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, 2024, filed with the SEC on February 27, 2025 (“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 could differ materially from those discussed in the forward-looking statements as a result of a variety of factors, including but not limited to those discussed in “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 connected and safe. 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 hardware subscription services and the sale of 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 The following discussion describes certain line items in our condensed consolidated statements of operations and comprehensive income (loss). Revenue The Company generates revenue from direct and indirect streams. Direct revenue includes subscription and hardware revenue, while indirect revenue consists of all other revenue sources, such as data and partnership, which includes advertising. 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 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. 21 Table of Contents Other Revenue Other revenue consists of data and partnership revenue, which includes advertising revenue. We generate data revenue primarily through an arrangement with a key data partner that provides location-based analytics 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. We generate partnership revenue through agreements with third parties which grant them access to anonymized data insights or advertising on the Company’s mobile platform, and through the recognition of revenue related to the Related Party Warrant. 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, tariffs, 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. 22 Table of Contents Sales and Marketing Our sales and marketing expenses consist primarily of commissions to the Company’s third-party platforms (each a “Channel Partner”), personnel-related costs, brand marketing costs, lead generation costs, sales incentives, sponsorships and amortization of acquired intangibles, bad debt expense, and allocated overhead. Commission payments to Channel Partners 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. 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, 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 acquisition of Jiobit 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 prior to their conversion to common stock in April 2024. 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 prior to their conversion to common stock in June 2024. Other Income, net Other income, net consists of interest 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 and foreign exchange transactions gains/(losses), interest expense primarily related to the Convertible Notes. 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. 23 Table of Contents Results of Operations The following tables set forth our condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2025 and 2024 (in thousands, except percentages). Three Months Ended March 31, 2025 2024 % Change Subscription revenue $ 81,874 $ 61,579 33 % Hardware revenue 8,907 10,188 (13) % Other revenue 12,843 6,460 99 % Total revenue 103,624 78,227 32 % Cost of subscription revenue (1) 10,141 9,315 9 % Cost of hardware revenue (1) 8,597 8,012 7 % Cost of other revenue (1) 1,337 887 51 % Total cost of revenue (1) 20,075 18,214 10 % Gross profit 83,549 60,013 39 % Operating expenses (1) : Research and development 30,403 27,258 12 % Sales and marketing 35,308 24,733 43 % General and administrative 15,649 14,401 9 % Total operating expenses 81,360 66,392 23 % Income (loss) from operations 2,189 (6,379) 134 % Other income (expense): Convertible notes fair value adjustment — (608) 100 % Derivative liability fair value adjustment — (1,707) 100 % Other income, net 1,975 311 535 % Total other income (expense), net 1,975 (2,004) 199 % Income (loss) before income taxes 4,164 (8,383) 150 % Provision for (benefit from) income taxes (214) 1,394 (115) % Net income (loss) $ 4,378 $ (9,777) 145 % Change in foreign currency translation adjustment 1 1 — % Total comprehensive income (loss) $ 4,379 $ (9,776) 145 % ____________________ (1) Includes stock-based compensation expense as follows (in thousands, except percentages): Three Months Ended March 31, 2025 2024 % Change Cost of revenue Cost of subscription revenue $ 168 $ 159 6 % Cost of hardware revenue 235 184 28 % Cost of other revenue — 4 (100) % Total cost of revenue 403 347 Research and development 5,709 5,325 7 % Sales and marketing 1,326 632 110 % General and administrative 2,451 1,957 25 % Total stock-based compensation, net of amounts capitalized $ 9,889 $ 8,261 24 Table of Contents The following table sets forth our results of operations as a percentage of total revenue: Three Months Ended March 31, 2025 2024 Subscription revenue 79 % 79 % Hardware revenue 9 % 13 % Other revenue 12 % 8 % Total revenue 100 % 100 % Cost of subscription revenue 10 % 12 % Cost of hardware revenue 8 % 10 % Cost of other revenue 1 % 1 % Total cost of revenue 19 % 23 % Gross profit 81 % 77 % Operating expenses: Research and development 29 % 35 % Sales and marketing 34 % 32 % General and administrative 15 % 18 % Total operating expenses 79 % 85 % Income (loss) from operations 2 % (8) % Other income (expense): Convertible notes fair value adjustment — % (1) % Derivative liability fair value adjustment — % (2) % Other income, net 2 % — % Total other income (expense), net 2 % (3) % Income (loss) before income taxes 4 % (11) % Provision for (benefit from) income taxes — % 2 % Net income (loss) 4 % (12) % Change in foreign currency translation adjustment — % — % Total comprehensive income (loss) 4 % (12) % Revenue Three Months Ended March 31, Change 2025 2024 $ % (in thousands, except percentages) Subscription revenue $ 81,874 $ 61,579 $ 20,295 33 % Hardware revenue 8,907 10,188 (1,281) (13) % Other revenue 12,843 6,460 6,383 99 % Total revenue $ 103,624 $ 78,227 $ 25,397 32 % Subscription revenue increased $20.3 million, or 33%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to a 26% growth in Paying Circles (as defined below) and a 19% growth in total subscriptions. Additionally, subscription revenue in the current period benefited from price increases for new and existing Life360 subscriptions implemented during the second half of 2024. Hardware revenue decreased $1.3 million, or 13%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. The decline was primarily driven by a $0.9 million reduction in revenue related to bundled offerings as well as a $1.2 million increase in discounts. These impacts were partially offset by a $0.7 million decrease in returns and a $0.1 million increase in gross revenue, which was driven by a higher average selling price. 25 Table of Contents Other revenue increased $6.4 million, or 99%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, due to a $4.5 million increase in partnership revenue, which includes advertising revenue, and a $1.9 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. Cost of Revenue, Gross Profit, and Gross Margin Three Months Ended March 31, Change 2025 2024 $ % (in thousands, except percentages) Cost of subscription revenue $ 10,141 $ 9,315 $ 826 9% Cost of hardware revenue 8,597 8,012 585 7% Cost of other revenue 1,337 887 450 51% Total cost of revenue 20,075 18,214 1,861 Gross profit $ 83,549 $ 60,013 $ 23,536 Gross margin: Subscription 88% 85% Hardware 3% 21% Other 90% 86% Cost of subscription revenue increased $0.8 million, or 9%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, primarily due to a $0.8 million increase in technology and other expenses, attributable to Company growth. Subscription gross margin increased to 88% during the three months ended March 31, 2025 from 85% during the three months ended March 31, 2024, primarily due to price increases for new and existing Life360 subscriptions implemented during the second half of 2024. Cost of hardware revenue increased $0.6 million, or 7%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. This was primarily driven by increases of $0.7 million in inventory reserves, $0.3 million in personnel-related and stock-based compensation costs associated with Company growth, and $0.3 million in freight costs due to a shift in channel mix. These increases were partially offset by a $0.7 million decrease in hardware product costs resulting from a lower volume of units sold. Hardware gross margin decreased to 3% during the three months ended March 31, 2025 from 21% during the three months ended March 31, 2024, primarily due to a $1.2 million increase in discounts, an increase in freight costs associated with the shift in channel mix, and an increase in fixed hardware costs in line with Company growth. Cost of other revenue increased by $0.5 million, or 51%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024, due to increases of $0.3 million in technology and other related expenses to support the existing customer base and $0.2 million in costs associated with the growth in partnership revenue, which includes advertising revenue. Other gross margin increased to 90% during the three months ended March 31, 2025 from 86% during the three months ended March 31, 2024, primarily due to revenue outpacing the increase in costs. Research and Development Three Months Ended March 31, Change 2025 2024 $ % (in thousands, except percentages) Research and development $ 30,403 $ 27,258 $ 3,145 12 % 26 Table of Contents Research and development expenses increased $3.1 million, or 12%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. This was primarily due to increases of $2.6 million in personnel-related and stock-based compensation costs, $1.1 million in technology costs, $0.4 million in professional and outside services spend, and $0.2 million in contractor spend. The increases were partially offset by a $0.9 million increase in capitalized construction in progress costs and a $0.3 million increase in capitalized internally developed software. Sales and Marketing Three Months Ended March 31, Change 2025 2024 $ % (in thousands, except percentages) Sales and marketing $ 35,308 $ 24,733 $ 10,575 43 % Sales and marketing expenses increased $10.6 million, or 43%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. This was primarily due to increases of $3.7 million in commissions to the Company’s third-party platforms and distribution channels (each a “Channel Partner”), which is in line with the increase in subscription revenue, and $3.3 million in growth media spend. Additional increases included $1.9 million in personnel-related and stock-based compensation costs, $1.0 million in other marketing spend, $0.4 million in technology costs, and $0.3 million in professional and outside services spend, all attributable to Company growth. General and Administrative Three Months Ended March 31, Change 2025 2024 $ % (in thousands, except percentages) General and administrative $ 15,649 $ 14,401 $ 1,248 9 % General and administrative expenses increased $1.2 million, or 9%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. This was primarily due to increases of $1.6 million in personnel-related and stock-based compensation costs and $0.8 million in technology and other expenses, attributable to Company growth. The increases were partially offset by a decrease of $1.0 million in professional and outside services spend, primarily driven by lower Sarbanes-Oxley related compliance costs, and a $0.2 million increase in capitalized internally developed 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 March 31, 2025. A loss of $0.6 million associated with the convertible notes fair value adjustment was recorded for the three months ended March 31, 2024. 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 March 31, 2025. A loss of $1.7 million was recorded for the three months ended March 31, 2024. 27 Table of Contents Other Income, Net Other income, net includes interest income, dividend income, foreign exchange losses, and interest expense associated with the July 2021 Convertible Notes. For the three months ended March 31, 2025, other income, net consists of $2.0 million in other income and for the three months ended March 31, 2024, consists of $0.9 million in other income and $0.6 million in other expense. Other income, net increased $1.7 million, or 535%, during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. This was primarily driven by a $0.9 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 $0.4 million favorable change in the impact of currency revaluation and a $0.4 million reduction in interest expense and other costs contributed to the increase. Provision for (benefit from) Income Taxes Benefit from income taxes increased $1.6 million during the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. 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. 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 Sales 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. 28 Table of Contents Key Operating Metrics As of and for the Three Months Ended March 31, 2025 2024 % Change (in millions, except ARPPC, ARPPS and ASP) AMR $ 393.0 $ 284.7 38 % MAUs 83.7 66.4 26 % Paying Circles 2.4 1.9 26 % ARPPC 1 $ 133.42 $ 123.97 8 % Subscriptions 3.0 2.5 19 % ARPPS 1 $ 112.98 $ 102.02 11 % Net hardware units shipped 0.5 0.5 (8) % ASP 2 $ 16.99 $ 16.50 3 % 1. Excludes revenue related to bundled Life360 subscription and hardware offerings of $(0.4) million for the three months ended March 31, 2025, and $(1.2) million for the three months ended March 31, 2024. 2. Excludes revenue related to bundled Life360 subscription and hardware offerings of $0.4 million for the three months ended March 31, 2025, and $1.2 million for the three months ended March 31, 2024. 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 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 March 31, 2025, and 2024 was $393.0 million and $284.7 million, respectively, representing an increase of 38% year-over-year, which is largely attributable to continued subscriber growth. Monthly Active Users We have a large and growing global member base as of March 31, 2025. 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 March 31, 2025 and 2024, we had approximately 83.7 million and approximately 66.4 million MAUs on the Life360 Platform, respectively, representing an increase of 26% 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 who have been billed as of the end of 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 March 31, 2025 and 2024, we had approximately 2.4 million and 1.9 million paid subscribers to services under our Life360 brand, respectively, representing an increase of 26% year-over-year. 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 (“ARPPC”) 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 March 31, 2025 and 2024, our ARPPC was $133.42 and $123.97, respectively, representing an 8% increase year-over-year. 29 Table of Contents 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 price increases for new and existing subscribers implemented in September 2024 and October 2024, respectively, as well as a shift in product mix towards higher priced products. International ARPPC also benefited from price increases for legacy subscribers, as well as the launch of dual and triple tier memberships across certain international markets throughout 2024. 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, Tile and Jiobit brands who have been billed as of the end of the period. As of March 31, 2025 and 2024, we had approximately 3.0 million and 2.5 million paid subscribers, respectively, to services under the Life360, Tile, and Jiobit brands, representing an increase of 19% 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 location 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 March 31, 2025 and 2024 was $112.98 and $102.02, respectively, representing an increase of 11% year-over-year. ARPPS has increased year over year as a result of price increases for new and existing subscribers implemented in September 2024 and October 2024, respectively, as well as a shift in product mix towards higher priced products. International ARPPC also benefited from price increases for legacy subscribers, as well as the launch of dual and triple tier memberships across certain international markets throughout 2024. The positive impacts seen from the price increases were partially offset by an increase in international subscribers, which overall, have lower priced subscriptions. 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. For the three months ended March 31, 2025 and 2024, we sold approximately 0.50 million units and 0.54 million units, respectively, representing a decrease of 8% year-over-year. The decrease in net hardware units shipped was primarily due to a decrease in enterprise channel sales. Net Average Sales 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 March 31, 2025 and 2024, the net ASP per unit was $16.99 and $16.50, respectively, representing an increase of 3% year-over-year. The increase in net ASP was primarily due to a shift in channel mix and fewer returns. 30 Table of Contents Liquidity and Capital Resources As of March 31, 2025, we had cash and cash equivalents of $168.9 million and restricted cash of $1.5 million. As of December 31, 2024, we had cash and cash equivalents of $159.2 million and restricted cash of $1.2 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. We may from time to time seek to raise additional capital based on a variety of factors, including our capital requirements and the relative favorability of conditions in the capital markets. 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: Three Months Ended March 31, 2025 2024 (in thousands) Net cash provided by operating activities $ 12,060 $ 10,688 Net cash used in investing activities (4,347) (1,089) Net cash provided by (used in) financing activities 2,183 (5,709) Net Increase in Cash, Cash Equivalents, and Restricted Cash $ 9,896 $ 3,890 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 from 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 March 31, 2025 and December 31, 2024, we had deferred revenue of $46.6 million and $45.2 million, respectively, of which $41.8 million and $39.9 million is expected to be recorded as revenue in the next 12 months, respectively, provided all other revenue recognition criteria have been met. For the three months ended March 31, 2025, net cash provided by operating activities was $12.1 million. The primary factors affecting our operating cash flows during this period were our net income of $4.4 million, impacted by $13.1 million of non-cash adjustments, and $5.4 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. The cash used by changes in our operating assets and liabilities was primarily due to decreases in accrued expenses and other current liabilities and increases in inventory and prepaid expenses and other assets, which was offset by decreases in accounts receivable, net, and deferred revenue. For the three months ended March 31, 2024, net cash provided by operating activities was $10.7 million. The primary factors affecting our operating cash flows during this period were our net loss of $9.8 million, impacted by $13.0 million of non-cash adjustments and $7.5 million of cash provided by changes in our operating assets and liabilities. The non-cash adjustments primarily consisted of stock-based compensation, depreciation and amortization, and fair value adjustments for our convertible notes and derivative liability. The cash provided by changes in our operating assets and liabilities was primarily due to decreases in accounts receivable, net, and prepaid expenses and other assets, increases in accounts payable and deferred revenue, offset by a decrease in accrued expenses and other current liabilities and increases in inventory. Investing Activities For the three months ended March 31, 2025, net cash used in investing activities was $4.3 million, which primarily related to cash paid for acquisitions. Refer to Note 6, "Business Combinations" for additional information. Net cash used in investing activities also included capitalization of internally developed software costs in accordance with ASC 350-40, Intangibles - Goodwill and Other, Internal-Use Software. 31 Table of Contents For the three months ended March 31, 2024, net cash used in investing activities was $1.1 million, which primarily related to the capitalization of internally developed software costs in accordance with ASC 350-40, Intangibles — Goodwill and Other, Internal-Use Software. Financing Activities For the three months ended March 31, 2025, net cash provided by financing activities was $2.2 million, which primarily related to $10.6 million of taxes paid for the net settlement of equity awards, offset by $12.8 million of proceeds related to tax withholdings on restricted stock settlements and the exercise of stock options and warrants. For the three months ended March 31, 2024, net cash used in financing activities was $5.7 million, which primarily related to $8.1 million, of taxes paid for the net settlement of equity awards, offset by $2.4 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 March 31, 2025, can be found in Note 7, "Balance Sheet Components" and Note 8, "Commitments and Contingencies" to our condensed consolidated financial statements. 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 three months ended March 31, 2025.