Life360, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited results are consolidated and reported in U.S. dollars. Life360 operates a freemium family-safety and location platform, including subscription services and Tile and Jiobit tracking devices. Tile was acquired in January 2022; Jiobit was acquired in September 2021, so comparisons include different acquisition periods.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $57.2m | $29.7m | $157.0m | $77.7m |
| Gross profit | $39.2m | $24.3m | $103.6m | $63.1m |
| Gross margin | 69% | 82% | 66% | 81% |
| Operating loss | $21.1m | $7.7m | $81.7m | $18.4m |
| Net loss | $21.1m | $8.0m | $79.3m | $18.7m |
| Adjusted EBITDA loss | $9.4m | $3.7m | $41.7m | $8.5m |
Q3 revenue grew 92% year over year: subscription revenue increased 69% to $39.0m, hardware revenue was $11.7m, and other revenue was $6.5m. Nine-month revenue rose 102%, with subscription revenue up 81% to $107.9m and hardware revenue of $28.3m. Management attributed subscription growth to more Paying Circles, higher average revenue per Paying Circle, and acquired Tile and Jiobit services. Hardware sales largely reflect the acquisitions.
Profitability weakened despite revenue growth. Q3 gross margin was 69%, compared with 82% a year earlier, reflecting the addition of lower-margin hardware revenue; hardware gross margin was 20% in Q3 and 1% for the nine-month period. Research and development, sales and marketing, and general and administrative expenses all increased substantially. Nine-month stock-based compensation was $24.5m.
Cash, debt, and liquidity
- At September 30, cash and cash equivalents were $44.0m and restricted cash was $14.9m, for total cash, cash equivalents, and restricted cash of $58.9m. Restricted cash included $13.1m in Tile acquisition indemnity escrow.
- Nine-month operating cash use was $54.9m, versus $0.3m in the prior-year period. Investing cash use was $114.1m, including $113.4m net cash paid for Tile. Financing cash use was $3.5m, including convertible-note repayments.
- Convertible notes had a reported carrying value of approximately $7.4m at quarter-end. The filing reports no borrowings under a conventional credit facility.
- Current assets were $95.1m and current liabilities $84.2m. Deferred revenue was $30.9m, of which $27.9m was expected to be recognized within 12 months, subject to meeting revenue-recognition criteria.
- Management stated existing cash and cash generated from subscriptions and hardware sales should be sufficient for working capital and capital expenditures for at least the next 12 months, while noting future capital needs could require additional financing.
Material changes, outlook, and risks
- Acquisitions and spending: Tile added hardware revenue, goodwill, and acquired intangible assets, while expanding operating costs. Nine-month operating expenses increased 128% to $185.3m. The company expects continued investment in product development, marketing, infrastructure, and personnel, and expects cost of revenue and operating expenses to rise in absolute dollars.
- Business metrics: Life360 reported 47.0m members, 1.5m Paying Circles, and 2.1m subscriptions at September 30. Annualized Monthly Revenue was $184.0m, up 53% year over year. Q3 net hardware units shipped fell 27% year over year to 0.7m, which management linked to weaker consumer-electronics demand; average selling price rose 15% to $15.63.
- Pricing and conversion: New-subscriber prices increased in August 2022. Management said paid conversion declined to 1.9% in Q3, largely due to the price increases; average revenue per Paying Circle and per subscription each rose 7% year over year.
- Data monetization: The company was exiting most legacy data-sales arrangements and moving toward aggregated data commercialization through a three-year Placer.ai partnership. Members may opt out of aggregated data sales. Management described possible future partner use of data with explicit, affirmative member consent.
- Risks: The filing highlights economic slowdown, inflation and weaker consumer demand; reliance on major channel partners, a primary cloud provider, and a limited number of contract manufacturers; seasonality in hardware sales; and privacy, data-use, cybersecurity, and regulatory exposure. Two Tile-related patent matters were disclosed: one case was dismissed and the appeal voluntarily dismissed; another remained in court with discovery stayed while a motion was pending. The company said it could not estimate potential loss.
- Unusual items: Nine-month results included a $5.3m gain from remeasurement of Jiobit contingent consideration and fair-value gains on convertible notes and a derivative liability. Q3 included a $0.7m acquisition and integration cost add-back in the Adjusted EBITDA reconciliation. The company reported no goodwill or intangible-asset impairment for the periods presented.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of September 30, 2022, with no material change in internal control over financial reporting during Q3.
Investor verification points
- Assess the sustainability of subscription growth and whether higher pricing affects conversion, retention, or Paying Circle growth.
- Track hardware demand, inventory exposure, product mix, and hardware gross margin, particularly ahead of seasonally important holiday sales.
- Reconcile cash burn and acquisition-related spending with management’s stated 12-month liquidity outlook; distinguish unrestricted cash from escrow-restricted funds.
- Monitor operating expense growth, stock-based compensation, and the path toward profitability, including the adjustments used in non-GAAP Adjusted EBITDA.
- Review channel-partner concentration: two unnamed channel partners represented 66% of Q3 revenue combined; one represented 37% of quarter-end gross accounts receivable.
- Follow privacy and data-use practices, the Placer partnership, regulatory inquiries, and the remaining patent litigation; the filing does not quantify potential exposure for these matters.