Life360 - Q3 2024

Transcript

Raymond Jones (VP of Investor Relations)

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&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 listen mode only throughout. As a reminder, we will make 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 of our Form 10-Q filing with the SEC dated November 12, 2024.

These forward-looking statements are based on assumptions that we believe to be reasonable as of today's date, November 12, 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. 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 media release issued earlier today, which has been posted on the investor relations page of the company's website.

We have posted an updated investor presentation on the investor relations page, which includes additional complementary graphics and data. Please note that it has been provided as an additional reference and that we will not be using the presentation as an exhibit during today's call. We will begin with a business update by Co-founder and CEO Chris Hulls, and then CFO Russell Burke will provide detail on the Q3 financials. Chris will then provide some outlook comments, which will be followed by a Q&A session. We request that participants limit themselves to one question so that we can get through as many participants as possible. I would now like to turn the call over to Chris.

Chris Hulls (Co-founder and CEO)

Good afternoon to everyone joining from the U.S., and good morning to those tuning in from Australia. Thank you for being here for our third quarter results call. To start, a brief personal update. As many of you know, following our IPO, I took my first long break in 17 years with the company. I've returned fully recharged with renewed energy and excitement for the journey ahead, and I am more committed than ever to leading Life360 as we move toward our $1 billion revenue target, and ultimately scaling to multi-billion dollar growth in the years ahead. With that, let's turn to our most recent results. In Q3 2024, Life360 made tremendous progress delivering our best-ever back-to-school period and setting new records in both monthly active users and subscriber growth, all while advancing our platform strategy. These strong results reflect our focus on key growth priorities across the board.

To start, our member base grew significantly, expanding by 6.3 million new monthly active users this quarter to reach a total of 76.9 million, a 32% increase year-over-year and an acceleration over last quarter. This growth includes strong momentum in our paid offerings, with a quarterly net increase of 159,000 paying circles, an impressive improvement over the 132,000 net additions in Q2. This was driven by a new record for quarterly net adds in the U.S. at 111,000 net additions, a 64% increase year-over-year. International expansion also played a major role in these results, with international MAUs up 51% year-over-year and international paying circles increasing by 37%, even amid price adjustments for legacy subscribers outside our core triple-tier markets.

Average revenue per paying circle in international markets grew by 53%, supported by updating our legacy pricing strategy, which allows us to experiment faster with our new dual-tier approach. We are also excited about the next phase of our hardware strategy, which will continue to contribute to subscriber growth. This quarter, we launched our updated Tile device lineup, the first designed entirely in-house by Life360. This new lineup significantly differentiates us from competitors, featuring an SOS capability that turns every Tile into a safety device, a function unique to our platform and unavailable from other third parties across the Google and Apple networks. The launch garnered widespread press coverage, most of which highlighted their SOS feature. Initial results have been extremely positive, with direct-to-consumer sales more than doubling in the six weeks following the launch compared to the same period last year.

Tile is also proving to be a valuable customer acquisition tool for our subscription business. We have been seeing a consistent rise in the percentage of U.S. premium subscribers with an active linked Tile on their account, and we expect this to continue with a new product. However, while these results are surpassing our expectations, we did face logistical delays with the Tile launch, including certification, labeling, and supply chain challenges. These delays led to lower-than-expected device sales and margins in Q3, as we had periods when the full lineup was unavailable, impacting our ability to fully shift inventory to new products as planned. Fortunately, these issues have been resolved. Although the transition will take some time to flow through brick-and-mortar retail channels, we're optimistic about Black Friday as an opportunity to establish a new baseline for this improved lineup.

Now that the Tile rollout is complete, our team is focused on further developing our GPS lineup based on Jiobit technology. We plan to begin with a pet tracking device potentially in late 2025, followed by an elder care product anticipated in 2026. Since both products require subscription and target high-growth verticals, we are excited about the potential for this next generation of hardware to drive a new wave of subscription growth. In Q3, we made significant strides in advancing our advertising platform, which we are now testing globally. Our objective is to deliver contextually relevant ads that enhance the experience for our members, leveraging our proprietary first-party location data to offer advertisers unmatched precision and audience targeting. A key milestone this quarter was our partnership with Uber, which highlights the unique power of our data.

Through this collaboration, users arriving at an airport receive a targeted Uber ride offer, demonstrating the value of contextual relevance over traditional banner ads. Our Uber landing notifications outperform industry averages for banner ads, underscoring the potential of our approach. This early phase points to promising opportunities for future monetization by integrating signals from everyday activities, such as relocating to a new home, shopping at retail locations or quick-service restaurants, or life events like starting college. Realizing the full potential of this advertising vision will take time as we expand our back-end infrastructure and build out our sales platform, but the early results strengthen our confidence that advertising could eventually become a revenue stream on par with our subscription business. With a strong pipeline of partners seeking to tap into our unparalleled first-party location platform, we see immense potential to expand our market versus competitors.

Our data business, which had leveled off as we transitioned to aggregated data, returned to growth in Q3, boosted by our exclusive partnership with Placer.ai. We are confident about accelerating growth in 2025 and beyond as this collaboration deepens. Additionally, our newly formalized partnership with Hubble paves the way for a new enterprise revenue stream and significantly enhances the location capabilities of our hardware devices. Together, these strategic partnerships underscore the potential to expand both our data business and our technology offerings as we continue to drive growth for Life360. With that, I'll turn the call over to Russell to run through the financials.

Russell Burke (CFO)

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. Q3 revenue increased 18% year-on-year to $92.9 million. The strong operating metrics that Chris outlined earlier, in particular the record net paying circle additions in the quarter, drove an acceleration in our subscription revenue. Overall, subscription increased 27% year-on-year and accelerated from the prior quarter. Core Life360 subscription, which excludes hardware subscriptions, increased 34% year-on-year, driven by the 25% increase in global paying circles and 6% higher ARPPC. Hardware revenue declined 24% year-on-year to $11.7 million, largely due to the six-week delay in the launch of our new Tile products, which resulted in lower unit sales volumes.

The launch also involved increased discounting in retail channels to clear out existing inventory, along with mix shifts and additional certification, labeling, and shipping costs, all of which impacted hardware margins for the quarter. As a result, standalone units shipped declined nearly 24% year-over-year, and the average selling price decreased by 4%, resulting in lower margins in the quarter. As Chris mentioned earlier, the new Tile devices have been extremely well received, and early indicators suggest strong sales momentum. However, as is typical, the full impact will become clearer after the key U.S. Cyber 5 retail period. Other revenue in Q3 increased by 43% to $9.3 million due to the combination of increases in data and partnership revenue, which includes advertising revenue.

September annualized monthly revenue reached $336.2 million and increased 30% year-on-year, accelerating from 23% year-on-year growth in June, reflecting the strong performance of subscription and other recurring revenue. Q3 gross profit of $70 million increased 21% year-on-year, with gross margin slightly higher at 75% compared with 74% in the prior year due to the increase in subscription and other revenue, and while other revenue grew 18% and gross profit increased 21% year-on-year, Q3 operating expenses increased by 14%, excluding commissions, demonstrating our continued operating leverage. R&D costs increased 18% year-on-year, primarily driven by higher personnel-related costs, technology, and outside services spend. Sales and marketing costs increased 19% year-on-year, primarily due to higher commissions, which increased in line with the 20% increase in subscriptions.

Paid acquisition costs were lower year-on-year due to an intentional shift of allocation of spend to other marketing activity in creative and production, supporting the back-to-school campaigns in the U.S. and U.K. and the launch of the new Tile hardware product line. Total sales and marketing spend in Q3 was $6.4 million higher than in Q2, in line with our guidance. General and administrative expenses in Q3 increased by 8% year-on-year, primarily driven by higher company growth. We also recorded our first positive net income in Q3 of $7.7 million, which includes other income of $7.9 million and a benefit from income tax that was $4.6 million higher than in Q3 2023. Finally, we continue to make progress in expanding profitability. Adjusted EBITDA was positive for the eighth consecutive quarter, increasing to $9 million from $5.5 million in the prior year.

An EBITDA loss of $2.6 million decreased from $4.2 million in the prior year as a result of continued strong subscription revenue growth and improved operating leverage. The difference between adjusted EBITDA and EBITDA in the quarter consisted almost entirely of stock-based compensation expense. We are raising our outlook for both adjusted EBITDA and EBITDA for 2024. Our updated guidance for full-year EBITDA loss is negative $7 million to negative $10 million and includes the IPO transaction costs and incorporates an expectation of positive EBITDA contribution in Q4, reflecting our usual seasonal peak earnings. Further, we expect to be consistently EBITDA positive on a quarterly basis in 2025. Turning now to balance sheet and cash flow. Life360 ended Q3 with cash, cash equivalents, and restricted cash of $160.2 million, a slight decrease of $1.8 million from Q2 24. Operating cash flow was positive for the sixth consecutive quarter.

Q3 net cash provided by operating activities of $6.3 million was lower than Adjusted EBITDA of $9 million, primarily due to the seasonal build-up of inventory ahead of the Q4 holiday season and the timing of receipts and payables. Net cash used in investing activities of $1 million related to payments for internally developed software. Net cash used in financing activities of $7.2 million related primarily to taxes paid for the net settlement of RSUs. Cash paid on RSU settlements was higher due to our higher stock price and therefore higher fair market value at the time of the settlement of the RSUs, and we expect this higher cash outflow to continue to year-end. Thanks for your attention, and I'll hand back to Chris to discuss further details on our earnings guidance.

Chris Hulls (Co-founder and CEO)

We are updating our 2024 outlook, which includes raised guidance for Adjusted EBITDA and EBITDA that Russell mentioned. For 2024, we are now anticipating the following: consolidated revenue of $368 million-$374 million, revised from $370 million-$378 million to reflect lower hardware revenue. Core subscription revenue growth of 25% year-over-year. Positive Adjusted EBITDA of $39 million-$42 million, upgraded from $36 million-$41 million. EBITDA loss of $7 million-$10 million, which includes $5.8 million in IPO-related transaction costs, upgraded from $8 million-$13 million. And to have positive operating cash flow in Q4 and for year-end cash activities, year-end cash, cash equivalents, and restricted cash of $150 million-$160 million.

The forecast includes expected higher outflows from RSU settlements as a result of the higher stock price, the investment in Hubble, IPO proceeds and related transaction costs, and timing differences in Q4 working capital related to hardware inventory. The company continues to expect to be Adjusted EBITDA and EBITDA positive consistently on a quarterly basis in 2025. That concludes our prepared remarks, and I now turn the call over to RJ, who will manage the Q&A portion of our call today. Thank you.

Raymond Jones (VP of Investor Relations)

Thanks, Chris. As a reminder, to participate in the Q&A, please raise your hand by pressing the raise hand icon at the bottom of your screen within the Zoom app. You will need to unmute yourself to ask your question. So to start, I'd like to go to Chris Gawler with Goldman Sachs.

Chris Gawler (VP of Equity Research)

Good morning, Chris, Russell, and RJ. Can you hear me okay?

Chris Hulls (Co-founder and CEO)

Loud and clear.

Chris Gawler (VP of Equity Research)

Great. Thanks for the opportunity. First question from me, just in terms of the fourth quarter subscription outlook. Typically, the third quarter is quite strong with back-to-school, and then there's a little bit of a fourth quarter roll-off given that seasonality. Just interested if you could provide any commentary on how things are tracking so far this quarter and any impacts internationally of the rollout of dual-tier. Thanks.

Chris Hulls (Co-founder and CEO)

Sure. I'll take that qualitatively and let Russell get a little firmer in numbers where allowed to do so. Thematically, to your point, first off, record net adds, it's arguably our best back-to-school ever in our company's history and international is driving that growth, and we're seeing continued acceleration in our most penetrated regions. So we're extremely excited that the macro trends are holding, as I think many who have followed the story for a while have long heard me say a key indicator that I look for is not quarter-to-quarter noise per se, because it always shifts around a bit, but are we seeing these big trends continuing? Are we seeing the back-to-school bump? Are we seeing the ongoing acceleration in more highly penetrated regions? And now, in recent years, are we seeing that growth internationally? So all those things are looking good and continue to look good.

Could there be a pull-forward effect? There could be some, because that's often what has happened after big quarters. Part of why we're so excited about these numbers is that we didn't actually have that last time, because as you know, Q2 was also extremely good. So we're feeling like we're on track, still very early in the quarter. And then, of course, we're very interested to see as we integrate more hardware into the lineup with the new results, how much does that move things as well? Russell, can you add anything more on the quant side?

Russell Burke (CFO)

I guess I would just add two things, Chris. One, we do continue to see the overall sort of strength in subscription. So I think this year we've clearly accelerated subscription growth. So we are continuing to see that, albeit, as you pointed out, Chris, Q4 is typically a seasonal low for the year. So we fully expect that impact to happen. We also are seeing some impact from the fairly substantial price increases that we've put through internationally. Again, we're looking at pretty significant revenue uplifts from that, but it will have a slight impact on subscription growth internationally.

Chris Gawler (VP of Equity Research)

Cool. Thanks, Chris. Thanks, Russell.

Chris Hulls (Co-founder and CEO)

Yeah, we can probably look to some of the earlier international rollouts or even the price increases in the U.S. just as examples. When we did the U.S. price increases, I think we actually had a backwards quarter at one point or close to it, and Russell, keep me honest here. Of course, revenue went up, we go through that, and then it renormalized that growth trend.

Raymond Jones (VP of Investor Relations)

Great. Thanks, Chris. Next, I'd like to go to Mark Mahaney with Evercore.

Hey, guys. Can you hear me?

Chris Hulls (Co-founder and CEO)

Yes.

Yep. Hi, this is David on for Mark. I just wanted to ask if you're seeing any differences in the subscription attach rates to the new Tile hardware compared to the old one? And then just in terms of your advertising business, you signed Uber recently. Can you talk about which inning you're in so far in terms of building out advertising? Thank you.

In terms of the new Tile lineup, everyone is eligible now to get a Tile, link it. We test different promos. There's no exact measurement of how Tiles per se are driving subscription. It's just part and parcel. I'm extremely optimistic as we roll out new marketing, as we come to Black Friday, people are going to see the differentiation in Tile versus AirTags. I'd encourage everybody to just Google some of the press results that we've had. There's stuff like Tile giving AirTags a run for their money with the SOS feature. We only need a relatively small portion of people to have that awareness that we are differentiated in your daughter's going to school, college, and you want to have something that keeps her safe or even a gift of safety. It's very different. The real litmus test is coming up.

So I don't want to get ahead of ourselves, but I am genuinely excited, and some of the new ad content we have is amazing. We have some Monday Night Football slots, probably not relevant for Australian investors, but I'd say if you're a football fan, tune into some of what we've been doing. I also think the best creative ads we've had in the company's history coming out. One thing I can say, I don't have firm number to share, but the attach rate of premium accounts actually linking Tile is going up significantly. And a lot of that is because we are shifting people to the core Life360 app over time, and the SOS feature requires Life360. So as some might recall, we had low attach rates of linking Tile to Life360 in the beginning because there really wasn't a reason to do so.

But we have now, I'd say, transitioned at least half the functionality from the Tile app to the Life360 app, including our main new differentiated feature. And in terms of those linkage rates, that is up dramatically. I want to make sure these trends hold before I give definitive answers, but I hope in the next quarter they continue, and I can give a very firm update and say we have a whole quarter under our belt because it's very hard to determine what's just that sugar high from a new release. And thank goodness we have the sugar high. It bodes very well. But give us a quarter to let these things solidify.

Great. Thank you, Chris.

You're welcome.

Raymond Jones (VP of Investor Relations)

Great. Next, I'd like to go with Laf Sotiriou with MST.

Laf Sotiriou (Diversified Financial, Fintech, and Emerging Growth Analyst)

Thank you for the opportunity to ask a question. May I unpack the commentary around the pet and elderly packages? I think you discussed next year you're targeting launch of subscriptions around pets and FY26 for elderly senior packages. This is new information with some clearer timelines rather than it being in the future. It sounds like it's more certain. So can you just talk us through the thinking? Is this going to be an additional, say, a module or an extra $5, $10? Will it include things like pet insurance? How should we be thinking about it and the timing of those launches?

Chris Hulls (Co-founder and CEO)

Yeah. Let me back up a bit and give a bit of recap on the vision and just our move to hardware and the rationale behind it, especially for people who have not been following the story as long. So the vision of Life360 is not just people. It's pets. It's things. We have what we call a religious belief that anything you care about, you're going to know where it is. The idea that you could lose a pet or a car or a laptop, it's going to be downright archaic in the next few years, and those trends are accelerating. We bought Jiobit and Tile in late 2021. 2022 happened, and we obviously had to pull back quite a bit on some of those plans. It was very frustrating with that downturn. So we put Jiobit on ice to focus on Tile, get that integration done.

Over the last couple of years, the trends we wanted to see have been dramatically accelerated. Item tracking has been one of the biggest, fastest-growing categories, if not the fastest in the entire consumer electronics category. And we're also seeing pet tracking as a category grow, companies like Tractive or in the 100 million-plus revenue run rates growing very, very quickly. So we're getting good third-party validation that that overall bet was right. And now that we've done this new Tile lineup and these trends are very much holding, we are extremely excited to dust off the Jiobit technology that we own that still remains arguably the best in the market and come out with these new products. So our plan for pet tracking now, and this is a bit of a teaser. We're going to share full results. I've seen the prototype and all that. We're very excited.

We think we have the opportunity to have the lowest cost with the best battery life, and it's going to be bundled into Life360 subscription tiers. And that goes right to the very name Life360. The idea that we had Silver, Gold, Platinum versus very specific upgrade options was because if you can build a bundled offering, that's a huge differentiation over competitors. And we already own the customer. We have $0 CAC on an incremental user, whereas all our competitors are starting from scratch. And we can just redeploy that into our bundle. And our bundle costs more than a standalone subscription, but it just has such high value. So how that's going to manifest is more people signing up. There'll probably be pets in Gold and elder and Platinum, but don't hold us to that. I think we're going to increase conversion and, more importantly, increase retention.

Because anyone who has a dog, once you have one of these things on your dog, churn really goes down. And Jiobit was indirectly used as a pet tracker, and we see that data in ourselves. So I'm excited about that. And the eldercare space, it's something we've long, long talked about, but we were also aware that the market hadn't quite gotten there yet because we need the sandwich generation to get a little bit older and have aging parents themselves, so millennials in particular. To make that a little bit personal on a bit of a sad note for me, my mom is in the mid-stages of Alzheimer's. So it's a little bit of arguably fate that I really need this product myself. I think I'm a very, very good product guy. That was my job in Life360, first and foremost, even ahead of CEO.

So the fact that I can work on this product, this is going to be very relevant for me as the market matures. You're talking these are like billions of revenue in these eldercare products, and they're horrible. And I can say that both as a businessman running Life360 and someone shopping around for my own mother. So I am going to be the ultimate user of this product when it comes out. So we're just sharing that, that we do have this rollout. People have asked us about what we're doing with the Jiobit asset, the hardware plan. And the exciting thing about these, these are subscription businesses, period. We've been transitioning Tile as a giveaway to drive subscription, but this is actually driving subscription directly because these need services behind them. And the market has a very high anchor price in them already for inferior products.

We wanted to share that because we knew people were asking about it, but also with a lot of excitement that we successfully did do this Tile lineup refresh, and the team has already moved their attention to the pet product for next year.

Laf Sotiriou (Diversified Financial, Fintech, and Emerging Growth Analyst)

Got it. Thank you.

Chris Hulls (Co-founder and CEO)

You're welcome.

Raymond Jones (VP of Investor Relations)

Thank you. Next, we'd like to go to Maria Ripps with Canaccord Genuity.

Maria Ripps (Managing Director and Senior Research Analyst)

Great. Thanks so much for taking my question. Just following up on advertising, do you have any insights into maybe any commitments or positive indications from advertisers for 2025? And then any thoughts more broadly that you maybe can share on sort of expected ad revenue growth next year compared to the $5 million-$10 million range this year? And then is that still a good range for us to keep in mind for 2024?

Chris Hulls (Co-founder and CEO)

Let me take that from the qualitative standpoint, and as I usually do, I'll hand it to Russell for the numbers. That also made me realize I did not answer the second half of last question, so I'm going to tie both of those together. So everything's largely on track and expanding. We're exactly in the zone for this year, and advertising is going to start blurring more and more with our data line because advertising and data, in many ways, is part and parcel of the same thing because it's not all just things for customers to click on. It's how we do better matching and audiences, which is really a broader data product. And we also have a very large pipeline of interested parties. It has not been a difficult sell whatsoever.

It's really now we have to build some of the infrastructure, and we have to find ways of surfacing it to customers. We hired Brian McDevitt a few months ago. He has huge experience doing this at Google. So stuff has to get built, but I would say exactly on track and maybe even more demand than expected in terms of third parties being very excited. And then to the last question on just where are we in terms of what we're doing on the Uber side, we're well past banners with it. It's our first contextual push. So you land in the airport, and you get this push that, "Welcome to SFO. Book an Uber." I don't have hard numbers I can share, but it's an order of magnitude better than banners, even more than that significantly, and it's done in a way that doesn't feel like an ad.

The results are beating expectations. It's a relatively low impression lineup because people open the app 20 times a day, but they're only flying a few times a year. What it really, really, really validated was we can identify these triggers in real time, pass them to an advertiser, bring something back to our customers that they're excited about and actually use, and have results that dramatically outperform the generic banners. That is the benefit we have of our first-party location data that can be accessed in real time. Call that inning three. You're putting me on the spot with exactly what inning, but it's still very early in the sense that we need to build a platform. We can't be bespoke on everything. We need to have it international. We need to have full end-to-end pipes.

That's going to be a while, but feeling very good. We are looking and talking to other partners right now. We're doing a lot. We're going to have to get very technical to explain it, but feeling solid and overall on track. Russell, do you want to answer the second half of the question?

Russell Burke (CFO)

Yeah. Maria, what I would say, and just sort of layering on what Chris said, is that we're really largely moving along as we expected. We're still very early days in building advertising where we are doing well at sort of putting in the tech stacks where we started to recruit sales staff. As you know, we appointed a VP in that area last quarter. And what we're seeing is a lot of confirmation that the quality of the audience is very high and will be very appealing for advertisers. That said, we always knew that this was going to be a process to build, and it's ramping up in largely the way we expect. And we've included some additional case studies in the investor presentation that RJ referenced earlier that'll be available on our website.

We are aiming towards the top end of that, but what it clearly shows is that this is an area that takes some time to build up.

Maria Ripps (Managing Director and Senior Research Analyst)

Great. That's very helpful. Thank you both.

Chris Hulls (Co-founder and CEO)

You're welcome.

Raymond Jones (VP of Investor Relations)

Great. Next, we'd like to go to James Bales with Morgan Stanley.

James Bales (Equities Research Analyst)

Hi guys. Thanks for taking my question. I guess my question's about the core, which was, in my view, the real strength of this result. So maybe you can just help us understand what's changed to accelerate the MAU adds between, say, retention and gross adds, and how should we think about the sustainability of those trends? And then Chris, a couple of years ago, you were talking about the ability to drive penetration of paid up towards the rates of peers like Spotify. Has advertising changed that equation, and what's your latest thinking there?

Chris Hulls (Co-founder and CEO)

Sure. So I'll start with what's driving things, and I'd say, in general, it's just across the board, the market getting better while we're executing and making the product better, and that might sound like a non-answer, but it really is the truth. Organics doing extremely well is evidenced by back-to-school. International is doing really well, which is another driver of growth. We now are showing those penetration stats, and it's very relieving for me to see that we've said, "Hey, it seems like something magic happens around 2% penetration in a region." That is replicating internationally. It's great to see that even in the U.S., where we have huge penetration, that is continuing. On the non-organic side, Mike, our new CMO, man, I really hope everyone watches some of the commercials that we've just launched.

Russell, maybe we can get it out there, but we got huge recognition in Ad Age. We had the best creative, I think, of the week of all new ads in the world, literally. We have some big product improvements coming up. We're optimizing growth flows. The new Tile lineup, I think, is meaningfully modernizing that part of the business. Apple still seems to actually be helping us versus hurting us because in overseas regions in particular, there is no cross-platform Find My. So it really is a lot of it just good execution, good vision. We're hiring amazing people, and that is because we're doing well. The market is not what it was a couple of years ago. It's the companies with real results that have this better access to talent.

Our Nasdaq listing has really helped because it was always a bit of a weird explanation to tell new hires they were an Australian company when they were based in San Francisco, so again, it really has just been good across the board. In terms of sustainability, I like to be intellectually honest, and I more try to say, "What are the leading indicators that I am watching?" As a founder, I truly believe that location is going to be in everything, and there's a $100 billion opportunity here, and it's ours to lose, and that's why I want to continue to make sure we're not just getting into harvest mode, which we could do. We want to lean in on growth.

We still are committed to profitability, but it really is as this becomes one of these main mobile use cases, which I think at this point it truly is, how do we capitalize on that? So international could add more users in the U.S. It probably should over time. So that gives me a lot of confidence. I already said this on some previous questions, but I will repeat it again because it just goes to the question on sustainability. Back-to-school is our best one ever. If it weren't, that would probably be like, "Okay, what happened there?" And if we had a few back-to-schools in a row, I'd say we probably are hitting some saturation point, but that hasn't yet happened.

That international tipping effect, I think we have that slide in the support materials we can see Canada, where we always got a lot of questions on earnings. Like, "Why isn't Canada growing like the U.S.?" We never really knew. Our thesis was that there was a tipping point, and something seems to have tipped. So all those things give me a lot of confidence. And to me, it's really about outrunning the competition, staying nimble, and not getting overly greedy around just dropping cash to the bottom line when there is still much growth potential. That's why we want to launch fast international, keep pushing. And again, you now know the leading indicators that I will be looking at. My aggressive founder side says it's massively sustainable, but let's look at the hard data to inform us.

Then in terms of paid conversion, as MAU grows, it temporarily brings down paid because people earlier in the life cycle haven't converted yet. But we feel good about that. And I am very excited to see once the new Tile lineup's fully out how much that drives things. And to the earlier comment on pets and eldercare, that is directly going to drive subscription conversion. And so that will be our first new vertical plan. So if we see a lot of people signing up for the pet product, that could be incremental conversions to Gold because right now the people are paying us often families with teens. This is going to open up a whole new set of customers who might not have kids in the age range where they normally pay.

Now, that's going to be very late 2025, and we're trying to not commit to a firm date there, but I think that will be the next real test, and okay, we launch a brand new vertical, similar to how driving was our big vertical that drove so much success. Can we hit another one at that scale? I don't think advertising really impacts that one way or another, and I don't know if this is what you're getting at the question. Sometimes people use advertising as a bit of a cudgel to get people to upgrade by degrading the experience, but to the point on where we are in that growth curve, we are not in harvest mode. We're in growth mode so we think it would be penny-wise, pound-foolish to try to degrade the experience to get people to upgrade while we are growing so quickly.

I'm not a purist in the strictest sense. At some point when we do level out, we probably will get more aggressive. But right now is not the time for that.

James Bales (Equities Research Analyst)

All right. Thank you.

Chris Hulls (Co-founder and CEO)

You're welcome.

Raymond Jones (VP of Investor Relations)

Great. Next, we'd like to go to Chris Kuntarich with UBS.

Chris Kuntarich (Internet Equity Research)

Great. Thanks for taking the question. I wanted to touch on the advertising opportunity. If I'm looking at the right slide, slide 29 in your advertising deck, you're now including Pinterest and Snap in the ad RPU. And I think you're showing in your chart here, it's kind of the ad RPU more in the $6-$7 neighborhood. You were previously kind of talking about Uber as the high watermark, or at least as far as what you were comfortable thinking about as the opportunity set. Has the high end of that opportunity set moved higher? And you also have a chart here just looking at that ad RPU ramp here. Should we also be thinking about the longer-term opportunity or the ramp tying more to those social companies of Pinterest and Snap versus what the other companies that you're showing here? Thanks.

Chris Hulls (Co-founder and CEO)

Russell, do you want to take that one?

Russell Burke (CFO)

Sure. Chris, I think the slide in the investor presentation is more illustrative of anything in terms of just what some of these companies have done. Each of these are slightly different. What I would say is that we are incredibly excited about the opportunity because of the quality of the audience and the sort of initial reaction that we're getting from advertisers, from agencies that are really excited about the ability to speak directly in a contextual way to the audience. So it will take some time to sort of realize exactly where we're going. But yes, we definitely see the opportunity in the longer term is in the higher end of that range.

Chris Kuntarich (Internet Equity Research)

Got it. Thank you. And maybe just one follow-up. You had mentioned the TV campaigns earlier and the creative there. Just any color you can share about the benefit that you're seeing from those TV campaigns in the US. And could you just remind us about timing there, when that started and whether this continues into 2024 and into 2025? Thanks.

Chris Hulls (Co-founder and CEO)

Sure, so it's still too early to see the hard results, but just the reaction around how positive it is and people understanding more about that bigger vision, and we have been transitioning to performance ads online, which actually undercut the vision because what performs through just standard Google UAC placements is like track your family, which is very narrow, but now we're being able to do things on streaming where we actually can measure their performance as telling that bigger story, and we are showing once just a very funny and somewhat off-color ad about someone using an SOS button on Tile through Life360, so that platform and ecosystem play is really coming through, and to me, it is very hard to quantify, but I'm just so excited and proud of the team, how much we've really stepped up and leaned into danger a bit.

It reminds me of when we had our extremely successful guerrilla work on TikTok, but now we're going mainstream on regular TV. A lot of that is ramping up now, and that is why I am looking to Black Friday and the holiday season because it is really a rebaselining. I am genuinely optimistic. That is completely real. DTC has essentially doubled since we've launched that, but I want to see, is this more than a sugar high? Is this sustainable? Does this get that next wave of growth, so I can't say that definitively yet. I can say I'm very excited about it, and that's why I'm encouraging everyone to look themselves because I'm extremely just proud of the work the team had done.

Chris Kuntarich (Internet Equity Research)

Okay. Thank you.

Raymond Jones (VP of Investor Relations)

Thanks, Chris. Next, going to Chris Savage with Bell Potter.

Chris Savage (Head of Research)

So many Chrises. My one question is, can you provide any detail or color on when and where we may see the next tiered membership launch?

Chris Hulls (Co-founder and CEO)

We are doing ongoing international launch work. It would be going too deep for this call to go into specifics, but we're now doing a lighter-weight approach to new regions. We're calling it dual-tier, where we're just able to prop up the services a little bit faster, and we're using that to inform the approach, and as we've shared with international, we've always been, because this is more mechanical versus strategic vision, we go more on the fly with that. And David Rice, who's been with us a very long time, has done a great job of looking at the data, adjusting the signals, figuring out how to have the highest leverage and move, so we are not following a very big kind of lightning strike approach.

That is what we did when we launched in the U.K. because that was the test platform for the full new triple-tier launch and turnkey system to launch quickly. So it's really going on a quarter-by-quarter basis now. But expect to see more in Europe over the next year for sure.

Russell Burke (CFO)

And Chris, just to add to that, the triple-tier territories that are already in place are performing very well, including Canada, which has really started to accelerate once we got past that tipping point. With the dual-tier strategy, it's to some extent sort of inserting a middle ground where we've been able to deliver sort of two tiers of digital products on a sort of global basis outside of the triple-tier territories. And as Chris mentioned, that will really help us inform the next stage for triple-tier.

Chris Savage (Head of Research)

Great. Thank you.

Raymond Jones (VP of Investor Relations)

Great. Next, we'd like to invite Rob Sanderson from Loop Capital Markets.

Rob Sanderson (Managing Director and Senior Internet Analyst)

Okay. I'm muted. Thank you. Thanks for the opportunity. I guess I wanted to dig deeper on advertising like everybody else. But you're obviously just getting started here, starting to take shape nicely with partners like Uber and some good sort of reference and examples that we can, I guess, conceptualize the power of location. But would you say the next step for you, call this through the end of 2025, is this more about product development, ad formats, ad tech, or do you think you have enough of this work done now where the next step is more go-to-market motions, bringing on the next Ubers and getting more third-party demand flowing through and things like that? So how should we think about kind of the next step of this crawl before you walk, before you run on ads?

Chris Hulls (Co-founder and CEO)

So it's both. We are definitely getting real revenue now. There are multiple chess pieces to push down the board. A lot of what we're going to be doing next is around the profiling of our customers to make them readily accessible. I am new to advertising myself. We might want to actually do a breakout with Brian, who really is an expert here. I'm a product leader much more than an ad tech leader. But we will have some stuff to announce in terms of how do you target certain audiences on Life360, how do we build unique profiles using real and synthetic data. A lot of what we could be doing is actually making money without even serving an ad.

We could open this up for other people because we do have industry-leading opt-in rates to IDFA tracking, which is the ability to track people using the ID for advertisers on iPhone and Google. So there's a lot there. And I think any answer I give you would not be giving it full justice. But when I have looked at the roadmaps and talked to the team and just looking at comps, this is usually something that takes a while to build. And some of the intent of adding some of those comps in our support materials was to show that the ramp-up can take a while. So we are trying to be conservative in terms of forecasts. One thing we've shared with advertising is that unlike launching a new vertical or customer-facing features, we have committed to making advertising self-funding immediately.

So it's not a situation where we go dark for a year and burn the money and kind of second-year launch it, make money the third year. We have told the team contribution margin positive day one. So it does mean we have to necessarily go a little bit slower because we're not putting huge dollars into forward investment. So I think it's going to be a multi-year ramp before we see kind of rivaling our subscription revenue. As I mentioned, we are going to see the lines blurring between our data revenue and our ad revenue. And one of the things we long talked about, which took us a lot longer than we wanted, but I think you'll see resurface as part of this is insurance-based advertising using actual data and risk profiles of our customers. So I think next year you will see that ramp happening.

And I hope we will talk with a more precision on what the out years of the data ad business looks like. And hopefully, we'll have a time where we can introduce you to Brian, who can answer questions in a lot more detail, and just a lot more roadmap with some certainty around it because we'll have had a lot more experience under our belt.

Rob Sanderson (Managing Director and Senior Internet Analyst)

Thank you, Chris.

Chris Hulls (Co-founder and CEO)

You're welcome.

Raymond Jones (VP of Investor Relations)

All right. Next, we'd like to go to Wei Sim with Jefferies.

Wei Sim (Senior Analyst)

Thanks, RJ. Thanks, Chris and Russ for taking my question. I also wanted to say I've watched the Crack the Code ad. I think it's really cool. Had some good conversations with investors about it. So good work on putting some of these ads out there. They're very creative. I wanted to ask on just the ad rollout at this point in time. You mentioned before that now we're doing some of the rollouts in the international area. I was just hoping you could flesh out on that. And then also just in terms of the ad strategy, for example, with the Uber partnership right now, is that being done on paid users as well as free users? And how we think about ads? You mentioned before, Chris, that we're not looking at detracting from the experience.

Russell Burke (CFO)

And I think in many cases, ads, as you've proven, can be additive. So how do we think about the monetization of users with ads for paid versus non-paid? Thanks.

Chris Hulls (Co-founder and CEO)

Sure. So first, in terms of international ads, we are testing in other regions now. It is still more with the dull and uninspiring banners, which is how we get our feet wet and learn and explore. Russell can comment if there's anything specific we can share there in terms of countries or numbers. To the question of how we think about paid customers, in some respects, you answered your own question that, yes, ads can be additive. And the Uber one in particular, I got the push. And it was actually easier for me to click on the Life360 push to get my Uber there because it notified me right when I landed, and I clicked it, and I got my Uber. Of course, I'm biased because I was very curious to test it out after a flight. But it was that one tap. I got an Uber.

I was already linked and done. And if I didn't have the Uber app, it would have got me to download and either create an account or re-log in. To answer, though, what about paid? How do we think about that? Well, for premium customers, we'll just make it a choice. We know most people don't go into settings. And some people are part of a very vocal minority. So if you're a paid customer, we'll probably at some point just make some sort of setting for you to turn this thing off. I am guessing, though, that the Uber thing would not even look like an ad to someone. And I am not aware of any pushback at all. I don't read all our customer support.

But when I get our weekly updates on trends, I have seen our customer support team has not brought up a single kind of like, "Hey, people are complaining about this." We've actually only heard good things. I also think in our long-term vision around membership, what I'm very excited about is deals and discounts and offers where we might make money on them, we might not. But imagine that we go to a huge company that's looking to access our audience. We can give an amazing deal to paid customers and an okay deal to free ones. And it could actually be an upgrade draw to say, "You're going to get these amazing offers." So I think there is a world where it's like, "Hey, Disney or Applebee's or whatever business, give something to our customers.

Give a great deal to our Platinum and Gold customers and something okay to everyone else," and you're not going to reach the single largest source of family users in the country outside of Facebook at this point, so we have a very compelling platform that I think once we dial it in, there's so much we can do, but to be very clear, if you're paid, we'll just make a setting. You can turn it off if you want.

Wei Sim (Senior Analyst)

Okay. Perfect. Russ, I'm not sure if there's anything that you wanted to add on or any disclosure that you could put on countries and rollout of the international.

Russell Burke (CFO)

Yeah. No, Wei, in terms of international, it's still very early days where it's sort of experimenting, testing in a couple of markets, but very early days. What we want to do is gather data, gather information so that when we're ready with the whole infrastructure and the ad tech side, that we can move fairly quickly on that.

Wei Sim (Senior Analyst)

Okay. Got it. And if I could just quickly another one, just in terms of the hardware, you called out some of the weakness in Q3 from being a slower-than-expected rollout. So is that impacting how should we think about that going forward into Q4 and, I guess, into 2025?

Russell Burke (CFO)

Yeah. What I would say is that it's largely a one-time event. It was a delay, essentially a supply delay that impacted Q3. We will sort of get some of that back in Q4, but not all of it. But in the longer term, given the strong indications on the performance of the new Tiles, we expect that to perform strongly.

Wei Sim (Senior Analyst)

Perfect. Thanks, team.

Raymond Jones (VP of Investor Relations)

All right. Thanks, Wei. Next, we'd like to turn to Andrew Boone with Citizens JMP.

Andrew Boone (Managing Director)

Thanks so much for taking my question. I wanted to go to international now. You guys have seen four straight quarters of accelerating growth. Can you talk about the sustainability of that? Chris, you mentioned earlier kind of Canada as a focus in terms of hitting that 2%-3% threshold. What are you guys seeing there? And how do we think about that growth as we enter into 2025 as comps get tougher? Thanks so much.

Chris Hulls (Co-founder and CEO)

My answer will be somewhat similar where I'm a very optimistic founder. I truly believe in my heart of hearts that location sharing is going to be like 90% of people in the world are using it. Very, very, very few people start using location sharing and stop. I'd say everyone on this call, have you started using this product or even a competitor product and stopped it? I honestly don't even think I'm being irrationally exuberant when I say that. The real question to me is, are we going to capture and corner the market? In the U.S., we have Apple and Find My. That has actually helped us because we're a much better product. International, Google does not have any meaningful location sharing products. Apple does not have its stranglehold like it does here.

And even in the U.S., more than half our premium customers are mixed platform. So it feels to me like these trends are inevitable. And we should be a beneficiary of them because there isn't the Apple behemoth. And we just need to get these countries to this tipping point. And of course, we need to stay ahead of the inevitable competition that will come up. I'm already shocked how little competition we have, how big we are. We kind of got to this silent giant before people are really realizing just how big this opportunity is. So that's my long-winded way of saying, I think it's absolutely sustainable. But I do try to look at the numbers as a founder because I try to keep myself honest and not drink the Kool-Aid.

And that is why internally, we really just try to see like, "Okay, how are these trends changing? Are we hitting these tipping points? Is there anything that would make us feel like either another competitor is taking our spot overseas or this is a U.S. phenomenon?" And as of now, we're seeing those tipping points. So I think it's sustainable. I'm excited about where we're going with the product. And I'm the product purist. I think we can never be a lazy company and say, "The product's done." I am perpetually dissatisfied. I think that's a strength in this context. I always want it to be better. And I have a hundred ideas on how it can be better. And if we continue doing that, I think it's ours to lose. International should be even easier than the U.S. because there's really just no cross-platform thing out there.

So I'd say we have taken the approach of publicly showing that data around penetration. So it's out there for all to see. That's what I am looking at to give me confidence that these trends are accelerating. Are we hitting these tipping points? Are we slowing down? Do we know what the ceiling is? And as of now, we're not seeing one.

Russell Burke (CFO)

Andrew, just from a metrics point of view, I would add that we've clearly got continuing both demographic and platform tailwinds internationally. If you look at the penetration in our triple-tier territories, as Chris said, we're just in some of them getting to that tipping point. In the rest of the world, it's still very low penetration. We think there's a huge opportunity ahead.

Raymond Jones (VP of Investor Relations)

All right. We'll move on to the next question with Wei-Weng Chen from RBC.

Wei-Weng Chen (Director of Equity Research)

Hi, guys. Yeah, my question was, I guess in addition to your strong cash balance, you've got a strong share price now. And that offers you some optionality when it comes to M&A. Just wondering if there was any appetite to accelerate your plans, either growth plans or capabilities plans through acquisitions. And also, does your share price change how you view how you or your employees think about compensation mix?

Chris Hulls (Co-founder and CEO)

Let me take the first part of the question. I'll leave most of the compensation piece to Russell from a numbers standpoint. We are definitely open to seeing how we can expand the share price. It's nice to be recognized for our performance. And there are definitely some verticals that, before the market correction, they had these crazy high multiples while we were trading weirdly lower. So that has inverted. One of my key lessons learned, which is a cliché, one is the need for focus. So right now, the team is gelling very well. We're executing very well. And I'm very reticent to get in the way of that. I learned a lot with the Tile acquisition in particular because we had never done something of that size. And timing was obviously, in hindsight, quite unfortunate given that it happened right before the market correction.

We had to go immediately into cutting mode, which made it even harder. I want to be very, very, very intentional. I think what is much more realistic in shorter midterm would be us looking at things that are more like acqui-hires or small bolt-ons where we're not rejiggering the management team. I wouldn't even call that a new development necessarily. I think we've been very consistent that that's something we have done for years well before we were even public. That is why I'd say we have been skilled as a company. We certainly see some interesting things that we're open to. We have no massive big acquisitions planned. As we look to these new verticals and as we continue to execute, yeah, I'd say new verticals are an interesting thing to look at.

Moving to the compensation philosophy, Russell can talk a bit about it just in terms of how it flows through from earnings and dollars and numbers. I'll add something that's a little more indirect to your question. But we want to pay people very well while we also really want to up our standards. And we do not want to be known as an easy place to work. We want to be known as a place for very ambitious people who will be paid well but with high expectations. It's also how we think we can make remote-first sustainable. This is absolutely not a 9:00 A.M. to 5:00 P.M. place to work.

And our outperformance in light of the broader market, and I think the broader market being a lot of companies that had good vanity metrics but not as good fundamentals, we've never had better access to talent in our company's history. So one approach would be, "Well, we can actually pay people less. We can be more aggressive in terms of cutting." We're not taking that approach. It's much more we want to continue to be an employer of choice by paying very well but while having extremely high standards. And so that's a lot of the conversation internally to the board level. And Russell, let you finish the rest of the question.

Russell Burke (CFO)

No. All I would say on that is that the stock price impact has been very useful in terms of compensation. To some extent, it sort of cuts both ways in terms of recruiting as well. But what it does do is give us the flexibility to really play with that mix of cash and equity and really optimize for that, which is what we'll be doing.

Wei-Weng Chen (Director of Equity Research)

Cool. Thanks.

Raymond Jones (VP of Investor Relations)

Great. With that, we'll quickly go to our last question with Julian Mulcahy with E&P, please.

Julian Mulcahy (Managing Director of Small Caps)

Thanks, Raymond. My question is on advertising, surprise, surprise. You're saying everything's kind of on track, but it also still sounds as if it's very much work in progress and all the things you need to build and profiling and all that sort of thing. And then you look at slide 29, you've added some more logos. But most of those businesses, kind of their revenue model is going to be very different to yours in that yours is going to be very specific, targeted, where a lot of those are just sort of display video ads. So is that kind of the way to present it? Or should we be looking at a scale much higher than those numbers because you're going to have much higher success rate on your ads if they click through?

Chris Hulls (Co-founder and CEO)

Again, as I think we mentioned earlier, that's more illustrative and don't take it overly literally. If there's any theme we'd like to take away, it's showing how these businesses can build over time and what is achievable and things are not overnight. So it is fair that we are, I think I said inning three to last question. And I am open that I am not an advertising expert. But we are seeing these very good indicators. And when we look at the benchmarks the team set out for themselves, and as discussed with the board where we do have members of the team who really know what they're doing, we're all feeling it is very largely on track. But we are setting those expectations. It can take a while.

It's very hard to say definitively what lever is bigger or smaller than the others because as much as we have this amazing, well-targeted real-time data, we also don't have a lot of browse-based behavior, which is a lot of what drives things like Pinterest or Reddit because you're in that zone of, "I am just bored. I'm looking at content. So it's not going to disrupt me to click an ad." That's completely different than I'm at the airport getting off a plane and I need an Uber. You'd have zero chance of getting someone to click through on Pinterest for that. You have a very high chance for us. So our hope, of course, is that we're much probably lower display count but much higher actual customer action. These are more bespoke hooks.

But I get excited stuff we've thought about even in very early days of the company, like, "When do people buy home security or homeowners?" It's when you move. And we not only will know when you move in real time, we know before you move because you're visiting homes for sale on the MLS. So our almost Minority Report style targeting system could have so much upside. But we really are pioneering new ground here because there hasn't been a location sharing app at scale that's moved this direction. So in some ways, advertising is that kind of, I'd call it like a Series B, Series C pitch. There's real dollars there. The team's there. The hooks are there. The pipes are there. But you still need to have faith that a few things shape up to really be as big as we want. So very much on track.

Could very much outperform. But it is going to take a couple of cycles before we definitively know. And again, given the number of questions I am getting, I will have a discussion with Russell and team about doing something where we can go a little bit deeper on ads because Russell and I are not the experts on this particular business more broadly. Whereas if you're talking about consumer subscriptions or freemium, I'll feel very comfortable going head-to-head with anybody but not on ads.

Julian Mulcahy (Managing Director of Small Caps)

So is it fair to say it's going more like a commission rather than a ARPU, MAU type reward?

Chris Hulls (Co-founder and CEO)

No, I don't think so because a lot of people do want to just reach people and build brand exposure around different triggers. I think more than a display company for sure. But I wouldn't say that the entire model will be predicated on that. And again, we are, I guess this would be commission. But there is the whole retail media networks and building audiences helping match off-site ads, which it's not exactly, I guess it would be a commission in that regard. But it's not even a customer clicking an ad. It's helping other people gain insights and better target at a user level, which is why I say the line between advertising and data is really going to blur and why it's going to essentially be a single line at some point. Not that we're trying to obfuscate different lines.

We already have some things in the works. Or you could argue that it is data. You could argue it's advertising. And both things are true.

Julian Mulcahy (Managing Director of Small Caps)

Thank you.

Russell Burke (CFO)

We're clearly sort of building our own business here. And the infrastructure for that does take time, which is kind of what we're saying. It's still very early days. All of these other companies are different. And that's the point. We have very different audience, a different audience performance. But that audience is considered very valuable. Either way, it's going to take some time to build that business. We absolutely see the opportunity over a period of time. But it will take some time.

Julian Mulcahy (Managing Director of Small Caps)

Thanks, guys.

Raymond Jones (VP of Investor Relations)

That concludes our Q&A. Chris, would you like to add?

Chris Hulls (Co-founder and CEO)

I have very little other than thank you all for joining. I'll be talking to many of you in coming days, and I'm looking forward to heading to Australia this Friday to see our overseas investors in person. Thank you very much.