Life360, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited; amounts below are in U.S. dollars. Life360 operates a freemium family location and safety platform, with subscription, hardware (Tile and Jiobit), and commercial data-partner revenue.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $70.8m | $48.8m | $138.9m | $99.8m |
| Gross profit / margin | $54.8m / 77% | $29.3m / 60% | $104.6m / 75% | $64.4m / 65% |
| Operating loss | $4.2m | $33.5m | $19.1m | $60.6m |
| Net loss | $4.4m | $33.0m | $18.5m | $58.2m |
| Net loss per share | $0.07 | $0.53 | $0.28 | $0.95 |
| Operating cash flow | Not presented quarterly | $(5.5)m | $(38.5)m |
Q2 subscription revenue rose 46% to $52.7m and hardware revenue rose 70% to $11.6m; other revenue increased 8% to $6.5m. For the first half, subscription revenue increased 51% to $104.4m and hardware revenue increased 31% to $21.6m, while other revenue declined 9% to $13.0m. Reported Q2 and first-half revenue growth was accompanied by improved gross margins and substantially smaller operating and net losses.
At June 30, cash and cash equivalents were $62.4m, with $1.7m of restricted cash, versus $75.4m and $14.9m, respectively, at December 31, 2022. Total assets were $311.8m and total liabilities $74.1m. Convertible notes had a carrying value of $8.0m and contractual principal of $8.8m; the filing reports no revolving credit facility. First-half investing cash use was $0.9m and financing cash use was $19.8m, including the Tile acquisition escrow payment and taxes on net-settled equity awards. Cash, cash equivalents and restricted cash decreased $26.2m in the first half.
Material changes and operating indicators
- Growth reflected 14% more total subscriptions, including 17% growth in Paying Circles, plus subscription price increases. Q2 total subscriptions were 2.2m, MAUs 54.0m, and Paying Circles 1.6m.
- Annualized Monthly Revenue increased 43% year over year to $248.7m. Q2 Average Revenue per Paying Circle rose 31% to $119.25.
- Hardware gross margin improved to 25% in Q2 from negative 58% a year earlier; first-half hardware gross margin was 16% versus negative 13%. Management attributed improvement primarily to higher average selling prices and fewer returns/cost pressures than in the prior-year periods.
- Operating expenses declined 6% in Q2 and 1% in the first half. R&D fell 14% in Q2, while sales and marketing increased 2%; first-half sales and marketing rose 3%.
- Q2 revenue remained concentrated: Channel Partner A represented 54% and Channel Partner B 16% of revenue. Channel Partner A accounted for 55% of gross accounts receivable at June 30.
Outlook, risks and unusual items
- Management said existing cash and expected cash from subscription and hardware sales should support working capital and capital expenditures for at least the next 12 months, while cautioning that future needs could require additional capital. No quantitative revenue or earnings guidance is provided.
- Management expects cost of revenue, R&D, sales and marketing, and general and administrative expenses to increase in absolute dollars as the business grows; sales and marketing may fluctuate as a percentage of revenue.
- A January 2023 workforce restructuring reduced headcount by approximately 14%; $3.7m of related personnel and severance expense was recorded in the first half, with about $0.4m unpaid at June 30.
- The company recorded a $0.9m inventory write-off after discontinuing a product line. A change to battery-related membership benefits also reduced warranty liabilities and product costs by $2.1m in Q2.
- Non-cancellable purchase commitments totaled $161.5m at June 30, predominantly payable through 2027. The Tile indemnity escrow was released and paid in April, contributing to first-half cash outflow.
- The company reported a material weakness in internal control over financial reporting relating to IT general controls and certain process-level controls. Disclosure controls and procedures were deemed ineffective as of June 30; remediation is underway but is not considered complete pending sufficient operation and testing.
- Legal matters include a patent infringement case involving Tile and a purported class action concerning historical data sales. The company reported no litigation reserve because potential losses could not be reasonably estimated; it intends to defend the claims. It also expects ongoing regulatory inquiries related to privacy, cybersecurity, consumer protection and data use.
- Management reported regaining access to funds held at Silicon Valley Bank after its closure, with no losses, but noted that future financial-institution disruptions could affect access to cash. The filing also identifies reliance on a primary cloud provider and a limited number of hardware contract manufacturers.
Important facts for investors to verify
- Whether subscription growth, pricing, and elevated ARPPC/ARPPS are sustainable, and how they affect retention and customer acquisition.
- Whether hardware margins remain positive as product mix, returns, fulfillment costs, and demand change.
- Progress in remediating the IT-control material weakness and the timing of effective control testing.
- Potential financial and operational effects of data-related litigation, regulatory scrutiny, and the company’s commercial data arrangements.
- Cash consumption, the $161.5m purchase commitments, convertible-note repayment terms, and any need for additional capital.
- Partner and supplier concentration, and dilution exposure: 17.7m potential shares were excluded from diluted loss per share as antidilutive; 66.953m shares were outstanding as of August 9, 2023.