Care.com's (CRCM) CEO Sheila Lirio Marcelo on Q1 2016 Results - Earnings Call Transcript

| About: Care.com, Inc. (CRCM)

Care.com, Inc. (NYSE:CRCM)

Q1 2016 Earnings Conference Call

April 28, 2016 08:00 AM ET

Executives

Denise Garcia - IR

Sheila Lirio Marcelo - Founder, Chairwoman, and CEO

Michael Echenberg - CFO

Analysts

Kerry Rice - Needham & Company

Jay Lee - JP Morgan

Joyce Tran - BofA Merrill Lynch

Dean Prissman - Morgan Stanley

Mitch Bartlett - Craig-Hallum Capital

Blake Harper - Topeka Capital Markets

Operator

Greetings, and welcome to the Care.com First Quarter 2016 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my please to introduce your host, Denise Garcia, Investor Relations. Thank you, Denise. You may begin.

Denise Garcia

Thank you, Rocco. Good morning, and welcome to Care.com's financial results call for the first quarter of 2016, which ended on March 26.

During the course of this conference call we will discuss our business outlook and make other forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These may include, among other things, projected financial results, our operating metrics, anticipated business and marketing investments, and strategies and expected results of those investments and strategies, anticipated future products or services, anticipated market demand or opportunities for our products and services, and other forward-looking topics.

Such statements are only predictions based on management's current expectations. Actual results or events could differ materially from those predictions, due to a number of risks and uncertainties. Including those set forth in the press release we issued today, as well as those more fully described in our filings with the Securities and Exchange Commission.

In addition, any forward-looking statements represent our views only as of today, and should not be relied upon as representing our views as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

We will also be referring to non-GAAP measures on this call, including adjusted EBITDA, which we refer to as EBITDA throughout the presentation; and non-GAAP EPS. These measures represent pretax net loss, less depreciation and amortization, as well as certain other non-cash adjustments and certain unusual expenses, such as M&A costs. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations to the most directly comparable GAAP financial measures are provide in the tables in the press release and the Form 8-K filed today.

We will also be referring to profitability on this call. When we refer to profitability, we're referring to it in on an adjusted EBITDA basis, unless otherwise noted

Today's call is available via webcast, and a telephone replay will be available for one week following the conclusion of the call. To access the press release, supplemental and financial information or the webcast replay, please consult the IR section of Care.com.

With that, let me turn it over to Sheila Lirio Marcelo, Founder, Chairwoman, and CEO of Care.com.

Sheila Lirio Marcelo

Thanks, Denise. Good morning, and thank you all for joining us today. On today's call, I'll walk you through our strong financial results for the first quarter, and discuss the progress we've made on our 2016 priorities. I'll then turn the call over the Michael, who will provide more detail on Q1 financials, and share our updated guidance. Following our prepared remarks, we'll open the call for questions.

We've had a great start to the year. I'm excited that we beat our guidance on the top and bottom lines, and achieved profitability earlier than provided for in our outlook. Specifically, both the $39.3 million of revenue and the positive $1.6 million of EBITDA exceeded the guidance we shared.

Over the last 12 months, we've made some difficult decision to drive long-term shareholder value, and the results are bearing fruit. We've shown a rapid increase in margins over the past few quarters, despite funding incremental investments in growth initiatives, especially on mobile. We've built the largest two-sided network for finding family care in the home, with over 8.5 million caregivers, one of the largest groups of gig workers on one platform in this growing on-demand economy, and almost 11 million families.

In addition, we have the highest unaided brand awareness among families seeking childcare help, approximately 41%, which is roughly 5X that of our nearest competitor. And along with continuing to grow the largest online family care marketplace with the leading brand, we've now had five quarters in a row of solid improvement in sales and marketing leverage, and strong revenue growth. We are committed to driving shareholder value through sustained profitable growth. And we remain comfortable with our long-term EBITDA margin projection of 20% to 25%.

Over the next 12 months, we are also focused on building the best end-to-end experience in finding care. We continue to make progress on the top three strategic priorities in our consumer business for 2016, with initiatives in pre-match with a focus on community, match with our move to more transactional products via mobile, and post-match by offering caregiver benefits. We will continue provide product updates in upcoming quarters.

Now, moving on to key revenue drivers in our business, I'll start with paying members. At the end of the first quarter, paying members in our U.S. matching business were up 11.4% over Q1 of 2015. We continue to expect end-of-period paying members for the full year to be up versus prior by less than 10%, as we explained on our last call. This is due primarily to the ongoing traffic shift to mobile, which has a conversion rate less than half that of desktop.

Longer term, growth in end-of-period paying members will become a less meaningful metric, as transactional revenue streams become a growing share of the business, given that this metric doesn't include transactional customers.

We are excited about the prospects for some of our new initiatives designed to drive long-term growth. First, we're improving conversion on mobile. In late February, we revamped enrollment flows on iOS to enable in-app subscription versus the two-step process of registering in our iOS app, and then paying on mobile web or desktop. Early results have been positive. For members who are enrolled through our iOS app were already seeing a conversion rate improvement of close to 20% versus the two-step paid enrollment process, even with prices around 20% higher than those on desktop and mobile web. Since launch of in-app subscription, we have consistently been among the five top-grossing apps in the Apple App Store lifestyle category, and we started to test app install ads during the quarter.

Second, as we've mentioned in previous calls, we also plan to complement our subscription business model with transactional in babysitting and other verticals. We have two goals for our transactional models: one, to monetize a meaningful subset of the roughly 85% of families who sign up for our service but don't upgrade to our subscription product. Two, to significantly expand the top of the funnel, to capture a greater share of the 44 million households in our total addressable market in the U.S. alone. We are currently testing and developing a range of transactional products, primarily geared toward mobile users.

Our first was Date Night, which focuses on a small segment in childcare, to allow for relatively low-risk experimentation in our largest vertical, and has yielded important learnings. Building on these learnings, we intend to launch our next-generation core app, which will include transactional part-time Childcare use cases, like after-school babysitting, in time for our peak season this summer. To date, the core app has had almost 3 million unique installs. We plan to update you on our progress later this year.

We also remain committed to driving top-line growth by improving the unit economics of the subscription portion of our U.S. consumer business, which includes both matching and payments. In Q1, we were pleased to see a 4% increase versus prior in ARPU, as we continue to test subscription pricing for both matching and payments.

Also on the last call, we shared that our U.S. consumer length of paid time, or what we call LOPT, as measured in 2015 is about a year. Our ability to cross sell our high margin home paid product to our matching members helps drive improvements in both ARPU and LOPT. And one of the key initiatives that we expect to improve, our unit economics further over the long term, is offering our members other value-added services, like providing easily accessible caregiver benefits, such as healthcare and other safety-net protections.

These types of services are becoming increasingly important for the growing on-demand gig economy, where we serve the needs of one the largest groups of gig workers. And 8.5 million caregivers today are already on the Care.com platform. In addition, these services are relevant to one of the largest, fastest-growing job categories in the U.S., in-home care.

Turning now to Care@Work, formerly known as Workplace Solutions. Our enterprise business represents another significant growth area for us. Millennials are now the largest demographic group of new parents in the U.S. and almost half of adults in their 40s and 50s find themselves sandwiched between children and aging relatives. As a result, more and more employers are turning to family care benefits as a competitive advantage.

With our focus on ramping sales and product innovation, including our recently launched enterprise mobile app for accessing on-demand back-up care services, revenue from Care@Work grew 44% versus prior for the quarter. We expect this to accelerate as the year progresses. I'm pleased to report that in Q1 alone, we already renewed 50% of our 2015 business, including Putnam Investments, McGuire Woods, Boston Medical Center, and Hallmark.

Our renewal success is driven primarily by our account management approach, our client-focused solutions that result in both a best-in-class Net Promoter score of 76%, and a higher than 90% fulfillment rate for our back-up care offerings. Notably, 5 out of the top 8 companies in Glass Door's 2016 Best Places to Work are Care@Work clients.

In addition to renewals, we continued to add new clients in a range of industries, including pharma, professional services, energy, and apparel. In fact, one of our new clients is among the fastest-growing apparel companies in the world.

In summary, we are proud that we achieved profitability ahead of schedule. And we expect to sustain profitable growth going forward to drive shareholder value. We believe that improving member growth through investments in mobile, driving ARPU and LOPT, and growing Care@Work are positioning us well to continue as the leading care platform, serving families and caregivers.

Now I'll turn the call over to Michael.

Michael Echenberg

Thanks Sheila. I'm pleased with our Q1 results on the top and bottom lines, and the notable improvement in operating leverage that they reflect. I'll now provide additional color on our results, starting with revenue. I'll preface this with the reminder that except where I specifically reference it, Citrus Lane is excluded from the financial metrics that I'll share.

Revenue for Q1 grew to $39.3 million, a 23% increase over Q1 2015 revenue of $32 million. Our US consumer business grew 20% to $32.1 million, as the impact of the expected moderated growth in paying matching members was offset by the ARPU gains that Sheila described. This yielded an outcome that was slightly better than expected.

Our other businesses, which include international, Care@Work, and Marketplace, also exceeded our expectations in Q1. They delivered $7.2 million in revenue, or 33% growth versus prior. Care@Work grew 44%, and international grew 30%.

Now EBITDA. We delivered EBITDA profitability earlier than expected. For the quarter, EBITDA was positive $1.6 million, compared to a loss of $5.6 million in Q1 of 2015, a margin improvement versus prior of 22 percentage points. Going forward, we expect to continue to grow profitably, meaning that we intend for Q3 of 2015 to have been our last unprofitable quarter.

Before turning to net income and EPS, I'll provide some color on the major cost lines, beginning with Sales and Marketing. We drove sales and marketing as a percent of revenue down 14 percentage points, from 64% in Q1 of 2015 to 50% in Q1 of 2016. This is on top of the 17 percentage points of improvement we saw from Q1 of 2014 to Q1 of 2015.

We have maintained our ROI target of roughly 3x. As I mentioned on our last call, this nevertheless allows for experimental spending on new acquisition channels, such as social and mobile video advertising. We expect that this, in combination with our organic activity and our R&D spending on community, will help us achieve further leverage gains down the road.

Moving on to the other cost lines. We expanded gross margin versus prior by roughly 110 basis points in the quarter. We also saw increased leverage on the G&A line. G&A as a percentage of revenue fell versus prior by about 390 basis points. The gains in operating leverage across cost of revenue and G&A are the result of our continued focus on managing the piece of expenses through general cost discipline and the flow-through of the larger cost-saving initiatives that we've discussed on past calls. As a reminder, in the category of general cost discipline, I include things like lower negotiated rates with vendors, reduced spend on consultants, and the opportunistic streamlining of teams across the organization. We also get the benefit of leverage from relatively fixed costs, like those related to occupancy, against a growing top line.

As before, given our product innovation focus, R&D is not primary target for cost management.

I'll point out that part of the EBITDA story in Q1 was about timing of expenses. Specifically, we expect to incur certain expenses that were originally intended for Q1 later in the year. I'll return to this topic in the context of guidance.

Q1 non-GAAP EPS was positive $0.01, as compared to negative $0.28 in Q1 of last year. This improvement is mainly the result of flow-through from our EBITDA performance. Q1 GAAP EPS of positive $0.20 on a diluted basis, up from negative $0.38 in Q1 of 2015, benefits from the flow-through of an $8 million one-time net income pickup connected to the settlement we reached with Citrus Lane's former investors.

As I described on the last call, according to the terms of the settlement, they received a portion of the deal consideration that had not yet been paid out to them, and we kept the rest. Specifically, they received a cash payment of $15.6 million in Q1. We retained $8 million in cash and stock, including the full $5 million from Escrow. This drove net income for the quarter to a positive $6.8 million, as compared to a loss of $12 million in the first quarter of 2015. Overall, Citrus Lane added $0.23 to Q1 GAAP EPS. $0.24 of benefit associated with the settlement, partially offset by a penny associated with wind-down costs.

The settlement also had an impact on cash in the quarter. Specifically we started the quarter with about $61 million in cash, and ended with about $52 million. Key drivers were the net outflow of roughly $10 million associated with the settlement, partially offset by the $1.6 million of adjusted EBITDA. Other ins and outs netted to roughly zero. We expect the combination of the settlement and the completion of the wind-down will put all Citrus Lane related obligations behind us.

Turning now to guidance, beginning with revenue. In light of our Q1 beat, we are raising full-year revenue guidance to a range of $158 million to $162 million. For the second quarter, our revenue guidance is $37.5 million to $38 million. As a reminder, on the last call, we shared our expectation that 2016 end-of-year paying members would be up versus prior by less than 10%, which implies moderated revenue growth across the year.

So while we believe that the factors that help us beat expectations in Q1 will also benefit Q2, factors including Care@Work and international revenue and U.S. consumer ARPU. We continue to expect that the impact on revenue of the moderated growth in U.S. matching members will be greater in Q2 than it was in Q1. As a reminder, we anticipate that the benefits of the top-line growth initiatives that Sheila described will start to kick in during 2017.

For adjusted EBITDA, we're raising our full-year guidance to a range of $8 million to $12 million. Some color on the EBITDA profile across the year. First, we expect that Q4 will be our quarter of highest profitability, as it has been typically, a function of the seasonality that has our spending less on sales and marketing than in other quarters.

We expect Q2 and Q3 to be similar to one another on adjusted EBITDA as they have been in past years. Unlike in past years though, we expect both to be somewhat lower than Q1, partly as a result of the timing of certain expenses that we're originally expected in Q1. With this as context, our adjusted EBITDA guidance for the second quarter is $250,000 to $750,000.

On non-GAAP EPS for the year, we're raising our guidance to between $0.09 and $0.19. This is largely the result of flow-through from EBITDA, and is based on an expectation of about $34.5 million weighted-average diluted shares outstanding. For the second quarter, we're guiding to non-GAAP EPS of between negative $0.04 and negative $0.02. For the quarter, we're expecting 32.2 million weighted-average basic shares outstanding.

A note on FX, for the balance of the year we're expecting the euro to average $1.08 and the pound to average $1.55. 5% in either direction for both represents about $500,000 of revenue, about $100,000 of adjusted EBITDA, and about $0.02 of non-GAAP EPS. Note that the EPS sensitivity includes the impact of revaluing balance sheet items denominated in foreign currencies.

Finally, cash, consistent with our raised EBITDA guidance, our expectation for end-of-year cash is slightly up. That said, we continue to expect to end 2016 with cash in the same general ballpark as the $61 million balance at the end of 2015. Beginning with the $52 million balance at the end of Q1, our EBITDA guidance range for the remainder of the year, along with changes in working capital gets us there.

Let me wrap up before we open this to Q&A. I am pleased that we've achieved adjusted EBITDA profitability ahead of schedule, and look forward to continued profitable growth. I'll note that taking the middle of our full-year guidance ranges on revenue and EBITDA yields an expected 6% EBITDA margin for 2016, which would be a 10 percentage points improvement versus 2015. And we remain comfortable with our long-term EBITDA margin target of 20% to 25%.

With that, we'll open the call to your questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question comes from Kerry Rice of Needham. Please go ahead.

Kerry Rice

Thanks a lot, nice quarter. I just wanted to see if you could put a little bit of finer point on maybe the timing of some of the initiatives you have. Sheila, you called out the improved monetization, expanded top of funnel, and improved unit economics. It sounds like a lot of that really doesn't become impactful until 2017. But I don't know if you could put any finer point on that.

And then my follow-up is on mobile, you mentioned the 20% conversion on iOS, and the iOS kind of revamped enrollment. Maybe what percentage of, is that kind of across your mobile users or there more to rollout within iOS? And then maybe some timeline on if you're doing the same thing with android app. Thank you.

Sheila Lirio Marcelo

Sure. Thanks, Kerry. In terms of the timing of our product initiatives, we started with the launch of Date Night being sort of the smallest of our Childcare verticals, or sub-verticals within Childcare. We're now really focused on revamping our core app. And as we shared in the prepared remarks, our core app has about 3 million downloads today. So it's a really good foundational base for us to continue to innovate and create transactional products. It's also categorized as one of the top 5 in the lifestyle category on the Apple app. So, much of those initiatives are actually launching prior to our peak season this summer. And so we're excited to do that.

Now they're going to be, similar to Date Night betaed [ph] first. We will put them in beta out in certain geographical areas and do testing, and then expect to roll it out more aggressively towards the end of the year, which is why we're guiding with expectations for 2017 impact with these kinds of initiatives.

We're also rolling out other vertical apps. And we'll be announcing that soon. And we are doing that this year as well with a similar expectation of impact for 2017.

With your second question, with regards to the 20% conversion in iOS. We just launched that towards the end of February. We started in-app ads also within the quarter. So it's still fairly early. It's the same core app that we will be also updating with sort of second-generation features this summer. So I would say continue to look out for our updates on that. But it is not, that 20% conversion lift is specifically on iOS.

We do expect to update Android as well this summer, Kerry. So it's across all our platforms that we intend to update transactional, especially for Afterschool Babysitting and to cross sell Date Night.

Kerry Rice

And these are obviously mobile initiatives. Do these kind of cut across the desktop as well, Date Night and some of the vertical stuff you're doing, or will this primarily be just mobile-focused?

Sheila Lirio Marcelo

There's actually an effort for interoperability across all platforms this summer.

Kerry Rice

Okay. Thank you.

Sheila Lirio Marcelo

Sure, thanks.

Operator

And our next question comes from Douglas Anmuth of JPMorgan. Please go ahead.

Jay Lee

This is Jay Lee in for Doug. Thank you for taking our questions, and congrats on the quarter. On the U.S. matching ARPU year-over-year growth, could you give us a little more color on the pricing test, which seems to have driven the growth, and how the more recent cohort data compares to the overall number?

Sheila Lirio Marcelo

With regards to the testing, we've been testing both on matching and payments, and continue to do that, especially with our Nanny sub-segment, which we've shared in other previous quarters. And that's starting to pan out, and we're seeing that impact in ARPU. And then on the payments product, we are also doing some geographical testing, especially when it comes to tax filings. They're a little more complicated in some geographical areas, and that's-- both of those have contributed to the ARPU gains.

Jay Lee

And on the recent cohort, have you seen any difference in the trends in some of the recent cohort data?

Sheila Lirio Marcelo

Yes. With regards to our unit economics, we'll be sharing midyear on length of paid time overall. Of course we've been doing quarterly ARPU. And then we'll share also CAC for the next earnings call. But we continue to target our ROI in the 3X range, and we are on plan for that.

Jay Lee

Great. Thank you.

Operator

And our next question comes from Justin Post of Bank of America Merrill Lynch.

Joyce Tran

Hi. This is Joyce Tran for Justin Post. Congrats on the great quarter. I wanted to kind of get a little bit more detail on transactional products. Is this still the, I guess a subscription fee that you'll be getting? Or is this like a new product where you get some sort of fee as a percent of revenue generated?

Sheila Lirio Marcelo

It's going to be actually a combination of transactional on top of our existing subscription. And we're also testing dedicated pure transactional in some geographical areas. So it could be a combination of both models, or on its own. And we'll share more on our learnings on that towards the end of the year or in early 2017, as we gain more statistically significant data, Joyce.

Joyce Tran

Okay. Yes, I would love to see the economics of that. And then my follow-up question is on direct marketing spend. It seems like that's been improving and quite a bit of leverage there. Anything you think that's working great right now? What have you learned that's not working that's going to be changed going to 2016?

Sheila Lirio Marcelo

Yes. Thank you, Joyce. Thanks for pointing that out. Absolutely, sales and marketing as a percentage of revenue has gone from 64% to 50%. That's a 14 percentage point improvement. And that's on top of the 17% that Michael shared in terms of percentage point improvement from last year. And that continues to be promising for us. Now obviously the gains that we got last year will be much more tempered this year, as we continue to experiment in other digital channels.

Some of the learnings we've gotten, especially with Date Night, started early indication of install ads to try and experiment there with the in-app subscription, also experimenting on flows and conversion rates. So we continue to be excited about mobile growth, and continue to also optimize conversion. And then the other digital channels, especially social and mobile video, so again, we'll continue to share that overall. But we feel good about managing spend again to that target 3X ROI that we've got.

Joyce Tran

Great. Thank you.

Operator

And our next question comes from Dean Prissman of Morgan Stanley. Please go ahead.

Dean Prissman

Thank you for taking my questions. Can you qualitatively or quantitatively discuss the engagements you're seeing with Date Night? For example, what percent of monetized users repeat their usage? And then I have a follow-up?

Sheila Lirio Marcelo

Sure. It's still early for Date Night. As you know, we took it with marketing during Valentine's Day. And part of the reason we actually launched Date Night was really to start building our transactional modules, and to do what we believe to be the lowest-risk, because it's the smallest segment within our sub-vertical within Childcare. And based on those learnings, we're starting to iterate, which is in preparation with our largest segment, which is actually Afterschool Babysitting.

So we're not actually sharing any of those data today. But our expectation is to cross-sell Date Night from our core app that we will be launching again prior to peak season this summer.

Dean Prissman

Great. And just to follow up on Joyce's question, can you just talk about some of the initiatives which are helping you drive the marketing leverage that we're seeing?

Sheila Lirio Marcelo

I'm sorry, what was the word? What's the driving the, yes what's driving -

Dean Prissman

So, what are the underlying drivers of the marketing leverage you're seeing?

Sheila Lirio Marcelo

It's continuing to really shift TV spend to other digital, which we started to do that last year, and continue to experiment there. It's our investment overall in SEO and other organic. We continue to see SEO traffic grow. And as you know, we're investing in R&D on community that we shared last quarter. So we continue to see sales and marketing leverage. And we're excited about the product investments and continuous optimization of our spending.

Dean Prissman

Great. Thank you.

Operator

And our next question comes from Mitch Bartlett from Craig-Hallum. Please go ahead.

Mitch Bartlett

Yes. Hi, Sheila. I wonder if you could just go back over the Care@Work. You seem awfully excited, and the growth rate was 44%. It seems I know it's from a small base. But what do you see happening there? Is it kind of word-of-mouth between companies? Or is it so small that one additional big client comes on, and really produces the growth? Or kind of help frame Care@Work, because it seems like such a large opportunity.

Sheila Lirio Marcelo

Thanks, Mitch. Yes. So we saw 44% growth this quarter. But we expect that to accelerate as the year progresses. Two things really drove the increase in our excitement is strong renewals. And some of the examples we shared of companies in our prepared remarks. And those renewals were really driven by a terrific account management approach and team that we've got driving NPS, especially in back-up care of 76%, and then 90% fulfillment rate. And that's leading more and more companies to talk about Care.com as a provided benefit.

And then in terms of new client growth, targeting pharma, energy, professional services. We signed up one of the fastest-growing apparel companies in the world. And so as those companies continue to grow, and as you know our model works on a per-employee per-year. That obviously helps bolster the business some more. I don't know, Michael, if you wanted to add any more color.

And I don't know if Mike, you wanted to add any more color?

Michael Echenberg

Yes. I guess the two drivers that I'd point to are one, having gotten greater comfort over the course of the last, call it, 6 to 12 months around the unit economics within Care@Work. We've been ramping the sales force under new sales leadership. And then at least as importantly, we've been applying the same R&D innovation focus in this channel, as we have more broadly. Specifically the enterprise mobile app and related platform for finding back-up care and for taking advantage of the other services. And that really resonates with heads of HR, and ultimately with employee bases.

Mitch Bartlett

And can companies migrate up? I know they pay per employee. But can they migrate up in the number of services that they take, and that per-employee fee goes up overtime, or is it just a fixed set of benefits?

Michael Echenberg

Yes. The answer is yes and brief. And when we've referred in the past to revenue retention rate of 100% or a bit better, which continues to be the case today. Part of what keeps it that high is that not only do people with the high NPS scores as and the high satisfaction choose to stick with us. They often choose to buy additional services and/or to extend the benefit to additional pools of employees. And so we see bigger economics overtime with existing clients.

Mitch Bartlett

And the vertical apps, you said you'd be announcing those soon. I thought on the last quarter you were going to basically hold towards the end of the year the rollout of any kind of new transactional vertical. Is this an acceleration or maybe if you could talk about that?

Sheila Lirio Marcelo

Sure. Our intention was always to launch betas, especially in geographical markets, and to learn. And we want to take advantage of our peak season, specifically in Childcare because it is in the summer months, so that we can get some fast-track learning in preparation for our next peak, which is January next year. And so at that point, based on the learnings, we will expand geographies in the fall and later this year, and hopefully have enough data to start sharing with all of you.

Michael Echenberg

Yes. The only color I'd add to that, Mitch, is that the focus on 2017 in this context has been-- that's when we expect the top-line impact to kick in, during 2017. But in the run up to that, we'll be doing, as Sheila describes, significant work launching betas, et cetera.

Mitch Bartlett

Got it. You've been testing these. You'll launch your formal beta. Then it will roll out to other geographies, got it.

Sheila Lirio Marcelo

Correct.

Mitch Bartlett

Thank you. Appreciate it. Great quarter and congrats on getting profitable.

Sheila Lirio Marcelo

Thanks Mitch.

Michael Echenberg

Thanks so much.

Operator

And our next question comes from Blake Harper of Topeka Capital Markets. Please go ahead.

Blake Harper

Hi. I wanted to ask Sheila, if you could expand a little bit on the community? I know you mentioned that, and just wanted to understand the investments that you've made in there. Has that worked to convert your members higher, at a higher level? And if you would be making other types of acquisitions that you have in the past to grow the engagement there?

Sheila Lirio Marcelo

Yes. So with community, we've also found, as we shared last quarter that it's promising. When we acquired Big Tent, we found at least 2X of a conversion compared to other channels. And it has a higher LTV. We also launched last year what we call Care Smarts, and it drove increasing traffic. It's sort of Quora for care. And it allowed us to learn and engage our members, both providers and families, to communicate with each other.

Since then what we've done is acquired Kinsights that we announced last quarter, for about $500,000. And we tucked it in. And we are in the midst of integration. We've recently integrated Kinsights in Care Smarts. And we've got more underway. And we'll be sharing more about the learnings on community hopefully by next quarter, given some of the things that we're learning there overall in terms of traffic growth and engagement.

Blake Harper

Got it. Okay, and then one follow-up if I could Sheila, the acquisitions that you've made, you mentioned Big Tent and Kinsights, and then obviously Citrus Lane, too, and then you shut down. But I just wanted to see from a strategic standpoint if you think there's other areas that you could acquire some business that could help accelerate or fill out your total product portfolio, or do you think most of the new product stuff you'll do will be more organically driven and developed?

Sheila Lirio Marcelo

I'll let Michael take that.

Michael Echenberg

Yes. So I'd say with respect to M&A broadly, I'd say over the long term, yes, there are interesting possibilities strategically for us along a range of dimensions. I'd say in the nearer term, M&A is not a focus for us. Having just gotten to profitability, we want to move through this year, get to the end of the year comfortable with our cash position. The only kinds of M&A that we would contemplate in the near term would be modeled after what we did with Kinsights, right? Small, tuck-in and on strategy.

So it ultimately becomes a build versus buy. And in the case of Kinsights, buy was a much better economic arrangement for us than build would have been.

Blake Harper

Okay. Thanks, Michael. Thanks, Sheila.

Operator

There are no further questions at this time. I would like to turn the floor back over to Sheila Lirio Marcelo for closing comments.

Sheila Lirio Marcelo

Thanks, Rocco. Thanks to everyone for joining us today. We appreciate your questions and support. Q1 was a great start to the year. I'm excited that we beat our guidance on the top and bottom lines, and achieved profitability ahead of schedule.

We continue to leverage sales and marketing spend to drive sustained profitable growth, as we march towards are long-term margin target of 20% to 25%. At the same time, we remain committed to driving top-line growth, as we focus on improving mobile conversion, adding transactional products, and enhancing the value of our platform.

We believe that our new product innovations, especially our mobile, will significantly improve the end-to-end experience for our families and caregivers. And we expect these innovations to benefit revenue growth from both subscriptions and transactions, beginning in 2017. We look forward to speaking to you on future calls. Thank you.

Operator

Thank you. This concludes today's teleconference. You may now disconnect your lines at this time. And we thank you for your participation.

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