Chen. Matthew, please repeat your name and which company you're calling from. Hi. It's Matthew Chen here from Foster's Top Broking. Hi, Chris and Russell. I just wanted to ask about how we're thinking about acquisition spend, customer acquisition spend going forward. Is it is it largely going to be in response to sort of the improving environment, namely around COVID? How are you thinking about that? Sure. I'd answer it in in two ways. One is just the directly measurable ROI. The second is more the company's overall posture in the space of what is extremely unusual times. So from a macro element unrelated to anything we measure, we feel prudence is warranted. And I'm glad we took that approach. I think everyone's been a little bit surprised that here we are and we thought this thing might be going away. We're having all time peaks and restrictions getting worse, not better. We certainly hope this passes quickly and we're equally surprised by how quickly it goes away, but we think it's prudent to, remain disciplined until we just have a clear line of sight to that being gone. And given this is a little more discretionary, we're just watching it in that sense. The second, which is also COVID related, but much more algebra is, there have been a couple of shifts of just the scale where many digital apps and services are benefiting from COVID because we are at home and we're using our devices more. And that's actually bid up the cost of some of the channels we operate in and we've obviously held up quite well but we have more elements of like more of the brick and mortar side where we need people out and about and their behavior in the real world impacts our funnels. View is that just the economics will become more favorable as things return to normal because we expect that the metrics and the performance of those channels will eventually come back to what they were before COVID. We will be spending more though in new areas which are a little bit more exploratory, some of it on the influencer side. There's the stuff we've done in TikTok. There's the new website to do TV. So those ones we don't have a definitive ROI in the same way we were able to pretty directly measure things on mobile. So it's going be far, far, far lower spend than we've had, if you kind of go period to period year over year, but will be increasing because we do want to be in a position where as we reemerge we're not just reverting back to old channels which we certainly hope will recover but there's a lot of unknown. If we can have three or four new channels in the works that could very much well position us for very accelerated growth whenever we have our routines back. Right. Thanks. And are you able to talk about the kind of delta from that well, I guess, the return or the cost. Can you can you sort of talk to any of those measurable quantities in the differences that you've seen so far? It it's very different by channel and different by region and different by platform. So the the short answer is is it's very tough to give specifics, and there's so many moving variables that I'm I'm I'm reticent to say something that wouldn't be completely accurate. In general, our funnel has been negatively impacted because so much of what encourages people to download and use the app is being away from their families and having these just general routines that are you need coordination. There have been competitors thinking about gaming and other apps that have very much benefited from COVID. So there's a a simple supply and demand there that is not working our favor for the short term. But the silver lining has shown just how well organic has held up because we're literally growing extremely little spend at all. That's right. And I guess, Matthew, we feel like we're in a sort of great position to be nimble sort of going forward with both the sort of traditional paid acquisition and the new channels that we're looking at. So that when we see the opportunity, we'll be very opportunistic in jumping on that to help us accelerate growth. Great. And and and do you have a sense of the timing for that sort of more exploratory acquisition channels like the the website that you spoke of and and influencers, or is that something that's ongoing? Some of the stuff on influencers is already happening now, and that was Yep. Some of our big TikTok hashtag challenge, which generated now now I think it's up, like, 4,000,000,000 views. That did involve some payments to TikTok and influencers, and that was less to drive downwards, more to drive brand and change sentiment. Yeah. Things like the TV testing, website, most of that would be q one with with some possible early signals in late Q4, but I want to more set expectations for Q1 on that. Okay. Great. Thanks, Chris. Thanks, Russell. You're welcome. As there are no more questions, I will hand the call back over to Chris for some closing remarks. These are very quick closing remarks. Thanks again everyone for joining and have a great day.