Life360, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated results. Unless otherwise stated, dollar amounts are U.S. dollars. The company operates a family location and safety platform, with subscription, Tile/Jiobit hardware, and data-partnership revenue.
Financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Subscription revenue | $51.7 million | $33.1 million | +56% |
| Hardware revenue | $10.0 million | $9.6 million | +3% |
| Other revenue | $6.5 million | $8.3 million | -21% |
| Total revenue | $68.1 million | $51.0 million | +34% |
| Gross profit / gross margin | $49.8 million / 73% | $35.1 million / 69% | Margin +4 percentage points |
| Operating loss | $14.9 million | $27.1 million | Loss narrowed $12.2 million |
| Net loss | $14.1 million | $25.2 million | Loss narrowed $11.2 million |
| Basic loss per share | $0.21 | $0.41 | Improved |
| Cash used in operating activities | $9.2 million | $21.5 million | Outflow reduced $12.3 million |
Subscription revenue growth reflected 22% growth in Paying Circles and the full-quarter effect of subscription price increases introduced in Q4 2022. Management cited a strategic focus on one aggregated data arrangement for the decline in other revenue. Overall gross margin improved, while hardware gross margin fell to 6% from 19%, primarily because of higher battery, shipping, freight, and related costs. Operating expenses totaled $64.7 million, up 4%; stock-based compensation was $9.0 million, versus $6.1 million.
Liquidity, debt, and balance sheet
- At March 31, cash and cash equivalents were $61.4 million and restricted cash was $14.7 million, for total cash, cash equivalents, and restricted cash of $76.1 million. Cash and cash equivalents were $75.4 million at December 31, 2022.
- Current assets were $125.7 million and current liabilities $80.6 million. Total assets were $321.1 million; total liabilities $86.3 million; stockholders’ equity $234.8 million.
- Convertible notes had a $7.7 million carrying value, versus $7.6 million at year-end; contractual principal outstanding was $8.8 million. The notes include fair-value-sensitive instruments and scheduled repayments.
- Cash used in investing was $0.4 million, compared with $112.5 million in Q1 2022, when acquisition spending for Tile was significant. Financing used $4.7 million, principally reflecting $5.7 million of taxes paid on net-settled equity awards.
Material changes, outlook, and risks
- In January 2023, Life360 announced a workforce reduction of approximately 14% and recorded $3.3 million in personnel and severance costs; approximately $0.4 million remained unpaid at quarter-end.
- The company wrote off $0.9 million of raw materials after deciding to discontinue a product line. Hardware units shipped declined 17% year over year to 0.6 million, which management associated with weaker consumer-electronics demand; average selling price rose 14% to $17.22.
- 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 noting future capital needs depend on multiple factors and additional capital may be required. The filing gives no specific revenue or earnings guidance.
- Operating indicators included 50.8 million monthly active users (+33%), 1.6 million Paying Circles (+22%), and annualized monthly revenue of $239.5 million (+44%). Subscription revenue expected from remaining performance obligations was $32.5 million, including $30.1 million expected within 12 months.
- Channel Partner A represented 56% of Q1 revenue and 60% of gross receivables at March 31; Channel Partner B represented 15% of revenue. The company also relies primarily on one cloud-platform provider and a limited number of hardware contract manufacturers.
- Life360 regained access to its $6.1 million in direct SVB deposits after the bank’s closure and reported no resulting losses. It cautioned that future financial-sector disruption could affect access to cash. In April 2023, it released $13.1 million of Tile-related escrow cash and 84,524 escrowed shares.
- Litigation includes a purported class action alleging unjust enrichment related to historic data sales and a patent dispute involving Tile. The company said it could not reasonably estimate potential litigation losses and recorded no litigation reserve. It also expects continued regulatory inquiries concerning data protection, consumer rights, and data use.
- Disclosure controls were not effective at quarter-end because of an identified material weakness involving IT general controls and related financial-reporting processes. Management reported remediation efforts were underway; the weakness was not yet considered remediated. Management stated the weakness had not resulted in identified financial-statement misstatements.
Important facts for investors to verify
- Whether subscription growth, pricing, and Paying Circle growth continue to offset weaker data revenue and hardware unit shipments.
- Whether hardware margin pressure and the discontinued-product inventory write-off recur, and whether restructuring produces expected savings without disrupting operations.
- Whether cash burn, planned spending, and convertible-note repayment obligations remain consistent with management’s stated 12-month liquidity assessment.
- Developments in the data-sales class action, patent litigation, and any related regulatory inquiries or potential liabilities.
- Progress and testing results for remediation of the material weakness in internal controls, and the continuing impact of channel, cloud-platform, and manufacturing concentration.