Life360 H1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 14 speakers on the call.

Operator

Greetings, everyone, and welcome to our Q2 2024 Earnings Conference Call. This call is being conducted as a Zoom audio webinar. All participants will be in a listen only mode until the question and answer session. When we come to the Q and A, 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.

Operator

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 when 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.

Operator

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 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 Hulse 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 and A session.

Operator

We request that participants limit themselves to one question initially so that we can get through as many participants as possible. I would now like to turn the call over to Chris Hulse, CEO.

Speaker 1

Good afternoon to everyone in the U. S. 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 U. S.

Speaker 1

IPO. We achieved positive metrics across all of our key strategic priority areas. We achieved impressive audience growth, increasing our free member base by 4,300,000 monthly active users, reaching 70,600,000 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.

Speaker 1

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 U. K. Launch in October 2023, underpinning a significant uplift in average revenue per paying Circle in both markets.

Speaker 1

Q2 revenue in the U. K. And New Zealand increased 76% 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 2023.

Speaker 1

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 U. S. Members and available soon globally. Importantly, we are focusing on providing our members with contextually relevant ads that enhance the user experience by leveraging our extensive first party location data.

Speaker 1

Following the rapid development of our programmatic ad capability and positive singles 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 'twenty four 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 twenty twenty four. As we build our ad sales, measurement and tech capabilities and further enable our platform through service integrations like those in place of 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.

Speaker 1

Today, we also announced expanded partnership agreements with 2 of our existing strategic partners, Arity and Placer dotai. Arity provides us with technology that enables our crash detection and driving alerts and also helps us provide opt in personalized car insurance quotes for our members. AirD 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.

Speaker 1

However, we expect increased revenue in 2025 beyond as a result of the updated agreement. Additionally, we continue to move through the finalization process of our relationship with Hubbell. 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.

Speaker 2

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 U. S. Dollars. The strong operating metrics, which Chris has outlined, supported an acceleration in Q2 revenue momentum.

Speaker 2

Q2 revenue increased 20% year on year to $84,900,000 with particularly strong growth in subscription, which increased 25% year on year. CoreLife 360 subscription, which excludes hardware subscriptions, also increased 25% year on year, driven by the 25% increase in global paying circles and 6% higher AR PPC. Hardware revenue increased 3% to $11,900,000 driven by the contribution from bundling and fewer discounts offered. Stand alone units shipped were stable with average selling price up 1% year on year. Other revenue increased 12% to $7,300,000 due to a combination of the ramp in advertising revenue and higher data revenue.

Speaker 2

June AMR of close to $305,000,000 increased 23% year on year, reflecting the performance of subscription and other revenue. Q2 gross profit of $63,600,000 increased 16% year on year with gross margin slightly lower at 75% compared with 77% in the prior year. Q2 'twenty three 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%.

Speaker 2

R and 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 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 General and administrative expenses in Q2 increased 17% year on year, primarily driven by ongoing public company compliance costs.

Speaker 2

The Q2 net loss of $11,000,000 increased from $4,400,000 in the prior year due to the costs associated with the IPO and higher income tax expense. Due to the changes in U. S. Tax laws impacting many companies, primarily around the requirement to amortize capitalized R and D costs over a 5 year period as well as the timing 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.

Speaker 2

The effective tax rate in any 1 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 results 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 to be between $2,000,000 $4,000,000 Finally, and most importantly, we continued to make meaningful progress in expanding profitability. Adjusted EBITDA was positive for the 7th consecutive quarter, increasing to $11,000,000 from $5,700,000 in the prior year. The EBITDA loss of $5,600,000 increased from $2,000,000 in the prior year due to transaction related costs associated with the U.

Speaker 2

S. IPO of 5,800,000 dollars We would have recorded positive EBITDA absent those costs. Our updated guidance for the full year EBITDA loss of $13,000,000 to $8,000,000 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

Speaker 3

and the

Speaker 2

transaction costs related to the U. S. IPO. Turning to the balance sheet and cash flow. Y 360 ended Q2 with cash, cash equivalents and restricted cash of $162,000,000 an increase of $87,400,000 from Q1 'twenty four.

Speaker 2

Operating cash flow was positive for the 5th consecutive quarter. Q2 net cash provided by operating activities of $3,300,000 was lower than adjusted EBITDA of $11,000,000 primarily due to the U. S. IPO related transaction costs as well as the timing of receipts and payments. Net cash used in investing activities of $1,200,000 related to payments for internally developed software.

Speaker 2

Net cash provided by financing activities of $85,400,000 related primarily to the proceeds from the U. S. IPO, partially offset by the $7,800,000 in taxes paid for the next settlement of RSUs. I note that the cash paid on RSU settlements was higher due to our 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.

Speaker 1

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 at how EBITDA can flow for the remainder of the year, as we discussed earlier, we have an intentional seasonal increase in expenses occurring in the Q3 and paid acquisition and other marketing costs of approximately $6,000,000 to support our back to school and new product 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.

Speaker 1

We anticipate consolidated revenue of $370,000,000 to $378,000,000 with core subscription revenue growth of 25% year over year. We anticipate positive adjusted EBITDA of $36,000,000 to $41,000,000 and EBITDA loss of $8,000,000 to $13,000,000 which includes the $5,800,000 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 $150,000,000 to $160,000,000 The forecast includes expected significantly higher outflows from RSU settlements as a result of the higher stock price, the anticipated investment in Hubbell, 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 and A portion of our call

Operator

today. Thanks, Chris. As a reminder to everyone, if you have a question, please click the raise hand button in the middle bottom part of the screen. Let me queue up here. I'd like to start with Mark Mahaney, if we can unmute him.

Operator

And Mark, if you could ask your question.

Speaker 4

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

Speaker 4

Do you feel like you're in a cadence now where you're at a a 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.

Speaker 5

Sure. So I'll answer that in

Speaker 1

a few ways. If I start looking at our long arc, quarter to quarter things change and we try not to get too excited by a great quarter or sad by an average or mediocre one. But if you think about the overall trends, millennials aging into our category, people becoming more aware of the product, international in particular. We do think there are long term overall wins that are back. We have been also investing and we've been having more optimizations this year, improving our funnel.

Speaker 1

We hired a VP of Growth who's been launching a bunch of experiments that have driven increased conversion. And then of course in the 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 the quarter to quarter can be noisier.

Speaker 1

But I want to be clear, that's not a signal that is chopping out. We're off to a good start even in recent days.

Speaker 4

Thank you, Chris.

Operator

Thanks, Mark. Next question, I'd like to unmute the line of Chris Goller. Chris, if you could ask your question.

Speaker 6

No problem. Thanks, Jay, and good day, Chris and Russell. I just had one on advertising. Curious if you could let us know how much ad rev is in that indirect revenue line in the second quarter and whether we should still think about the second half as around $5,000,000 to $10,000,000 from advertising? Thanks.

Speaker 1

You want to take that one, Russell?

Speaker 2

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 $5,000,000 to 10,000,000 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.

Speaker 2

So I think we have a lot more confidence as we go into the second half.

Operator

Next, we'd like to, Maria Ripps, if you could unmute your line, that'd be great.

Speaker 7

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 year outlook, how should we be thinking about sort of key contributors to accelerating growth here?

Speaker 1

Sure. So we have our seasonality and we normally get a nice wave around 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.

Speaker 1

We have a few we have our new tile product launch, which is a little less on net sub ads, 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 it's a a that's going to be less ads, 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.

Speaker 7

Got it. Thank you very much.

Speaker 6

You're welcome.

Operator

Thanks, Mariette. The next is we'd like to have, Laff, if you could unmute your line with MST Financial.

Speaker 8

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 U. S. States and the level of penetration.

Speaker 8

Could 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?

Speaker 1

Sure. So I don't have exactly precise numbers for you. And I have not looked at the latest numbers since the U. S. Listing.

Speaker 1

So everything I comment on here will be about 2 months out of date. But when we ran those numbers for the U. S. 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.

Speaker 1

There are some signs that's happening internationally as well. But the meta trends, at least as of 2 months ago, there were holding quite nicely.

Speaker 8

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 contracts? You flagged $1,000,000 to $2,000,000 this year, but really overall you're getting around $20,000,000 revenue for Placer AI and you've flagged a step up next financial year. Can you give us sort of an idea because if we look at when you first signed the Placer AI contract, it's just under 3 years ago. Since then, your MAUs more than doubled. So should we expect that kind of delta trajectory change?

Speaker 8

So are we looking at over $10,000,000 in revenue next year? Or can you give us any color?

Speaker 1

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 incremental users with a lot more than the additional ones. So we're pretty far up that J curve, but a lot of what we are looking at with Place are 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.

Speaker 1

And without getting into specifics of the contract, there are some mechanisms in there that do give me that confidence that it will grow faster than core subscription numbers next year.

Operator

Next, we'd like to ask Mark Kelly from Stifel to unmute your line and ask your question. Thank you. Mark, are you available? Mark Kelly?

Speaker 5

Sorry, I'll take a second to get the unmute button up. Thanks for taking the question. Appreciate the time. I want to go back to just the advertising business. I know it's super early.

Speaker 5

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.

Speaker 5

Thanks very much.

Speaker 1

So that is a very long arc. And to do that, it's 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 in 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 guys get 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?

Speaker 1

And it would be the also we'll 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, give them your Social Security number, then they would match your credit cards. It was just advertising.

Speaker 1

Users knew they were being advertised to, but they liked it because they're getting matched with a credit card for them. And with a meaningfully smaller user base than us, they were able to generate over $1,000,000,000 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, the first party data and high engagement, there's a lot you can do. So that's one of many examples.

Speaker 1

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

Speaker 5

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.

Speaker 1

There you go. I am definitely not going to opt into that program

Speaker 3

as well.

Speaker 1

All right. Thanks very much. Scores.

Operator

Thanks, Mark. Next, we'd like to open up the line for James Bales from Morgan Stanley. If you could unmute. James from Morgan Stanley, I believe you're still here. James, if we don't catch you this round, we'll come back.

Operator

So next oh, did we catch you?

Speaker 1

There

Speaker 9

you are.

Speaker 1

I'm having a tough time hearing

Operator

you. Yes, we are.

Speaker 1

Could you try speaking a little slower

Speaker 5

when I

Speaker 1

got your question or we can come back to you at the end? I'm sorry. How much

Speaker 9

do you expect?

Speaker 1

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.

Operator

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

Speaker 10

Okay.

Operator

And next if Chris Kantarik, is he on the line, if you could unmute and ask a question. Hey, Chris, we're going to come back to you. James, excuse me, Rob Anderson from Loop. Rob, are you available? Please unmute your line.

Speaker 11

Here we go. Can you hear me, guys?

Speaker 1

Loud and clear.

Speaker 11

All right. 1 out of 3. So two questions. Going back to just strength in 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?

Speaker 11

Is it sort of downstream of hitting that or approaching that 3% MAU tipping point or something else? Like what would you just what can you point to, just better sales execution? What's driving the acceleration

Speaker 1

in your view? It's really all of the above. So if we go down the overall arc, one is the U. S. Usually starts trends first and then they tip.

Speaker 1

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 1. Point 2 is we just now have invested much more in the free user experience. Our former COO, David Rice, launched our international team. And so we have what we call a T shaped strategy.

Speaker 1

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 than net ad driver because the cost is so much higher, but we've now done that U.

Speaker 1

K, Australia, New Zealand and Canada. We are now having some very, very basic marketing, but it's honestly very minimal on top of funnel. We are doing better product marketing. We're engaging our customers better. And we now are testing some individual upsell optimizations even in countries you don't the triple tier.

Speaker 1

So it's really that entire every step of the funnel plus just general tailwinds. And we've had a bunch of PR that was a bit of a surprise because it drove more downloads in the U. S.

Speaker 11

And if I could follow-up then on data and licensing. So you've 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. And it's a very sacred valuable position.

Speaker 11

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 not? And 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?

Speaker 1

Yes. So there's a lot to unpack there. So I'll throw out a few things starting with core philosophy. So number 1, I would not do anything that I would not feel comfortable using. My own families and we ask ourselves that around the exec table quite regularly.

Speaker 1

I have 2 daughters and I am fully comfortable with everything we're doing. That would be point 1. Point 2 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 because we know 99% of people just don't care.

Speaker 1

And then we are a little bit sensitive to things that really put us in the hot seat. So we did stop raw data sales. We had never had even a single instance of misuse. It was a bit sensationalized, but that was an example for the people who have been following the story for a while. We decided, hey, this revenue line could really be growing, but it's not worth it if it does risk that trust.

Speaker 1

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 want to be we genuinely want to tell you, like, don't give your data if it's bad. We'll be able to do that. We want to build we want to actually help you feel like we're making decisions. There is a transition zone right now where we are doing the banners, which I'm not exactly excited about.

Speaker 1

They're more just to get our sea legs. But we have Russell might know the exact stats. I'm guessing probably you 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, make sure it doesn't jar.

Speaker 1

And then just a lot of small things down the way, but high level transparency and choice, things we're going to do 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 spend a lot of time just talking to our customers and understanding how they feel about things.

Speaker 11

Thanks, Chris.

Speaker 8

Welcome.

Operator

Thanks, Rob. We're going to ask Jennifer from Jefferies to unmute your line and ask your question.

Speaker 3

Yes. Thanks, Aude. So my question is just in regards to the ad revenue rollout right now. Are we doing all U. S.

Speaker 3

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. [SPEAKER UNIDENTIFIED

Speaker 1

COMPANY REPRESENTATIVE:] So we're on right now with the basic banners for all U. S. Users. We're exploring what goes next internationally. And to the prior question, we are requiring everyone to do native ads while they get started, which really does restrict our ability to scale it.

Speaker 1

So we could 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, as you mentioned, is like Trade Desk and off-site that's implied like off-site advertising, which it will get a little bit more technical here, but we have a very high opt in rate doing cross app tracking via IDFA. So we think there's a huge ability to do off-site advertising using location data was explicitly opted in users. I hope next year, maybe middle of next year, that's generating real revenue.

Speaker 1

We're pioneering something a little bit new there. And then of course, we have different canvases 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 some things that we're excited about in testing, and we feel very good about numbers for this year, even with a more limited approach we're taking.

Speaker 2

And, Wade, just to be sort of 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 said, we're going to move steadily on that process and international generally monetizes a little lower than the U. S, as you know. But in the longer term, we're sort of very excited about the areas of the world where we won't necessarily quickly move to a sort of triple tier type launch and being able to monetize those areas more effectively. So it will it gives us a lot of opportunity for the future.

Speaker 3

Got it. And just in terms of a 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?

Speaker 2

Thanks. Yes. 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 a and we've done this before, we included a case study with Uber just to really just sort of demonstrate how over a period of time they really built that up and there's sort of several case studies out there. As Chris said earlier, we have the advantage really of being able to target deterministic cases.

Speaker 2

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.

Operator

Next, we'd like to go to Andrew with Citizens JMP.

Speaker 9

Thanks so much for taking my question. I wanted to ask about international MAU. It's accelerated for 4 straight quarters. Is that certain markets tipping that 3% or can you help explain what is the driver of that acceleration? Thanks so much.

Speaker 1

Yes. So it's honestly an 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. I've shared this example with some of you where our premium driving features are called Driver Protect.

Speaker 1

And in some regions, we were literally translating as Protect My Show FERC. So 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 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.

Speaker 1

Google's pulled back on a lot of their location issues while Apple's popularized the space. So we are just seeing that growth. And I'm 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 assumption we had that it's really a tipping point thing is holding true everywhere.

Speaker 2

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

Operator

Thank you. Next, we'd like to unmute the line of Wei Wang from RBC.

Speaker 12

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, the first thing is, historically, Q3 is your peak period for net adds. And then the second thing is after periods of significant net adds, the following quarter can be a bit more muted.

Speaker 12

So how do we reconcile these two comments in the context of, I guess, a record net add in Q2? And do you attribute any of the strength in Q2 to the IPO?

Speaker 1

So I'll take the easiest part first, like 0 to the IPO. We're a mass market consumer business as much as I would love to explode on Wall Street Bets that has not happened yet. So we are I don't think any of our customers really knew anything about that in the PR in terms of stuff that drives stuff for us was quite minimal. So I think that I can say confidently. In terms of the chunkiness in net adds on as one lever and the back to school as another.

Speaker 1

Yeah, historically, when we have a high quarter, it kind of can't 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 again, it's not always the case that good net add quarter means the next one is not good because some of it is fundamental improvements just as much as it is just the organic noise.

Speaker 2

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

Operator

Thank you. Next, I'd like to go to Chris from UBS, who I think is on Alex's line. Let's try unmuting Alex's line. Chris, are you there?

Speaker 10

Hey, can you hear me okay?

Operator

Yes.

Speaker 10

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 at or above?

Speaker 10

And then just more specifically to the fiscal year 'twenty four guide, just curious kind of what's implied at the high end versus the low end? Thanks.

Speaker 2

Yes. Look, our approach is to try and be as transparent as possible so that range sort of really does recognize the ranges in terms of your potential outcomes and potential risk from that point of view. That said, we're well aware that typically people take the midpoint. So that is what we work along as well. What I would say is, as we looked at this, we looked at it sort of very carefully in terms of the trends that both in the subscription business, but also the fact that a lot of our business this year is or a lot of our revenue, as we've said before, is weighted towards the second half and Q4 in particular, as we build up both 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 tile into that period.

Speaker 1

And to add just a little bit to that, since we have some newer people on the call, always been public for 5 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 a reputation. We don't sandbag nor do we oversell. And the only time we were really far off was during COVID when 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.

Speaker 1

And the only other area where we've been all choppier is hardware, because there's a lot of unknown and we really didn't buy tile to sell hardware. We did it to drive membership. So when we pulled back in the downturn and all that, that's where we leaned in. So in general, I've had a lot of confidence that when we have narrower timeframes with subscription, we're going to we're largely going to be kind of smack dab because that builds more predictably, falls more predictably. And there is more unknown with anything 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.

Speaker 10

Got it. Very helpful. And maybe just one follow-up, just on thinking about the back half of the year from an international versus the U. S. Perspective.

Speaker 10

Could you just maybe lay out some of those priorities and some of those growth drivers for those buckets and kind of how we should be thinking about the contribution on those two fronts? Thanks.

Speaker 1

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 try to see if we can push people to convert more in our non triple tier markets. Russell, I'm not sure if we have an exact date that we've announced yet for our next triple tier launches.

Speaker 1

An opening 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 more if we had scale in back to schools in most of the world. Obviously, Northern Hemisphere, it sinks to the U. S. Relatively nicely.

Speaker 1

So I am hopeful and also curious that 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. We'll know more in a couple of weeks, but we'll be able to share in a quarter.

Speaker 2

And I think, Chris, we remain very excited about international. There's no a

Speaker 8

really

Speaker 2

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, your overall very strong growth internationally. So, yes, our expectation is we will get consistent increase in growth there.

Speaker 10

Thank you very much, Beth. Very helpful.

Operator

Thanks, Chris. For every sell side analyst that's in attendance, if you'd like to ask a follow-up question, please raise your hand, queue up and we'll get to as many as we can. Next, we'd like to open the line of Julian. If you could unmute and ask your question.

Speaker 13

My question relates to the advertising business. So you've started with banner ads and I understand you're selling in clusters

Speaker 1

of sort

Speaker 13

of 10,000 names that have popped. What's the timeline to sort of moving to video, maybe carousel ads, so the whole screen is taking 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?

Speaker 1

The 10,000 name cluster, there's a little more complexity in that. And you need to 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 things, that is not the direction we're going.

Speaker 1

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 live with 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 base is still growing, that would be a bridge too far for us. At some point, that flattens out.

Speaker 1

We get in harvest mode. And one thing I'm very, very confident on is when we're less focused on top of funnel growth, we will be able to massively drive bottom line performance. But right now, that's not where we're going. We really want to go in things that improve the user experience. And we mean that seriously, it's not corporate speak, when we can actually match you with products and services that are really good for using your data, I think that will be both more effective and it will be additive to the user experience versus taking it away.

Speaker 1

And lastly, I'll comment on that. We look at what is the job to be done and how do we not get in the way of the workflow. If you're something like a Facebook and someone's using you in line when they're bored or trying to zone out, they don't really mind that. But with Life360, you're much more in and out. So we need to think about it a little bit differently.

Speaker 13

So that means like the advertising revenue is going to be more about that sort of selling insurance, that sort of commission and partnership thing rather than traditional advertising, which you see on other sort of platforms?

Speaker 1

It's a bit more complicated than that. There's the whole piece around off-site advertising, which for people who are not as familiar, it's a little bit harder to grok, but basically, we will help target ads off the platform by doing IDFA matching for users who have opted in. That's actually something that Apple really helped us with counterintuitively because now I'm sure everyone's seen the will you allow this app to track you across websites pop up that is ubiquitous. That might have 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.

Speaker 1

So we do have this ability 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 3rd party raw GPS points, you could imagine a party saying, hey, these opted in IDFAs, can you show me people who have been to Target in the last 7 days? Or we can even get to a real time component at some point. And those are things that will 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.

Speaker 13

Cool. Thanks, Chris.

Operator

Thanks. Let's try and go back to James Bales from Morgan Stanley. So if we can unmute his line and see if James you can ask your question.

Speaker 1

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, why don't you shoot RJ or Russell a note?

Operator

I do have his question, So 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.

Speaker 9

Well, my question is about the real investment in the business to scale over the next, say, 3 years. How much sales effort and how much engineering is required to get that business where you need it to be?

Speaker 1

So I think I got about 80% of what you said and it was largely if I were to repeat it back to you, I didn't hear the first half of the sentence, but essentially how much investment in engineers, people timing to ramp up advertising? Is that essentially the essence of it? That's right. And I see RJ just pasted the question in chat for everyone who didn't see it and I see specifically about reinvestment. So on the reinvestment topic, one thing I will share is we are aligned with the team and also the market that anything with advertising will be contribution margin positive from year 1 And we're definitely going to live up to that for this year.

Speaker 1

It's very different than a lot of projects where we build it for a year, 2nd year, we kind of launch it and barely break even and it takes the 3rd 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 if that were to 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.

Speaker 1

I think it's you can look at Uber, their ramp has been accelerating, but really started accelerating in years 34.

Speaker 2

And James, to the second part of your 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 MAU, 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

Operator

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.

Speaker 1

I have nothing beyond was already been shared and I'm very excited that we finished our first quarter as a 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.

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Earnings Conference Call
Life360 H1 2024
00:00 / 00:00