I'm Mark Mahaney with Evercore ISI, part of the Internet Research Franchise. Apologize for my voice. I gave a commencement address this weekend. I mentioned the topic of AI. Hecklers everywhere, I had to shout to get my message across. Lost my voice. We're here, and I'll probably ask you about AI, and I'm sure you'll have some commentary on it. Russell Burke is the CFO of Life360, and we're going to go through a series of questions with Russell. Thanks a ton for joining us. Thanks a ton for being part of our annual tech conference here in sensational San Francisco. Actually, you want to just start at a high level. I think there's still not a huge amount of awareness or understanding of Life360. When you think about the two or three things that investors should most know about Life360, what are they?
At a base level, we're a family safety and security app. Our real value is much more than that. Our aim is really to be something that makes everyday life for families easier. It really brings people close to the ones they love, the things they care about broadly. Our history was a location app, building into driving services. We're now much more than that for the family right across the board. Our goal here is to be the super app platform for families all across life stages, from kids to elderly parents. Bringing in other parts of the family as well, like pets, which is one of our major initiatives this year. It's really about that family connectivity and safety.
Okay. All right. I hate to jump right into the MAU growth, but I'm going to jump right into the MAU growth. I like it when companies give core guidance. It's a good thing. The key metric that investors are going to look at, you've guided them to this, is to think about MAU growth. MAU growth sort of surprised people a little bit in Q1. Just talk through some of the challenges you had with that MAU growth in Q1. You had laid out this bogey of 20% MAU growth roughly for the year. Given the challenges in Q1, maybe slopping over a little bit into Q2, you kind of narrowed that range down to 17%-20%. Just make sure we get the high level here. How many MAUs do you have? Why did the growth decelerate, and why do you think you can maintain this good premium MAU growth going forwards?
Yeah. We have close to 98 million MAU globally. That's split almost 50/50 now between the U.S. and international. To understand this, I think there's two different sets of MAU. One that we think of as MAU that we're monetizing in the short term. The other is building the overall base for the long term for the company. That's important as we think about the trends in MAU. What we typically see is a fairly seasonal trend, and particularly when we have a really big quarter, which we did in Q4, it does pull back a little bit in the next quarter, and we definitely expected that, and we saw some of that in Q1. On top of that, we found that there were a series of technical issues that as we dug deeper into MAU, that had impacted growth in Q1.
They range from an issue with one of our providers that stops bots from registering. They'd actually stopped some real people from registering. That was one issue. As we dug into it, there were a few more as well, particularly impacting Android lower-end devices. As I think about that MAU classification, those Android MAU devices tend to be overly populated, if you like, in areas where what we think of as other international countries where we're really not monetizing at this point. They will be important for the long term, but we're not monetizing them at this point. That's again important because even though we saw this sort of slowdown in growth in MAU in Q1, it really doesn't impact short-term revenues or financials at all. As I said, important for long-term growth. We've fixed those issues.
We are back on our sort of what we think of as our regular glide path, which is what gives us conviction on that range that you mentioned of 17%-20% growth for year.
Just to be clear, issues fixed, we should be back on that glide path, that growth path in Q2?
Yeah. They've been almost entirely fixed, and we're seeing that in the MAU trends in Q2. We've still had some impact in April and to some extent in May, but we're definitely seeing that trend come back to that glide path that we expect.
Okay. Again, at a high level, that is high growth you're talking about. It's a good base you have, almost 100 million MAUs, you grow that 20% for a couple of years. Oh, I think you'll double that, my math is correct, in about three years. A little over three years.
Yep.
Just remind us. Those are high growth rates. Why should you be able to sustain 20%? Leaving aside these recent technical issues, why should you be able to sustain 20% MAU growth?
It's about the value that we deliver to our members. We have a very strong philosophy in the company that our number one task is to make the member experience great. That doesn't matter whether it's a free member or a paid member. We've been successful at convincing people to move over to paid, but building that overall base is important. As we add value, as we make the experience better, and we talk about the U.S. versus international, our international opportunity is still very large. Even though we have a good number of MAU at this point, when we think about our markets there's still a huge opportunity. As well as continuing to expand in the U.S. Again, coming back to that broadening out the use cases and really our aim to be a key tool for the family in all life stages.
Yeah. I think another way you could answer the question is just talk about what your penetration rates are, and I think you've got some cohorts with materially higher penetration than what you're showing overall. Do you have any data points you could share on that?
Yeah. Look, our U.S. penetration is around sort of 16%-17%. Talking about the opportunity in international, broadly in international we're less than 1%. You can see the opportunity there. That's reinforced by the fact that what we call the triple-tier territories internationally, U.K., Australia, Canada, they're really catching up very quickly to that U.S. penetration. I think Australia's up to 13%-14% at this point. We can see where we've focused on territories where we're able to really move quickly, broaden out that base. That's not to say that the U.S. is not still growing quickly. We talk a lot about in our investor deck, as you know, Mark, we have a map of the U.S. and the states where we are highly penetrated in or more highly penetrated in tends to be the Southern and Midwestern states at this point.
When you dig into it, the penetration rate, even in those top penetrated states, is still growing at a very consistent level. We're still growing even where we're highly penetrated in the U.S. Some of the other states have got a bit of catch-up to do, so we still see a big runway, both the U.S. and obviously international.
Has RJ explained to you why there'd be much greater focus on family connectivity and family safety in the South and in the Midwest than in the littoral states, in the coastal states?
We have a couple of theories. One is that somewhat counterintuitively, families in those areas tend to be technology native or get into that space more quickly because, from our perspective, because they get married earlier, they have kids earlier, so they're introduced to Life360 earlier. Building on that, things like driving distances in some of those states, a big impetus for Life360 up to this point has been driving and the driving tools and the safety that's built around that for families. Those driving distances do make a difference. Whereas, in Manhattan or somewhere else, people are just not driving as much.
Yep. Okay. One last big picture question, then there's a series of things I want to ask you about. When we think about the subscription revenue drivers going forward, it's P times Q, the number of subscribers and the price you get per subscriber. How do you think about the growth going forward? Should it be relatively balanced between the two? Do you see a particular reason why there's a lot more upside with pricing or ARPU than with unit growth?
Again, coming back to our core philosophy of ensuring that the member experience is great, we're focused on delivering value for the member first and then catching up on pricing. That has been pretty consistently our approach, and I really don't see that changing, where adding more value and more delight to the experience every day, so we will have opportunities. I think about pricing generally, I think we've got a long way to go before we reach a ceiling. As we continually add value to the app, it actually raises that ceiling.
Yeah
Because it becomes more and more valuable for families in their everyday life.
Just remind us, have you had any major price changes?
We did. Somewhat split between the U.S. and international. In the U.S., about two and a half years ago, we did a pretty substantial sort of catch-up price adjustment, and that was for monthly members, close to 50%. Yeah, that's obviously a pretty substantial increase. We saw a little bit of a churn event as expected in the first month or two, but growth very quickly came back. On the retention side, that was really very little impacted. That was a strong indication to us at the time that we were absolutely delivering the value for our members, and that they were okay with that price increase.
Internationally, it's a little more segmented as we've rolled out to the, again, as we call the Triple Tier territories, we've rolled out basically the U.S. experience, and we've adjusted our pricing as we did that, to somewhat equivalent to the U.S. We'll continue to do that as we effectively add more value to the services, as we roll out internationally.
Do you want to set up any expectations for investors about when you want to try to capture some of that growing value through further price adjustments?
I think we'll look at pricing, continually. Internationally is going to see that continuous sort of tick up as we roll out to territories and therefore add value. Otherwise, I think it'll be recognizing the right point where we've added value and we should catch up on that. It's not in our, for example, it's not in our guidance for this year.
Okay. All right. Let's talk about, sort of staying on this user and Paying Circle. It's nice you've got companies that have new metrics, unique metrics. Paying Circles is your unique metric. That's a good thing to have, and it's a meaningful one, too. It also gets across the point that this is like a family, a group service. I think there's just a lot of wins with that expression, Paying Circles. Paying Circles have outgrown mostly, I think, MAU growth for quite some time. Just go through why that is, and should Paying Circles, the conversion of users into paid subscribers, should that continue to rise? How high could that get at sense of it?
Yes.
Having more members pay, more users pay is a good thing. Talk about where that conversion is now, how high it can get, and how you get it there.
There's a few elements to that, and I would sort of think of MAU growth and Paying Circles growth as slightly different, although they're obviously connected in terms of through the funnel. As I said, MAU growth is coming back on the glide path that we expected. The MAU growth will be stronger sort of going forward as we think about the rest of this year. That'll sort of change that sort of mathematical equation. I do want to talk about the success that we've had with Paying Circles. When you look at the last 12 to 18 months, in particular, there's a number of things that we've done to really drive that growth. In Q1, we had the largest Paying Circles additions that we've ever had as a company.
We're actually achieving that really strong growth. When you look at the reasons for that, there's a number of things sort of through the funnel. At the top, our marketing has become more sophisticated and more targeted. We're able to identify those with a greater propensity to move into paid subscription at the top of the funnel. We've done a number of things in terms of optimizing the funnel. If I look at trial starts, for example, that has really expanded. It's not just sort of from new registrations, it's also tapping the very large free user base, and that is a huge opportunity for us going forward, and part of the reason I don't see that sort of growth slowing down.
We've just made continuous improvements through the funnel, which has impacted both conversion and retention. All of that leads to that strong growth in Paying Circles, which I think is fairly structural at this point. We'll still see seasonal variations, but I don't see that slowing down.
For the foreseeable futures, is it reasonable to assume that Paying Circles should grow faster than MAUs?
It depends on how successful we are with MAUs to some extent. Yes, I would see it, but it won't be the big disparity that we saw in Q1, just as a mathematical consequence.
Okay. All right. Okay. There's a couple of different things I want to touch on. Oh, who doesn't love pets? Talk about your pet product. I think both hardware and this is something that you've started to really emphasize, I believe, in the fourth quarter of last year is when you started rolling out your pets product. Just please explain to us what that pets product is, what you've seen so far, and what you would hope to have happen with that.
Yeah. Stepping back a little, pets generally is part of this broader strategy that I talked about in terms of expanding use cases and your life stages within the family. When we look at our free user base, for example, we've got a lot of your traditional families. We also have couples who we know have a pet, who perhaps don't have the immediate need to sign up for a paid subscription. As they bring their pet into their circle, that could potentially be a driver. It's part of that overall strategy. What the pet device is a GPS device that allows you to track your pet in real time. That's important because some people use Bluetooth devices, which have an obvious delay and sort of inconsistency.
This is a much more solid way if your dog gets out and is sort of running away, you know exactly where he or she is at the time. It's part of a broader strategy here. As we think about families with pets, we rolled out this sort of free service to essentially register your pet, and take advantage of the very large Life360 network, so that if your pet becomes lost, you can go to that network and locally be identified all of the Life360 members in your area. We've had more than 7 million people register for that. It's a little bit of a process to register, so that gives us an indication of the potential for this. Our strategy here continues to evolve as well.
It's going to be about a broader sort of pet experience, the device plus, that brings these people in that may not otherwise have had a specific need to become a paid subscriber.
Do you expect this to be more of a cross-sell product or this is bringing in brand-new users into the Life360 family?
I think it'll be both. Our initial focus is going to be more on the cross-sell, sort of giving our free members another reason to sign up for a paid subscription.
Yeah.
Obviously, beyond that, definitely has potential.
Any challenges in terms of devices and supply chains?
Like everyone else, I think, we've had a number of challenges from tariffs to your general supply chain. We have been pretty successful at mitigating those. We did a lot of work on mitigating the overall impact of tariffs. As part of that, we did move our contract manufacturing location from China to Malaysia for the pet device. That did have a bit of an impact sort of late in the year, early this year. That line is now up and running, so we'll be able to service that device.
Okay. Let's switch and talk a little bit about advertising. You've done some acquisitions here, some integrations. In Q1, I don't know, you hit like a $80 million revenue run rate for ad revenue, $80 million. Acquisitions boosted that quite a bit, but that's all right. Talk about that long-term opportunity and how these acquisitions helped with that.
Advertising is just an area I'm really excited about. It has sort of so much potential and as an opportunity for us. We started an advertising revenue stream, an advertising business, a little over a year ago, and it's built up slowly. What we did realize from that is that we have an incredibly valuable audience. We have a lot of data on our members and a lot of trust, and therefore consent to use that data, particularly when it's used for the member's own benefit. We have real world, real-time data, which is sort of very critical. It's very desirable for advertisers. What we didn't have necessarily was the whole infrastructure to take advantage of that. We've been building the business slowly.
Nativo gave us the tech infrastructure, it gave us a sales team, it gave us relationships with advertisers and publishers that would've just taken a long time to build ourselves. It gave us a real kickstart in that area. As you said, Mark, our Q1 revenue for advertising was about $20 million. We see that run rate sort of going close to doubling by the end of the year. We're in a situation where we're both building the business, and we do expect the sort of typical Q4 seasonality in the business. It is a really big opportunity for us.
You laid out a specific ad revenue target for the year?
Yes. Just over $100 million.
Okay. All right. Let's see. A few other questions here. Let's go back to international. I know you mentioned, there's an expression you used, the triple tier. For U.K., Australia, and Canada.
Yep.
Talk about your best performing international markets. What makes them differentiated, and is it a similar playbook that you have in the U.S., you're just rolling out to international markets, or are there reasons that you have to dramatically change it?
The reason that we chose those territories in the first place is that they were more similar to the U.S. We've had great success in rolling out. We were able to essentially roll out the U.S. product more or less as is. It was a matter of contracting for some local services for things like roadside assistance. Largely it was a very similar product to the U.S., in territories where the culture and to some extent, the sort of driving patterns were somewhat similar. We've had huge success. We continue to have real success. Those territories are still growing really quickly. Our revenue growth year-over-year in those territories, just looking at those three territories, was between 60% and 80%. You can see that's been a big part of that driver of international.
We're now in the sort of 2nd stage where we're looking at countries that have given us the signal that they're ready for that next stage. Our focus territories for this year are Brazil, Mexico, and Germany. We're seeing good growth already in those territories, but we're doubling down on that. We're going to go into those territories. They are slightly different. For example, Brazil and Mexico are more oriented towards the safety applications of the app, more than the driving applications. Because we have a broad suite of products that's designed for the family and, just as I said, making family life easier day to day, we can emphasize a part of that suite in different territories and localize that way as we go. We're definitely seeing opportunities there. We'll continue to roll out. We're just at the beginning of that journey.
We've got a long road way to go.
The revenue growth rate in those three markets higher than in what you have in the three, U.K., Australia and Canada?
I'm sorry,
Is the revenue growth faster in those three markets than it is in the other international markets, Brazil, Mexico and Germany?
Yes. Although Brazil and Mexico, for example, are catching up quickly. That is a direct result, the way we see it, of the focus and emphasis in those territories.
Okay. Beyond those markets, have you already identified other markets that you would expand in?
We have. This is a long-term strategy for us. We're looking at sort of Northern and Central Europe as most likely the next areas where we can roll out effectively. Eventually, we do want to be very much a global presence. The other side that we haven't really talked about, sort of coming back to advertising, is that we now have multiple ways to monetize our very large free user base. In the more developed territories, the emphasis will be on subscription. In less developed countries, it might be more an emphasis on advertising and an advertising-supported product. Either way, it gives us a lot of opportunity to monetize that total base. We see that as an integral part of our long-term strategy.
All right. Let me end up with two last questions, one on margins and one on capital allocation. Your guidance for this year implies roughly 20% EBITDA margins. I think you've talked about long-term margins getting to 35%. How do you bridge that gap?
We've been consistently improving our bottom-line margin. Essentially for the last few years, it's consistently increased. A large part of that is really operating leverage, and that's the biggest piece of how we get to that 35% margin. A lot of our costs are sort of fixed costs to some extent in terms of all of the investment that has gone into the technology, the infrastructure, the product itself. As we go forward, we absolutely see the revenue growth continuing to be a much higher rate than the increase in operating expenses, and the ability to drive margins and build on additional revenue streams. We're building on advertising. We will build on additional revenue streams, which, in our business, tend to be high margin streams. All of that combines.
We have a very clear path to that 35%, and as I said, it's largely driven by scale.
You mentioned other revenue streams in addition to advertising. Like what?
Really partnerships, where as part of our strategy for building this sort of family super app platform, we want to be the go-to platform for the family in the future, again, across those life stages. It doesn't matter whether it's the connectivity piece, whether it's the pets piece, there's a number of things that we can build on. We've talked about insurance and financial services in the past. They're likely to be more on the partnership side. We're building an ecosystem where these partners can plug in, and we've been talking about that for a little while.
Yeah.
We're now just sort of seeing the traction start. We've talked about our Uber partnership.
Yes.
That's a broad-ranging partnership. It's both advertising and an integration of membership. That's just one example of how we see broadening out that revenue base.
Will you just double-click a little bit on the Uber partnership?
Yeah.
When did you first announce that, like a year ago?
Well, we first started with the advertising side.
Them advertising on you?
Yes.
Okay.
Using our unique real-world, real-time data, the example there was we already had a feature of the app where if you landed an airport, your family circle are notified.
Yes, that's right. Yeah.
What we did is adapted that slightly to so that when you landed in the airport, you got a message that said, "We see you've landed at SFO.
Yes.
Would you like to book an Uber?" That's where it started. They saw great success on the click-through rates and traction there. That sort of lent itself to this broader partnership now where we have advertising, but also essentially a sort of swap of member rights.
Okay.
What that does from our point of view, it allows us to build that whole experience within the app, keep our members engaged within Life360. Again, give them more reasons to keep coming back.
They've been a good partner?
They've been a very good partner.
Okay. Last question has to do with capital allocation. Where are we here? You got $460 million in cash. That's pretty good. I don't think you have any debt, or do you? Any debt?
Well, we have the convertible notes that we issued.
That's right.
That's just a little over $300 million.
That's right. Okay. Just help us think through how you balance growth investments, M&A, shareholder returns. If I give you those three, how do you balance them?
Yep. Thinking about the elements of those, we are still very much a growth company. You've heard me talk about a broad range of opportunities. There's enormous amount of opportunity here to continue to fuel that very strong growth. That's where we see the ultimate value for shareholders is continuing to drive that growth, continuing to improve margins, continuing to really scale both top line and bottom line. We definitely see opportunities there. We did announce this sort of share repurchase program, very much along the lines of offsetting the dilution from SBC. That was a message that we had from our investors.
That's exactly what it's designed to do. It's not going to take away, you talked about our large cash balances. We're now in very strong cash flow generation mode. It won't dilute from the overall cash balance. We still believe that we have a lot of scope there to deploy those funds where we see the right opportunity, which brings me to M&A. We've just done a moderate size acquisition from our point of view. We're continuing to evolve that and sort of digest that, although it's now starting to really fire. Looking at this year, we probably won't have any large-scale acquisitions, but we'll continue to look at opportunities, and there's definitely opportunities in acqui-hire type acquisitions as well. Our approach here is to thinking about our overall strategy. We prioritize the strategies that we want to do in the short term.
We then look at the buy, build, partner question, and move that to the most effective means of achieving that strategy.
Hey, I forgot. Back on the margins, I promise this will be the last question. You talked about leverage against things like product spend, infrastructure spend, tech spend. What should we expect in terms of leverage against marketing spend? You're clearly a consumer family product. I expect marketing spend from businesses like yours. What's a reasonable expectation that marketing stays in a band as a percentage of revenue for the next couple of years? Do you want to lay out an expectation that you get leverage against that line, or is the way you phrased it sounds to me like we should expect leverage in the other areas.
I think we will get more leverage in R&D and G&A, absolutely. As you think about the sales and marketing line, there's two aspects. One, the largest single element of that sales and marketing expense line is platform commissions that we pay to Apple and Google. That is something of a variable cost to subscription. We absolutely see the opportunity for that to come down over the next two years because there's continuing intense pressure on Apple in particular. We all know about the lawsuits. We see that as coming down.
Okay.
There'll be opportunities, for example, to do off-platform billing. Aside from that, to your question in terms of what we tend to call growth marketing, the other aspect is, historically, a lot of our subscriber growth has been word-of-mouth driven. Something like 70%-80% of our growth has been attributed to that organic word of mouth, and families on the sideline of their kids' soccer match.
Yeah
We are really recommending us. We've seen that consistently. We have increased our marketing in the last couple of years in particular because it's gotten more mature. We've gotten more conviction in terms of the ability to get a very strong return on that. You can see that in our, we talked before about the Paying Circles growth. It's all part of that cycle. To answer your specific question, I see that piece probably being a fairly consistent level of percentage of revenue, certainly percentage of subscription revenue for the next couple of years. We will get leverage out of that line as well.
Okay. Russell Burke, CFO of Life360. Thank you very much.
I appreciate the time, Mark, good to come and chat.
Yes, likewise.
Thank you.