1 00:00:00,000 --> 00:00:09,215 [MUSIC] 2 00:00:09,215 --> 00:00:15,710 Hi, welcome to the Introduction to Churn and Lifetime Value Analysis course. 3 00:00:15,710 --> 00:00:20,510 I'm Michael Watson, the CFO here at Treehouse, and a fellow lifelong learner. 4 00:00:20,510 --> 00:00:24,280 At Treehouse, we have some subscription service offerings, so 5 00:00:24,280 --> 00:00:28,920 we regularly monitor churn and LTV, and use them to inform decision making. 6 00:00:30,020 --> 00:00:33,610 Even before I joined Treehouse though, as an investment analyst, 7 00:00:33,610 --> 00:00:36,770 I would come across LTV and churn numbers all the time. 8 00:00:37,810 --> 00:00:40,610 So it's not just operators that care about them, 9 00:00:40,610 --> 00:00:44,290 investors closely scrutinize these numbers too. 10 00:00:44,290 --> 00:00:48,100 They are relevant to multiple business stakeholders. 11 00:00:48,100 --> 00:00:52,752 In the first section of this course we'll introduce recurring revenue and churn. 12 00:00:52,752 --> 00:00:55,780 In the second, we'll move on to LTV. 13 00:00:55,780 --> 00:00:59,895 By the end of this course we will have a solid understanding of the basic 14 00:00:59,895 --> 00:01:01,868 principles around each metric. 15 00:01:01,868 --> 00:01:05,760 And we'll be prepared to apply them in the real world. 16 00:01:05,760 --> 00:01:10,160 Before jumping in, I want to briefly touch on GAPP, or 17 00:01:10,160 --> 00:01:13,380 generally accepted accounting principles. 18 00:01:13,380 --> 00:01:15,990 In the US, GAPP are standards or 19 00:01:15,990 --> 00:01:19,960 rules as to how companies prepare their financial statements. 20 00:01:19,960 --> 00:01:24,650 Outside of the states, what these rules are called will vary by country. 21 00:01:24,650 --> 00:01:27,210 Most likely it'll be the IFRS, 22 00:01:27,210 --> 00:01:30,620 or International Financial Reporting Standards. 23 00:01:30,620 --> 00:01:35,630 These rules are in place to make sure that the way companies are preparing and 24 00:01:35,630 --> 00:01:39,170 presenting financial statements are consistent and 25 00:01:39,170 --> 00:01:42,660 accurately reflect the financial position of a company. 26 00:01:42,660 --> 00:01:47,850 It sounds obvious now, but historically, not all businesses were required or 27 00:01:47,850 --> 00:01:52,210 needed to report something like sales or revenue in the same way. 28 00:01:52,210 --> 00:01:54,840 That's a big reason why GAAP evolved, 29 00:01:54,840 --> 00:01:59,450 to help make sure everyone was accounting for things consistently. 30 00:01:59,450 --> 00:02:02,180 We're going to touch on some accounting in the course. 31 00:02:02,180 --> 00:02:04,890 But the main reason I bring this point up now is that 32 00:02:04,890 --> 00:02:09,280 many of the terms in this course are not defined by GAAP. 33 00:02:09,280 --> 00:02:11,770 We're going to skip the discussion about why that is, 34 00:02:11,770 --> 00:02:14,330 as it's beyond the scope of this course. 35 00:02:14,330 --> 00:02:17,850 But that said, lots of financial statements and reports and 36 00:02:17,850 --> 00:02:23,100 investor presentations make reference to non-GAAP XYZ metric. 37 00:02:23,100 --> 00:02:26,990 Let's look at the investor relations section of one 38 00:02:26,990 --> 00:02:29,810 large publicly listed company in the United States, the Zillow Group. 39 00:02:31,820 --> 00:02:38,100 I've gone to their investor presentation section, and we can see here, 40 00:02:38,100 --> 00:02:42,970 this presentation from August 2018 had a ton of information in it. 41 00:02:42,970 --> 00:02:47,260 About their brands and some high-level performance indicators, 42 00:02:47,260 --> 00:02:49,450 their total addressable market. 43 00:02:50,550 --> 00:02:55,070 But down here, when we're looking at their reported adjusted EBITDA and 44 00:02:55,070 --> 00:02:58,060 revenue, you can see adjusted EBITDA. 45 00:02:58,060 --> 00:03:01,190 If we look in the footnote, see Appendix A for 46 00:03:01,190 --> 00:03:04,870 additional information about our non-GAAP financial measures. 47 00:03:04,870 --> 00:03:09,860 This is common and is often the result of management feeling that a non-GAAP way of 48 00:03:09,860 --> 00:03:12,540 thinking about their particular business 49 00:03:12,540 --> 00:03:15,960 is more reflective of underlying business performance. 50 00:03:15,960 --> 00:03:21,020 They are required to disclose non-GAAP numbers, and sometimes must reconcile them 51 00:03:21,020 --> 00:03:24,010 with GAAP numbers for readers of their financial statements. 52 00:03:25,010 --> 00:03:30,000 Churn, MRR, ARPU, LTV, many of the concepts we 53 00:03:30,000 --> 00:03:34,260 cover in this course are non-GAAP, that's important to know. 54 00:03:34,260 --> 00:03:35,680 With that out of the way, let's get started.