Life360, Inc. (360) Earnings Call Transcript

Good morning, and thank you for joining the investor briefing for the Life360 membership launch. Today, we have exciting news to share with you with the launch of our first-to-market family safety membership model in the U.S. This is Ariana Hellebuyck, and I'm VP of Marketing at Life360. The call will begin with a full presentation from Co-Founder and CEO, Chris Hulls, followed by a Q&A session. Please note, today's meeting will cover the launch of our new membership model and the consumer experience. We are currently in our blackout period, so financial matters will not be covered in today's discussion. We will be reporting our June quarterly cash flow and business activities update on the 29th of July, Australian time and our half year financial results on the 27th of August, Australian time. We'll be happy to address financial questions on those calls. Additionally, I would like to share some details for logistics. This call is being conducted as a Zoom audio webinar. [Operator Instructions] I would now like to turn the call over to Chris.

Thank you, Ariana. As noted, the Life360 membership is now here, and this is a huge, huge deal for us. It's a huge deal for 2 reasons. First, for all of you who have been investors with us for a while, this is why we raised the IPO. We needed the funds to expand R&D to build out what really is the vision behind Life360. And that is the second big reason this is so exciting. When we set out to create Life360 a decade ago, it was always with this one-stop shop safety service in mind. And now we've had the resources to build it, and it's here. So this is the first time I'd say we're truly living up to that 360 in our Life360 name. So I'm going to go into a lot of detail. But before I start, I want to quickly show you a video that will help orient you towards the new offering. [Presentation] So now you have seen the video, I want to highlight why now is such a unique and relevant time to launch a service like this. So it goes without saying the last few months have been completely chaotic. You've had coronavirus, data breaches, California, in particular, has had wildfires. The world is very much in a heightened state of anxiety. And at the same time, life has very quickly been moving digital. That's been why we've been growing so quickly in general. Families, in particular, are now digital natives. They look naturally to the phone first than they do for any new type of product. And as the company that's already the leading family mobile application, it's very natural that we tie all these services together under one roof and really launch what is the next phase of our journey for Life360. So if you look at what we're offering, a big component of what we are now providing is this one-stop shop service. So our core location app, all the features around mapping communication, that's where we really innovate and have done brand-new things. We were the first location-sharing app on the market. Our features there are still better, more innovative and more advanced than anybody else's. But with membership, it's a little bit different. A lot of the products we're offering and the new packages, they already exist. But what we're doing is bring them all into one place. So you don't need to go sign up for a new service. It's all right there. Your family is all there. So with a couple of clicks, you now have this very comprehensive offering that would probably take 8 to 10 independent subscriptions, if you're going to try to recreate this without Life360. Arguably, more importantly, is the cost that we're offering this. If you were to look at what we're offering our members and wanted to recreate that by going to other providers, you'd literally be paying over 10x as much. And the reason we're able to offer this so cheap is because what I'll call mobile economics. We have a huge user base that grows on its own. So we don't have to have these large marketing budgets that other companies have. We can use software where other people use hardware. So the customers are subsidizing everything by paying for their phone and the build themselves. We don't have a sales team. We don't have to have our own infrastructure. It's all in the app. So we're able to maintain really high margins while giving customers just what I would say is, by far, the best deal in this space and what really gets us excited about where this can go. So that's the high level. And I want to drill into a few specific features so you can see what customers are actually going to see. So I'm going to go over some screen shops of the app, as one very important note, this is only available in the U.S. So if you open the outside of the country, you will see something that was much closer to our legacy experience. But with that, one of the primary things we've done is brought premium front and center to the main map. Whereas previously, it was always a couple of clicks deep because it was a little bit niche and it wasn't something that we felt was ready for being so front and center. So 2 big changes to the main map is we now have this large family safety assist button, which is anchored right to the middle of the screen all the time, and I'll explain that in a minute. And we've also pulled out our SOS service and made it front and center. So there are a number of ways you can get into some of these premium offerings directly from the map. So I'll go into a few examples. If you click the SOS button you come here. We previously had a help alert feature, which was very lightweight it wasn't very robust. We've expanded on that for our free users, so they can still access this. And if they use it, they can send an alert to their family members and emergency contacts saying that they need help. But now for premium members, they have access to a 24/7 emergency dispatcher who is always watching over them. So as an example, imagine you've been using Life360 a long time. Now your kids are going off to college. You're worried about drinking, being out late at night. So you could tell your daughter, "Hey, with Life360 now if you're ever out at night walking across campus, hold down this button. If you need help, you just let go, if you let go, you have 10 seconds to enter in your emergency pin code. If you don't enter that pin, we call you and ask you if you need for help. And if you say you need help, or you don't answer the phone, we immediately dispatch police to your live exact location." So even though we only launched this a few days ago, we have already dispatched police to live emergency situation. So it's pretty exciting, a few days into this, and we're already having a real impact. The next feature I want to talk about is Family Safety Assist. The idea with this, as a holistic view, is if you are your family organizer, usually mom, but also the kids. It's now one touch, to get help for any major contingency you might worry about. Clearly, if it's life or death, you call 911. But all these other things that are urgent, but you can't go to the police for, we're there for you. So imagine you're on a trip to a foreign country and you need medical advice, you can push a button, talk to a live nurse 24/7. Hopefully, they figure out what you need right on the spot and you're done. But if you're staying a third world country and you need to go to the doctors and you don't know where you should go, how to get help, we'll walk you through that entire process. You probably won't need to use this, but it's one of those things like insurance, it's really good to know that it's there and very reassuring. As part of this, we're even launching a pandemic response feature. So if there were a new outbreak and you needed to get home, you needed to get in touch with your embassy, we could do it all for you. We were actually building this before COVID hit. So we would have looked like geniuses if this was out 3 months ago. Unfortunately, it wasn't. But we're still very happy to have something that is so well positioned to this world. Now it is attuned to this type of risk because we are literally offering pandemic response in the app. So this is really, really good timing for some of these features. So Family Safety Assist is extremely comprehensive. And what we're going to be doing to our users is educating them over time and all the things the Family Safety Assist agents can do for you. I won't go into all of them now, but the screen shots in the background are sections in the app where we explain how the assistant can help you. But there are so many and the idea that this can be that platform where we can start advertising one-touch help wherever, whenever, 24/7, you need it, we're there for you. Another feature I want to double-click on is Identity Theft Protection. So Life360 had been very much about physical safety, driver safety, but now we're moving into digital safety. So Identity Theft is a pretty established industry in the U.S. There are multiple multibillion-dollar companies. It's a very common service and people are very aware of these types of problems. It's something like a 100 million kids have had their identity breached. And so it's a real issue. So now when you remember, once you're signed up, you're not just signing up you, you're signing up for your whole family. Your credit is monitored, we monitor your information for breaches, if your password has been stolen, your account has hacked, we're going to get you there. If there is a breach, you need help, we have on-call agents to help you restore your information, shepherd you through that process. If you need legal escalation, our team can do that. And if you suffer an out-of-pocket loss, you're now covered up to a $1 million of financial coverage to completely make you home. So once you're a member, you just don't have to worry about this. We're not only protecting you. If something does go wrong, we have your back. And this is an example of -- this is not a new product. There are a number of players out there that do this. What we're doing that's different is putting this in a much more holistic bundle, we're covering the entire family, and our pricing is 90% less than everybody else in the market. So there are a number of other product features in the membership. I'm not going to go over all of them, but I want to quickly hit on another goal of what we're trying to do by being a membership and not a subscription, and that's offering other perks and benefits that make you feel like you're getting additional reason to belong. So it feels like more you're part of a club than just buying something. So an early example of what we're doing here is offering perks to our customers where they get amazing deals on relevant family or safety products. And we send our BD team out to go talk to companies, tell them there's this access to millions of families. And what we tell them is you give us an amazing deal for our members. We're not going to make any money off this. We're going to put you in front of all our users, so you can actually get them as a customer for yourself over time. And our users get these amazing deals, they can't get anywhere else. And these aren't like fake deals where you get the 5% off coupon on a banner ad or a newspaper, whatever, these are real perks that you can't get anywhere else. And the goal of this is to build this out to be so robust that if you were to take advantage of the perks that we offer, it would completely cover the cost of the membership fee that you're paying us. So that summarizes roughly the high level of the membership itself. But another very important point to emphasize that what we're doing is not just a product, but it's also the scaffolding and the marketing and the onboarding and how we educate our users, both new and prospective customers about what we're doing and how we're more than an app. So just as a few examples of this. We've completely updated our website. So if you come the life360.com anymore, the app is not the only thing you see. In fact, it's almost secondary to the member offering. So now it will be so much easier for people to see why we're not just a digital service, but this holistic membership that you want to be a part of. We've also built out a life cycle marketing team that really didn't exist a year ago, but now we have a whole group of people figuring out how, in the app and outside of the app, do we explain the benefits of the membership, give promotions to our customers, explain what's changed, find different points in time to highlight different benefits that they can get at different tiers of membership. And this is a whole team in and of itself that didn't previously exist, which we think is going to dramatically help us with conversion. We've also built out the premium experience in the app. If you were to look at our app before the membership launched, our premium page was pretty -- I wouldn't say weak, but mundane in a sense that it was just a couple of checklist of, hey, here are the 3 or 4 features you get. But now we really make it so you can explore and understand and learn. And so this is an example of just some of the cards you see on the premiums' pages, you can click in, it gives you all this information. And it's just a much better user experience that we think will also help people feel like they're buying into something bigger and not just paying for an app. And then lastly, we're also revamping our public presence beyond the website. So our ads, our social channels, how we talk to our customers, how we talk to the world that has also completely been revamped, and we're rolling this all out now as part of this launch. I want to shift gears a little bit and talk about how our pricing and packaging and some of the economics that we're going towards with this new launch. So we're following what's called a good, better, best model and we went through a 3-month study with an outside pricing and packaging firm called Simon-Kucher & Partners where we did thousands of interviews, a ton of research, conjoint analysis, analysis of each feature and we used them to decide what should the right price points be? What is the different elasticity around different features? And what are so-called bundle magnets and bundled killers? So the idea was, say, a bundled killer is, what are some things that people might already be paying for now that they're not ready to convert to a whole new provider, let's give them a lightweight entry point where they can just start a paying relationship with us now and then we can convert them over time. On the flip side, we find these magnets where what are the things that for power users, we can really increase pricing power by giving them the best of the best. So I can't communicate all of that in a short presentation like we have today, but I'll just give you one example for the logic buying some of this. So we've had roadside assistance for the last couple of years now. We've now tiered it out. So from our research, we found some users already had an existing roadside assistance provider. So a lot of people in the U.S., for example, have AAA, such as people in Australia have NRMA. So the idea is we could convert them to silver, build that trust and then get them to convert to higher pricing over time. We also heard from users and in the research that they weren't -- some users hadn't been converting because we weren't giving enough tow coverage. We only offer 5 miles of free towing, but AAA had a 50-mile option. We now in platinum, have that 50-mile option. We know most users won't need it, but some users, they want the best of the best. And the fact that we weren't charging a higher -- and we didn't have a higher marquee premium program, they weren't even converting to begin with. It's kind of like, I just bought a new SUV for my wife last year and she really wanted the 4-wheel drive option, even though we never leave the freeway. Yes, we still paid for it, and she was happy. I was happy. Same idea with this. People might not use that 50 miles of free towing, but now we have a way for people to pay us more money if they want that top-tier of service. So when we think about how this all comes together, we're highly confident that this is going to both increase conversion and increase the average revenue per paying circle because we are much more scientific about how we price and package the service. Another big component of the membership launch is also expanding our reach as a company. And if you look at what the product started as, it was very, very focused on families with teens and then to a lesser extent, families with kids in college. And it's not that you couldn't use the app if you were not in that age category. In fact, we have quite a few users who use it with their aging parents or spouse to spouse. But if you look at the prior premium features, the emotional resonance was really when you had teams who are starting to drive themselves or be passengers with other teams. And once they did hit that independence or finished college or towards the end of it and weren't driving as much, we were losing a bit of connection to our users, and that was a moment where some people can churn. With membership now though, we've dramatically expanded that life cycle and we're relevant for older families as well. So going all the way up to like empty nesters, aging parents, if you look at Identity Theft Protection, as an example, it's most relevant for your kids when they're establishing their own identities, gaining financial independence, having their own websites and accounts, and it's very relevant all the way up to old age. Our SOS feature, which I already mentioned, great in college, great for young adults living in the city. And we're already hearing from our users that they love that their aging parents now have the SOS feature because this can replace some of the iPhone, and I-can't-get-up alarm-type services, which are on the market today. So we now do have a product that we believe will catch people at points where they had previously churn and really expand that life cycle. As much as we're going up in age, we also now have more relevance for our users who had younger kids. So for those of you who have young kids or had young kids and can think back a few years, when you have that younger family, so much of what you're feeling is that chaos and never having that extra set of hands. So and the anxiety of having these new lives you're taking care of. So with Family Safety Assist, the fact that if there's a disaster, you need medical help or you're traveling, you have that one touch for any sort of help you need. Gives a lot of relevance for people who might have just been using the free products to now pay us and give us ways of engaging them with a premium offering over time. And the idea behind membership is that this is the beginning and not the end. The fact that we have these 3 tiers, the fact that we have the life cycle marketing team that is very good at now being able to segment by age, being able to give people customized marketing messages by where they are in life. As we launch new features and offerings, they can naturally slide into this new member program. So the membership features that we have today, it's the beginning, not the end. And 1, 2, 3 years from now, this will only get more robust and we'll have more and more focus on these different age segments, which is why I say so much of this is very much a beginning and not an end. So that covers the overview of the membership offering. I want to very quickly brag about the team's execution. With COVID, it was obviously a very disruptive time. We moved to a 100% remote working. All our presentations and meetings are on Zoom just like we're doing now. And in Q4, before we knew that any of this was going to hit. We made some very bold statements we would absolutely have this hitting production users by the end of H1. And we thought that with COVID, it might delay us a month, but I'm happy to say that we didn't even need that extra time. We hit production on June 30, and we were planning on possibly having a 1-month rollout to a 100% of production users in the U.S. accessing this. We were early. We launched that on July 12, and the team really came through and they've been executing and performing extremely well. And if you're superstitious at all, July 12 was my birthday. So it was an extra special day for me, and I think a good omen for things to come on this launch. And so to summarize, membership is the next big driver for our business. It hits all of the key levers that are going to help us reach that next stage of growth. So we have this now much broader feature set beyond location that's relevant to all life stages that will increase our brand reach, increase our TAM. Because we have this much broader offering, more services, great pricing, more opportunities to convert, we believe that will increase premium conversion. And hopefully, we'll have some signs of that very soon. The new tiered offering, higher pricing and segmentation will support much higher pricing. And if there's one number, and I've said this multiple times, and I'll say it again, my good name is on the line that average revenue per paying circle will go up. This is an easy layup for us. Revenue is going to be going up on a per-saying circle basis because this is just so much better pricing and packaging. And then lastly, because we have this longer relevant life cycle and higher value, we believe, over the coming months and years, we will be able to show very meaningful decreases in churn. Given that we now are very much cradle to grave app. So net-net, higher lifetime value from our customers, more revenue coming in, more money that we can invest in growth and a much bigger brand and opportunities to go after. So with that, thank you very much, and I'll open it up to Q&A.

Thanks, Chris. [Operator Instructions] Let's start with Quinn Pierson.

Chris, you hear me okay?

I do Quinn. Go for it.

Great. And thanks for the update today. Maybe firstly, so the new plan structure was fully rolled out by the 12, it started earlier kind of the beginning of the month. Can you just talk us through an early indication on where your new sign-ups have been falling in terms of which of the planned buckets they've been falling and what that distribution looks like?

Numbers are very preliminary, and I can't share those until our upcoming release, but I can say we're very pleased with early results and are excited about the early signals.

Well, could you at least maybe remind us kind of on where -- kind of where you think that distribution should be falling based on your market studies? And I guess, if there's any kind of deviation to where you thought versus those previous studies?

Sure. We're only a week into it. But from our studies, the majority of customers were expected to go to gold, with a smaller numbers going to platinum and silver, our expectation that I think we'd previously disclosed is probably in the lines of 20% silver, 70% gold and sub-10% platinum. And we are tracking very nicely to that. And again, we'll have much more full results shortly. But so far, very, very good and we're excited about the early signals.

And again, cognizant, it's early days, but is there any kind of indication in terms of percentage of paying versus nonpaying from those new sign ups? Are you seeing a higher prevalence towards paying sign ups?

Still very early there. And you always get that immediate kind of launch bump. So for us to -- I'm very careful to only say things when I can fully back them up, and I want to let that bake for a while. But again, the early indicators are that this is doing what we expected, and it's a great launch for the year.

Great. And I guess, secondly, could you, I guess, talk us through how you're handling the costs associated with some of the premium offerings, particularly the high-touch ones and in particular, the kind of insurance covering products. I guess the sub-questions there would be, firstly, how do we think about the gross profit dollars across the 3 plans? And then secondly, I guess, how you're just managing kind of the risk events of $1 million type potential payout?

Sure. So we already have great baselines from our Crash Detection service around how to run a call center, how to do all that. And the good news is most of this is emergency stuff, they're not going to use it that much. It's kind of like having a seat belt or an airbag. I've driven for decades, and I've never used those safety features. I'm very happy I haven't, but I'm happy I've had them. So that is a bit of the beauty of security-type products is that there's known actuarial use of these things. And because there were market comps, we were able to do some pretty good modeling and combine that with our own data to make us comfortable. On some things, like the Identity Theft product, we actually pay a third-party to cover that completely. So the costs there are fixed for us. So there's no risk of million-dollar claims bankrupting us, and there's also a long track record of other companies in this space, offering the similar guarantees, and it's a very high-margin product. So clearly, we are giving a lot more now, but margins will still remain high. If you strip out payment processing, which is our biggest COGS line item, I guess, we officially report that with the biggest cost in terms of where revenue is taken. Outside of that, we still are anticipating 90-plus percent margins.

Yes. And is there much of a gross profit dollar difference across the 3 plans? Or is the actual dollars to -- I mean, is the premium still going to be meaningfully higher gross profit dollar product?

On a per dollar basis, it's -- yes, as it goes up. Platinum is by far the highest on a gross percentage, although -- dollar basis, although percentage costs are a little bit higher.

That's great. And then just lastly for me. I'm not sure if Ariana's here to maybe handle this one or for you as well. Just in terms of kind of the tax spend and the marketing spend off the back of that, right? You have some exciting new products, a new pricing structure, which certainly makes a lot of sense in terms of bundle magnets and removing, I guess, bundled killers. I guess if you could just talk us through kind of where we are in terms of marketing and the spend around that and then the deployment of that? Is it mostly social media? The video at the beginning of the presentation, is that going on television? Just kind of any thoughts in terms of how to get the message out to help drive subscriptions would be helpful.

Why don't I take just the macro in terms of the environment and the I'll let Ariana jump into specifics. So the macro, which is bigger the membership, is that we're still very much in a COVID world. Even though we have the most exceptional leadership in the world here in the U.S., not my sarcasm there. Our numbers are, with COVID, pretty unfortunate. So it's still in a time where there's a lot of just dislocation around consumer behavior. And one thing we had committed to from a market standpoint was to be very disciplined with cash spend, while we are in this period of unknown, so we're being very -- I wouldn't say cautious. I'd say we're being very disciplined about how we turn back on spend as the world goes back to normal and as areas that have lockdowns go away from lockdowns, and behavior changes. We're adjusting as we see fit, but we still have a conservative stance around going slowly turning on paid spend versus just going back to new baselines. But we are obviously planning on hyping this up big time, and I'll let Ariana talk a little bit about what's in the works once we're back to that more normal posture.

Hi, Quinn. Yes, that's right. Just echoing what Chris said. One of our main strategies is to ensure that we are addressing our existing users and ensuring that they are fully educated and working to convert them to one of these plans. So that is really primarily where our efforts are today. As we expand throughout the year, we are continuing to test new channels and finding what's the right messaging to be able to really amplify the overall membership message in a variety of channels. And TV is absolutely something that we're exploring as a way to create a broader reach around the membership message.

Next up, we have Laf. Laf, please let us know your last name and which company you're calling from?

It's Lafitani Sotiriou from Bell Potter, Laf for short. Can you hear me?

Loud and clear.

Yes.

Great. So great presentation so far and set a question. I've just got a couple more, if I may. I just wanted to dive first into the SOS feature. Can you explain exactly what your role in the overall process is, and that is, do you have any private security guys that you guys are hiring? Or is it just dispatching police? And what other sort of role do you play?

No security guards. It's purely dispatch and assistance. So if that SOS alarm goes up, we stay on the phone with you. We offer help. We call the police if you need it, and we will also then help you get in contact with other family members. But the good news is we don't have to build our own infrastructure is that example of with offer you can build on top of what already exists.

Understand, I understand. And so then that's one component. And then the Family Safety Assist is really a whole new area. That's where you've got the live nurse travel insurance and help type things in a separate bucket.

Yes. Exactly.

And so can you go into a little bit more into -- now that you've made this launch? What's on the road map in terms of new technology priorities and future priorities. In the past, you mentioned things like wearables, is there integrations potentially on that front? And what else is on the horizon?

So the long-term horizon is really unchanged. Over the early days, as I mentioned on this, and we are going to be, over time, adding new features and functionality. We are going to follow-up with a free version of our Identity Theft Protection product, which is not out yet. That's a Phase 2 of the membership. We're going to -- we're continuing to focus on lead gen. And there's a lot of stuff, we will talk about at some of our upcoming release on how do we adapt to this post-COVID world? Because a lot of -- the biggest change from COVID for us, and I don't want to go too deep here because we're going to be covering it at our H1 results, but the adoption of digital communication has jumped forward by multiple years in a few months. So one of the big things that we long new we would do eventually is move from solving the question of where are you to how are you? So seeing how families and parents, kids included are using services like Zoom right now, house party, clubhouse in the trendy side in the VC part of the world. It says, okay, now is the time to really lean in to build out some of the more communication-heavy aspects of the app. So that will be a strategy update to make sure we're staying ahead of some of these, I'd say, more macro and holistic changes in response to COVID.