Welcome3:36 with Michael Watson
Learn about the concept of non-GAAP principles like Churn and LTV which can be meaningful ways of thinking about a specific business.
[MUSIC] 0:00 Hi, welcome to the Introduction to Churn and Lifetime Value Analysis course. 0:09 I'm Michael Watson, the CFO here at Treehouse, and a fellow lifelong learner. 0:15 At Treehouse, we have some subscription service offerings, so 0:20 we regularly monitor churn and LTV, and use them to inform decision making. 0:24 Even before I joined Treehouse though, as an investment analyst, 0:30 I would come across LTV and churn numbers all the time. 0:33 So it's not just operators that care about them, 0:37 investors closely scrutinize these numbers too. 0:40 They are relevant to multiple business stakeholders. 0:44 In the first section of this course we'll introduce recurring revenue and churn. 0:48 In the second, we'll move on to LTV. 0:52 By the end of this course we will have a solid understanding of the basic 0:55 principles around each metric. 0:59 And we'll be prepared to apply them in the real world. 1:01 Before jumping in, I want to briefly touch on GAPP, or 1:05 generally accepted accounting principles. 1:10 In the US, GAPP are standards or 1:13 rules as to how companies prepare their financial statements. 1:15 Outside of the states, what these rules are called will vary by country. 1:19 Most likely it'll be the IFRS, 1:24 or International Financial Reporting Standards. 1:27 These rules are in place to make sure that the way companies are preparing and 1:30 presenting financial statements are consistent and 1:35 accurately reflect the financial position of a company. 1:39 It sounds obvious now, but historically, not all businesses were required or 1:42 needed to report something like sales or revenue in the same way. 1:47 That's a big reason why GAAP evolved, 1:52 to help make sure everyone was accounting for things consistently. 1:54 We're going to touch on some accounting in the course. 1:59 But the main reason I bring this point up now is that 2:02 many of the terms in this course are not defined by GAAP. 2:04 We're going to skip the discussion about why that is, 2:09 as it's beyond the scope of this course. 2:11 But that said, lots of financial statements and reports and 2:14 investor presentations make reference to non-GAAP XYZ metric. 2:17 Let's look at the investor relations section of one 2:23 large publicly listed company in the United States, the Zillow Group. 2:26 I've gone to their investor presentation section, and we can see here, 2:31 this presentation from August 2018 had a ton of information in it. 2:38 About their brands and some high-level performance indicators, 2:42 their total addressable market. 2:47 But down here, when we're looking at their reported adjusted EBITDA and 2:50 revenue, you can see adjusted EBITDA. 2:55 If we look in the footnote, see Appendix A for 2:58 additional information about our non-GAAP financial measures. 3:01 This is common and is often the result of management feeling that a non-GAAP way of 3:04 thinking about their particular business 3:09 is more reflective of underlying business performance. 3:12 They are required to disclose non-GAAP numbers, and sometimes must reconcile them 3:15 with GAAP numbers for readers of their financial statements. 3:21 Churn, MRR, ARPU, LTV, many of the concepts we 3:25 cover in this course are non-GAAP, that's important to know. 3:30 With that out of the way, let's get started. 3:34
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