Life360, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited consolidated results; U.S. dollars. Life360 operates a freemium family location and safety platform, with subscription, Tile/Jiobit hardware, and data-partner revenue.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $78.6m (+38%) | $57.2m | $217.6m (+39%) | $157.0m |
| Gross profit | $57.9m | $39.2m | $162.5m | $103.6m |
| Gross margin | 74% | 69% | 75% | 66% |
| Operating expenses | $64.4m | $60.4m | $188.1m | $185.3m |
| Operating loss | $6.5m | $21.1m | $25.6m | $81.7m |
| Net loss | $6.5m | $21.1m | $25.0m | $79.3m |
| Net loss per share, diluted | $0.10 | $0.34 | $0.38 | $1.28 |
Revenue mix and margins: Q3 subscription revenue was $56.6m (+45%), hardware $15.5m (+33%), and other revenue $6.5m (roughly flat). Nine-month subscription and hardware revenue grew 49% and 31%, respectively; other revenue declined 6%. Q3 subscription and hardware gross margins were 85% and 26%, versus 80% and 20% a year earlier. For the nine months, those margins were 86% and 20%, versus 79% and 1%. Management attributed subscription growth to more subscribers and price increases, and hardware growth to higher net units shipped and improved operating efficiencies.
Operating metrics: At September 30, annualized monthly revenue was $259.1m (+41% year over year), monthly active users were 58.4m (+24%), Paying Circles were 1.7m (+17%), and subscriptions across Life360, Tile, and Jiobit were 2.3m (+14%). Q3 average revenue per Paying Circle increased 28% to $119.97. Net hardware units shipped rose 43% to 1.1m, while average selling price fell 15% to $13.24, reflecting product mix.
Cash, debt and liquidity
- Cash and cash equivalents were $61.8m at September 30, 2023; restricted cash was $1.8m. Cash and restricted cash totaled $63.7m, down from $90.4m at year-end 2022.
- For the first nine months, operating cash use was $1.4m, versus $54.9m in 2022; investing cash use was $1.3m, versus $114.1m, largely because the prior-year period included the Tile acquisition. Financing cash use was $24.0m, including a $13.1m Tile indemnity escrow payment and $11.4m of taxes paid on net-settled equity awards.
- Convertible notes had a $4.5m carrying value at September 30, including $3.6m current and $1.0m noncurrent; contractual principal outstanding was $5.5m. The filing lists $3.365m of principal due in 2024 and $2.110m in 2026.
- Current assets were $124.9m and current liabilities $72.7m. Deferred revenue totaled $35.0m; $33.7m was expected to be recognized within 12 months. Management said existing cash and cash generation should fund working capital and capital expenditure needs for at least 12 months, while noting future capital needs may require additional financing.
Changes, outlook and notable items
- Net loss narrowed substantially year over year, alongside higher revenue and gross margin. Nine-month operating expenses increased 2%; lower R&D and integration-related costs were offset by sales and marketing and G&A increases.
- The January 2023 workforce reduction was approximately 14%; the company recorded $4.0m of related severance and personnel costs for the nine months, all paid by September 30.
- A discontinued product line resulted in a $0.9m inventory write-off. Discontinuing certain battery-related membership benefits also reduced warranty liabilities and product costs by $2.2m.
- No specific revenue or earnings guidance was provided. Management expects cost of revenue, R&D, sales and marketing, and G&A to increase in absolute dollars as the business grows.
- Purchase commitments, predominantly non-cancellable and expected to be paid through 2027, totaled $152.7m. The company relies primarily on one cloud-platform technology partner and a limited number of hardware manufacturers. Two channel partners represented 68% of Q3 revenue.
- Disclosure controls and procedures were deemed ineffective at quarter-end due to an unresolved material weakness involving IT general controls, including access, segregation of duties, change management, and related process controls. Management reported remediation work underway; the weakness was not considered remediated.
- Privacy and cybersecurity are significant risks given the company’s handling of precise location and children’s data and evolving regulation. Life360 disclosed a 2023 credential-stuffing attack that likely affected a limited number of accounts. A purported class action concerning historic data sales was dismissed November 3, 2023; an immaterial reserve had been recorded at quarter-end. The Cellwitch patent case remained pending.
- The company reported no loss of SVB deposits after access was restored in March 2023, but noted financial-institution disruption could affect access to cash. It also cited potential foreign-exchange, fair-value, and inflation risks.
Most important facts for investors to verify
- Whether subscription, Paying Circle, and ARPPC growth persists after the disclosed price increases, and how the company’s revised KPI definitions affect comparisons.
- Whether improving gross margins and lower operating cash use are sustainable, considering stock-based compensation, working-capital movements, and the one-time or non-cash items described.
- Cash requirements and payment timing for the $152.7m purchase commitments, convertible-note maturities, and other obligations.
- Progress and testing results for remediation of the material weakness in internal controls.
- Developments in privacy regulation, cybersecurity incidents, and pending litigation, including any resulting operational costs or restrictions.