Life360, Inc. [LIFX] Filings

10-Q 1 lifx-20230331.htm 10-Q lifx-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended March 31, 2023


¨			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the transition period from __________ to __________

Commission File Number 000-56424

Life360, Inc.

(Exact name of registrant as specified in its charter)


Delaware			26-0197666
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

1900 South Norfolk Street, Suite 310 San Mateo, CA			94403
(Address of principal executive offices)			(Zip Code)

Tel: (415) 484-5244

(Registrant's telephone number, including area code)

Not Applicable.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”):


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None.	None.	None.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 10, 2023, the registrant had 66,353,485 shares of common stock, par value $0.001 per share, including shares underlying all issued and outstanding Chess Depositary Interests (“CDIs”), outstanding.

Life360, Inc.

Form 10-Q for the Quarter Ended March 31, 2023

Table of Contents


		Page

Part I - Financial Information

Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss	3
	Condensed Consolidated Statements of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40

Item 4.	Controls and Procedures	41

Part II - Other Information

Item 1.	Legal Proceedings	43

Item 1A.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Mine Safety Disclosures	44

Item 5.	Other Information	44

Item 6.	Exhibits	44

Signatures		45

In this report, unless otherwise stated or the context otherwise indicates, the terms “Life360,” “the Company,” “we,” “us,” “our” and similar references refer to Life360, Inc and its consolidated subsidiaries. The Life360 logo, and other trademarks, trade names or service marks of Life360, Inc. appearing in this Quarterly Report on Form 10-Q are the property of Life360, Inc. All other trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our management’s beliefs and assumptions and on information currently available to our management. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-=looking statements contained in Section 21E of the Exchange Act. These forward-looking statements involve risks and uncertainties regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words: “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. We caution you the foregoing list may not contain all of the forward-looking statements made in this Quarterly Report on Form 10-Q. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.

The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about our industry, business and future financial results. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed under “Item 1A. Risk Factors” and other sections in this Quarterly Report on Form 10-Q.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

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Life360, Inc.

Condensed Consolidated Balance Sheets

(Dollars in U.S. $, in thousands, except share and per share data)

(unaudited)


	March 31, 2023		December 31, 2022

Assets
Current Assets:
Cash and cash equivalents	$	61,394	$	75,444
Restricted cash, current	13,094		13,274
Accounts receivable, net	30,980		33,125
Inventory	8,797		10,826
Costs capitalized to obtain contracts, net	1,348		1,438
Prepaid expenses and other current assets	10,060		8,548
Total current assets	125,673		142,655
Restricted cash, noncurrent	1,601		1,647
Property and equipment, net	755		393
Costs capitalized to obtain contracts, noncurrent	775		626
Prepaid expenses and other assets, noncurrent	7,268		7,134
Operating lease right-of-use asset	571		802
Intangible assets, net	50,811		52,699
Goodwill	133,674		133,674
Total Assets	$	321,128	$	339,630
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	9,517	$	13,791
Accrued expenses and other current liabilities	22,981		27,015
Escrow liability	13,094		13,274

Convertible notes, current ($4,870 and $3,513 measured at fair value, respectively)	4,870		3,513
Deferred revenue, current	30,143		30,056
Total current liabilities	80,605		87,649
Convertible notes, noncurrent ($2,068 and $3,425 measured at fair value, respectively)	2,807		4,060
Derivative liability, noncurrent	87		101
Deferred revenue, noncurrent	2,312		2,706
Other liabilities, noncurrent	497		576
Total Liabilities	$	86,308	$	95,092
Commitments and Contingencies (Note 11)
Stockholders’ Equity
Common Stock, $0.001 par value; 100,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 66,295,831 and 65,239,843 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	68		67
Additional paid-in capital	505,777		501,763
Notes due from affiliates	—		(314)
Accumulated deficit	(271,043)		(256,972)
Accumulated other comprehensive income	18		(6)
Total stockholders’ equity	234,820		244,538
Total Liabilities and Stockholders’ Equity	$	321,128	$	339,630

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Life360, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Dollars in U.S. $, in thousands, except share and per share data)

(unaudited)


	Three Months Ended March 31,
	2023		2022
Subscription revenue	$	51,664	$	33,062
Hardware revenue	9,984		9,647
Other revenue	6,495		8,261
Total revenue	68,143		50,970
Cost of subscription revenue	8,045		7,071
Cost of hardware revenue	9,426		7,806
Cost of other revenue	842		975
Total cost of revenue	18,313		15,852
Gross Profit	49,830		35,118
Operating expenses:
Research and development	27,197		25,737
Sales and marketing	24,316		23,242
General and administrative	13,209		13,246
Total operating expenses	64,722		62,225
Loss from operations	(14,892)		(27,107)
Other income (expense):
Convertible notes fair value adjustment	72		1,575
Derivative liability fair value adjustment	14		914
Other income (expense), net	843		(546)
Total other income (expense), net	929		1,943
Loss before income taxes	(13,963)		(25,164)
Provision for income taxes	108		58
Net loss	(14,071)		(25,222)
Net loss per share, basic	$	(0.21)	$	(0.41)
Net loss per share, diluted (Note 18)	$	(0.21)	$	(0.45)
Weighted-average shares used in computing net loss per share, basic	65,592,780		61,192,576
Weighted-average shares used in computing net loss per share, diluted (Note 18)	65,592,780		61,879,502
Comprehensive loss
Net loss	$	(14,071)	$	(25,222)
Change in foreign currency translation adjustment	24		29
Total comprehensive loss	$	(14,047)	$	(25,193)

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Life360, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Dollars in U.S. $, in thousands, except share and per share data)

(unaudited)


	Common Stock			Additional Paid-In Capital		Notes Due from Affiliates		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	65,239,843	67		501,763		(314)		(256,972)		(6)		244,538
Exercise of stock options	185,073	—		714		—		—		—		714
Vesting of restricted stock units	870,915	1		(1)		—		—		—		—
Taxes paid related to net settlement of equity awards	—	—		(5,731)		—		—		—		(5,731)
Repayment of notes due from affiliate	—	—		77		314						391
Stock-based compensation expense	—	—		8,955		—		—		—		8,955

Change in foreign currency translation adjustment	—	—		—		—		—		24		24
Net loss	—	—		—		—		(14,071)		—		(14,071)
Balance at March 31, 2023	66,295,831	$	68	$	505,777	$	—	$	(271,043)	$	18	$	234,820


	Common Stock			Additional Paid-In Capital		Notes Due from Affiliates		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	60,221,799	$	61	$	416,278	$	(951)	$	(165,343)	$	—	$	250,045
Exercise of stock options	277,995	—		1,508		—		—		—		1,508
Exercise of warrants	66,892	—		—		—		—		—		—
Vesting of restricted stock units	124,059	—		—		—		—		—		—
Taxes paid related to net settlement of equity awards	—	—		(716)		—		—		—		(716)
Issuance of common stock in connection with an acquisition	779,032	1		15,408		—		—		—		15,409
Issuance of common stock	—	—		85		—		—		—		85
Stock-based compensation expense	—	—		6,095		—		—		—		6,095
Interest accrued relating to notes due from affiliates	—	—		—		(5)		—		—		(5)
Change in foreign currency translation adjustment	—	—		—		—		—		29		29
Net loss	—	—		—		—		(25,222)		—		(25,222)
Balance at March 31, 2022	61,469,777	$	62	$	438,658	$	(956)	$	(190,565)	$	29	$	247,228

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Life360, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in U.S. $, in thousands)

(unaudited)


	Three Months Ended March 31,
	2023		2022
Cash Flows from Operating Activities:
Net loss	$	(14,071)	$	(25,222)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	2,273		2,201
Amortization of costs capitalized to obtain contracts	439		936
Stock-based compensation expense	8,955		6,095
Compensation expense in connection with revesting notes	72		120
Non-cash interest and dividend expense, net	92		98
Convertible notes fair value adjustment	(72)		(1,575)
Derivative liability fair value adjustment	(14)		(914)
Gain on revaluation of contingent consideration	—		(4,000)
Non-cash revenue from affiliate	(496)		(135)
Inventory write-off	916		—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	2,145		17,155
Prepaid expenses and other assets	(1,340)		(560)
Inventory	1,113		(1,067)
Costs capitalized to obtain contracts, net	(498)		(1,121)
Accounts payable	(4,274)		(14,689)
Accrued expenses and other liabilities	(4,628)		(1,673)
Deferred revenue	189		2,936
Other liabilities, noncurrent	—		(122)
Net cash used in operating activities	(9,199)		(21,537)
Cash Flows from Investing Activities:
Cash paid for acquisitions, net of cash acquired	—		(112,306)
Internal use software	(348)		(159)
Purchase of property and equipment	(26)		—
Net cash used in investing activities	(374)		(112,465)
Cash Flows from Financing Activities:
Proceeds from the exercise of options	714		1,508
Taxes paid related to net settlement of equity awards	(5,731)		(716)

Proceeds from repayment of notes due from affiliates	314		—
Issuance of common stock	—		85
Cash paid for deferred offering costs	—		(4)
Net cash (used in)/provided by financing activities	(4,703)		873
Net Decrease in Cash, Cash Equivalents, and Restricted Cash	(14,276)		(133,129)

Cash, Cash Equivalents and Restricted Cash at the Beginning of the Period	90,365		231,345
Cash, Cash Equivalents, and Restricted Cash at the End of the Period	$	76,089	$	98,216

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Life360, Inc.



Supplemental disclosure:
Cash paid during the period for interest	—		(15)

Non-cash investing and financing activities:
Fair value of stock issued in connection with an acquisition	$	—	$	15,409







Fair value of warrants held as investment in affiliate	—		5,474
Deferred capitalized costs	—		700
Total non-cash investing and financing activities:	$	—	$	21,583

The following table provides a table of cash, cash equivalents, and restricted cash reported within the balance sheets totaling the same such amounts shown above:


	March 31, 2023		March 31, 2022

Cash and cash equivalents	$	61,394	$	82,717
Restricted cash	14,695		15,499
Total cash, cash equivalents, and restricted cash	$	76,089	$	98,216

See accompanying notes to the condensed consolidated financial statements (unaudited).

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of Business

Life360, Inc. (the “Company”) is a leading technology platform used to locate the people, pets and things that matter most to families. The Company was incorporated in the State of Delaware in 2007. The Company’s core offering, the Life360 mobile application, includes features that range from communications to driving safety and location sharing. The Company operates under a “freemium” model where its core offering is available to users at no charge, with three membership subscription options that are available but not required. The Company also generates revenue through monetization arrangements with certain commercial third parties (“Data Revenue Partners”) through Lead Generation and license agreements (including aggregated insights into the data collected from the Company’s user base). On September 1, 2021, the Company acquired all ownership interests of Jio, Inc (“Jiobit”). Jiobit is a provider of wearable location devices for young children, pets, and seniors. On January 5, 2022, the Company acquired all ownership interests of Tile, Inc. (“Tile”). Tile is a smart location company whose products include a Bluetooth enabled device and related accessories that work in tandem with the Tile application to enable its customers to locate lost or misplaced objects.

On January 12, 2023, the Company announced a workforce restructure which resulted in a reduction of the Company’s workforce of approximately 14%. The Company incurred $3.3 million in non-recurring personnel and severance related expenses in connection with the restructure during the three months ended March 31, 2023. As of March 31, 2023, approximately $0.4 million of the expense incurred remains unpaid and is included within accrued expenses and other current liabilities on the condensed consolidated balance sheet.

The restructuring costs are recognized in the condensed consolidated statements of operations for the three months ended March 31, 2023 as follows (in thousands):


	Personnel and Severance and Related Expenses
Cost of subscription revenue	$	61
Cost of hardware revenue	91
Research and development	1,878
Sales and marketing	666
General and administrative	558
Total	$	3,254

2. Summary of Significant Accounting Policies

Included below are select significant accounting policies. Refer to Note 2, “Summary of Significant Accounting Policies” in our Annual Report on Form 10-K for a full list of our significant accounting policies.

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements, which include the accounts of the Company and its wholly owned subsidiaries, have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim periods and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that is normally required by GAAP can be condensed or omitted. All intercompany balances and transactions have been eliminated in consolidation.

The condensed consolidated balance sheet as of December 31, 2022, included herein, was derived from the audited financial statements as of that date. In the opinion of the Company’s management, the condensed consolidated financial statements reflect all normal recurring adjustments necessary for a fair statement of the results of operations for the interim periods presented and are not necessarily indicative of the Company’s future results of operations.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (“SEC”) on March 23, 2023.

Reclassification of Prior Year Statement of Cash Flows Presentation

Certain prior year amounts on the condensed consolidated statement of cash flows have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. An adjustment has been made to the condensed consolidated statements of cash flows for the three months ended March 31, 2022 to reclassify internal use software, amortization of costs capitalized to obtain contracts, and non-cash revenue from affiliate. Such reclassifications had no material impact to the Company’s financial positions, operating cash flows, net loss or net loss per share attributable to common stockholders.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, net revenue, and expenses. Significant items subject to such estimates, judgments, and assumptions include:

•revenue recognition, including the determination of selling prices for distinct performance obligations sold in multiple performance obligation arrangements, the period over which revenue is recognized for certain arrangements, and estimated delivery dates for orders with title transfer upon delivery;

•allowances for credit losses and product returns;

•promotional and marketing allowances;

•inventory valuation;

•average useful customer life;

•valuation of stock-based awards;

•legal contingencies;

•impairment of long-lived assets and goodwill;

•valuation of contingent consideration, convertible notes and embedded derivatives;

•useful lives of long-lived assets; and

•income taxes including valuation allowances on deferred tax assets.

The Company bases its estimates and judgments on historical experience and on various assumptions that it believes are reasonable under the circumstances. Actual results could differ significantly from those estimates.

Accounting pronouncements not yet adopted

Although there are several new accounting standards issued or proposed by the FASB, which the Company will adopt, as applicable, the Company does not believe any of these accounting pronouncements will have a material impact on its condensed consolidated financial statements.

Concentrations of Risk and Significant Customers

The Company depends on the constant real-time performance, reliability and availability of its technology system and access to its partner’s networks. The Company primarily relies on a single technology partner for its cloud platform and a limited number of contract manufacturers to assemble components of the Jiobit and Tile hardware tracking devices. Any adverse impacts to the platform and the contract manufacturers could negatively impact the Company’s relationships with its partners or users and may adversely impact its business, financial performance, and reputation.

The Company derives its accounts receivable from revenue earned from customers located in the United States and internationally. Channel and retail partners account for the majority of the Company’s revenue and accounts receivable for all periods presented.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following tables set forth the information about the Company’s channel and retail partners who represented greater than 10% of its revenue or accounts receivable, respectively:


	Percentage of Revenue
	Three Months Ended March 31,
	2023		2022
Channel Partner A	56	%	46	%
Channel Partner B	15	%	15	%
Retail Partner A	*		12	%

* Represents less than 10%


	Percentage of Gross Accounts Receivable
	As of March 31,		As of December 31,
	2023		2022
Channel Partner A	60	%	33	%

Data Partner A	12	%	11	%
Retail Partner A	*		23	%

* Represents less than 10%

Cash and Cash Equivalents

The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include deposit and money market funds. Money market mutual funds are valued using quoted market prices and therefore are classified within Level 1 of the fair value hierarchy.

Restricted Cash

Deposits of $14.7 million and $14.9 million were restricted from withdrawal as of March 31, 2023 and December 31, 2022, respectively. The restricted cash balance of $13.1 million as of March 31, 2023 relates to funds placed in an indemnity escrow fund to be held for fifteen months after the acquisition date of Tile (i.e., through April 2023) for general representations and warranties. The restricted cash balances associated with the Tile indemnity escrow fund is included within restricted cash, current on the accompanying balance sheet.

The restricted cash, noncurrent balance of $1.6 million as of March 31, 2023 relates to cash deposits restricted under letters of credit issued on behalf of the Company in support of indebtedness to trade creditors incurred in the ordinary course of business. The restricted cash, noncurrent balance of $1.6 million as of December 31, 2022 relates to funds placed in an indemnity escrow fund after the acquisition of Jiobit, and facility lease agreements.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

3. Segment and Geographic Information

The Company operates as a single operating segment. The Company’s chief operating decision maker is its chief executive officer, who reviews financial information presented on a consolidated basis for purposes of making operating decisions, assessing financial performance, and allocating resources. All material long-lived assets are based in the United States.

Revenue by geography is generally based on the address of the customer as defined in the contract with the customer. The following table sets forth revenue by geographic region (in thousands):


	Three Months Ended March 31,
	2023		2022

North America	$	60,801	$	46,052
Europe, Middle East and Africa	4,318		3,200
Other international regions	3,024		1,718
Total revenue	$	68,143	$	50,970

4. Deferred Revenue

Deferred revenue consists primarily of payments received and accounts receivable recorded in advance of revenue recognition under the Company’s subscription service arrangements and is recognized as the revenue recognition criteria is met. The Company primarily invoices its customers for its subscription services arrangements in advance. Amounts anticipated to be recognized within one year of the balance sheet date are recorded as deferred revenue, current; the remaining portion is recorded as deferred revenue, noncurrent in the consolidated balance sheets.

During the three months ended March 31, 2023 and 2022, the Company recognized revenue of $16.8 million and $12.1 million, respectively, that was included in the deferred revenue balance at the beginning of each respective period.

Remaining performance obligations represent the amount of contracted future revenue not yet recognized as the amounts relate to undelivered performance obligations, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods.

Revenue expected to be recognized from remaining performance obligations was $32.5 million as of March 31, 2023, of which the Company expects $30.1 million to be recognized over the next twelve months.

5. Costs Capitalized to Obtain Contracts

The Company recognizes as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs. The Company determined that its costs to obtain contracts were both direct and incremental. These costs are attributable to the Company’s largest channel partners.

Costs of obtaining new revenue contracts are deferred and then amortized on a straight-line basis over the related period of benefit, which is three years for the three months ended March 31, 2023 and approximately two to three years depending on the subscription type for the three months ended March 31, 2022.

The following table represents a roll forward of the Company’s costs capitalized to obtain contracts, net (in thousands):


	Three Months Ended March 31,
	2023		2022
Capitalized costs to obtain contracts, beginning of period	$	2,063	$	1,649
Acquired costs capitalized to obtain contracts	—		849
Additions to capitalized costs to obtain contracts	499		272
Amortization of capitalized costs to obtain contracts	(439)		(936)
Capitalized costs to obtain contracts, end of period	$	2,123	$	1,834

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

6. Fair Value Measurements

The Company measures its financial assets at fair value each reporting period using a fair value hierarchy that prioritizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Three levels of inputs may be used to measure as follows:

Level 1 - Observable inputs, such as quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Valuations based on unobservable inputs to the valuation methodology and including data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

The carrying amounts of certain financial instruments, including cash and cash equivalents, prepaid expenses, accounts receivable, and accounts payable approximate fair value due to their short-term maturities.

The Company measures and reports certain assets and liabilities at fair value on a recurring basis.

The fair value of these assets and liabilities as of March 31, 2023 and December 31, 2022 are classified as follows (in thousands):


	As of March 31, 2023
	Level 1		Level 2		Level 3		Total

Assets:
Money market funds	40,400		—		—		40,400
Total assets	40,400		—		—		40,400
Liabilities:
Derivative liability (Note 10)	$	—	$	—	$	87	$	87
Convertible notes (Note 9)	—		—		6,938		6,938
Total liabilities	$	—	$	—	$	7,025	$	7,025


	As of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	61,227		—		—		61,227
Total assets	61,227		—		—		61,227
Liabilities:
Derivative liability (Note 10)	$	—	$	—	$	101	$	101
Convertible notes (Note 9)	—		—		6,938		6,938
Total liabilities	$	—	$	—	$	7,039	$	7,039

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The change in fair value of the Level 3 instruments were as follows (in thousands):


	As of March 31, 2023
	Derivative liability (Note 10)		Convertible notes (Note 9)

Fair value, beginning of the year	$	101	$	6,938
Vesting of revesting notes	—		72
Changes in fair value	(14)		(72)
Fair value, end of period	$	87	$	6,938


	As of December 31, 2022
	Derivative liability (Note 10)		Convertible notes (Note 9)		Contingent consideration
Fair value, beginning of the year	$	1,396	$	12,293	$	9,500
Vesting of revesting notes	—		137		—
Forfeiture of revesting notes	—		(235)		—
Repayment of convertible notes (Note 9)	—		(3,471)		—
Changes in fair value	(1,295)		(1,786)		(5,279)
Issuance of common stock in settlement of contingent consideration	—		—		(4,221)
Fair value, end of period	$	101	$	6,938	$	—

For the three months ended March 31, 2023, the Company recorded a gain associated with the change in fair value of the derivative liability and convertible notes of $14 thousand and $72 thousand, respectively. For the year ended December 31, 2022, the Company recorded a gain associated with the change in fair value of the derivative liability and convertible notes of $1.3 million and $1.8 million, respectively. The amounts have been recorded in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

For the year ended December 31, 2022, the Company recorded a gain associated with the change in fair value of the contingent consideration of $5.3 million. The amounts have been recorded in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

For the three months ended March 31, 2022, the Company recorded a loss associated with the change in fair value of the derivative liability and convertible notes of $0.9 million and $1.6 million, respectively. The amounts have been recorded in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.

The Company has recorded a gain associated with the change in fair value of the contingent consideration of $4.0 million for the three months ended March 31, 2022 in general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

7. Business Combinations

Tile, Inc.

On January 5, 2022, the Company completed the acquisition of Tile, Inc. (“Tile”), a privately held consumer electronics company. The company is based in San Mateo, California and was founded in 2012. Tile is a smart location company whose products include a Bluetooth enabled device and related accessories that work in tandem with the Tile application, to enable its customers to locate lost or misplaced objects. Tile offers a comprehensive list of products to use with the Tile application, along with optional subscription services to enhance features offered for Tile products. The addition of Tile is expected to strengthen and extend Life360’s market leadership position by leveraging Tile’s developed technology and customer relationships to accelerate the Company’s own product development and augment the Life360 team with a critical mass of talent. The aggregate purchase consideration was $173.5 million, of which $158.1 million was paid in cash and $15.4 million paid in equity. The $15.4 million in equity was comprised of 780,593 shares of the Company’s common stock valued on the date of acquisition and 534,465 shares of common stock contingent consideration which was promised upon reaching certain operational goals. Of the consideration transferred, $14.1 million in cash and 84,524 common shares were placed in an indemnity escrow fund to be held for fifteen months after the acquisition date for general representations and warranties. Refer to Note 19 “Subsequent Events” for further details.

A total of $35.0 million was excluded from purchase consideration which consists of retention compensation of 1,499,349 shares of retention restricted stock units valued at $29.6 million, $0.4 million related to 38,730 vested common stock options issued to Tile employees as stock-based compensation on the acquisition date and change in control bonuses of $3.0 million which were recognized as compensation expense on the condensed consolidated statements of operations on the acquisition date. The Company incurred transaction related expenses of $1.7 million, which were recorded under general and administrative expenses in the condensed consolidated statements of operations. The remaining costs excluded from purchase consideration were a result of 1,561 shares granted to key employee and vested based continued employment and 4,784 shares of contingent consideration granted to a key employee and vested based on continued employment.

Of the 1,499,349 shares of retention restricted stock units, 787,446 shares valued at $15.6 million contain performance vesting criteria based on the achievement of certain company milestones, and vest over a two year period. The remaining retention restricted stock units of 711,903 shares vest over a two to four year period.

The contingent consideration was based on the Company’s achievement of certain targets for revenue and earnings before interest, taxes, depreciation, and amortization for the three months ended December 31, 2021 and the three months ended March 31, 2022. The Company determined that the criteria to satisfy the contingent consideration was not met, and as such, no value was ascribed to the contingent consideration.

The acquisition was accounted for as a business combination and the total purchase consideration was allocated to the net tangible and intangible assets acquired and liabilities assumed based on their fair values on the acquisition date and the excess was recorded to goodwill. The provisional values assigned to the assets acquired and liabilities assumed were based on estimates of fair value and were finalized as of January 5, 2023.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The assets acquired and liabilities assumed in connection with the acquisition were recorded at their fair value on the date of acquisition as follows (in thousands):


	Fair Value
Cash	$	32,997
Restricted cash	1,050
Accounts receivable	27,826
Prepaid expenses and other current assets	5,004
Inventory	8,320
Property and equipment	570
Prepaid expenses and other assets, noncurrent	482
Intangible assets	52,700
Goodwill	102,547
Accounts payable	(23,197)
Accrued expenses and other current liabilities	(24,613)
Deferred revenue	(10,203)
Total acquisition consideration	$	173,483

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition:


	Fair Value (in thousands)		Estimated Useful Life (in years)
Developed technology	$	18,400	5
Trade name	20,000		10
Customer relationships	14,300		8
Total identified intangible assets	$	52,700

Goodwill represents the future economic benefits arising from other assets that could not be individually identified and separately recognized, such as the acquired assembled workforce of Tile. In addition, goodwill represents the future benefits as a result of the acquisition that will enhance the Company’s product available to both new and existing customers and increase the Company’s competitive position. The goodwill is not deductible for tax purposes.

The results of operations of Tile are included in the accompanying condensed consolidated statements of operations and comprehensive loss from the date of acquisition.

8. Balance Sheet Components

Accounts receivable, net

Accounts receivable, net consists of the following (in thousands):


	As of March 31,		As of December 31,
	2023		2022

Accounts receivable	$	31,074	$	33,219
Allowance for doubtful accounts	(94)		(94)
Accounts receivable, net	$	30,980	$	33,125

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Inventory

Inventory consists of the following (in thousands):


	As of March 31,		As of December 31,
	2023		2022

Raw materials	$	2,072	$	3,063
Finished goods	6,725		7,763
Total inventory	$	8,797	$	10,826

The Company recorded a raw materials inventory write-off of $0.9 million for the three months ended March 31, 2023. The write-off resulted primarily from a decision made in the current period to discontinue a product line in the Company’s product roadmap. The raw materials have no alternative use and have been fully written off for the three months ended March 31, 2023. There were no other inventory write-offs recorded for the three months ended March 31, 2022.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following (in thousands):


	As of March 31,		As of December 31,
	2023		2022

Prepaid expenses	$	9,232	$	6,925
Other receivables	828		1,623
Total prepaid expenses and other current assets	$	10,060	$	8,548

Prepaid expenses primarily consist of certain cloud platform and customer service program costs. Other receivables primarily consist of refunds owed to the Company and other amounts which the Company is expected to receive in future months.

Property and Equipment, net

Property and equipment, net consists of the following (in thousands):


	As of March 31,		As of December 31,
	2023		2022

Computer equipment	$	275	$	276
Leasehold improvements	100		100
Production manufacturing equipment	650		624
Construction in Progress	373		—
Furniture and fixtures	9		9
Total property and equipment, gross	1,407		1,009
Less: accumulated depreciation	(652)		(616)
Total property and equipment, net	$	755	$	393

Depreciation expense was $37 thousand and $0.1 million for the three months ended March 31, 2023 and 2022, respectively.

There was no impairment of property and equipment or long-lived assets recognized during the three months ended March 31, 2023 or 2022.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Prepaid Expenses and Other Assets, noncurrent

Prepaid expenses and other assets, noncurrent consist of the following (in thousands):


	As of March 31,		As of December 31,
	2023		2022

Prepaid expenses	$	1,743	$	1,524
Investment in affiliate	5,474		5,474
Other assets	51		136
Total prepaid expenses and other assets, noncurrent	$	7,268	$	7,134

Prepaid expenses primarily consist of cloud platform costs. Investment in affiliate relates to warrants to purchase shares of common stock of a current Data Revenue Partner.

Leases

The Company leases office space under various non-cancelable operating leases with remaining lease terms of up to 1 year, some of which include the option to extend the lease.

The Company did not have any finance leases as of March 31, 2023 or December 31, 2022.

The components of lease expense are as follows (in thousands):


	Three Months Ended March 31,
	2023		2022

Operating lease cost (1)	$	245	$	394

(1) Amounts include short-term leases, which are immaterial.

Supplemental balance sheet information related to leases is as follows (in thousands, except lease term):


	As of March 31,		As of December 31,
	2023		2022
Operating lease right-of-use asset	$	571	$	802
Operating lease liability, current (included in accrued expenses and other current liabilities)	580		813

Weighted-average remaining term for operating lease (in years)	0.7		1.3

The weighted-average discount rate used to measure the present value of the operating lease liabilities was 5.0%.

Maturities of the Company’s operating lease liabilities, which do not include short-term leases, as of March 31, 2023 were as follows (in thousands):


	Operating leases
Remainder of 2023	$	588


Less imputed interest	(8)
Total operating lease liability	$	580

Payments for operating leases included in cash from operating activities were $0.3 million and $0.6 million for the three months ended March 31, 2023 and 2022, respectively.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Goodwill and Intangible Assets, net

Intangible assets, net consists of the following (in thousands):


	As of March 31 2023,
	Gross		Accumulated Amortization		Net
Trade name	$	23,380	$	(3,008)	$	20,372
Technology	22,430		(5,827)		16,603
Customer relationships	15,290		(2,367)		12,923
Internal use software	1,050		(137)		913
Total	$	62,150	$	(11,339)	$	50,811


	As of December 31 2022,
	Gross		Accumulated Amortization		Net
Trade name	$	23,380	$	(2,424)	$	20,956
Technology	22,430		(4,705)		17,725
Customer relationships	15,290		(1,895)		13,395
Internal use software	701		(78)		623
Total	$	61,801	$	(9,102)	$	52,699

The Company capitalized $0.3 million and $0.2 million in internal use software during the three months ended March 31, 2023 and 2022, respectively.

Amortization expense was $2.2 million and $2.1 million for the three months ended March 31, 2023 and 2022, respectively.

There was no impairment of intangible assets recorded during the three months ended March 31, 2023 or 2022.

As of March 31, 2023, estimated remaining amortization expense for intangible assets by fiscal year is as follows (in thousands):


	Amount

Remainder of 2023	$	6,766
2024	9,060
2025	8,981
2026	8,500
2027 and Beyond	17,504

Total future amortization expense	$	50,811

The weighted-average remaining useful lives of the Company’s acquired intangible assets are as follows:


	Weighted-Average Remaining Useful Life
	As of March 31,	As of December 31,
	2023	2022
Trade name	8.7 years	9.0 years
Technology	3.7 years	3.9 years
Customer relationships	6.9 years	7.1 years
Internal use software	2.5 years	2.8 years

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of March 31, 2023 and December 31, 2022, goodwill was $133.7 million. No goodwill impairments were recorded during the three months ended March 31, 2023 or 2022.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):


	As of March 31,		As of December 31,
	2023		2022

Accrued vendor expenses	$	7,611	$	4,868
Accrued compensation	3,163		3,900
Customer related promotions and discounts	4,192		10,871
Operating lease liability	580		813
Sales return reserves	3,059		2,952
Other current liabilities	4,376		3,611
Total accrued expenses and other current liabilities	$	22,981	$	27,015

Other current liabilities primarily relate to warranty liabilities related to the Company’s hardware tracking devices and inventory received not yet billed.

Escrow Liability

The escrow liability as of March 31, 2023 relates to restricted cash associated with the acquisition of Tile (the “Tile Acquisition”), which was placed in an indemnity escrow fund to be held for fifteen months after the acquisition date for general representations and warranties. The initial balances were included within total consideration transferred.

The escrow liability as of December 31, 2022 relates to restricted cash associated with the Tile Acquisition, $13.1 million, and the acquisition of Jiobit (the “Jiobit Acquisition”), $0.2 million, placed in an indemnity escrow fund to be held for fifteen months and eighteen months, respectively, after the acquisition date for general representations and warranties. The initial balances were included within total consideration transferred.

9. Convertible Notes

July 2021 Convertible Notes

In July 2021, the Company issued convertible notes (“July 2021 Convertible Notes”) to investors with an underlying principal amount of $2.1 million. The July 2021 Convertible Notes accrue simple interest at an annual rate of 4% and mature on July 1, 2026. The July 2021 Convertible Notes may be settled under the following scenarios at the option of the holder: (i) at any time into common shares equal to the conversion amount of outstanding principal and any accrued but unpaid interest divided by the conversion price of $11.96; (ii) at the option of the holder upon a liquidation event a) paid in cash equal to the outstanding principal and any accrued but unpaid interest or b) into common shares equal to the conversion amount of outstanding principal and any accrued but unpaid interest divided by the conversion price of $11.96; or (iii) upon maturity, settlement in cash at the outstanding accrued interest and principal amount.

Certain conversion and redemption features of the July 2021 Convertible Notes were determined to not be clearly and closely associated with the risk of the debt-type host instrument and were required to be separately accounted for as derivative financial instruments. The Company bifurcated these embedded conversion and redemption (“embedded derivatives”) features and classified these as liabilities measured at fair value. The fair value of the derivative liability of $0.7 million was recorded separate from the July 2021 Convertible Notes with an offsetting amount recorded as a debt discount. The debt discount is amortized over the estimated life of the debt using the straight-line method, as the value attributable to the July 2021 Convertible Notes was zero upon issuance.

As of March 31, 2023 the unamortized amount and net carrying value of the July 2021 Convertible Notes is $1.4 million and $0.7 million, respectively. The amount by which July 2021 Convertible Notes if-converted value does not exceed its principal is $0.4 million as of March 31, 2023.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of December 31, 2022 the unamortized amount and net carrying value of the July 2021 Convertible Notes is $1.5 million and $0.6 million, respectively. The amount by which July 2021 Convertible Notes if-converted value does not exceed its principal is $0.4 million as of December 31, 2022.

In connection with the July 2021 Convertible Notes, the Company issued warrants to purchase 88,213 shares of the Company’s common stock with an exercise price of $0.01 per share and a term of one year (Warrant Tranche 1), 44,106 shares of the Company’s common stock with an exercise price of $11.96 per share and a term of 5 years (Warrant Tranche 2), and 44,106 shares of the Company’s common stock which is exercisable starting twelve months from the issuance date with an exercise price of $11.96 per share and a term of 5 years (Warrant Tranche 3).

The fair value of the warrants was determined using the Black-Scholes option-pricing method, with the following assumptions:

Warrants
Tranche 1

Warrants
Tranche 2

Warrants
Tranche 3

Fair market value of common stock