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Learn about the concept of non-GAAP principles like Churn and LTV which can be meaningful ways of thinking about a specific business.
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[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 GAAP, or
1:05
generally accepted accounting principles.
1:10
In the US, GAAP 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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