Life360, Inc. 10-K

Item 8. Financial Statements and Supplementary Data. Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ; San Francisco, CA ; PCAOB ID # 243 ) 71 Financial Statements Consolidated Balance Sheets 72 Consolidated Statements of Operations and Comprehensive Loss 73 Consolidated Statements of Stockholders’ Equity 74 Consolidated Statements of Cash Flows 75 Notes to Consolidated Financial Statements 77 70 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Life360, Inc. San Mateo, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Life360, Inc. (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the consolidated financial statements. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 , in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ BDO USA, LLP We have served as the Company’s auditor since 2018. San Francisco, California March 23, 2023 71 Table of Contents Life360, Inc. Consolidated Balance Sheets (Dollars in U.S. $, in thousands, except share and per share data) December 31, 2022 December 31, 2021 Assets Current Assets: Cash and cash equivalents $ 75,444 $ 230,990 Restricted cash, current 13,274 — Accounts receivable, net 33,125 11,772 Inventory 10,826 2,009 Costs capitalized to obtain contracts, net 1,438 1,319 Prepaid expenses and other current assets 8,548 10,590 Total current assets 142,655 256,680 Restricted cash, noncurrent 1,647 355 Property and equipment, net 393 580 Costs capitalized to obtain contracts, noncurrent 626 330 Prepaid expenses and other assets, noncurrent 7,134 3,691 Right-of-use-asset 802 1,627 Intangible assets, net 52,699 7,986 Goodwill 133,674 31,127 Total Assets $ 339,630 $ 302,376 Liabilities and Stockholders’ Equity Current Liabilities: Accounts payable $ 13,791 $ 3,248 Accrued expenses and other current liabilities 27,015 10,547 Escrow liability 13,274 — Contingent consideration — 9,500 Convertible notes, current ($ 3,513 and $ 4,222 measured at fair value, respectively) 3,513 4,222 Deferred revenue, current 30,056 13,929 Total current liabilities 87,649 41,446 Convertible notes, noncurrent ($ 3,425 and $ 8,071 measured at fair value, respectively) 4,060 8,284 Derivative liability, noncurrent 101 1,396 Deferred revenue, noncurrent 2,706 — Other liabilities, noncurrent 576 1,205 Total Liabilities $ 95,092 $ 52,331 Commitments and Contingencies (Note 11) Stockholders’ Equity Common Stock, $ 0.001 par value; 100,000,000 shares authorized as of December 31, 2022 and December 31, 2021; 65,239,843 and 60,221,799 issued and outstanding as of December 31, 2022 and December 31, 2021, respectively 67 61 Additional paid-in capital 501,763 416,278 Notes due from affiliates ( 314 ) ( 951 ) Accumulated deficit ( 256,972 ) ( 165,343 ) Accumulated other comprehensive income ( 6 ) — Total stockholders’ equity 244,538 250,045 Total Liabilities and Stockholders’ Equity $ 339,630 $ 302,376 See accompanying notes to the consolidated financial statements. 72 Table of Contents Life360, Inc. Consolidated Statements of Operations and Comprehensive Loss (Dollars in U.S. $, in thousands, except share and per share data) Year Ended December 31, 2022 2021 2020 Subscription revenue $ 153,287 $ 86,551 $ 58,472 Hardware revenue 47,884 952 — Other revenue (including related party revenue of $ 0 , $ 0 and $ 195 , respectively) 27,134 25,140 22,183 Total revenue 228,305 112,643 80,655 Cost of subscription revenue 30,659 17,807 13,582 Cost of hardware revenue 45,441 1,340 — Cost of other revenue 3,607 3,621 1,813 Total cost of revenue 79,707 22,768 15,395 Gross Profit 148,598 89,875 65,260 Operating expenses: Research and development 102,480 50,994 39,643 Sales and marketing 92,419 47,473 30,190 General and administrative 48,110 23,670 12,078 Total operating expenses 243,009 122,137 81,911 Loss from operations ( 94,411 ) ( 32,262 ) ( 16,651 ) Other income (expense): Convertible notes fair value adjustment 1,786 ( 511 ) — Derivative liability fair value adjustment 1,295 ( 733 ) — Other income (expense), net 13 ( 178 ) 317 Total other income (expense), net 3,094 ( 1,422 ) 317 Loss before income taxes ( 91,317 ) ( 33,684 ) ( 16,334 ) Provision (benefit) for income taxes 312 ( 127 ) — Net loss ( 91,629 ) ( 33,557 ) ( 16,334 ) Net loss per share, basic $ ( 1.47 ) $ ( 0.65 ) $ ( 0.33 ) Net loss per share, diluted (Note 18) $ ( 1.50 ) $ ( 0.65 ) $ ( 0.33 ) Weighted-average shares used in computing net loss per share, basic 62,209,545 51,656,195 49,346,050 Weighted-average shares used in computing net loss per share, diluted (Note 18) 62,839,593 51,656,195 49,346,050 Comprehensive loss Net loss $ ( 91,629 ) $ ( 33,557 ) $ ( 16,334 ) Change in foreign currency translation adjustment ( 6 ) — — Total comprehensive loss $ ( 91,635 ) $ ( 33,557 ) $ ( 16,334 ) See accompanying notes to the consolidated financial statements. 73 Table of Contents Life360, Inc. Consolidated Statements of Stockholders’ Equity (Dollars in U.S. $, in thousands, except share and per share data) Common Stock Additional Paid-In Capital Notes Due from Affiliates Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Shares Amount Balance at December 31, 2019 48,840,675 $ 49 $ 188,300 $ ( 831 ) $ ( 115,452 ) $ — $ 72,066 Exercise of stock options 895,430 1 1,612 — — — 1,613 Repurchase of common stock ( 4,554 ) — ( 1 ) — — — ( 1 ) Issuance of common stock for services rendered 1,250 — — — — — — Vesting of restricted stock units 302,607 — — — — — — Taxes paid related to net settlement of equity awards — — ( 1,150 ) — — — ( 1,150 ) Stock-based compensation expense — — 8,091 — — — 8,091 Interest accrued relating to notes due from affiliates — — — ( 96 ) — — ( 96 ) Net loss — — — — ( 16,334 ) — ( 16,334 ) Balance at December 31, 2020 50,035,408 $ 50 $ 196,852 $ ( 927 ) $ ( 131,786 ) $ — $ 64,189 Exercise of stock options 1,056,352 1 3,542 — — — 3,543 Exercise of warrants 37,410 — — — — — — Vesting of restricted stock units 547,882 1 ( 1 ) — — — — Taxes paid related to net settlement of equity awards — — ( 4,725 ) — — — ( 4,725 ) Issuance of warrants with convertible note (Note 9) — — 844 — — — 844 Beneficial conversion feature associated with convertible note (Note 9) — — 603 — — — 603 Issuance of common stock in connection with an acquisition 765,733 1 13,820 — — — 13,821 Issuance of common stock net of issuance costs of $ 5,757 7,779,014 8 193,056 — — — 193,064 Vested option awards assumed in connection with an acquisition — — 533 — — — 533 Stock-based compensation expense — — 11,754 — — — 11,754 Interest accrued relating to notes due from affiliates — — — ( 24 ) — — ( 24 ) Net loss — — — — ( 33,557 ) — ( 33,557 ) Balance at December, 31, 2021 60,221,799 $ 61 $ 416,278 $ ( 951 ) $ ( 165,343 ) $ — $ 250,045 Exercise of stock options 458,422 1 2,393 — — — 2,394 Exercise of warrants 87,795 — 1 — — — 1 Vesting of restricted stock units 762,488 1 ( 1 ) — — — — Taxes paid related to net settlement of equity awards — — ( 4,077 ) — — — ( 4,077 ) Issuance of common stock in connection with an acquisition 763,183 1 15,408 — — — 15,409 Issuance of common stock net of issuance costs of $ 1,050 2,645,503 3 32,212 — — — 32,215 Repayment of notes due from affiliate — — 648 648 — — 1,296 Issuance of common stock in settlement of contingent consideration 376,573 — 4,221 — — — 4,221 Stock-based compensation expense — — 34,680 — — — 34,680 Interest accrued relating to notes due from affiliates — — — ( 11 ) — — ( 11 ) Cancellation of revesting stock ( 75,920 ) — — — — — — Net loss — — — — ( 91,629 ) — ( 91,629 ) Change in foreign currency translation adjustment — — — — — ( 6 ) ( 6 ) Balance at December 31, 2022 65,239,843 $ 67 $ 501,763 $ ( 314 ) $ ( 256,972 ) $ ( 6 ) $ 244,538 74 Table of Contents Life360, Inc. Consolidated Statements of Cash Flows (Dollars in U.S. $, in thousands) Year Ended December 31, 2022 2021 2020 Cash Flows from Operating Activities: Net loss $ ( 91,629 ) $ ( 33,557 ) $ ( 16,334 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 9,199 876 657 Amortization of costs capitalized to obtain contracts 2,928 4,014 7,021 Stock-based compensation expense 34,680 11,754 8,091 Compensation expense in connection with revesting notes ( 87 ) 184 — Non-cash interest (income) expense, net 474 166 ( 23 ) Convertible notes fair value adjustment ( 1,786 ) 511 — Derivative liability fair value adjustment ( 1,295 ) 733 — (Gain)/loss on revaluation of contingent consideration ( 5,279 ) 3,600 — Non-cash revenue from affiliate ( 1,504 ) — — Changes in operating assets and liabilities, net of acquisitions: Accounts receivable, net 6,474 ( 2,689 ) ( 1,149 ) Prepaid expenses and other assets 10,629 ( 943 ) ( 2,220 ) Inventory ( 497 ) ( 859 ) — Costs capitalized to obtain contracts, net ( 3,343 ) ( 1,713 ) ( 5,240 ) Accounts payable ( 12,654 ) 559 1,925 Accrued expenses and other liabilities ( 7,722 ) 4,720 438 Deferred revenue 4,660 1,671 770 Other liabilities, noncurrent ( 303 ) ( 1,180 ) ( 1,186 ) Net cash used in operating activities ( 57,055 ) ( 12,153 ) ( 7,250 ) Cash Flows from Investing Activities: Cash paid for acquisitions, net of cash acquired ( 110,933 ) ( 2,983 ) — Internal use software ( 701 ) — — Purchase of capital assets — ( 81 ) ( 653 ) Cash advance on convertible note receivable — ( 4,000 ) — Net cash used in investing activities ( 111,634 ) ( 7,064 ) ( 653 ) Cash Flows from Financing Activities: Proceeds from the exercise of options 2,394 3,543 1,594 Taxes paid related to net settlement of equity awards ( 4,077 ) ( 4,725 ) ( 1,149 ) Proceeds from repayment of notes due from affiliates 648 — — Payments on borrowings — ( 41 ) ( 3,115 ) Proceeds from borrowings — — 3,115 Repayment of convertible notes ( 3,471 ) — — Proceeds from capital raise, net of $ 1,050 , $ 5,757 , and $ 0 of transaction costs, respectively 32,215 193,064 — Cash received in advance of the issuance of convertible notes — 2,110 — Net cash provided by financing activities 27,709 193,951 445 Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash ( 140,980 ) 174,734 ( 7,458 ) Cash, Cash Equivalents and Restricted Cash at the Beginning of the Period 231,345 56,611 64,069 Cash, Cash Equivalents, and Restricted Cash at the End of the Period $ 90,365 $ 231,345 $ 56,611 75 Table of Contents Life360, Inc. Supplemental disclosure: Cash paid during the period for taxes — ( 33 ) — Cash paid during the period for interest ( 514 ) ( 24 ) — Non-cash investing and financing activities: Fair value of stock issued in connection with an acquisition $ 15,409 $ 13,821 $ — Fair value of convertible debt issued in connection with an acquisition — 11,597 — Fair value of contingent consideration issued in connection with an acquisition — 5,900 — Fair value of vested options assumed in connection with an acquisition — 533 — Forgiveness of convertible note receivable in connection with an acquisition — 4,023 — Relative fair value of warrants issued with convertible debt — 844 — Beneficial conversion feature related to convertible debt — 603 — Fair value of bifurcated derivative related to convertible debt — 663 — Fair value of warrants held as investment in affiliate 5,474 — — Fair value of stock issued in settlement of contingent consideration 4,221 — — Total non-cash investing and financing activities: $ 25,104 $ 37,984 $ — The following table provides a table of cash, cash equivalents, and restricted cash reported within the balance sheets totaling the same such amounts shown above: December 31, 2022 December 31, 2021 December 31, 2020 Cash and cash equivalents $ 75,444 $ 230,990 $ 56,413 Restricted cash 14,921 355 198 Total cash, cash equivalents, and restricted cash $ 90,365 $ 231,345 $ 56,611 See accompanying notes to the consolidated financial statements. 76 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements 1. Nature of Business Life360, Inc. is a leading technology platform used to locate the people, pets and things that matter most to families. The Company was incorporated in the State of Delaware in 2007. The Company’s core offering, the Life360 mobile application, includes features that range from communications to driving safety and location sharing. The Company operates under a “freemium” model where its core offering is available to users at no charge, with three membership subscription options that are available but not required. The Company also generates revenue through monetization arrangements with certain commercial third parties (“Data Revenue Partners”) through Lead Generation and license agreements (including aggregated insights into the data collected from the Company’s user base). On September 1, 2021, the Company acquired all ownership interests of Jiobit. Jiobit is a provider of wearable location devices for young children, pets, and seniors. On January 5, 2022, the Company acquired all ownership interests of Tile. Tile is a smart location company whose products include a Bluetooth enabled device and related accessories that work in tandem with the Tile application to enable its customers to locate lost or misplaced objects. 2. Summary of Significant Accounting Policies Basis of Presentation and Consolidation The consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States, or (“GAAP”), are presented in U.S. dollars unless otherwise stated, and include the accounts of Life360, Inc. and subsidiaries, Jiobit, Tile, Tile Europe Ltd and Tile Network Canada ULC. All inter-company transactions and balances have been eliminated. Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenue and expenses during the reporting period. Significant estimates made by management include, but are not limited to, the determination of revenue recognition, including the determination of selling prices for distinct performance obligations sold in multiple-performance obligation arrangements, the period over which revenue is recognized for certain arrangements, and estimated delivery dates for orders with title transfer upon delivery, accounts receivable allowance, product returns, promotional and marketing allowances, inventory valuation, average useful customer life, stock-based compensation, legal contingencies, assessment of possible impairment of long-lived assets and goodwill, valuation of contingent consideration, convertible notes and Embedded Derivatives, useful lives of long lived assets and income taxes including valuation allowances on deferred tax assets. The Company bases its estimates and judgments on historical experience and on various assumptions that it believes are reasonable under the circumstances. Actual results could differ significantly from those estimates. Recently adopted accounting pronouncements In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers . The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for the Company beginning January 1, 2024, and interim periods therein. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company elected to early adopt ASU 2021-08 on September 1, 2021, and the Company has recorded the acquired deferred revenue based on historical carrying value rather than fair value in the consolidated financial statements and related disclosures. 77 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part of its initiative to reduce complexity in accounting standards. ASU 2019-12 removes the following exceptions: exception to the incremental approach for intraperiod tax allocation; exception to accounting for basis differences when there are ownership changes in foreign investments; and exception to interim period tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also improves financial reporting for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. ASU 2019-12 is effective for public business entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the standard is effective in fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. On January 1, 2021, the Company adopted ASU 2019-12, and the standard did not have a material impact on its consolidated financial statements and related disclosures. In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging , or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, which will result in increased dilutive securities as the assumption of cash settlement of the notes will not be available for the purpose of calculating earnings per share. The provisions of ASU 2020-06 are effective for reporting periods beginning after December 15, 2021, with early adoption permitted for reporting periods beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. On January 1, 2022, the Company adopted ASU 2020-06, and the standard did not have a material impact on its consolidated financial statements and related disclosures. Accounting pronouncements not yet adopted Although there are several new accounting standards issued or proposed by the FASB, which the Company will adopt, as applicable, the Company does not believe any of these accounting pronouncements will have a material impact on its consolidated financial statements. Revenue Recognition The Company recognizes revenue upon transfer of control of promised goods or services to customers at transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Transaction price is calculated as selling price net of variable consideration which may include estimates for future returns and sales incentives related to current period revenue. The Company determines revenue recognition through the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. 78 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Performance Obligations Some of the Company’s contracts with customers contain multiple performance obligations, primarily hardware and subscription services for the Tile and Jiobit hardware tracking devices. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price (“SSP”) basis with the amounts allocated to ongoing services deferred and recognized over a period of time and amounts allocated to hardware tracking devices recognized at a point-in time with a portion of the consideration being allocated to application usage (maintenance) and support. The Company determines SSP based on observable, if available, prices for those related goods and services when sold separately. When such observable prices are not available, the Company determines SSP based on multiple factors including consumer behaviors, the Company’s internal pricing model, and relative costs incurred plus a normal margin. The factors may vary depending upon the facts and circumstances related to each deliverable. For hardware products, the Company generally offers a limited warranty to end-users covering a period of twelve months for products and obligates the Company to repair or replace products for manufacturing defects or hardware component failures. The warranty is not sold separately and does not represent a separate performance obligation. Therefore, such warranties are accounted for under ASC 460, Guarantees, and the estimated costs of warranty claims are generally accrued as cost of revenue in the period the related revenue is recorded. See Note 11 “Commitments and Contingencies” for further details. Variable Consideration The Company recognizes hardware revenue at the net sales price, which includes certain estimates for variable consideration with its customers. The Company’s variable consideration is primarily in the form of promotional agreements and marketing development fund agreements in relation to the hardware tracking devices. These agreements are designed to enhance the sale of the Company’s products and consist of incentives to the Company’s customers. The Company estimates variable consideration using the expected value method. All forms of variable consideration are recorded as contra-revenue and a corresponding liability in its consolidated balance sheet. Certain agreements are estimates at period end due to the nature of the incentives or expected and yet-to-be announced incentive programs that apply to current period revenue transactions. These estimates are based on the Company’s incentive program experience, historical and projected sales data and current contractual terms. The remaining portion of this liability is based on contractual amounts and does not require estimation. Subscription Revenue The Company’s subscription revenue includes related support and is comprised of Life360 mobile application subscriptions as well as subscription service plans for the Tile and Jiobit hardware tracking devices. The Company’s subscription contracts with customers are established at the point of mobile application download and purchase as indicated through acceptance of the Company’s Terms of Use. The Company’s subscription agreements generally have monthly or annual contractual terms and are billed and paid in advance. The cloud-based subscriptions are considered single combined performance obligations, consisting of multiple features that can be purchased separately, but which are bundled together and delivered to the customer as a combined output. The Company provides its customers with technical support along with unspecified updates and upgrades to the platform on an if and when available basis. The subscription service plan for the Tile and Jiobit hardware tracking device is a distinct and separate performance obligation from the hardware. Subscription fees are fixed and recognized on a straight-line basis over the non-cancellable contractual term of the agreement, generally beginning on the date that the Company’s service is made available to the customer. The Company recognizes revenues on a straight-line basis because the customer receives and consumes the benefits of the service ratably throughout the contractual period. The Company’s contracts are generally non-cancelable and do not provide for refunds to customers in the event of cancellations. 79 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Hardware Revenue The Company derives hardware revenue from sale of the Tile and Jiobit hardware tracking devices and related accessories. For hardware and accessories, revenue is recognized at the time products are delivered. The Company offers limited rights of return and estimates reserves based on historical experience and records the reserves as a reduction of revenue and an accrued liability. Amounts billed to customers for shipping and handling are classified as revenue, and the Company’s related shipping and handling costs incurred are classified as cost of revenue. The customers are billed upon shipment of the hardware tracking devices. Sales taxes collected from customers and remitted to respective governmental authorities are recorded as liabilities and are not included in revenue. The Company’s hardware and the embedded operating system are one distinct performance obligation and separate from the subscription service plans for the Tile and Jiobit hardware tracking device. The Company’s embedded operating system is a component of the hardware that is integral to the functionality of the hardware and only together produce the essential functionality of the hardware. The Company offers extended warranties and hardware protection plans that are recognized over the contractual service period (typically 1 to 2 years). Payment terms and conditions vary by contract type and are billed either in advance or have a standard payment term generally requiring payment within 30 to 60 days. Other Revenue Other revenue consists primarily of data revenue and partnership revenue. In January 2022, Life360 announced a new partnership agreement with a key Data Partner, a prominent provider of aggregated analytics for the retail ecosystem, in which executives of the Company have an immaterial ownership interest through a passive investment vehicle. As part of this partnership, the Data Partner will provide data processing and analytics services to Life360 and will have the right to commercialize aggregated data related to place visits during the term of the agreement. The partnership agreement includes fixed monthly revenue amounts for access to aggregated data for the duration of the three-year agreement. The Company has a stand ready obligation to provide aggregated user data over the term of the partnership agreement and recognizes revenue ratably based on the fixed monthly amounts. The Company estimates and includes variable consideration in the transaction price at contract inception to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The partnership agreement has standard payment terms that require payment within 30 days. In connection with the agreement, the Data Partner issued the Company a warrant to purchase up to 5,100,167 shares of Series C Preferred Stock at an exercise price of $ 4.90 per share (“Investment in Affiliate”). The grant of the warrant is considered non-cash consideration, which the Company measured at fair value on the date of issuance. The warrant was valued using a Black-Scholes option pricing model, and the fair value of approximately $ 5.4 million has been included as part of the transaction price of the data partnership agreement, and will be included in prepaid expenses and other assets, noncurrent on the Company’s consolidated balance sheets. The Company’s data revenue also includes Life360 data monetization arrangements with certain third parties established through Data Master Service Agreements (collectively, “Data MSAs”), which outline specific terms governing the access and use of data and related fees. The Company determines a contract to exist upon the mutual execution of a Data MSA. Those customers historically had the ability to access certain portions of the Company’s user data over the contract term, in which certain customers pay a fee based on average active monthly users. Most of the Company’s Data MSAs have been terminated as of December 31, 2022 as the Company has moved toward an aggregated data sales model. The Company recognizes fees for legacy data arrangements over time based on the fee per average active monthly user as the customer simultaneously receives and consumes the benefit of the services that the Company provides over the term of the agreement. Data revenue was $ 23.2 million, $ 18.7 million, and $ 16.0 million for the years ended December 31, 2022, 2021, and 2020, respectively. Partnership revenue includes agreements with third parties to provide access to advertising on the Company’s mobile platform. The Company receives a percentage of the advertising spend as a fee, which is recognized as revenue on a net basis. The variable amounts earned under partnership revenue arrangements are allocable to the month in which the advertising is placed, which is reset on a monthly basis. As such, the Company will recognize revenue monthly based on the advertising placed. 80 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Partnership revenue was $ 3.9 million, $ 6.4 million, and $ 6.0 million for the years ended December 31, 2022, 2021, and 2020, respectively. Remaining Performance Obligations Remaining performance obligations represent the amount of contracted future revenue not yet recognized as the amounts relate to undelivered performance obligations, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. Revenue allocated to remaining performance obligations was $ 32.8 million as of December 31, 2022, of which the Company expects $ 30.1 million to be recognized over the next twelve months . Revenue allocated to remaining performance obligations was $ 13.9 million as of December 31, 2021, all of which the Company expected to be recognized over the next twelve months . Cost of Revenue Cost of subscription revenue includes all direct costs to deliver the Company’s subscription services. These costs include personnel-related costs associated with the Company’s cloud-based infrastructure and the Company’s customer support organization, third-party hosting fees, software, and maintenance costs, outside services associated with the delivery of the Company’s subscription services, personnel-related expenses, travel-related costs, amortization of acquired intangibles and allocated overhead, such as facilities, including rent, utilities, depreciation on equipment shared by all departments, credit card and transaction processing fees, and shared information technology costs. Personnel-related expenses include salaries, bonuses, benefits, and stock-based compensation for operations personnel. Cost of hardware revenue consists of product costs, including hardware production, contract manufacturers for production, shipping and handling, packaging, fulfillment, personnel-related expenses, manufacturing and equipment depreciation, warehousing, tariff costs, customer support costs, credit card and transaction processing fees, warranty replacement, and write-downs of excess and obsolete inventory. Personnel-related expenses include salaries, bonuses, benefits, and stock-based compensation for operations personnel. Cost of other revenue consists of cloud-based hosting costs, as well as costs of product operations function and employee-related costs associated with the Company’s data platform. Costs Capitalized to Obtain Contracts Costs capitalized to obtain contracts comprise of revenue-share payments in connection with annual subscription sales of the Company’s mobile application on each respective third-party store platform as well as sales commissions paid to employees on hardware sales. Costs that are incremental and directly related to new customer sales contracts are accrued and capitalized upon execution of a non-cancelable customer contract, and subsequently expensed over the average life of the customer relationship, which is currently estimated to be two to three years depending on the subscription type. The Company has elected the practical expedient under ASC 340-40 to expense incremental costs of obtaining a contract if the amortization periods is one year or less. Allowance for Doubtful Accounts The Company makes judgments as to its ability to collect outstanding accounts receivable and provide allowances for accounts receivable when and if collection becomes doubtful. The Company evaluates the collectability of its accounts receivable based on review of its past-due balances, known collection risks and historical experience. In circumstances where the Company is aware of a specific customer’s potential inability to meet its financial obligations to the Company (e.g., bankruptcy filings or substantial downgrading of credit ratings), the Company records a specific reserve for bad debt against amounts due to reduce the net recognized receivable to the amount it reasonably believes will be collected. The allowance for doubtful accounts as of December 31, 2022 and December 31, 2021 and total bad debt expense for the years ended December 31, 2022, 2021 and 2020 was immaterial. 81 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Inventory and Contract Manufacturing Inventory is comprised of raw materials and finished goods related to the Tile and Jiobit hardware tracking devices and accessories. Inventory is stated at the lower of cost or net realizable value on a weighted average basis. The Company assesses the valuation of inventory and writes down the value for estimated excess and obsolete inventory based upon estimates of future demand and market conditions. The Company’s inventory is held at third party warehouses and contract manufacturer premises. The Company outsources a significant portion of its manufacturing to independent contract manufacturers in Asia. A significant portion of its cost of revenue consists of inventory purchased from these manufacturers. The Company’s manufacturers procure components and manufacture the Company’s products based on the demand forecasts provided. These forecasts are based on estimates of future demand for the Company’s products, which are in turn based on historical trends and an analysis from the Company’s sales and marketing organizations, adjusted for overall market conditions. Shipments of inventory from the contract manufacturer are recorded as finished goods inventory upon shipment when title and the significant risks and reward of ownership have passed to the Company. Concentrations of Risk and Significant Customers The Company’s business, operations, and financial results are subject to various risks and uncertainties including adverse global economic conditions, such as the coronavirus (COVID-19) pandemic, and competition in the Company’s industry that could adversely affect the Company’s business, financial conditions, results of operations and cash flows. These important factors, among others, could cause actual results to differ materially from any future results. Cash Deposits in Excess of Federally Insured Limits The Company currently maintains its cash balances at one financial institution, Silicon Valley Bridge Bank, N.A. Accounts are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2022, the Company’s cash balances exceeded amounts insured by the FDIC. As a result, the Company may be impacted by adverse developments within the financial services industry which have in the past and may in the future threaten our ability to access our existing cash and cash equivalents and could have a material adverse effect on our business and financial condition. While the Company has not experienced any losses in such accounts, the recent failure of Silicon Valley Bank (“SVB”) exposed the Company to significant credit risk prior to the completion by the FDIC of the resolution of SVB in a manner that fully protected all depositors. The Company is in the process of transferring its accounts to one or more alternate depository institutions, the financial position of which management believes does not expose the Company to significant credit risk. Major Customers The Company’s customers primarily consist of individual consumers, who subscribe to the Company’s product offerings through market exchanges operated by Channel Partners, data revenue customers and retail partners, who purchase hardware tracking devices from the Company and resell them directly to individual consumers. Any changes in customer preferences and trends or changes in terms of use of Channel Partners’ platforms could have an adverse impact on its results of operations and financial condition. The Company depends on the constant real-time performance, reliability and availability of its technology system and access to its partner’s networks. The Company primarily relies on a single technology partner for its cloud platform and a limited number of contract manufacturers to assemble components of the Jiobit and Tile hardware tracking devices. Any adverse impacts to the platform and the contract manufacturers could negatively impact the Company’s relationships with its partners or users and may adversely impact its business, financial performance, and reputation. The Company derives its accounts receivable from revenue earned from customers located in the United States and internationally. The Company does not perform ongoing credit evaluations of its customers’ financial condition and does not require collateral from its customers. Historically, bad debt expenses have been insignificant. Channel and retail partners account for the majority of the Company’s revenue and accounts receivable for all periods presented. 82 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements The following tables set forth the information about the Company’s channel and retail partners who represented greater than 10% of its revenue or accounts receivable, respectively: Percentage of Revenue Year Ended December 31, 2022 2021 2020 Channel Partner A 49 % 57 % 54 % Channel Partner B 15 % 18 % 18 % Retail Partner A 13 % * * * Represents less than 10% Percentage of Gross Accounts Receivable As of December 31, 2022 2021 Channel Partner A 33 % 48 % Channel Partner B * 14 % Data Partner A 11 % * Retail Partner A 23 % * * Represents less than 10% Research and Development Costs The Company charges costs related to research, design, and development of products to research and development expense as incurred. These costs consist of payroll related expenses, contractor fees, outside third-party vendors, and allocated facilities costs. Advertising Expense Advertising expense was $ 17.0 million, $ 7.1 million, and $ 6.7 million for the years ended December 31, 2022, 2021, 2020, respectively. Advertising expenses are recorded in the period in which cost is incurred and are presented within sales and marketing expense on the consolidated statements of operations. Cash and Cash Equivalents The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include deposit and money market funds. Money market mutual funds are valued using quoted market prices and therefore are classified within Level 1 of the fair value hierarchy. Restricted Cash Deposits of $ 14.9 million and $ 0.4 million were restricted from withdrawal as of December 31, 2022 and December 31, 2021, respectively. $ 13.1 million of the restricted balance as of December 31, 2022 relates to funds placed in an indemnity escrow fund to be held for fifteen months after the acquisition date of Tile (i.e., through April 2023) for general representations and warranties and $ 0.2 million relates to funds placed in an indemnity escrow fund to be held for eighteen months after the acquisition date of Jiobit (i.e., through March 2023) for general representations and warranties. The restricted cash balances associated with the Tile and Jiobit indemnity escrow funds are included within restricted cash, current on the accompanying balance sheet. 83 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements The restricted cash, noncurrent balance of $ 1.6 million as of December 31, 2022 relates to cash deposits restricted under letters of credit issued on behalf of the Company in support of indebtedness to trade creditors incurred in the ordinary course of business and to securing the Company’s facility leases. The restricted cash, noncurrent balance of $ 0.4 million as of December 31, 2021 relates to funds placed in an indemnity escrow fund after the acquisition of Jiobit, and facility lease agreements. Fair Value of Financial Instruments The Company uses fair value measurements to record fair value adjustments to certain financial and non-financial assets and liabilities to determine fair value disclosures. The accounting standards define fair value, establish a framework for measuring fair value, and require disclosures about fair value measurements. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the principal or most advantageous market in which the Company would transact are considered along with assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The accounting standard for fair value establishes a fair value hierarchy based on three levels of inputs, the first two of which are considered observable and the last unobservable, that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of Inputs that may be used to measure fair value are as follows: Level 1 – Observable inputs, such as quoted prices in active markets for identical assets or liabilities. Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Valuations based on unobservable inputs to the valuation methodology and including data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances. The recorded carrying amounts of cash and cash equivalents, prepaid expenses, accounts payable, and accounts receivable as of December 31, 2022 and December 31, 2021 approximate fair value due to their short-term nature. Refer to Note 6 “Fair Value Measurements” for further details. Property and Equipment, net Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Equipment, computer software, furniture, and product manufacturing equipment have estimated useful lives ranging from three to ten years . Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life or the term of the lease with expected renewals. Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reported in other income (expense), net in the period realized. Software Development Costs For development costs related to internal use software projects, the Company capitalizes costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life of three years . The Company capitalized $ 0.7 million during the year ended December 31, 2022. Capitalized costs are included within intangible assets, net on the consolidated balance sheet. The Company did no t capitalize any internal use software costs during the year ended December 31, 2021 as the capitalizable costs were not material. 84 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Lease Obligations Operating lease right-of-use assets and lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in the Company’s operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. Operating lease right-of-use assets also include any prepaid lease payments and lease incentives. Certain operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the straight-line single lease cost to be recorded over the lease term. Single lease cost is recognized on a straight-line basis over the lease term commencing on the date the Company has the right to use the leased property. The lease terms may include options to extend or terminate the lease. The Company generally uses the base, non-cancellable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that the renewal option will be exercised. In addition, certain of the Company’s operating lease agreements contain tenant improvement allowances from its landlords. These allowances are accounted for as lease incentives and decrease the Company’s right-of-use asset and reduce single lease cost over the lease term. Refer to Note 8 “Balance Sheet Components” for additional lease disclosures. Business Combinations The Company uses best estimates and assumptions to assign a fair value to the tangible and intangible assets acquired and liabilities assumed in business combinations as of the acquisition date. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations. Goodwill Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill amounts are not amortized but tested for impairment on an annual basis during the fourth quarter. There was no impairment of goodwill during the years ended December 31, 2022, 2021, or 2020. Intangible Assets, net Intangible assets, including acquired, trade names, customer relationships, and acquired developed technology are carried at cost and amortized on a straight-line basis over their estimated useful lives. The Company determines the appropriate useful life of the Company’s intangible assets by measuring the expected cash flows of acquired assets. There was no impairment of intangible assets recorded during the years ended December 31, 2022, 2021, or 2020. Impairment of Long-Lived Assets The Company assesses the impairment of long-lived assets, such as property and equipment subject to depreciation and acquired intangibles subject to amortization, when events or changes in circumstances indicate that their carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company reviews long-lived assets for impairment at least annually, or more frequently if events or changes in circumstances would more likely than not reduce the fair value of its single reporting unit below its carrying value. There was no impairment of long-lived assets recognized during the years ended December 31, 2022, 2021 or 2020. 85 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Deferred Revenue Deferred revenue consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s subscription arrangements. The Company primarily invoices its customers for its subscription services arrangements in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the consolidated balance sheets. Investment in Affiliate Investment in Affiliate relates to non-marketable equity securities held in a privately held company without a readily determinable market value. Non-marketable equity securities consist of warrants held to purchase shares of preferred stock of a Data Revenue Partner, refer to Note 2 “Summary of Significant Accounting Policies” for additional information regarding the Company’s Data Revenue Partner. Investments in non-public businesses that do not have readily determinable pricing, and for which the Company does not have control or does not exert significant influence, are carried at cost less impairments, if any, plus or minus changes in observable prices for those investments. Gains or losses resulting from changes in the carrying value of these investments are included as a non-operating expense to the Company’s consolidated statements of operations and comprehensive loss. There have been no adjustments to the basis of the Company’s Investment in Affiliate to date. The carrying value of the Company’s Investment in Affiliate is included in prepaid expenses and other assets, noncurrent in the consolidated balance sheets. Common Stock Warrants The Company has issued freestanding warrants to purchase shares of common stock in connection with certain debt financing transactions. The warrants are recorded as equity instruments at the grant date fair value using the Black-Scholes option pricing model and are not subject to revaluation at each balance sheet date. In addition, the Company has issued warrants in connection with the convertible note agreements. The warrants are recorded as equity instruments at the grant date fair value using the Black-Scholes option pricing model. The fair value has been recorded as a debt discount that is being amortized to interest expense under the straight-line method over the term of respective convertible notes. Stock-Based Compensation The Company has an equity incentive plan under which various types of equity-based awards including, but not limited to, incentive stock options, non-qualified stock options, restricted stock units, and restricted stock awards, may be granted to employees, nonemployee directors, and nonemployee consultants. For all equity awards granted to employees, nonemployees and directors, the Company recognizes compensation expense based on the grant-date estimated fair values. The fair value of stock options is determined using the Black-Scholes option pricing model. For restricted stock units and restricted stock awards, the fair value is based on the grant date fair value of the award. The Company recognizes compensation expense for stock option awards, restricted stock units, and restricted stock awards on a straight-line basis over the requisite service period of the award, generally three to four years . Forfeitures are recorded as they occur. In 2020, the Company granted a market performance award to an executive that is subject to time-based vesting requirements in which vesting is contingent upon the Company’s achievement of certain market performance goals. The fair value of such performance awards was determined using a Monte Carlo simulation and is recognized under the accelerated attribution method over a four year period. In 2022 and 2021, the Company issued stock options and restricted stock that have performance-based vesting conditions. For awards that include a performance condition, if the performance condition is determined to be probable of being satisfied, the Company recognizes compensation expense related to such awards using the accelerated attribution method over the required performance period. If a performance condition is not probable of being met, no compensation cost is recognized. Refer to Note 14 “Equity Incentive Plan” for further details. 86 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Income Taxes The Company accounts for income taxes under the asset and liability method. The Company estimates actual current tax exposure together with assessing temporary differences resulting from differences in accounting for reporting purposes and tax purposes for certain items, such as accruals and allowances not currently deductible for tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the Company’s balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s statements of operations and comprehensive loss become deductible expenses under applicable income tax laws or when net operating loss or credit carryforwards are utilized. Accordingly, realization of the Company’s deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized. The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. The assessment of whether a valuation allowance is required often requires significant judgment including current and historical operating results, the forecast of future taxable income and on-going prudent and feasible tax planning initiatives. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company did not accrue any interest or penalties related to income tax positions during the years ended December 31, 2022 or 2021. Contingencies From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company evaluates the likelihood of an unfavorable outcome in legal or regulatory proceedings to which it is a party and records a loss contingency on an undiscounted basis when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These judgments are subjective and based on the status of such legal proceedings, the merits of the Company’s defenses, and consultation with legal counsel. Actual outcomes of these legal proceedings may differ materially from the Company’s estimates. The Company estimates accruals for legal expenses when incurred as of each balance sheet date based on the facts and circumstances known to the Company at that time. Segment Information The Company operates as a single operating segment. The Company’s chief operating decision maker is its chief executive officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. All material long-lived assets are based in the United States. Net Loss Per Share The Company computes basic and diluted net loss per share in conformity with ASC 260, “Earnings per Share.” Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period without consideration for potentially dilutive securities as they do not share in losses. Under the if-converted method, shares related to convertible notes, to the extent dilutive, are assumed to be converted into common stock at the beginning of the period. For purposes of this calculation, options to purchase common stock, common stock warrants, and unvested restricted stock units are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share as the effect is antidilutive. Refer to Note 18 “Net Loss Per Share” for further details. 87 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements 3. Geographical Revenue Revenue by geography is generally based on the address of the customer as defined in the contract with the customer. The following table sets forth revenue by geographic region (in thousands): Year Ended December 31, 2022 2021 2020 North America $ 207,746 $ 104,740 $ 74,547 Europe, Middle East and Africa 12,044 4,144 3,009 Other international regions 8,515 3,759 3,099 Total revenue $ 228,305 $ 112,643 $ 80,655 4. Deferred Revenue The following table represents a roll forward of the Company’s deferred revenue (in thousands): Year Ended December 31, 2022 2021 Deferred revenue, beginning of period $ 13,929 $ 11,855 Acquired deferred revenue 10,203 403 Additions to deferred revenue 213,748 91,141 Recognized revenue in the period ( 205,118 ) ( 89,470 ) Deferred revenue, end of period $ 32,762 $ 13,929 The Company’s total deferred revenue balances totaled $ 32.8 million and $ 13.9 million as of December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, the Company recognized $ 13.9 million of revenue that was included in the deferred revenue balance as of December 31, 2021. During the year ended December 31, 2021, the Company recognized $ 11.9 million of revenue that was included in the deferred revenue balance as of December 31, 2020 . 5. Costs Capitalized to Obtain Contracts The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. The Company determined that its costs to obtain contracts were both direct and incremental. These costs are attributable to the Company’s largest Channel Partners. Costs of obtaining renewal contracts, which are not considered commensurate with new revenue contracts, are deferred and then amortized on a straight-line basis over the related period of benefit, which is approximately two to three years depending on the subscription type. The following table represents a roll forward of the Company’s costs capitalized to obtain contracts, net (in thousands): Year Ended December 31, 2022 2021 Capitalized costs to obtain contracts, beginning of period $ 1,649 $ 3,950 Acquired costs capitalized to obtain contracts 1,184 — Additions to capitalized costs to obtain contracts 2,159 1,713 Amortization of capitalized costs to obtain contracts ( 2,928 ) ( 4,014 ) Capitalized costs to obtain contracts, end of period $ 2,064 $ 1,649 88 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements 6. Fair Value Measurements The Company measures and reports certain financial instruments as assets and liabilities at fair value on a recurring basis. These liabilities are considered Level 3 instruments. The fair value of these instruments as of December 31, 2022 and December 31, 2021 are classified as follows (in thousands): As of December 31, 2022 Level 1 Level 2 Level 3 Total Liabilities: Derivative liability (Note 10) $ — $ — $ 101 $ 101 Convertible notes (Note 9) — — 6,938 6,938 Total $ — $ — $ 7,039 $ 7,039 As of December 31, 2021 Level 1 Level 2 Level 3 Total Liabilities: Derivative liability (Note 10) $ — $ — $ 1,396 $ 1,396 Convertible notes (Note 9) — — 12,293 12,293 Contingent consideration — — 9,500 9,500 Total $ — $ — $ 23,189 $ 23,189 The change in fair value of the Level 3 instruments were as follows (in thousands): As of December 31, 2022 Derivative liability (Note 10) Convertible notes (Note 9) Contingent consideration Fair value, beginning of the year $ 1,396 $ 12,293 $ 9,500 Vesting of revesting notes — 137 — Forfeiture of revesting notes — ( 235 ) — Repayment of convertible notes (Note 9) — ( 3,471 ) — Changes in fair value ( 1,295 ) ( 1,786 ) ( 5,279 ) Issuance of common stock in settlement of contingent consideration — — ( 4,221 ) Fair value, end of year $ 101 $ 6,938 $ — As of December 31, 2021 Derivative liability (Note 10) Convertible notes (Note 9) Contingent consideration Fair value, beginning of the year $ — $ — $ — Issuance of derivative liability 663 — — Issuances of convertible notes — 11,597 — Issuance of revesting notes — 186 — Issuance of contingent consideration — — 5,900 Changes in fair value 733 510 3,600 Fair value, end of year $ 1,396 $ 12,293 $ 9,500 89 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements For the year ended December 31, 2022, the Company recorded a gain associated with the change in fair value of the derivative liability and convertible notes of $ 1.3 million and $ 1.8 million, respectively. For the year ended December 31, 2021, the Company had recorded a loss associated with the change in fair value of the derivative liability and convertible notes of $ 0.7 million and $ 0.5 million, respectively. The amounts have been recorded in other income (expense), net in the consolidated statement of operations and comprehensive loss. For the year ended December 31, 2022, the Company recorded a gain associated with the change in fair value of the contingent consideration of $ 5.3 million. For the year ended December 31, 2021, the Company had recorded a loss associated with the change in fair value of the contingent consideration of $ 3.6 million. The amounts have been recorded in general and administrative expense in the consolidated statement of operations and comprehensive loss. 7. Business Combinations Jio, Inc. On September 1, 2021, the Company completed the acquisition of Jiobit, a privately held consumer electronics company that specializes in the production of low powered sensors and wearables. The company is based in Chicago, Illinois and was founded in 2015. Jiobit has developed a small and long-lasting tracking solution. The mobile app, which is run through a wireless subscription service, offers a comprehensive set of monitoring and notification features. The addition of Jiobit is expected to strengthen and extend the Company’s market leadership position by leveraging Jiobit’s developed technology and customer relationships to accelerate the Company’s own product development and augment the Company with a critical mass of talent with strong tracking/wearables experience. The aggregate purchase consideration was $ 43.2 million, of which $ 7.3 million was paid in cash, $ 5.9 million of contingent consideration was payable upon reaching certain operational goals for 2021 and 2022, $ 11.6 million representing the fair value of the September 2021 Convertible Notes, $ 4.0 million representing forgiveness of Jiobit’s convertible debt held by the Company, $ 0.6 million comprised of 25,245 vested common stock options issued to Jiobit employees, and $ 13.8 million comprised of 674,516 shares of the Company’s common stock. Of the consideration transferred, $ 0.2 million in cash was placed in an indemnity escrow fund to be held for eighteen months after the acquisition date for general representations and warranties. The September 2021 Convertible Notes issued as part of the purchase consideration can be converted to common stock at any time subsequent to the acquisition at a fixed conversion price of $ 22.50 per share. On each of the first three annual anniversaries of the issuance date of the September 2021 Convertible Notes, the Company will repay 1/3rd of the unconverted principal plus accrued interest to the holders of such notes. Upon a change of control, the holder may elect to either convert at the fixed conversion price of $ 22.50 per share or be repaid in full. The Company has elected the fair value option and will remeasure the September 2021 Convertible Notes at their fair value on each reporting date and reflect the changes in fair value in earnings. The estimated fair value of the September 2021 Convertible Notes is determined using a combination of the present value of the cash flows and the Black-Scholes option pricing model using assumptions as follows: As of December 31, As of December 31, As of September 1, 2022 2021 2021 Principal $ 6,730 $ 11,206 $ 11,206 Interest rate 6.6 % 4.5 % 4.5 % Common stock fair value per share 9.94 21.16 20.49 Conversion price per share 22.50 22.50 22.50 Risk-free interest rate 4.50 % 0.88 % 0.45 % Time to exercise (in years) 1.7 2.7 3 Volatility 53 % 43 % 37 % Annual dividend yield 0 % 0 % 0 % 90 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements A total of $ 6.2 million was excluded from purchase consideration which consists of $ 1.9 million comprised of 91,217 shares of the Company’s common stock (“Revesting Stock” – Note 14) and $ 1.6 million comprised of convertible notes (“Revesting Notes”) issued to key employees, retention bonuses of $ 1.0 million, and $ 0.5 million comprised of 43,083 unvested common stock options issued to Jiobit employees (“Unvested Replacement Awards” – Note 14). The Company incurred transaction related expenses of $ 1.0 million, which were expensed as incurred and recorded under general and administrative expenses in the consolidated statements of operations and comprehensive loss. The Revesting Stock and Revesting Notes are restricted and vest with continuous employment of certain key employees over a 3-year period subsequent to the acquisition. The Revesting Stock is recognized in general and administrative expense as the Revesting Stock vests. In April 2022, one of the key employees exited the Company, and so the entirety of their Revesting Notes and Revesting Stock was forfeited. The Company recorded $ 0.3 million credit to stock-based compensation included in general and administrative expense related to the forfeiture of their Revesting Stock and $ 0.3 million credit to compensation included in general and administrative expense related to the forfeiture of their Revesting Notes. The Company recorded $ 0.2 million and $ 0.2 million as stock-based compensation included in general and administrative expense related to the vesting of the Revesting Stock for the years ended December 31, 2022 and 2021, respectively. The Company records the Revesting Notes at fair value and will remeasure the Revesting Notes at fair value on each reporting date. The Revesting Notes are recognized in general and administrative expense. As the Revesting Notes vest, the changes in fair value are recorded as general and administrative expense with a corresponding entry to convertible notes. The estimated fair value of the Revesting Notes is determined using a combination of the present value of the Revesting Notes cash flows and the Black-Scholes option pricing model. The terms of the Revesting Notes are consistent with the terms of the September 2021 Convertible Notes. The Company recorded an $ 0.2 million amount and $ 0.2 million as general and administrative and expense related to the changes in fair value of Revesting Notes during the years ended December 31, 2022 and 2021, respectively. The retention bonuses are recognized in prepaid expenses and other assets, noncurrent in the consolidated balance sheet and vest monthly over a period of 24 months and require continuous employment. The expense associated with the Unvested Replacement Awards is recognized as stock-based compensation ratably over the remaining service period. The 2021 and 2022 contingent consideration is based on the achievement of a Qualifying Units Sold Target for the period January 1, 2021 through December 31, 2021 (“2021 Contingent Consideration”) and for the period January 1, 2022 through December 31, 2022 (“2022 Contingent Consideration,” collectively, “Contingent Consideration”). The Contingent Consideration consists of 301,261 and 451,891 shares for 2021 and 2022, respectively, with the amount paid equal to the attainment relative to target in each year and settled in shares of the Company’s common stock. The Contingent Consideration shares payable is determined based on the percentage achievement relative to the target in each period, respectively, with greater than 100 % attainment resulting in 100 % payment, 90 % to 100 % attainment resulting in the number of shares equal to the percentage attainment, and less than 90 % attainment equal to no consideration. The Contingent Consideration is held at fair value with changes in fair value recognized in general and administrative expense. The estimated fair value of the Contingent Consideration is determined by using a Monte Carlo simulation scenario-based analysis that estimates the fair value of the Contingent Consideration based on the probability-weighted present value of the expected future cash flows, considering possible outcomes based on actual and forecasted results. The estimated fair value of the 2021 and 2022 Contingent Consideration upon issuance was $ 0.1 million and $ 5.8 million, respectively. The estimated fair value of the 2021 and 2022 Contingent Consideration as of December 31, 2021 was $ 6.3 million and $ 3.1 million, respectively. The Company recorded a $ 5.3 million gain and $ 3.6 million loss within general and administrative expense related to the change in the fair value of the Contingent Consideration during the years ended December 31, 2022 and 2021, respectively. In April 2022, the Board of Directors and previous Jiobit shareholders approved an amendment to the 2021 Contingent Consideration. The 2021 Contingent Consideration was amended to 50 % of the total potential amount of which 376,573 shares of the Company’s common stock were issued to shareholders. The fair value of the common stock of $ 4.2 million was recorded to additional paid-in capital and the contingent consideration liability was reversed. As of December 31, 2022, the Contingent Consideration was zero as it was fully settled in April 2022. 91 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements The acquisition was accounted for as a business combination. The total purchase price of $ 43.2 million was allocated to the net tangible and intangible assets and liabilities based on their estimated fair values on the acquisition date and the excess was recorded to goodwill. The provisional values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of these financial statements and may be adjusted during the measurement period of up to 12 months from the date of acquisition. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. The assets acquired and liabilities assumed in connection with the acquisition were recorded at their fair value on the date of acquisition as follows (in thousands): Fair Value Net tangible assets $ 5,986 Intangible assets 8,400 Goodwill 30,363 Liabilities assumed ( 1,551 ) Total acquisition consideration $ 43,198 The following table sets forth the components of identifiable intangible assets acquired (in thousands) and their estimated useful lives as of the date of acquisition: Fair Value Estimated Useful Life (in years) Developed technology $ 4,030 5 Trade name 3,380 10 Customer relationships 990 10 Total identified intangible assets $ 8,400 Goodwill represents the future economic benefits arising from other assets that could not be individually identified and separately recognized, such as the acquired assembled workforce of Jiobit. In addition, goodwill represents the future benefits as a result of the acquisition that will enhance the Company’s product available to both new and existing customers and increase the Company’s competitive position. The goodwill is not deductible for tax purposes. The Company estimated and recorded a net deferred tax liability of $ 0.1 million after offsetting the acquired available tax attributes with the intangible assets shown in the table above. Refer to Note 15 “Income Taxes” for discussion of the partial release of the Company’s valuation allowance relating to the deferred tax liability. The results of operations of Jiobit are included in the accompanying consolidated statements of operations and comprehensive loss from the date of acquisition. 92 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Jio, Inc. Pro Forma Financial Information (Unaudited) The following table presents unaudited supplemental pro forma financial information as if the acquisition of Jio, Inc. had occurred on January 1, 2020. The unaudited pro forma results set forth below are for informational purposes only and are based on estimates and assumptions that have been made solely for purposes of developing such pro forma results, including: (i) amortization associated with acquired intangible assets and (ii) the inclusion of acquisition costs as of the period presented. The unaudited pro forma results do not give effect to management adjustments, including the potential impact of current financial conditions or any anticipated revenue enhancements, cost savings or operating synergies that may have resulted from the transaction. The unaudited pro forma results set forth below are not necessarily indicative of what results would have been had the acquisition been consummated on January 1, 2020. Year Ended December 31, 2021 2020 (unaudited, in thousands) Revenues $ 116,330 $ 84,857 Net loss $ ( 37,356 ) $ ( 20,764 ) Tile, Inc. On January 5, 2022, the Company completed the acquisition of Tile, Inc., a privately held consumer electronics company. The company is based in San Mateo, California and was founded in 2012. Tile is a smart location company whose products include a Bluetooth enabled device and related accessories that work in tandem with the Tile application (the “Application”), to enable its customers to locate lost or misplaced objects. Tile offers a comprehensive list of products to use with the application, along with optional subscription services to enhance features offered for Tile products. The addition of Tile is expected to strengthen and extend Life360’s market leadership position by leveraging Tile’s developed technology and customer relationships to accelerate the Company’s own product development and augment the Life360 team with a critical mass of talent. The aggregate purchase consideration was $ 173.5 million, of which $ 158.1 million was paid in cash and $ 15.4 million paid in equity. The $ 15.4 million in equity was comprised of 780,593 shares of the Company’s common stock valued on the date of acquisition and 534,465 shares of common stock contingent consideration which was promised upon reaching certain operational goals. Of the consideration transferred, $ 14.1 million in cash and 84,524 common shares were placed in an indemnity escrow fund to be held for fifteen months after the acquisition date for general representations and warranties. A total of $ 35.0 million was excluded from purchase consideration which consists of retention compensation of 1,499,349 shares of retention restricted stock units valued at $ 29.6 million, $ 0.4 million related to 38,730 vested common stock options issued to Tile employees as stock-based compensation on the acquisition date and change in control bonuses of $ 3.0 million which were recognized as compensation expense on the consolidated statements of operations on the acquisition date. The Company incurred transaction related expenses of $ 1.7 million, which were recorded under general and administrative expenses in the consolidated statements of operations. The remaining costs excluded from purchase consideration were a result of 1,561 shares granted to key employee and vested based continued employment and 4,784 shares of contingent consideration granted to a key employee and vested based on continued employment. Of the 1,499,349 shares of retention restricted stock units, 787,446 shares valued at $ 15.6 million contain performance vesting criteria based on the achievement of certain company milestones, and vest over a two year period. The remaining retention restricted stock units of 711,903 shares vest over a two to four year period. The contingent consideration was based on the Company’s achievement of certain targets for revenue and earnings before interest, taxes, depreciation, and amortization for the three months ended December 31, 2021 and the three months ended March 31, 2022. The Company determined that the criteria to satisfy the contingent consideration was not met, and as such, no value was ascribed to the contingent consideration. 93 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements The acquisition was accounted for as a business combination and the total purchase consideration was allocated to the net tangible and intangible assets and liabilities based on their fair values on the acquisition date and the excess was recorded to goodwill. The provisional values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of these financial statements and certain assets and liabilities may be subject to adjustment during the measurement period of up to 12 months from the date of acquisition including, but not limited to, intangible assets, certain reserves and income taxes. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. During the year ended December 31, 2022, the Company made a measurement period adjustment to the preliminary purchase price allocation which included: (i) a decrease to goodwill of $ 0.5 million, (ii) an increase to deferred revenue of $ 1.3 million, and (iii) an increase to inventory of $ 0.8 million. The measurement period adjustment was made to reflect facts and circumstances that existed as of the acquisition date and is reflected in the table below. The assets acquired and liabilities assumed in connection with the acquisition were recorded at their fair value on the date of acquisition as follows (in thousands): Fair Value Cash $ 32,997 Restricted cash 1,050 Accounts receivable 27,826 Prepaid expenses and other current assets 5,004 Inventory 8,320 Property and equipment 570 Prepaid expenses and other assets, noncurrent 482 Intangible assets 52,700 Goodwill 102,547 Accounts payable ( 23,197 ) Accrued expenses and other current liabilities ( 24,613 ) Deferred revenue ( 10,203 ) Total acquisition consideration $ 173,483 The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition: Fair Value (in thousands) Estimated Useful Life (in years) Developed technology $ 18,400 5 Trade name 20,000 10 Customer relationships 14,300 8 Total identified intangible assets $ 52,700 Goodwill represents the future economic benefits arising from other assets that could not be individually identified and separately recognized, such as the acquired assembled workforce of Tile. In addition, goodwill represents the future benefits as a result of the acquisition that will enhance the Company’s product available to both new and existing customers and increase the Company’s competitive position. The goodwill is not deductible for tax purposes. The results of operations of Tile are included in the accompanying consolidated statements of operations and comprehensive loss from the date of acquisition. 94 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Tile, Inc. Pro Forma Financial Information (Unaudited) The following table presents unaudited supplemental pro forma financial information as if the acquisition of Tile, Inc. had occurred on January 1, 2021. The unaudited pro forma results set forth below are for informational purposes only and are based on estimates and assumptions that have been made solely for purposes of developing such pro forma results, including: (i) amortization associated with acquired intangible assets; (ii) to adjust for amortization expense recorded by Tile, Inc. associated with deferred costs of revenue which were not acquired by the Company; (iii) recognition of post-combination stock-based compensation expense; (iv) the inclusion of acquisition costs as of the period presented; and (v) the associated tax impact of the acquisition and the unaudited pro forma adjustments. The unaudited pro forma results do not give effect to management adjustments, including the potential impact of current financial conditions or any anticipated revenue enhancements, cost savings or operating synergies that may have resulted from the transaction and are not necessarily indicative of what results would have been had the acquisition been consummated on January 1, 2021. Given the acquisition of Tile, Inc. took place on January 5, 2022, substantially all of the financial results of Tile, Inc. have been incorporated into the consolidated financial results for the year ended December 31, 2022. The difference between actual financial results and pro forma results is immaterial for the year ended December 31, 2022. Year Ended December 31, 2022 2021 (unaudited, in thousands) Revenues $ 228,305 $ 218,236 Net loss $ ( 91,629 ) $ ( 78,448 ) 8. Balance Sheet Components Accounts receivable, net Accounts receivable, net consists of the following (in thousands): As of December 31, 2022 2021 Accounts receivable $ 33,219 $ 11,772 Allowance for doubtful accounts ( 94 ) — Accounts receivable, net $ 33,125 $ 11,772 Inventory Inventory consists of the following (in thousands): As of December 31, 2022 2021 Raw materials $ 3,063 $ 1,298 Finished goods 7,763 711 Total inventory $ 10,826 $ 2,009 95 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): As of December 31, 2022 2021 Prepaid expenses $ 6,925 $ 9,798 Other receivables 1,623 792 Total prepaid expenses and other current assets $ 8,548 $ 10,590 Prepaid expenses primarily consist of certain cloud platform and customer service program costs. Other receivables primarily consist of refunds owed to the Company and other amounts which the Company may receive in future months. Property and Equipment, net Property and equipment, net consists of the following (in thousands): As of December 31, 2022 2021 Computer equipment $ 276 $ 479 Leasehold improvements 100 923 Production manufacturing equipment 624 378 Furniture and fixtures 9 422 Total property and equipment, gross 1,009 2,202 Less: accumulated depreciation ( 616 ) ( 1,622 ) Total property and equipment, net $ 393 $ 580 Depreciation expense was $ 0.5 million, $ 0.5 million, and $ 0.5 million for the years ended December 31, 2022, 2021, and 2020 , respectively. Prepaid Expenses and Other Assets, noncurrent Prepaid expenses and other assets, noncurrent consist of the following (in thousands): As of December 31, 2022 2021 Prepaid expenses $ 1,524 $ 3,324 Investment in affiliate 5,474 — Other assets 136 367 Total prepaid expenses and other assets, noncurrent $ 7,134 $ 3,691 Prepaid expenses primarily consist of cloud platform costs. Investment in Affiliate relates to warrants to purchase shares of common stock of a current Data Revenue Partner. Refer to Note 2 “Summary of Significant Accounting Policies” for additional information. Leases During the year ended December 31, 2022, the Company leased real estate space under non-cancellable operating lease agreements in San Francisco, San Diego and San Mateo, California and Chicago, Illinois. As of December 31, 2022, the Company has terminated the operating lease agreements in San Francisco and San Diego, California and currently holds a lease for its corporate headquarters in San Mateo, California and a leased office in Chicago, Illinois. The operating leases have remaining lease terms of up to 1 year, some of which include the option to extend the lease. 96 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements The Company has recognized an operating lease right-of-use (ROU) asset and short term lease liabilities of $ 0.8 million and $ 0.8 million in “Right-of-use-asset” and “ Accrued expenses and other current liabilities, ” respectively, on the Company’s consolidated balance sheet as of December 31, 2022. No long-term lease liabilities were recorded within “ Other noncurrent liabilities ” on the Company’s consolidated balance sheet as of December 31, 2022. The Company has recognized operating ROU assets, short term and long-term lease liabilities of $ 1.6 million, $ 1.6 million, and $ 0.3 million in “Right-of-use-asset,” “ Accrued expenses and other current liabilities, ” and “ Other noncurrent liabilities, ” respectively, on the Company’s consolidated balance sheet as of December 31, 2021. The Company did not have any finance leases as of December 31, 2022 or December 31, 2021. Operating lease costs were as follows (in thousands): Year Ended December 31, 2022 2021 2020 Operating lease cost (1) $ 2,345 $ 1,470 $ 1,422 (1) Amounts include short-term leases, which are immaterial. The weighted-average remaining term of the Company’s operating leases was 0.8 years and 1.3 years as of December 31, 2022 and 2021, respectively, and the weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.0 % and 4.8 %, respectively. Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of December 31, 2022 were as follows (in thousands): Operating leases 2023 $ 829 Total future minimum lease payments 829 Less imputed interest ( 16 ) Total operating lease liability $ 813 Payments for operating leases included in cash from operating activities were $ 2.4 million and $ 1.6 million for the years ended December 31, 2022 and 2021, respectively. Intangible Assets, net Intangible assets, net consists of the following (in thousands): As of December 31, 2022 2021 Trade name 23,380 3,380 Technology 22,430 4,030 Customer relationships 15,290 990 Internal use software 701 — Total intangible assets, gross 61,801 8,400 Less: accumulated amortization ( 9,102 ) ( 414 ) Total intangible assets, net $ 52,699 $ 7,986 Amortization expense was $ 8.7 million, $ 0.4 million, and $ 0.2 million for the years ended December 31, 2022, 2021, and 2020, respectively. 97 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements As of December 31, 2022, estimated remaining amortization expense for intangible assets by fiscal year is as follows (in thousands): Amount 2023 $ 8,944 2024 8,944 2025 8,864 2026 8,442 Beyond 17,505 Total future amortization expense $ 52,699 The weighted-average remaining useful lives of the Company’s acquired intangible assets are as follows: Weighted-Average Remaining Useful Life As of December 31, 2022 2021 Trade name 9.0 years 9.7 years Technology 3.9 years 4.5 years Customer relationships 7.1 years 9.7 years Internal use software 2.8 years — The detail of intangible assets, net is as follows (in thousands): As of December 31, 2022 Trade name Technology Customer relationships Internal use software Total Total intangible assets $ 23,380 $ 22,430 $ 15,290 $ 701 $ 61,801 Less accumulated amortization ( 2,424 ) ( 4,705 ) ( 1,895 ) ( 78 ) ( 9,102 ) Total intangible assets, net $ 20,956 $ 17,725 $ 13,395 $ 623 $ 52,699 As of December 31, 2021 Trade name Technology Customer relationships Total Total intangible assets $ 3,380 $ 4,030 $ 990 $ 8,400 Less accumulated amortization ( 113 ) ( 268 ) ( 33 ) ( 414 ) Total intangible assets, net $ 3,267 $ 3,762 $ 957 $ 7,986 Goodwill Goodwill consists of the following (in thousands): Balance as of December 31, 2021 $ 31,127 Acquisitions 102,547 Balance as of December 31, 2022 $ 133,674 98 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Accrued Expenses and Other Current Liabilities Accrued expenses and other liabilities consist of the following (in thousands): As of December 31, 2022 2021 Accrued vendor expenses $ 4,868 $ 7,478 Accrued compensation 3,900 1,324 Customer related promotions and discounts 10,871 — Operating lease liability 813 1,574 Sales return reserves 2,952 — Other current liabilities 3,611 171 Total accrued expenses and other current liabilities $ 27,015 $ 10,547 Other current liabilities primarily relate to warranty liabilities related to the Company’s hardware tracking devices and inventory received not yet billed. Escrow Liability The escrow liability relates to restricted cash associated with the Tile Acquisition, $ 13.1 million, and Jiobit Acquisition, $ 0.2 million, placed in an indemnity escrow fund to be held for fifteen months and eighteen months , respectively, after the acquisition date for general representations and warranties. The initial balances were included within total consideration transferred. As of December 31, 2022 the total escrow liability remaining was $ 13.3 million and is included within current liabilities. As of December 31, 2021, the total escrow liability was $ 0.2 million and was included within noncurrent liabilities. Other Noncurrent Liabilities Other noncurrent liabilities consist of the following (in thousands): As of December 31, 2022 2021 Deposit liabilities $ 78 $ 916 Other liabilities, noncurrent 498 — Operating lease liability — 289 Total other liabilities, noncurrent $ 576 $ 1,205 9. Convertible Notes In July 2021, the Company issued the July 2021 Convertible Notes to investors with an underlying principal amount of $ 2.1 million. The July 2021 Convertible Notes accrue simple interest at an annual rate of 4 % and mature on July 1, 2026. The July 2021 Convertible Notes may be settled under the following scenarios at the option of the holder: (i) at any time into common shares equal to the conversion amount of outstanding principal and any accrued but unpaid interest divided by the conversion price of $ 11.96 ; (ii) at the option of the holder upon a liquidation event a) paid in cash equal to the outstanding principal and any accrued but unpaid interest or b) into common shares equal to the conversion amount of outstanding principal and any accrued but unpaid interest divided by the conversion price of $ 11.96 ; or (iii) upon maturity, settlement in cash at the outstanding accrued interest and principal amount. 99 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Certain conversion and redemption features of the July 2021 Convertible Notes were determined to not be clearly and closely associated with the risk of the debt-type host instrument and were required to be separately accounted for as derivative financial instruments. The Company bifurcated these embedded conversion and redemption (“Embedded Derivatives”) features and classified these as liabilities measured at fair value. The fair value of the derivative liability of $ 0.7 million was recorded separate from the July 2021 Convertible Notes with an offsetting amount recorded as a debt discount. The debt discount is amortized over the estimated life of the debt using the straight-line method, as the value attributable to the July 2021 Convertible Notes was zero upon issuance. As of December 31, 2022 the unamortized amount and net carrying value of the July 2021 Convertible Notes is $ 1.5 million and $ 0.6 million, respectively. The amount by which July 2021 Convertible Notes if-converted value does not exceed its principal is $ 0.4 million as of December 31, 2022. As of December 31, 2021 the unamortized amount and net carrying value of the July 2021 Convertible Notes is $ 1.9 million and $ 0.2 million, respectively. The amount by which July 2021 Convertible Notes if-converted value exceeds its principal is $ 1.6 million as of December 31, 2021. In connection with the July 2021 Convertible Notes, the Company issued warrants to purchase 88,213 shares of the Company’s common stock with an exercise price of $ 0.01 per share and a term of one year (Warrant Tranche 1), 44,106 shares of the Company’s common stock with an exercise price of $ 11.96 per share and a term of 5 years (Warrant Tranche 2), and 44,106 shares of the Company’s common stock which is exercisable starting twelve months from the issuance date with an exercise price of $ 11.96 per share and a term of 5 years (Warrant Tranche 3). The fair value of the warrants was determined using the Black-Scholes option-pricing method, with the following assumptions: Warrants Tranche 1 Warrants Tranche 2 Warrants Tranche 3 Fair market value of common stock $ 15.36 $ 15.36 $ 15.36 Expected dividend yield 0 % 0 % 0 % Risk-free interest rate 0.09 % 0.89 % 0.89 % Expected volatility 52.00 % 47.40 % 47.40 % Expected term (in years) 1 5 5 The warrants were recorded to additional paid-in capital during the year ended December 31, 2021. The relative fair value of the warrants issued in connection with the July 2021 Convertible Notes was $ 0.8 million and was recorded as a debt discount that is being amortized to interest expense under the straight-line method over the term of respective convertible notes. As a result of the beneficial conversion feature associated with the July 2021 Convertible Notes, $ 0.6 million was added to additional paid-in capital during the year ended December 31, 2021. The beneficial conversion feature was recorded as a debt discount and is being amortized to interest expense under the straight-line method over the term of the respective notes. The Company recognized a total of $ 0.4 million and $ 0.2 million in non-cash interest expense related to the July 2021 Convertible Notes for the years ended December 31, 2022 and 2021, respectively. The Company has also issued convertible notes, September 2021 Convertible Notes, in connection with an acquisition. Refer to Note 7 “Business Combinations” for further details. 100 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Convertible notes, current and noncurrent consist of the following (in thousands): As of December 31, 2022 2021 Convertible notes, current: September 2021 Convertible Notes $ 3,455 $ 4,160 Revesting Notes 58 62 Convertible notes, noncurrent: July 2021 Convertible Notes 635 213 September 2021 Convertible Notes 3,396 7,947 Revesting Notes 29 124 Total convertible notes $ 7,573 $ 12,506 The contractual future principal payments for all convertible notes as of December 31, 2022 were as follows (in thousands): Amount 2023 $ 3,365 2024 3,365 2025 — 2026 2,110 2027 and beyond — Total principal outstanding 8,840 Fair value adjustment ( 1,267 ) Total convertible notes $ 7,573 10. Derivative Liability The Company’s derivative liability represents embedded share-settled redemption features bifurcated from its July 2021 Convertible Notes and is carried at fair value. The changes in the fair value of the derivative liability are recorded in other income (expense), net of the Company’s consolidated statements of operations and comprehensive loss. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. Since derivative financial instruments are initially and subsequently carried at fair value, the Company’s income will reflect the volatility in these estimate and assumption changes. The features embedded in the July 2021 Convertible Notes are combined into one compound Embedded Derivative. The fair value of the Embedded Derivative was estimated based on the present value of the redemption discount applied to the principal amount of the July 2021 Convertible Notes adjusted to reflect the weighted probability of exercise. The discount rate was based on the risk-free interest rate. Upon the issuance of the convertible notes, the Company recorded a derivative liability of $ 0.7 million at fair value using inputs classified as Level 3 in the fair value hierarchy. As of December 31, 2022 and 2021, the fair value of the derivative liability was $ 0.1 million and $ 1.4 million, respectively. Refer to Note 6 “Fair Value Measurements” for further details. 101 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements 11. Commitments and Contingencies Purchase Commitments The Company has certain commitments from outstanding purchase orders primarily related to technology support, facilities, marketing and branding and professional services. These agreements, which total $ 138.9 million as of December 31, 2022 and $ 11.0 million as of December 31, 2021, are cancellable at any time with the Company required to pay all costs incurred through the cancellation date. Contingencies From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made, and such expenditures can be reasonably estimated. The Company is not subject to any current pending legal matters or claims that the Company believes could have a material adverse effect on its financial position, results of operations or cash flows. Indemnification The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual after the execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future but have not yet been made. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual. No amounts associated with such indemnifications have been recorded to date. Litigation Occasionally, the Company is involved in various legal proceedings, claims and government investigations in the ordinary course of business. The outcome of litigation and other legal matters is inherently uncertain, though the Company intends to vigorously defend the matters. In making a determination regarding accruals, using available information, the Company evaluates the likelihood of an unfavorable outcome in legal or regulatory proceedings to which the Company is a party and records a loss contingency when it is probable a liability has been incurred and the amount of the loss can be reasonable estimated. When the Company determines an unfavorable outcome is not probable or reasonably estimable the Company does not accrue for any potential litigation loss. Actual outcomes of these legal and regulatory proceedings may materially differ from the Company’s estimates On March 12, 2019, a former alleged competitor of Tile, Cellwitch, Inc, filed a patent infringement claim against the Company in the U.S. District Court, Northern District of California, seeking permanent injunction and damages. On December 18, 2019, Tile filed an inter partes review petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of the patent. On May 13, 2021, the PTAB issued a Final Written Decision on Tile’s inter partes review petition (the “Final Written Decision”), which both parties appealed. The Final Written Decision was affirmed by the U.S. Court of Appeals for the Federal Circuit on May 13, 2022. The case is currently in trial court with a case management conference scheduled for March 2023. A purported class action (E.S. v. Life360, Inc.) alleging a single cause of action for unjust enrichment was filed against Life360 on January 12, 2023 seeking equitable relief purportedly arising out of Life360’s historic data sales. Given the inherently uncertain nature of litigation, the ultimate disposition of the case is not presently determinable, but the Company intends to defend against the claim. We cannot predict at this point the length of time that this action will be ongoing or estimate the liability, if any, which may arise therefrom. 102 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Based on information currently available and the current state of the litigation, we are unable to reasonably estimate a possible loss or range of possible losses, if any, with regards to outstanding litigation. As a result, no litigation reserve has been recorded on our consolidated balance sheets as of December 31, 2022 or 2021. We will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times if and when it is probable a loss will be incurred and the amount of the loss is reasonably estimable. 12. Common Stock As of December 31, 2022 and December 31, 2021, the Company was authorized to issue up to 100,000,000 shares of par value $ 0.001 per share common stock. As of December 31, 2022 and December 31, 2021, the Company had 108,592 shares of common stock subject to the Company’s right to repurchase. The Company has also issued shares of common stock as a result of stock option exercises throughout its existence. Common stockholders are entitled to dividends when and if declared by the Board of Directors subject to the prior rights of the preferred stockholders. The holder of each share of common stock is entitled to one vote. The common stockholders voting as a class are entitled to elect three members to the Company’s Board of Directors. No dividends have been declared in the Company’s existence. In November 2022, the Company issued a total of 2,645,503 common shares raising proceeds before issuance costs of $ 33.3 million. In December 2021, the Company issued a total of 7,779,014 common shares raising proceeds before issuance costs of $ 198.8 million. The Company has reserved shares of common stock, on an as if converted basis, for issuance as follows: As of December 31, 2022 2021 Issuances under stock incentive plan 8,180,840 6,972,376 Issuances upon exercise of common stock warrants 137,658 272,001 Issuances upon vesting of restricted stock units 6,779,892 2,523,122 Issuances of convertible notes 516,758 686,926 Shares reserved for shares available to be granted but not granted yet 396,347 4,071,403 16,011,495 14,525,828 13. Warrants As of December 31, 2022 and December 31, 2021, the Company had outstanding warrants to purchase 137,658 and 272,001 shares of Company common stock, respectively with exercise prices ranging from $ 0.01 to $ 11.96 and expiry dates ranging from 2022 to 2028. Refer to Note 9 “Convertible Notes” for further details. 14. Equity Incentive Plan 2011 Equity Incentive Plan The Company’s 2011 Stock Plan was originally adopted by the Company’s Board of Directors on July 27, 2011 and the Company’s stockholders on October 11, 2011, and most recently amended by the Board of Directors on September 7, 2018 and the Company’s stockholders (as restated, the “Plan”). The Plan allows the Company to grant restricted stock units, restricted stock and stock options to employees and consultants of the Company and any of the Company’s parent, subsidiaries, or affiliates, and to the members of the Board of Directors. Options granted under the Plan may be either incentive stock options or nonqualified stock options. Incentive stock options (“ISOs”), may be granted only to employees of the Company or any of the Company’s parent or subsidiaries (including officers and directors who are also employees). Nonqualified stock options, or NSOs, may be granted to any person eligible for grants under the Plan. 103 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Under the Plan, the Board of Directors determines the per share exercise price of each stock option, which for ISOs shall not be less than 100 % of the fair market value of a share on the date of grant; provided that the exercise price of an ISO granted to a stockholder who at the time of grant owns stock representing more than 10% of the voting power of all classes of stock (a “10% Stockholder”) shall not be less than 110 % of the fair market value of a share on the date of grant. The Board of Directors determines the period over which options vest and become exercisable. Options granted to new employees generally vest over a 4-year period: 25 % of the shares vest on the first anniversary from the vesting commencement date of the option and an additional 1/48 th of the shares vest on each monthly anniversary thereafter, subject to the employee’s continuous service through each vesting date. Options granted to continuing employees generally vest monthly over a 4-year period. The Board of Directors also determines the term of options, provided the maximum term for ISOs granted to a 10% stockholder must be no longer than 5 years from date of grant and the maximum term for all other options must be no longer than 10 years from date of grant. If an option holder’s service terminates, options generally terminate 3 months from the date of termination except under certain circumstances such as death or disability. The following summary of stock option activity for the periods presented is as follows (in thousands, except share and per share data): Number of Shares Underlying Outstanding Options Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value Balance as of December 31, 2021 6,972,376 $ 5.61 6.71 $ 108,426 Options granted 1,908,934 11.93 Options exercised ( 458,422 ) 5.19 Options cancelled/forfeited ( 242,048 ) 7.28 Balance as of December 31, 2022 8,180,840 7.05 5.61 40,827 Exercisable as of December 31, 2022 5,576,142 $ 5.04 5.48 $ 29,295 As of December 31, 2022, the Company had 27,294,447 shares authorized for issuance and 396,347 shares available for issuance under the Plan. Stock options granted during the years ended December 31, 2022, 2021, and 2020 had a weighted average grant date fair value of $ 8.33 , $ 12.65 , and $ 4.91 per share, respectively. The intrinsic values of outstanding, vested, and exercisable options were determined by multiplying the number of shares by the difference in exercise price of the options and the fair value of the common stock as of December 31, 2022, 2021, and 2020 of $ 9.94 , $ 21.16 , and $ 8.77 per share, respectively. The intrinsic value of the options exercised represents the difference between the exercise price and the fair market value on the date of exercise. The total intrinsic value of the options exercised during the years ended December 31, 2022, 2021, and 2020 was $ 4.1 million, $ 15.1 million, and $ 4.7 million, respectively. The total intrinsic value of the vested options based on the market value of the common stock as of December 31, 2022, 2021, and 2020 was $ 29.3 million, $ 80.6 million, and $ 20.9 million, respectively. The following summary of Restricted Stock Units (“RSU”) activity for the periods presented is as follows: Number of Shares Weighted average grant date fair value Balance as of December 31, 2021 2,523,122 $ 11.53 RSU granted 7,210,770 12.13 RSU vested and settled ( 1,170,350 ) 10.22 RSU cancelled/forfeited ( 1,783,650 ) 13.63 Balance as of December 31, 2022 6,779,892 $ 11.58 104 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements The number of RSUs vested and settled includes shares of common stock that the Company withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. RSUs granted during the years ended December 31, 2022, 2021, and 2020 had a weighted average grant date fair value of $ 12.13 , $ 14.86 , and $ 6.31 per share, respectively. The total fair value of shares vested during the years ended December 31, 2022, 2021, and 2020 was $ 12.0 million, $ 14.0 million, and $ 3.4 million, respectively. Stock Options Granted to Employees The fair value of the employee stock options granted is estimated using the Black-Scholes option-pricing model, based on the following assumptions: Year Ended December 31, 2022 2021 2020 Expected terms (in years) 3.87 4.24 5.68 Expected volatility 65 % 49 % 43 % Risk-free interest rate 2.22 % 0.68 % 0.60 % Expected dividend rate 0 % 0 % 0 % Fair Value of Common Stock : As the Company’s stock is traded on the public market, the fair value on the date of the grant is used. Expected Term : The expected term for employees is based on the simplified method, as the Company’s stock options have the following characteristics: (i) granted at-the-money; (ii) exercisability is conditional upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable, or “plain vanilla” options, and the Company has limited history of exercise data. The expected term for non-employees is based on the remaining contractual term. Expected Volatility : As the Company has limited historical trading data regarding the volatility of its common stock, the expected volatility is based on volatility of a Company of similar entities and the Company’s trading data since IPO. In evaluating similarity, the Company considered factors such as industry, stage of life cycle and size. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company’s common stock becomes available. Risk-Free Interest Rate: The risk-free interest rate is based on U.S. Treasury constant maturity rates with remaining terms similar to the expected term of the options. Expected Dividend Rate : The Company has never paid any dividends and does not plan to pay dividends in the foreseeable future, and, therefore, an expected dividend rate of zero is used in the valuation model. Forfeitures: The Company accounts for forfeitures as they occur. Equity Awards Issued in Connection with Business Combinations Jio, Inc. In connection with the Jiobit Acquisition in September 2021, the Company issued 91,217 shares of restricted common stock with an aggregate fair value of $ 1.9 million to be recognized as post combination stock-based compensation ratably with continuous employment of certain employees over a 3 year period. As of December 31, 2022, there was $ 0.2 million of unrecognized compensation expense related to the restricted common stock which is expected to be recognized over the remaining weighted average life of 1.7 years. As of December 31, 2021, there was $ 1.7 million of unrecognized compensation expense related to this restricted common stock which is expected to be recognized over the remaining weighted average life of 2.7 years. 105 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements Additionally, the Company granted 43,083 service-based stock options under the Plan to certain Jiobit employees with an aggregate fair value of $ 0.5 million which vests ratably over the requisite service period. As of December 31, 2022, there was $ 0.2 million of unrecognized compensation expense related to unvested assumed stock options, which is expected to be recognized over the remaining weighted average life of 1.8 years. As of December 31, 2021, there was $ 0.5 million of unrecognized compensation expense related to unvested assumed stock options, which is expected to be recognized over the remaining weighted average life of 2.0 years. Tile, Inc. In connection with the Tile Acquisition in January 2022, the Company issued 1,499,349 shares of retention restricted stock units with an aggregate fair value of $ 29.6 million. Of the 1,499,349 shares of retention restricted stock units, 787,446 shares valued at $ 15.6 million contained performance vesting criteria based on the achievement of certain company milestones during the three months ended March 31, 2022, and vest over a two year period. As of March 31, 2022, the vesting criteria had not been met and all 787,446 restricted stock units were forfeited. The remaining 711,903 retention restricted stock units vest over a two to four year period. As of December 31, 2022, there was $ 5.6 million of unrecognized compensation expense related to the retention restricted stock units which is expected to be recognized over the remaining weighted average life of 1.5 years. The Company also issued 38,730 vested common stock options to Tile employees as stock-based compensation on the acquisition date. The aggregate fair value of $ 0.4 million was recognized as compensation expense on the date of acquisition. A total of 694,672 shares of common stock with an aggregate fair value of $ 13.7 million were issued to Tile shareholders as part of purchase consideration. All $ 13.7 million was included within purchase consideration. A total of 1,561 shares of common stock with an aggregate fair value of $ 30.8 thousand were issued to a key employee, the vesting of which is subject to continued employment over a 30-month period. As of December 31, 2022, there was $ 69.6 thousand of unrecognized compensation expense related to unvested restricted stock units which is expected to be recognized over the remaining 1.6 years. A total of 84,360 shares of common stock were issued as part of consideration transferred and were placed in an indemnity escrow fund to be held for fifteen months after the acquisition date for general representations and warranties. The aggregate fair value of $ 1.7 million was included within purchase consideration. Stock-Based Compensation Stock-based compensation expense was allocated as follows (in thousands): Year Ended December 31, 2022 2021 2020 Cost of revenue Subscription costs $ 684 $ 444 $ 340 Hardware costs 514 13 — Other costs 237 65 31 Total cost of revenue 1,435 522 371 Research and development 19,431 7,457 5,504 Sales and marketing 3,834 752 424 General and administrative 9,980 3,207 1,792 Total stock-based compensation expense $ 34,680 $ 11,938 $ 8,091 As of December 31, 2022, there was total unrecognized compensation cost for outstanding stock options of $ 9.7 million to be recognized over a period of approximately 2.8 years. 106 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements As of December 31, 2022, there was unrecognized compensation cost for outstanding restricted stock units of $ 50.9 million to be recognized over a period of approximately 2.6 years. There were no capitalized stock-based compensation costs or recognized stock-based compensation tax benefits during the year ended December 31, 2022 . 15. Income Taxes The Company has historically incurred net operating losses only in the United States since its inception. In 2022, the Company incurred $ 91.8 million of net operating losses in the United States and $ 0.3 million of net operating income internationally. An income tax provision of $ 0.1 million and an income tax benefit of $ 0.1 million were recorded for the years ended December 31, 2022 and 2021, respectively, and no provision or benefit for income taxes was recorded for the year ended December 31, 2020. In accordance with ASC 805, a change in the acquirer’s valuation allowance that stems from a business combination should be recognized as an element of the acquirer’s income tax expense or benefit in the period of the acquisition. Accordingly, for the years ended December 31, 2022 and 2021, the Company recorded a $ 27.4 thousand partial release of its valuation allowance stemming from the Tile Acquisition and a $ 0.1 million partial release of its valuation allowance stemming from the Jiobit Acquisition. The reconciliation of the Company’s effective tax rate to the U.S. statutory federal income tax rate was as follows: Year Ended December 31, 2022 2021 2020 Statutory federal income tax rate 21 % 21 % 21 % Research and development tax credits — % 2 % 4 % Stock-based compensation ( 2 ) % 6 % 3 % Fair value adjustment 2 % ( 3 ) % — % Permanent differences ( 2 ) % ( 1 ) % — % Change in valuation allowance ( 19 ) % ( 25 ) % ( 28 ) % Effective tax rate — % — % — % The significant components of net deferred income tax assets were as follows (in thousands): Year Ended December 31, 2022 2021 Deferred tax assets: Reserves and allowances $ 2,534 $ 314 Lease liability 213 432 Depreciable assets 281 157 Net operating loss carryforward 62,565 36,826 Stock-based compensation 6,353 2,561 Capitalized research and development 21,170 — Credits carryforward 9,569 8,017 Total deferred tax assets 102,685 48,307 Deferred tax liabilities: Right-of-use asset ( 210 ) ( 378 ) Acquired intangibles ( 12,829 ) ( 1,018 ) Total deferred tax liabilities ( 13,039 ) ( 1,396 ) Less: Valuation allowance and other reserves ( 89,646 ) ( 46,911 ) Net deferred tax asset $ — $ — 107 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements The Company has provided a full valuation allowance on the net deferred tax assets. The valuation allowance increased by $ 42.7 million during 2022 and $ 12.9 million during 2021. At December 31, 2022, the Company had approximately $ 252.2 million and $ 119.4 million of federal and state net operating loss carryforwards, respectively, available to offset future taxable income. Such carryforwards expire in varying amounts beginning in 2027. The federal net operating loss carryforwards of $ 145.6 million arising after December 31, 2017 do not expire. The Company also had federal and state research and development credit carryforwards of $ 8.4 million and $ 12.5 million, respectively. The federal tax credits expire in varying amounts beginning in 2034. The state tax credits do not expire. Additionally, the Company has approximately $ 1.0 million of tax credits in Canada in which are expected to expire in varying amounts beginning 2032. The Tax Reform Act of 1986 limits the use of net operating loss carryforwards in certain situations where changes occur in the stock ownership of a Company. The annual limitation may result in the expiration of net operating losses and credits before utilization. The Company performed a Section 382 analysis through December 31, 2022. The Company does not expect any previous ownership changes (as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended) to result in a limitation that will materially reduce the total amount of net operating loss carryforwards and credits that can be utilized. Subsequent ownership changes may affect the limitation in future years. The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and Canada. In the normal course of business, the Company is subject to examination by taxing authorities throughout the nation. The Company is not currently under audit by the Internal Revenue Service or other similar state and local authorities. All tax years remain open to examination by major taxing jurisdictions to which the Company is subject. As of December 31, 2022 and 2021, the Company had $ 11.1 million and $ 4.6 million, respectively, of gross unrecognized tax benefits related to federal and state research credits. As of December 31, 2022 all unrecognized tax benefits, if recognized, will not affect the Company’s effective tax rate. The Company does not anticipate any unrecognized tax benefits in the next 12 months that would result in a material change to its financial position. The aggregate changes in the balance of gross unrecognized tax benefits were as follows (in thousands): Balance as of December 31, 2020 $ 3,584 Additions based on tax positions related to 2021 1,004 Balance as of December 31, 2021 4,588 Additions based on tax positions related to 2022 1,327 Additions for tax positions of prior years 5,176 Balance as of December 31, 2022 $ 11,091 On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law and is effective for taxable years beginning after December 31, 2022. The IRA includes multiple incentives to promote clean energy with tax provisions primarily focused on implementing a 15% minimum tax on global adjusted financial statement income and a 1% excise tax on share repurchases. The Company does not believe the IRA will have a material impact on its income tax provision and cash taxes. In accordance with the 2017 Tax Act, research and experimental (“R&E”) expenses under Internal Revenue Code Section 174 are required to be capitalized beginning in 2022. R&E expenses are required to be amortized over a period of five years for domestic expenses and 15 years for foreign expenses. The Company has capitalized research and development expenditures in its income tax provision as a result. 108 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements 16. Related-Party Transactions The Company has entered into secondary financing transactions and other transactions with certain executive officers and Board members of the Company. A summary of the transactions is detailed below: Notes Due From Affiliates (Contra Equity) In February 2016, the Company issued an aggregate of $ 0.6 million in secured partial recourse promissory notes (“Partially Secured Loan”) to the Chief Executive Officer, Non-Executive Director (Previously President), Chief Operating Officer and another executive of the Company. The Company accounted for the 2016 Partially Secured Loan as consideration received for the exercise of the related equity award, because even after the original options are exercised or the shares are purchased, an employee could decide not to repay the loan if the value of the shares declines below the outstanding loan amount and could instead choose to return the shares in satisfaction of the loan. The result would be similar to an employee electing not to exercise an option whose exercise price exceeds the current share price. When shares are exchanged for a Partially Secured Loan, the principal and interest are viewed as part of the exercise price of the “option” and no interest income is recognized. Additionally, compensation cost is recognized over any requisite service period, with an offsetting credit to additional paid-in capital. Periodic principal and interest payments, if any, are treated as deposit liabilities until the note is paid off, at which time, the note balance is settled and the deposit liability balance is transferred to additional paid-in capital. During the year ended December 31, 2022, the Company received proceeds from the repayment of the Partially Secured Loans of $ 0.6 million. As of December 31, 2022 and December 31, 2021, the Company had deposit liability balances of $ 0.3 million and $ 0.7 million, respectively, in connection with the 2016 Partially Secured Loan and other early exercises of equity awards. Principal amounts due under the 2016 Partially Secured Loan are included in Notes Due From Affiliates as a reduction in stockholders’ equity on the consolidated balance sheets. Other Related Party Transactions Non-executive director, James Synge, is a Principal and Partner of Carthona Capital. During the year ended December 31, 2021, the Company entered into a consultancy agreement with Carthona Capital. Under this agreement, Carthona Capital agreed to provide consultancy services to the Company in relation to capital raising matters. During the year ended December 31, 2022, Carthona Capital received consideration of $ 0.1 million. Annika Hulls is the spouse of the CEO and Executive Director, Chris Hulls. During the year ended December 31, 2022, a cash payment of $ 6.5 thousand was paid to Annika Hulls for services relating to a marketing campaign. 17. Defined Contribution Plan The Company sponsors a defined contribution plan under Section 401(k) of the Internal Revenue Code covering substantially all employees over the age of 21 years. Contributions made by the Company are voluntary and are determined annually by the Board of Directors on an individual basis subject to the maximum allowable amount under federal tax regulations. The Company has made no contributions to the plan since its inception. 18. Net Loss Per Share Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the fiscal period. Diluted net loss per share is computed by giving effect to potential convertible securities. The dilutive effect of the outstanding September 2021 Convertible Notes and July 2021 Convertible Notes are reflected in diluted net loss per share by application of the if-converted method. 109 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share (in thousands, except share and per share data): Year Ended December 31, 2022 2021 2020 Numerator: Net loss $ ( 91,629 ) $ ( 33,557 ) $ ( 16,334 ) Denominator: Weighted-average shares used in computing net loss per share, basic 62,209,545 51,656,195 49,346,050 Net loss per share, basic $ ( 1.47 ) $ ( 0.65 ) $ ( 0.33 ) Year Ended December 31, 2022 2021 2020 Numerator: Net loss $ ( 91,629 ) $ ( 33,557 ) $ ( 16,334 ) (Gain)/loss attributable to September 2021 Convertible Notes ( 1,786 ) — — (Gain)/loss attributable to July 2021 Convertible Notes ( 1,295 ) — — Interest attributable to July 2021 and September 2021 Convertible Notes 515 — — Adjusted net loss for diluted earnings per share ( 94,195 ) ( 33,557 ) ( 16,334 ) Denominator: Weighted-average shares used in computing net loss per share, basic 62,209,545 51,656,195 49,346,050 Effect of dilutive securities: September 2021 Convertible Notes 453,626 — — July 2021 Convertible Notes 176,422 — — Adjusted weighted-average shares used in computing net loss per share, diluted 62,839,593 51,656,195 49,346,050 Net loss per share, diluted $ ( 1.50 ) $ ( 0.65 ) $ ( 0.33 ) The potential shares of common stock that were excluded from the computation of diluted net loss per share for the periods presented because including them would have been antidilutive are as follows: As of December 31, 2022 2021 Issuances under stock incentive plan 8,180,840 6,972,376 Issuances upon exercise of common stock warrants 137,658 272,001 Issuances upon vesting of restricted stock units 6,779,892 2,523,122 Issuances of convertible notes — 686,926 Shares reserved for shares available to be granted but not granted yet 396,347 4,071,403 15,494,737 14,525,828 110 Table of Contents Life360, Inc. Notes to Consolidated Financial Statements 19. Subsequent Events During January 2023, the Company announced a restructuring which resulted in an approximate 14 % reduction of the company's workforce and the departure of Charles (CJ) Prober, President and Executive Director, who will step down from his current positions on the earlier of (i) 30 calendar days after the date that the Company appoints a chief operating officer (or equivalent role) of the Company or (ii) September 2, 2023. On March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver. At the time of closing, the Company had total cash and cash equivalents of approximately $ 95.1 million, including $ 75.4 million in shares of money market mutual funds managed by Morgan Stanley, Blackrock and Western Asset, for which SVB acted as custodian, and $ 6.1 million in deposits with SVB. On March 12, 2023, the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve, and the FDIC announced that SVB depositors would have access to all of their funds starting March 13, 2023. On March 13, 2023, the Company had regained access to all funds in SVB accounts and was transacting normally. While the Company has not experienced any losses in such accounts, the recent failure of SVB exposed the Company to significant credit risk prior to the completion of the FDIC of the resolution of SVB in a manner that fully protected all depositors. The Company is in the process of transferring its accounts to one or more alternative depository institutions, the financial position of which management believes does not expose the Company to significant credit risk or jeopardize its liquidity. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.