Life360, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 29, 2024 (“Annual Report”). In addition to historical financial information, the following discussion contains forward-looking statements that are based upon current plans, expectations and beliefs that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the section titled “Risk Factors” under Part II, Item 1A in this Quarterly Report and Part I, Item 1A in our Annual Report. Overview Life360 is a leading technology platform used to locate the people, pets and things that matter most to families. Life360 is creating a new category at the intersection of family, technology, and safety to help keep families safe and connected. Our core offering, the Life360 mobile application, includes features that range from communications to driving safety and location sharing. The Life360 mobile application operates under a “freemium” model where its core offering is available to members at no charge, with three membership subscription options that are available but not required. We also generate revenue through Jiobit and Tile subscription services and hardware tracking devices. By offering devices and integrated software to members, we have expanded our addressable market to provide members of all ages with a vertically integrated, cross-platform solution of scale. Key Factors Affecting Our Performance We believe that our results of operations are affected by a number of factors, such as: the ability to remain a trusted brand; attracting, retaining, and converting members; maintaining efficient member acquisition; the ability to attract new and repeat purchasers of our hardware tracking devices; growth in Average Revenue per Paying Circle (“ARPPC”); expanding offerings on our platform; attracting and retaining talent; seasonality; and international expansion. We discuss each of these factors in more detail under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance” in our Annual Report. While we do not have control of all factors affecting our results from operations, we work diligently to influence and manage those factors which we can impact to enhance our results of operations. Key Components of Our Results of Operations Revenue Subscription Revenue We generate revenue primarily from sales of subscriptions on our platform, including Life360, Jiobit and Tile. Revenue is recognized ratably over the related contractual term generally beginning on the date that our platform is made available to a customer. Our subscription agreements typically have monthly or annual contractual terms. Our agreements are generally non-cancellable during the contract term. We typically bill in advance for monthly and annual contracts. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized. Hardware Revenue We generate our hardware revenue from the sale of the Jiobit and Tile hardware tracking devices and related accessories. For hardware and accessories, revenue is recognized at the time products are delivered. We sell hardware tracking devices and accessories through a number of channels including our websites, brick and mortar retail and online retail. Other Revenue We also generate revenue through an arrangement with a key data partner that provides location-based analytics services to customers in the retail and real estate sectors, municipalities, and other private and public organizations. The agreement permits commercialization of certain aggregated and de-identified data and provides for fixed and variable monthly revenue amounts. Other revenue also includes partnership revenue, which represents agreements with third parties to provide access to advertising on the Company’s mobile platform. 26 Table of Contents Cost of Revenue and Gross Margin Cost of Subscription Revenue Cost of subscription revenue primarily consists of expenses related to hosting our services and providing support to our free and paying subscribers. These expenses include personnel-related costs associated with our cloud-based infrastructure and our customer support organization, third-party hosting fees, software, and maintenance costs, outside services associated with the delivery of our subscription services, 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. We plan to continue increasing the capacity and enhancing the capability and reliability of our infrastructure to support member growth and increased use of our platform. We expect that cost of revenue will increase in absolute dollars in future periods. Cost of Hardware Revenue 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 Cost of other revenue includes cloud-based hosting costs, as well as costs of product operations functions and personnel-related costs associated with our data and advertising platforms. Personnel-related expenses include salaries, bonuses, benefits, and stock-based compensation for operations personnel. Gross Profit and Gross Profit Margin Our gross profit has been, and may in the future be, influenced by several factors, including timing of capital expenditures and related depreciation expense, increases in infrastructure costs, component costs, contract manufacturing and supplier pricing, and foreign currency exchange rates. Gross profit and gross profit margin may fluctuate over time based on the factors described above. Operating Expenses Our operating expenses consist of research and development, selling and marketing, and general and administrative expenses. Research and Development Our research and development expenses consist primarily of personnel-related costs for our engineering, product, and design teams, material costs of building and developing prototypes for new products, mobile app development and allocated overhead. We believe that continued investment in our platform is important for our growth. We intend to continue to invest in research and development to bring new customer experiences and devices to market and expand our platform capabilities. Sales and Marketing Our sales and marketing expenses consist primarily of personnel-related costs, brand marketing costs, lead generation costs, sales incentives, sponsorships and amortization of acquired intangibles. Revenue-share payments to third parties in connection with annual subscription sales of the Company’s mobile application on third-party store platforms are considered to be incremental and recoverable costs of obtaining a contract with a customer and are deferred and typically amortized over an estimated period of benefit of two to three years depending on the subscription type. 27 Table of Contents We plan to continue to invest in sales and marketing to grow our member base and increase our brand awareness, including marketing efforts to continue to drive our business model. We expect that sales and marketing expenses will increase in absolute dollars in future periods and will fluctuate as a percentage of revenue. The trend and timing of sales and marketing expenses will depend in part on the timing of marketing campaigns. General and Administrative Our general and administrative expenses consist primarily of employee-related costs for our legal, finance, human resources, and other administrative teams, as well as certain executive officers. In addition, general and administrative expenses include allocated overhead, outside legal, accounting and other professional fees, change in fair value of contingent consideration for business combinations, and non-income-based taxes. We expect our general and administrative expenses will increase in absolute dollars as our business grows. Other Income (Expense) Convertible Notes Fair Value Adjustment The Company issued convertible notes to investors in July 2021 (the “July 2021 Convertible Notes”), and as part of the purchase consideration related to the Jiobit Acquisition in September 2021 (the “September 2021 Convertible Notes” and together with the July 2021 Convertible Notes, the “Convertible Notes”). The September 2021 Convertible Notes were recorded at fair value and revalued at each reporting period. Derivative Liability Fair Value Adjustment Derivative liability fair value adjustment relates to the change in the fair value of the embedded conversion and redemption features associated with the July 2021 Convertible Notes. Gain on Change in Fair Value of Investment Gain on change in fair value of investment relates to the revaluation of warrants held to purchase shares of preferred stock of a data revenue partner in connection with an observable price change. Other Income (Expense), net Other income (expense), net consists of interest and dividend income earned on our cash and cash equivalents balances, foreign currency exchange gains/(losses) related to the remeasurement of certain assets and liabilities of our foreign subsidiaries that are denominated in currencies other than the functional currency of the subsidiary, foreign exchange transactions gains/(losses), interest expense primarily related to the Convertible Notes, and our U.S. IPO transaction costs. Provision for (benefit from) Income Taxes Provision for (benefit from) income taxes consists of U.S. federal and state income taxes and foreign income taxes in jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. 28 Table of Contents Results of Operations The following tables set forth our condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2024 and 2023 (in thousands, except percentages). Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 % Change 2024 2023 % Change Subscription revenue $ 71,833 $ 56,607 27 % $ 199,090 $ 160,998 24 % Hardware revenue 11,744 15,541 (24) % 33,833 37,110 (9) % Other revenue 9,288 6,476 43 % 23,032 19,447 18 % Total revenue 92,865 78,624 18 % 255,955 217,555 18 % Cost of subscription revenue (1) 10,659 8,267 29 % 30,367 22,700 34 % Cost of hardware revenue (1) 11,213 11,570 (3) % 29,147 29,732 (2) % Cost of other revenue (1) 981 902 9 % 2,790 2,625 6 % Total cost of revenue (1) 22,853 20,739 10 % 62,304 55,057 13 % Gross profit 70,012 57,885 21 % 193,651 162,498 19 % Operating expenses (1) : Research and development 29,012 24,569 18 % 83,283 74,948 11 % Sales and marketing 30,722 25,741 19 % 79,818 73,404 9 % General and administrative 15,229 14,082 8 % 44,243 39,788 11 % Total operating expenses 74,963 64,392 16 % 207,344 188,140 10 % Loss from operations (4,951) (6,507) 24 % (13,693) (25,642) 47 % Other income (expense): Convertible notes fair value adjustment — (604) 100 % (608) (798) 24 % Derivative liability fair value adjustment — 63 (100) % (1,707) (177) (864) % Loss on settlement of convertible notes — — — % (440) — (100) % Gain on settlement of derivative liability — — — % 1,924 — 100 % Gain on change in fair value of investment 5,389 — 100 % 5,389 — 100 % Other income (expense), net 2,524 337 649 % (1,772) 1,797 (199) % Total other income (expense), net 7,913 (204) 3,979 % 2,786 822 239 % Income (loss) before income taxes 2,962 (6,711) 144 % (10,907) (24,820) 56 % Provision for (benefit from) income taxes (4,727) (170) (2,681) % 2,146 205 947 % Net income (loss) $ 7,689 $ (6,541) 218 % $ (13,053) $ (25,025) 48 % Change in foreign currency translation adjustment — (17) 100 % (3) 9 (133) % Total comprehensive income (loss) $ 7,689 $ (6,558) 217 % $ (13,056) $ (25,016) 48 % ____________________ (1) Includes stock-based compensation expense as follows (in thousands, except percentages): 29 Table of Contents Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 % Change 2024 2023 % Change Cost of revenue Subscription costs $ 193 $ 151 28 % $ 555 $ 429 29 % Hardware costs 204 266 (23) % 612 715 (14) % Other costs — 10 (100) % 4 32 (88) % Total cost of revenue 397 427 1,171 1,176 Research and development 6,619 5,477 21 % 18,412 15,563 18 % Sales and marketing 865 725 19 % 2,271 2,212 3 % General and administrative 3,579 2,825 27 % 8,653 8,727 (1) % Total stock-based compensation, net of amounts capitalized $ 11,460 $ 9,454 $ 30,507 $ 27,678 The following table sets forth our results of operations as a percentage of total revenue: Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Subscription revenue 77 % 72 % 78 % 74 % Hardware revenue 13 % 20 % 13 % 17 % Other revenue 10 % 8 % 9 % 9 % Total revenue 100 % 100 % 100 % 100 % Cost of subscription revenue 11 % 11 % 12 % 10 % Cost of hardware revenue 12 % 15 % 11 % 14 % Cost of other revenue 1 % 1 % 1 % 1 % Total cost of revenue 25 % 26 % 24 % 25 % Gross profit 75 % 74 % 76 % 75 % Operating expenses: Research and development 31 % 31 % 33 % 34 % Sales and marketing 33 % 33 % 31 % 34 % General and administrative 16 % 18 % 17 % 18 % Total operating expenses 81 % 82 % 81 % 86 % Loss from operations (5) % (8) % (5) % (12) % Other income (expense): Convertible notes fair value adjustment — % (1) % — % — % Derivative liability fair value adjustment — % — % (1) % — % Loss on settlement of convertible notes — % — % — % — % Gain on settlement of derivative liability — % — % 1 % — % Gain on change in fair value of investment 6 % — % 2 % — % Other income (expense), net 3 % — % (1) % 1 % Total other income (expense), net 9 % — % 1 % — % Income (loss) before income taxes 3 % (9) % (4) % (11) % Provision for (benefit from) income taxes (5) % — % 1 % — % Net income (loss) 8 % (8) % (5) % (12) % Change in foreign currency translation adjustment — % — % — % — % Total comprehensive income (loss) 8 % (8) % (5) % (11) % 30 Table of Contents Revenue Three Months Ended September 30, Change Nine Months Ended September 30, Change 2024 2023 $ % 2024 2023 $ % (in thousands, except percentages) Subscription revenue $ 71,833 $ 56,607 $ 15,226 27 % $ 199,090 $ 160,998 $ 38,092 24 % Hardware revenue 11,744 15,541 (3,797) (24) % 33,833 37,110 (3,277) (9) % Other revenue 9,288 6,476 2,812 43 % 23,032 19,447 3,585 18 % Total revenue $ 92,865 $ 78,624 $ 14,241 18 % $ 255,955 $ 217,555 $ 38,400 18 % Subscription revenue increased $15.2 million, or 27%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to a 20% growth in total subscriptions and a 25% growth in Paying Circles (as defined below). Hardware revenue decreased $3.8 million, or 24%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The decrease was primarily driven by a delay in our new product launch, which was accompanied by increased discounts implemented to clear out existing inventory. The combination of higher discounts and reduced sales volume led to a $3.5 million decrease in retail sales, while a $0.3 million increase in returns further impacted hardware revenue. Other revenue increased $2.8 million, or 43%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, due to a $2.0 million increase in data revenue, which was primarily attributable to the Amended and Restated Data Services and License Agreement with Placer.ai we entered into in July 2024 (the “A&R Placer Agreement”), and a $0.8 million increase in partnership revenue. Subscription revenue increased $38.1 million, or 24%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to a 20% growth in total subscriptions and a 25% growth in Paying Circles. Additionally, subscription revenue in the current period benefited from the impact of price increases for existing U.S. Android Life360 subscriptions, which were fully implemented during the three months ended June 30, 2023. Hardware revenue decreased $3.3 million, or 9%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The decrease was primarily due to a $4.8 million decrease in retail sales driven by a delay in our new product launch, which led to lower sales volume. This decline was partially offset by a $1.5 million decrease in discounts and returns. Other revenue increased $3.6 million, or 18%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, due to a $2.1 million increase in data revenue, which was primarily attributable to the A&R Placer Agreement, and a $1.5 million increase in partnership revenue. 31 Table of Contents Cost of Revenue, Gross Profit, and Gross Margin Three Months Ended September 30, Change Nine Months Ended September 30, Change 2024 2023 $ % 2024 2023 $ % (in thousands, except percentages) Cost of subscription revenue $ 10,659 $ 8,267 $ 2,392 29% $ 30,367 $ 22,700 $ 7,667 34% Cost of hardware revenue 11,213 11,570 (357) (3)% 29,147 29,732 (585) (2)% Cost of other revenue 981 902 79 9% 2,790 2,625 165 6% Total cost of revenue 22,853 20,739 2,114 62,304 55,057 7,247 Gross profit $ 70,012 $ 57,885 $ 12,127 $ 193,651 $ 162,498 $ 31,153 Gross margin: Subscription 85% 85% 85% 86% Hardware 5% 26% 14% 20% Other 89% 86% 88% 87% Cost of subscription revenue increased $2.4 million, or 29%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, primarily due to a $1.5 million increase in technology expenses, a $0.5 million increase in personnel-related and stock-based compensation costs, and a $0.4 million increase in premium membership offerings and other costs, attributable to Company growth. Subscription gross margin remained flat at 85% during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Cost of hardware revenue decreased $0.4 million, or 3%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The decrease was primarily due to a $1.2 million decrease in costs related to the reduced number of units sold, which was partially offset by a $0.6 million increase in freight costs related to a shift in channel mix and a $0.2 million increase in other fixed costs, attributable to Company growth. Hardware gross margin decreased to 5% during the three months ended September 30, 2024 from 26% during the three months ended September 30, 2023, primarily due to increased discounts implemented to clear out existing inventory ahead of the new product launch. Fewer units sold, combined with an increase in fixed hardware costs in line with Company growth, and an increase in freight costs associated with a shift in channel mix also impacted margin. Cost of other revenue remained flat during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023, as the Company maintained its single aggregated data arrangement. Other gross margin increased to 89% due to the increase in data and partnership revenue, while costs remained relatively flat. Cost of subscription revenue increased by $7.7 million, or 34%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, primarily due to a $2.8 million increase in technology expenses and a $1.8 million benefit related to the discontinuation of certain battery related membership benefits recognized in the second quarter of 2023. The Company also saw increases of $1.5 million in costs associated with premium membership offerings, $1.4 million in personnel-related and stock-based compensation costs, and $0.2 million in other cost of subscription revenue expenses, attributable to Company growth. Subscription gross margin decreased slightly to 85% during the nine months ended September 30, 2024 from 86% during the nine months ended September 30, 2023, primarily due to the discontinuation of certain battery-related membership benefits that positively impacted the second quarter of 2023. Cost of hardware revenue decreased by $0.6 million, or 2%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The decrease was primarily due to a $1.1 million decrease in costs related to the reduced number of units sold as well as a $0.7 million decrease in costs related to the discontinuation of certain battery related membership benefits which took place during the second quarter of 2023. The decreases were partially offset by increases of $0.7 million in hardware freight costs related to a shift in channel mix and $0.5 million in other fixed costs attributable to Company growth. 32 Table of Contents Hardware gross margin decreased to 14% during the nine months ended September 30, 2024 from 20% during the nine months ended September 30, 2023, primarily due to an increase in freight costs associated with the shift in channel mix, a decrease in units sold, and an increase in fixed hardware costs in line with Company growth. Cost of other revenue remained flat during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023, as the Company maintained its single aggregated data arrangement. Other gross margin increased to 88% due to the increase in data and partnership revenue, while costs remained relatively flat. Research and Development Three Months Ended September 30, Change Nine Months Ended September 30, Change 2024 2023 $ % 2024 2023 $ % (in thousands, except percentages) Research and development $ 29,012 $ 24,569 $ 4,443 18 % $ 83,283 $ 74,948 $ 8,335 11 % Research and development expenses increased $4.4 million, or 18%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. This was primarily due to increases of $3.3 million in personnel-related and stock-based compensation costs, $1.2 million in technology and other expenses, $0.6 million in contractor spend, and $0.3 million in professional and outside services, attributable to Company growth. The increases were partially offset by a $0.9 million increase in capitalized costs related to internal use software and a $0.1 million increase in capitalized construction in progress costs. Research and development expenses increased by $8.3 million, or 11%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. This was primarily due to increases of $8.2 million in personnel-related and stock-based compensation costs, $3.1 million in technology and other expenses, $1.6 million in contractor spend, and $0.5 million in professional and outside services, attributable to Company growth. The increases were partially offset by a $3.5 million increase in capitalized costs related to internal use software, a $0.9 million increase related to a raw materials inventory write-off that negatively impacted the nine months ended September 30, 2023, and a $0.7 million increase in capitalized construction in progress costs. Sales and Marketing Three Months Ended September 30, Change Nine Months Ended September 30, Change 2024 2023 $ % 2024 2023 $ % (in thousands, except percentages) Sales and marketing $ 30,722 $ 25,741 $ 4,981 19 % $ 79,818 $ 73,404 $ 6,414 9 % Sales and marketing expenses increased $5.0 million, or 19%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. This was primarily due to increases of $3.2 million in commissions to the Company’s third-party platforms and distribution channels (each a “Channel Partner”), which was in line with the 20% growth in subscriptions, $2.1 million in other marketing spend, $0.7 million in personnel-related and stock-based compensation costs, $0.4 million in professional and outside services spend, and $0.2 million in technology expenses due to Company growth. The increases were partially offset by a $1.6 million decrease in paid user acquisition costs due to planned shifts in the allocation of spend to other marketing. Sales and marketing expenses increased $6.4 million, or 9%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. This was primarily due to increases of $6.7 million in Channel Partner commissions, which was in line with the 20% growth in subscriptions, $3.3 million in other marketing spend, $0.4 million in technology expenses, and $0.4 million in professional and outside services, attributable to Company growth. The increases were partially offset by a $4.4 million decrease in paid user acquisition costs due to planned shifts in the allocation of spend to other marketing. 33 Table of Contents General and Administrative Three Months Ended September 30, Change Nine Months Ended September 30, Change 2024 2023 $ % 2024 2023 $ % (in thousands, except percentages) General and administrative $ 15,229 $ 14,082 $ 1,147 8 % $ 44,243 $ 39,788 $ 4,455 11 % General and administrative expenses increased $1.1 million, or 8%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. This was primarily due to increases of $1.9 million in personnel-related and stock-based compensation costs and $0.3 million in technology expenses, attributable to Company growth. The increases were partially offset by a decrease of $0.8 million in professional and outside services following the completion of our U.S. IPO, and a $0.3 million increase in capitalized costs related to internal use software. General and administrative expenses increased $4.5 million, or 11%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. This was primarily due to a $2.5 million increase in professional and outside services driven by costs incurred in connection with the U.S. IPO as well as ongoing public company compliance costs. Additional increases included $1.5 million in personnel-related and stock-based compensation costs and $0.8 million in technology and other expenses attributable to company growth. These were partially offset by a $0.3 million increase in capitalized costs related to internal use software. Convertible Notes Fair Value Adjustment In April and June 2024, the September 2021 Convertible Notes and the July 2021 Convertible Notes, respectively, were converted to common stock. As a result, the Company recorded no gain or loss associated with the convertible notes fair value adjustment for the three months ended September 30, 2024. A loss of $0.6 million associated with the convertible notes fair value adjustment was recorded for the three months ended September 30, 2023. For the nine months ended September 30, 2024 and 2023, the Company recorded a loss associated with the Convertible Notes fair value adjustment of $0.6 million and $0.8 million, respectively. The changes in fair value are primarily driven by the share price volatility and reduction in time to convert. Derivative Liability Fair Value Adjustment In June 2024, the holders of the July 2021 Convertible Notes converted their notes and accrued interest to common stock and the embedded derivative liability was settled as a result of the conversion. As such, the Company recorded no gain or loss associated with the derivative liability fair value adjustment for the three months ended September 30, 2024. A gain of $0.1 million associated with the derivative liability fair value adjustment was recorded for the three months ended September 30, 2023. For the nine months ended September 30, 2024 and 2023, the Company recorded a loss associated with the derivative liability fair value adjustment of $1.7 million and $0.2 million, respectively. The changes are due to the revaluation of the derivative liability at each reporting period and the increase in stock price related to embedded redemption features bifurcated from the July 2021 Convertible Notes issued to investors. Loss on Settlement of Convertible Notes In April and June 2024, the September 2021 Convertible Notes and the July 2021 Convertible Notes, respectively, were converted to common stock. As a result, the Company recorded no gain or loss related to the settlement of the September 2021 Convertible Notes and July 2021 Convertible Notes for three months ended September 30, 2024. A loss of $0.4 million associated with the settlement of the Convertible Notes was recorded for the nine months ended September 30, 2024. There were no such transactions during the three and nine months ended September 30, 2023. 34 Table of Contents Gain on Settlement of Derivative Liability In June 2024, the holders of the July 2021 Convertible Notes converted their notes and accrued interest to common stock and the derivative liability was settled as a result of the conversion. As a result, the Company recorded no gain or loss related to the settlement of the derivative liability upon conversion of the July 2021 Convertible Notes for three months ended September 30, 2024. A gain of $1.9 million associated with the settlement of the derivative liability was recorded for the nine months ended September 30, 2024. There were no such transactions during the three and nine months ended September 30, 2023. Gain on Change in Fair Value of Investment In July 2024, an observable price change related to our investment in warrants held to purchase shares of preferred stock of a data revenue partner took place. The observable price change resulted in a fair value adjustment and gain of $5.4 million recorded for the three and nine months ended September 30, 2024. No such gains were recorded for the three and nine months ended September 30, 2023. Other Income (Expense), Net Other income (expense), net includes transaction costs, interest income, dividend income, foreign exchange losses, and interest expense associated with the July 2021 Convertible Notes. For the three months ended September 30, 2024, other income (expense), net consists of $2.5 million in other income and for the three months ended September 30, 2023, consists of $0.8 million in other income and $0.5 million in other expense. For the nine months ended September 30, 2024, other income (expense), net consists of $4.2 million in other income and $6.0 million in other expense, and for the nine months ended September 30, 2023, consists of $2.3 million in other income and $0.5 million in other expense. Other income (expense), net increased $2.2 million, or 649%, during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. This was primarily driven by a $1.2 million increase in dividend and interest income resulting from higher average gross yields primarily due to an increased cash and cash equivalents balance. In addition, a $0.7 million favorable change in the impact of currency revaluation and a $0.3 million reduction in interest expense and other costs contributed to the increase. Other income (expense), net decreased $3.6 million, or 199%, during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The decrease was primarily driven by a $5.6 million increase in transaction costs incurred in connection with our U.S. IPO, which were partially offset by a $2.0 million increase in dividend and interest income resulting from higher average gross yields primarily due to an increased cash and cash equivalents balance. Provision for (benefit from) Income Taxes Benefit from income taxes increased $4.6 million during the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. Provision for income taxes increased $1.9 million during the nine months ended September 30, 2024 as compared to the nine months ended September 30, 2023. The changes are due to the estimated growth in the Company’s annual estimated effective tax rate in the U.S. Provision for income taxes which consists of U.S. federal and state income taxes in jurisdictions in which we conduct business. The annual estimated effective tax rate in any quarter may be subject to fluctuations during the year as new information is obtained, which may positively or negatively affect the assumptions used to estimate the annual effective tax rate. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. 35 Table of Contents Key Performance Indicators We review several operating metrics, including the following key performance indicators, to evaluate our business, measure our performance, identify trends affecting our business, develop financial forecasts, and make strategic decisions. We believe these key performance indicators are useful to investors because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and they may be used by investors to help analyze the health of our business. Key operating metrics are presented in millions, except ARPPC, Average Revenue per Paying Subscription (“ARPPS”) and Average Selling Price (“ASP”), however percentage changes are calculated based on actual results. As a result, percentage changes may not recalculate based on figures presented due to rounding. Please refer to “—Results of Operations” for additional metrics management reviews in conjunction with the condensed consolidated financial statements. Key Operating Metrics As of and for the Three Months Ended September 30, As of and for the Nine Months Ended September 30, 2024 2023 % Change 2024 2023 % Change (in millions, except ARPPC, ARPPS and ASP) AMR $ 336.2 $ 259.1 30 % $ 336.2 259.1 30 % MAUs 76.9 58.4 32 % 76.9 58.4 32 % Paying Circles 2.2 1.7 25 % 2.2 1.7 25 % ARPPC 1 $ 127.57 $ 119.97 6 % $ 124.63 $ 118.85 5 % Subscriptions 2.8 2.3 20 % 2.8 2.3 20 % ARPPS 1 $ 106.27 $ 101.33 5 % $ 103.28 $ 98.31 5 % Net hardware units shipped 0.8 1.1 (24) % 2.0 2.3 (12) % ASP 2 $ 12.69 $ 13.24 (4) % $ 14.78 $ 14.96 (1) % 1. Excludes revenue related to bundled Life360 subscription and hardware offerings of $(1.4) million and $(4.0) million for the three and nine months ended September 30, 2024 respectively, and $(1.2) million and $(1.9) million for the three and nine months ended September 30, 2023, respectively. 2. Excludes revenue related to bundled Life360 subscription and hardware offerings of $1.4 million and $3.9 million for the three and nine months ended September 30, 2024, respectively, and $1.4 million and $2.5 million for the three and nine months ended September 30, 2023, respectively. Annualized Monthly Revenue We use Annualized Monthly Revenue (“AMR”) to identify the annualized monthly value of active customer agreements at the end of a reporting period. AMR includes the annualized monthly value of Life360 subscription, data and partnership agreements. All components of these agreements that are not expected to recur are excluded. This does not represent revenue under GAAP on an annualized basis, as the operating metric can be impacted by start and end dates and renewal rates. AMR as of September 30, 2024, and 2023 was $336.2 million and $259.1 million, respectively, representing an increase of 30% year over year, which is largely attributable to continued subscriber growth. Monthly Active Users We have a large and growing global user base as of September 30, 2024. A Life360 monthly active user (“MAU”) is defined as a unique member who engages with our Life360 branded services each month, which includes both paying and non-paying members, and excludes certain members who have a delayed account setup. As of September 30, 2024 and 2023, we had approximately 76.9 million and approximately 58.4 million MAUs on the Life360 Platform, respectively, representing an increase of 32% year over year. We believe this has been driven by continued strong new member growth and retention. Paying Circles We define a Paying Circle as a group of Life360 members with a paying subscription that has been billed as of the end of a period. Each subscription covers all members in the payor’s Circle so everyone in the Circle can utilize the benefits of a Life360 Membership, including access to premium location, driving, digital and emergency safety insights and services. As of September 30, 2024 and 2023, we had approximately 2.2 million and 1.7 million paid subscribers to services under our Life360 brand, respectively, representing an increase of 25% year over year. 36 Table of Contents We grow the number of Paying Circles by increasing our free member base, converting free members to subscribers, and retaining them over time with the provision of high-quality family connectivity and safety services. Average Revenue per Paying Circle We define Average Revenue per Paying Circle as annualized subscription revenue recognized and derived from the Life360 mobile application, excluding revenue related to bundled Life360 subscription and hardware offerings, for the reported period, divided by the Average Paying Circles during the same period. Average Paying Circles are calculated by adding the number of Paying Circles as of the beginning of the period to the number of Paying Circles as of the end of the period, and then dividing by two. For the three months ended September 30, 2024 and 2023, our ARPPC was $127.57 and $119.97, respectively, representing a 6% increase year over year. For the nine months ended September 30, 2024 and 2023, our ARPPC was $124.63 and $118.85, respectively, representing a 5% increase year over year. ARPPC is a key indicator utilized by Life360 to determine our effectiveness at monetizing Paying Circles through tiered product offerings. U.S. ARPPC has benefited from a shift in product mix towards higher priced products. In addition, price increases for existing subscribers began in January 2024 in the United Kingdom (“UK”) and March 2024 in Australia and New Zealand (“ANZ”), while the Triple Tier memberships launched in October 2023 and April 2024, respectively. The positive impacts seen from the price increases were partially offset by an increase in international subscribers, which overall, have lower priced subscriptions. Subscriptions We define Subscriptions as the number of paying subscribers associated with the Life360, Jiobit and Tile brands who have been billed as of the end of the period. As of September 30, 2024 and 2023, we had approximately 2.8 million and 2.3 million paid subscribers, respectively, to services under the Life360, Tile, and Jiobit brands, representing an increase of 20% year over year. We grow the number of Subscriptions by selling hardware units and increasing our free member base, converting free members to subscribers, and retaining them over time with the provision of item tracking and high-quality family and safety services. Average Revenue per Paying Subscription We define ARPPS as annualized total subscription revenue recognized and derived from Life360, Tile and Jiobit subscriptions, excluding revenue related to bundled Life360 subscription and hardware offerings, for the reported period divided by the average number of paying subscribers during the same period. The average number of paying subscribers is calculated by adding the number of paying subscribers as of the beginning of the period to the number of paying subscribers as of the end of the period, and then dividing by two. Paying subscribers represent subscribers who have been billed as of the end of the period. ARPPS for the three months ended September 30, 2024 and 2023 was $106.27 and $101.33, respectively, representing an increase of 5% year over year. ARPPS for the nine months ended September 30, 2024 and 2023 was $103.28 and $98.31, respectively, representing an increase of 5% year over year. ARPPS has increased year over year as a result of the growth in subscriptions and a shift in product mix towards higher priced products in the U.S. In addition, price increases for existing subscribers began in January 2024 in the UK and March 2024 in ANZ, while the Triple Tier memberships launched in October 2023 and April 2024, respectively. The positive impacts seen from the price increases were partially offset by an increase in international subscribers, which overall, have subscriptions priced at lower prices. Net Hardware Units Shipped Net hardware units shipped represents the number of tracking devices sold during a period, excluding certain hardware units related to bundled Life360 subscription and hardware offerings, net of returns by our retail partners and directly to consumers. Selling units contributes to hardware revenue and ultimately increases the number of members eligible for a Tile or Jiobit subscription. 37 Table of Contents For the three months ended September 30, 2024 and 2023, we sold approximately 0.8 million units and 1.1 million units, respectively, representing a decrease of 24% year over year. For the nine months ended September 30, 2024 and 2023, we sold approximately 2.0 million units and 2.3 million units, respectively, representing a decrease of 12% year over year. The decrease in net hardware units shipped for both periods was primarily driven by a delay in our new product launch. Net Average Selling Price (ASP) To determine the net ASP of a unit, we divide hardware revenue recognized, excluding revenue related to bundled Life360 subscription and hardware offerings, for the reported period by the number of net hardware units shipped during the same period. ASP is largely driven by the price we charge customers, including the price we charge our retail partners, net of customer allowances, and directly to consumers. For the three months ended September 30, 2024 and 2023, the net ASP per unit was $12.69 and $13.24, respectively, representing a decrease of 4% year over year. For the nine months ended September 30, 2024 and 2023, the net ASP per unit was $14.78 and $14.96, respectively, representing a decrease of 1% year over year. The decreases in net ASP for both periods were primarily due to increased discounts implemented to clear out existing inventory prior to the new product launch. Liquidity and Capital Resources On June 6, 2024, we completed our U.S. IPO, selling a total of 3,703,704 shares of common stock and raising net proceeds of $93.0 million after deducting underwriting discounts and commissions. An additional $5.5 million of expenses were paid on behalf of selling securityholders. As of September 30, 2024, we had cash and cash equivalents of $159.0 million and restricted cash of $1.2 million. As of December 31, 2023, we had cash and cash equivalents of $69.0 million and restricted cash of $1.7 million. We believe our existing cash and cash equivalents and cash provided by sales of our subscriptions and hardware devices will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors and as a result, we may be required to seek additional capital. If we are unable to raise additional capital on terms acceptable to us or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, financial condition and results of operations. Cash Flows Our cash flow activities were as follows for the periods presented: Nine Months Ended September 30, 2024 2023 (in thousands) Net cash provided by (used in) operating activities $ 20,289 $ (1,434) Net cash used in investing activities (3,291) (1,258) Net cash provided by (used in) financing activities 72,474 (24,016) Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash $ 89,472 $ (26,708) Operating Activities Our largest sources of operating cash are cash collections from our paying members for subscriptions to our platform and hardware device sales. Our primary uses of cash for operating activities are for employee-related expenditures, costs to acquire inventory, infrastructure-related costs, commissions paid to Channel Partners and other marketing expenses. A number of our members pay in advance for annual subscriptions, while a majority pay in advance for monthly subscriptions. Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As of September 30, 2024 and December 31, 2023, we had deferred revenue of $39.9 million and $35.8 million, respectively, of which $37.9 million and $33.9 million is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met. 38 Table of Contents For the nine months ended September 30, 2024, net cash provided by operating activities was $20.3 million. The primary factors affecting our operating cash flows during this period were our net loss of $13.1 million, impacted by $33.3 million of non-cash adjustments, and $20 thousand of cash used by changes in our operating assets and liabilities, which was partially offset by a payment of $5.5 million for expenses paid on behalf of the selling stockholders in connection with the secondary offering completed during the second quarter of 2024. The non-cash adjustments primarily consisted of stock-based compensation, depreciation and amortization, fair value adjustments for our convertible notes, derivative liability, and investment, non-cash interest expense, gain on settlement of derivative liability, and loss on settlement of convertible notes. The cash provided by changes in our operating assets and liabilities was primarily due to decreases in prepaid expenses and other assets as well as increases in accounts payable and accrued expenses and other current liabilities, and deferred revenue, which was offset by increases in accounts receivable, net, inventory, and costs capitalized to obtain contracts, net. For the nine months ended September 30, 2023, net cash used in operating activities was $1.4 million. The primary factors affecting our operating cash flows during this period were our net loss of $25.0 million, impacted by $35.6 million of non-cash adjustments and $12.0 million of cash used by changes in our operating assets and liabilities. The non-cash adjustments primarily consisted of stock-based compensation, depreciation and amortization, and an adjustment to our battery reserve related to a change in membership benefit offerings. The cash used by changes in our operating assets and liabilities was primarily due to increases in accounts receivable, net, prepaid expenses and other assets, costs capitalized to obtain contracts, net, inventory, and accrued expenses and other liabilities offset by increases in deferred revenue and other liabilities, noncurrent. Investing Activities For the nine months ended September 30, 2024, net cash used in investing activities was $3.3 million, which primarily related to the capitalization of internal use software costs in accordance with ASC 350-40, Intangibles - Goodwill and Other, Internal-Use Software. For the nine months ended September 30, 2023, net cash used in investing activities was $1.3 million, which primarily related to the capitalization of internal use software costs in accordance with ASC 350-40, Intangibles — Goodwill and Other, Internal-Use Software. Financing Activities For the nine months ended September 30, 2024, net cash provided by financing activities was $72.5 million, which primarily related to net proceeds of $93.0 million after deducting underwriting discounts and commissions from our U.S. IPO and $5.6 million of proceeds from the exercise of options and warrants, offset by $23.4 million of taxes paid for net settlement of equity awards, and $2.7 million in payments related to the U.S. IPO costs. As of September 30, 2024, $3.6 million of the incurred U.S. IPO costs were unpaid. For the nine months ended September 30, 2023, net cash used in financing activities was $24.0 million, which primarily related to $13.1 million release of funds placed in an indemnity escrow fund for general representations and warranties related to the Tile Acquisition, $11.4 million of taxes paid for the net settlement of equity awards, and $3.9 million in convertible notes repayments, offset by $4.1 million of proceeds from the exercise of options. Obligations and Other Commitments Our principal commitments consist of obligations under our operating leases for office space, and other purchase commitments. Information regarding our non-cancellable lease and other purchase commitments as of September 30, 2024, can be found in Note 7, "Balance Sheet Components" and Note 10, "Commitments and Contingencies" to our condensed consolidated financial statements. 39 Table of Contents Critical Accounting Policies and Significant Management Estimates Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our estimates on historical experiences and on various other assumptions we believe to be reasonable under the circumstances. Actual results could differ materially from the estimates made by our management. Our significant accounting policies are discussed in Note 2, "Summary of Significant Accounting Policies" in our Annual Report. There were no significant changes to these policies during the nine months ended September 30, 2024.