LIFE360, INC. The following discussion and analysis of financial condition and results of operations (MD&A) should be read in conjunction with our consolidated financial statements, related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of a variety of factors, including but not limited to those discussed in "Risk Factors" and "Forward-Looking Statements" in this Annual Report on Form 10-K. A discussion of our financial condition and results of operations for the year endedDecember 31, 2022 compared to the year endedDecember 31, 2021 is presented below. A discussion of our financial condition and results of operations for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 is included under "Management's Discussion and Analysis of Financial Condition and Results of Operations" within our Form 10.
Overview
Life360 is a leading technology platform used to locate the people, pets and things that matter most to families. Life360 is creating a new category at the intersection of family, technology, and safety to help keep families connected and safe. The Company's core offering, the Life360 mobile application, includes features that range from communications to driving safety and location sharing. The Life360 mobile application 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. Our platform recently entered a new era of location tracking services with the successful acquisitions of Jiobit and Tile. By offering devices and integrated software to members, we have expanded our addressable market to provide members of all ages with a vertically integrated, cross-platform solution of scale.
For the years ended
•Total revenues of
•Subscription revenues of
•Hardware revenues of
•Other revenues of
•Gross profit of
•Net loss of
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Impact of COVID-19
The COVID-19 pandemic had an initial impact on our operations and financial performance, as we saw decreased engagement and member growth in the early phase of the pandemic. To adapt to the COVID-19 impact, we paused the majority of paid user acquisition spend and implemented other expense management initiatives. Once past the early phase of COVID-19, we saw a resumption of rapid growth and we experienced two successive quarters of recordPaying Circle additions in the second half of 2021. Paying circles have continued to increase each quarter throughDecember 31, 2022 . The extent of the impact of the COVID-19 pandemic on our operational and financial performance going forward will depend on future developments, including the duration and spread of the outbreak, new information about additional variants, the availability and efficacy of vaccine, additional or renewed actions by government authorities and private businesses to contain the pandemic or respond to its impact and altered consumer behavior, impact on our customers and our sales cycles, impact on our business operations, impact on our customer, employee or industry events, and effect on our vendors and other business partners, all of which are uncertain and cannot be predicted. Such developments have had and may continue to have adverse impacts on global economic conditions, including disruptions of the supply chain globally, labor shortages and consumer confidence and spending, and could materially adversely affect demand, or subscribers' ability to pay, for our products and services. We considered the impact of COVID-19 on the assumptions and estimates used by management in the preparation of the consolidated financial statements and determined there were no material adverse impacts for the year endedDecember 31, 2022 . As events related to COVID-19 continue to evolve, our assumptions and estimates may change materially in future periods.
Key Factors Affecting Our Performance
As we focus on growing our customers and revenue, and achieving profitability while investing for the future and managing risk, expenses and capital, the following factors and others identified in the section of this Annual Report on Form 10-K titled "Risk Factors" have been important to our business and we expect them to impact our operations in future periods: Ability to Retain Trusted Brand. We strongly believe in our vision to become the indispensable safety membership for families, with a suite of safety services that span every life stage of the family. Our business model and future success are dependent on the value and reputation of the Life360, Jiobit and Tile brands. Our brand is trusted by approximately 49 million members as ofDecember 31, 2022 , and because we know the value of trust is immeasurable, we will continue to work tirelessly to ensure that we provide useful, reliable, trustworthy and innovative products and services. Attract, Retain and Convert Members. Our business model is based on attracting new members to our platform, converting free members to subscribers, and retaining and expanding subscriptions over time. Our continued success depends in part on our ability to offer compelling new products and features to our members, and to continue providing a quality user experience to retain paying subscribers. We will also seek to increase brand awareness and customer adoption of our platform through various programs and digital and broad-scale advertising. Maintaining Efficient Member Acquisition. Our investment in developing effective services and devices creates an efficient member acquisition model which drives strong unit economics. Our member acquisition model is complemented by our word-of-mouth and freemium models. We accelerate our organic member acquisition with strategic and targeted paid marketing spend. We expect to continue to invest in product and marketing, while balancing growth with strong unit economics. As we continue to expand internationally, we may increase our targeted marketing investments. Ability to Attract New and Repeat Purchasers of Our Hardware Tracking Devices. Attracting new and repeat purchasers depends on our ability to design and release compelling smart trackers and market them effectively. Additionally we face increasing competition from better funded global companies. We pioneered the finding category and we continue to invest in the development of hardware products assessing new and existing technologies with a priority on providing a great member finding experience. Growth inAverage Revenue Per Paying Circle . Our business model is dependent upon our ability to grow and maintain a large member base, including growing the number of Paying Circles. We have a sophisticated understanding of our members, and as a result, the services we provide are core to families and hard to switch. We continue to develop new monetization features leveraging our core technologies to offer additional services, expand into more stages of families and enter new verticals to increase adoption. Many factors will affect the ARPPC including the number of Paying Circles, mix of monetization offerings on our platform, as well as demographic shifts and geographic differences across these variables. 54
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Expanding the Offerings on Our Platform. We are continually evaluating new product offerings that are aligned with our core competencies and the needs of families across the life stage continuum. For example, our acquisition of Tile gives our members the ability to seamlessly leverage Bluetooth-enabled smart trackers, which can equip nearly any item-such as wallets, keys or remotes-with location-based finding technology. Likewise, our acquisition of Jiobit allows subscribers to track family members and pets wearing Jiobit devices via GPS-enabled trackers on the Jiobit app. We will continue to invest in and launch products where we see opportunities to grow our platform. Attracting and Retaining Talent. We compete for talent in the technology industry. Our business relies on the ability to attract and retain talent, including engineers, data scientists, designers and software developers. As ofDecember 31, 2022 , we had approximately 600 employees and contractors. Our core values are aimed at simplifying safety for families and we believe there are people who want to work at a values-driven company like Life360. We believe that our ability to recruit talent is aided by our reputation. Seasonality. We experience seasonality in our user growth, engagement, Paying Circles growth and monetization on our platform. Life360 has historically experienced member and subscription growth seasonality in the third quarter of each calendar year, which includes the return to school for many of our members. Hardware sales have historically experienced revenue seasonality in the fourth quarter of each calendar year, which includes the important selling periods in November (Black Friday and Cyber Monday) and December (Christmas andHanukkah ) in large part due to seasonal holiday demand. As the majority of revenue is generated withinthe United States , our seasonality primarily relates toU.S. events. Accordingly, an unexpected decrease in sales over those traditionally high-volume selling periods may impact our revenue, result in surplus inventory and could have a disproportionate effect on our operating results for the entire fiscal year. Seasonality in our business can also be affected by introductions of new or enhanced products and services, including the costs associated with such introductions. International Expansion. We believe our global opportunity is significant, and to address this opportunity, we intend to continue to invest in sales and marketing efforts and infrastructure and personnel to support our international expansion, including undertaking initiatives such as the first international launch of our subscription offering inCanada during the three months endedDecember 31, 2021 . Our growth will depend in part on the adoption and sales of our products and services in international markets.
Key Components of Our Results of Operations
The following discussion describes certain line items in our Consolidated Statements of Operations and Comprehensive Loss.
The Company currently operates as one reportable and operating segment because
its chief operating decision maker ("CODM"), which is its Chief Executive
Officer, reviews its financial information on a consolidated basis for purposes
of making decisions regarding allocating resources and assessing performance.
The Company has no segment managers who are held accountable by the CODM for
operations, operating results, and planning for levels of components below the
consolidated unit level. In the future, the Company plans to integrate Life360,
Tile and Jiobit into one platform.
Revenue
Subscription Revenue
We generate revenue from sales of subscriptions on our platforms. Revenue is recognized ratably over the related contractual term generally beginning on the date that our platform is made available to a customer. Our subscription agreements typically have monthly or annual contractual terms. Our agreements are generally non-cancellable during the contract term. We typically bill in advance for monthly and annual contracts. Amounts that have been billed are initially recorded as deferred revenue until the revenue is recognized.
Hardware Revenue
We generate a majority of our hardware revenue from the sale of the Tile and
Jiobit hardware tracking devices and related accessories. For hardware and
accessories, revenue is recognized at the time products are delivered. We sell
hardware tracking devices and accessories through a number of channels including
our websites, brick and mortar retail and online retail.
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Other Revenue
We also generate revenue through data monetization arrangements with certain third parties through data acquisition and license agreements for data collected from our member base for purposes of targeted advertising, research, analytics, attribution, and other commercial purposes. InJanuary 2022 , we executed a new partnership agreement with a key Data Partner, a prominent provider of aggregated analytics for the retail ecosystem. The agreement includes fixed monthly revenue amounts for access to aggregated data for the duration of the three-year agreement. Other revenue also includes partnership revenue.
Cost of Revenue and Gross Margin
Cost of Subscription Revenue
Cost of subscription revenue primarily consists of expenses related to hosting our services and providing support to our free and paying subscribers. These expenses include employee-related costs associated with our cloud-based infrastructure and our customer support organization, third-party hosting fees, software, and maintenance costs, outside services associated with the delivery of our subscription services, personnel-related expenses, amortization of acquired intangibles and allocated overhead, such as facilities, including rent, utilities, depreciation on equipment shared by all departments, credit card and transaction processing fees, and shared information technology costs. Personnel-related expenses include salaries, bonuses, benefits, and stock-based compensation for operations personnel. We plan to continue increasing the capacity and enhancing the capability and reliability of our infrastructure to support user growth and increased use of our platform. We expect the cost of revenue will increase in absolute dollars in future periods. Cost of Hardware Revenue Cost of hardware revenue consists of product costs, including hardware production, contract manufacturers for production, shipping and handling, packaging, fulfillment, personnel-related expenses, manufacturing and equipment depreciation, warehousing, tariff costs, customer support costs, credit card and transaction processing fees, warranty replacement, and write-downs of excess and obsolete inventory. Personnel-related expenses include salaries, bonuses, benefits, and stock-based compensation for operations personnel.
Cost of Other Revenue
Cost of other revenue includes cloud-based hosting costs, as well as costs of product operations functions and employee-related costs associated with our data platform. Personnel-related expenses include salaries, bonuses, benefits, and stock-based compensation for operations personnel.
Gross Profit and Gross Profit Margin
Our gross profit has been, and may in the future be, influenced by several factors, including timing of capital expenditures and related depreciation expense, increases in infrastructure costs, component costs, contract manufacturing and supplier pricing, and foreign currency exchange rates. Gross profit and gross profit margin may fluctuate over time based on the factors described above.
Operating Expenses
Our operating expenses consist of research and development, selling and marketing, and general and administrative expenses.
Research and Development
Our research and development expenses consist primarily of employee-related
costs for our engineering, product, and design teams, material costs of building
and developing prototypes for new products, mobile app development and allocated
overhead. We believe that continued investment in our platform is important for
our growth. We expect our research and development expenses will increase in
absolute dollars as our business grows.
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Sales and Marketing
Our sales and marketing expenses consist primarily of employee-related costs, brand marketing costs, lead generation costs, sales incentives, sponsorships and amortization of acquired intangibles. Revenue-share payments to third parties in connection with annual subscription sales of the Company's mobile application on third-party store platforms are considered to be incremental and recoverable costs of obtaining a contract with a customer and are deferred and typically amortized over an estimated period of benefit of two to three years depending on the subscription type. We plan to continue to invest in sales and marketing to grow our member base and increase our brand awareness, including marketing efforts to continue to drive our business model. We expect that sales and marketing expenses will increase in absolute dollars in future periods and will fluctuate as a percentage of revenue. The trend and timing of sales and marketing expenses will depend in part on the timing of marketing campaigns.
General and Administrative
Our general and administrative expenses consist primarily of employee-related costs for our legal, finance, human resources, and other administrative teams, as well as certain executives. In addition, general and administrative expenses include allocated overhead, outside legal, accounting and other professional fees, change in fair value of contingent consideration for business combinations, and non-income-based taxes. We expect our general and administrative expenses will increase in absolute dollars as our business grows.
Convertible Notes Fair Value Adjustment
The Company issued convertible notes to investors inJuly 2021 (the "July 2021 Convertible Notes"), and as part of the purchase consideration related to the Company's acquisition of Jiobit (the "Jiobit Acquisition") inSeptember 2021 (the "September 2021 Convertible Notes" and together with theJuly 2021 Convertible Notes, the "Convertible Notes"). TheSeptember 2021 Convertible Notes are recorded at fair value and are revalued at each reporting period.
Derivative Liability Fair Value Adjustment
Derivative liability fair value adjustment relates to the change in the fair value of the embedded conversion and redemption features associated with theJuly 2021 Convertible Notes. Other Income (Expense), net Other income (expense), net consists of interest income earned on our cash and cash equivalents balances, foreign currency exchange (losses)/gains related to the remeasurement of certain assets and liabilities of our foreign subsidiaries that are denominated in currencies other than the functional currency of the subsidiary and foreign exchange transactions gains/(losses) and interest expense primarily related to the Convertible Notes.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes consists ofU.S. federal and state income taxes in jurisdictions in which we conduct business. We maintain a full valuation allowance on our federal and state deferred tax assets as we have concluded that it is not more likely than not that the deferred tax assets will be realized. Results of Operations The following tables set forth our consolidated statement of operations and comprehensive loss for the years endedDecember 31, 2022 and 2021. We have derived this data from our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. This information should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The results of historical periods are not necessarily indicative of the results of operations for any future period. 57
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Year Ended December 31,
2022 2021 % Change
(in thousands)
Subscription revenue $ 153,287 $ 86,551 77 %
Hardware revenue 47,884 952 4,930 %
Other revenue 27,134 25,140 8 %
Total revenue 228,305 112,643 103 %
Cost of subscription revenue 30,659 17,807 72 %
Cost of hardware revenue 45,441 1,340 3,291 %
Cost of other revenue 3,607 3,621 0 %
Total cost of revenue 79,707 22,768 250 %
Gross Profit 148,598 89,875 65 %
Operating expenses(1):
Research and development 102,480 50,994 101 %
Sales and marketing 92,419 47,473 95 %
General and administrative 48,110 23,670 103 %
Total operating expenses 243,009 122,137 99 %
Loss from operations (94,411) (32,262) 193 %
Other income (expense):
Convertible notes fair value adjustment 1,786 (511) (450) %
Derivative liability fair value adjustment 1,295 (733) (277) %
Other income (expense), net 13 (178) (107) %
Total other income (expense), net 3,094 (1,422) (318) %
Loss before income taxes (91,317) (33,684) 171 %
Provision (benefit) for income taxes 312 (127) (346) %
Net loss (91,629) (33,557) 173 %
Change in foreign currency translation adjustment (6) - 100 %
Total comprehensive loss $ (91,635) $ (33,557) 173 %
____________________
(1)Includes stock-based compensation expense as follows:
Year Ended December 31,
2022 2021 % Change
(in thousands)
Cost of revenue
Subscription costs $ 684 $ 444 54 %
Hardware costs 514 13 3,854 %
Other costs 237 65 265 %
Total cost of revenue 1,435 522
Research and development 19,431 7,457 161 %
Sales and marketing 3,834 752 410 %
General and administrative 9,980 3,207 211 %
Total stock-based compensation expense $ 34,680 $ 11,938 191 %
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The following table sets forth our results of operations as a percentage of
revenue:
Year Ended December 31,
2022 2021
Subscription revenue 67 % 77 %
Hardware revenue 21 % 1 %
Other revenue 12 % 22 %
Total revenue 100 % 100 %
Cost of subscription revenue 13 % 16 %
Cost of hardware revenue 20 % 1 %
Cost of other revenue 2 % 3 %
Total cost of revenue 35 % 20 %
Gross Profit 65 % 80 %
Operating expenses:
Research and development 45 % 45 %
Sales and marketing 40 % 42 %
General and administrative 21 % 21 %
Total operating expenses 106 % 108 %
Loss from operations (41) % (29) %
Other income (expense):
Convertible notes fair value adjustment 1 % 0 %
Derivative liability fair value adjustment 1 % (1) %
Other income (expense), net 0 % 0 %
Total other income (expense), net 1 % (1) %
Loss before income taxes (40) % (30) %
Provision (benefit) for income taxes 0 % 0 %
Net loss (40) % (30) %
Change in foreign currency translation adjustment 0 % 0 %
Total comprehensive loss (40) % (30) %
Comparison of the years ended
Revenue
Year Ended December 31, Change
2022 2021 $ %
(in thousands)
Subscription revenue $ 153,287 $ 86,551 $ 66,736 77 %
Hardware revenue 47,884 952 46,932 4,930 %
Other revenue 27,134 25,140 1,994 8 %
Total revenue $ 228,305 $ 112,643 $ 115,662 103 %
Total revenue increased
Subscription revenue increased$66.7 million , or 77%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 due to a growth in total subscriptions, including 23% growth in Paying Circles, and to a lesser extent the price increases for Life360 subscriptions implemented during the quarter endedDecember 31, 2022 . In addition, the increase was also partially attributable to the inclusion of Tile subscription services of$17.2 million and a full year contribution of Jiobit subscription revenue. 59 -------------------------------------------------------------------------------- Table of Contents Hardware revenue increased$46.9 million , or 4,930%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 due to the inclusion of hardware sales related to Tile and a full year of Jiobit hardware sales. Other revenue increased$2.0 million , or 8%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 , due to our strategic shift to focus on a single aggregated data arrangement and the transition period term overlap with legacy agreements.
Cost of Revenue, Gross Profit, and Gross Margin
Year Ended December 31, Change
2022 2021 $ %
(in thousands)
Subscription costs $ 30,659 $ 17,807 $ 12,852 72 %
Hardware costs 45,441 1,340 44,101 3,291 %
Other costs 3,607 3,621 (14) (0) %
Total cost of revenue 79,707 22,768 56,939
Gross profit $ 148,598 $ 89,875 $ 58,723
Gross margin:
Subscription 80 % 79 %
Hardware 5 % (41) %
Other 87 % 86 %
Cost of subscription revenue increased by $12.9 million , or 72%, during the year
ended December 31, 2022 as compared to the year ended December 31, 2021 ,
primarily due to $6.0 million in technology expenses as a result of the
inclusion of costs related to cloud infrastructure associated with the Tile and
Jiobit subscription offerings, an increase of $4.0 million related to volume
growth for Life360 subscriptions, an increase of $0.9 million related to
depreciation and amortization associated with the Tile and Jiobit acquisitions,
$0.8 million in additional personnel-related costs and stock-based compensation
due to increased headcount and an increase of $0.5 million due to an increase in
professional and consulting fees. The remaining increase of $0.7 million is
attributable to other related expenses associated with Company growth.
Subscription gross margin increased slightly to 80% during the year ended
December 31, 2022 from 79% during the year ended December 31, 2021 , primarily
due to the subscription price increases implemented by the Company during the
fourth quarter of the year ended December 31, 2022 .
Cost of hardware revenue increased by $44.1 million , or 3,291%, during the year
ended December 31, 2022 as compared to the year ended December 31, 2021 ,
primarily due to the inclusion of hardware costs of approximately $33.5 million
related to Tile and a full year of Jiobit hardware costs, $4.3 million in
additional personnel-related costs and stock-based compensation due to increased
headcount, an additional $3.6 million related to depreciation and amortization
associated with the Tile and Jiobit acquisitions, an additional $2.0 million in
technology expenses and $0.4 million in professional and outside services due to
higher contractor spend as a result of increased scaling of the combined
business. The remaining increase of $0.3 million is attributable to other
expenses associated with Company growth.
Hardware gross margin increased to 5% during the year ended December 31, 2022 as
compared to the year ended December 31, 2021 due to the different profile of
Tile hardware products that represent a significant portion of hardware sales in
2022, while 2021 included only Jiobit products. Margins were negatively impacted
by the inclusion of amortization expense recognized on acquired technology
related to intangible assets as well as additional personnel-related costs and
stock-based compensation due to increased headcount.
Cost of other revenue decreased slightly for the year ended December 31, 2022 as
compared to the year ended December 31, 2021 . The Company saw a decline in other
cost of revenues as a result of the transition to a single aggregated Data
Partner, however this decline was offset by increased costs incurred during the
transition period of legacy arrangements to the single Data Partner.
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Other gross margin increased to 87% during the year endedDecember 31, 2022 from 86% during the year endedDecember 31, 2021 , primarily due to cloud infrastructure optimization. Research and Development Year Ended December 31, Change 2022 2021 $ % (in thousands) Research and development$ 102,480 $ 50,994 $ 51,486 101 % Research and development expenses increased$51.5 million , or 101%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The increase was primarily due to an increase of$38.2 million in personnel-related costs and stock-based compensation due to headcount growth attributable to the Tile and Jiobit acquisitions, an increase of$7.8 million in technology expenses due to higher costs primarily related to increased cloud and data server infrastructure needs associated with the full year inclusion of Tile and Jiobit, an increase of$4.7 million in professional and outside services due to higher contractor spend as a result of increased scaling of the combined business, and an increase of$0.8 million in costs associated with increased expenses associated with headcount growth. Sales and Marketing Year Ended December 31, Change 2022 2021 $ % (in thousands) Sales and marketing$ 92,419 $ 47,473 $ 44,946 95 % Sales and marketing expenses increased$44.9 million , or 95%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . This increase was primarily due to a$24.4 million increase in marketing expenses consisting of increases of$9.8 million in paid user acquisition spend,$9.5 million in Channel Partner commission charges,$4.1 million in television advertising spend, and$1.0 million in other marketing spend, respectively. The increase was also related to an additional$11.8 million in personnel and related costs and stock-based compensation due to increased headcount, an increase of$4.0 million in depreciation and amortization related to the amortization of intangible assets acquired from the Tile and Jiobit acquisitions, an increase of$2.4 million due to higher contractor spend as a result of increased scaling of the combined business, and a$2.3 million increase in technology and other expenses due to higher costs to support headcount growth. General and Administrative Year Ended December 31, Change 2022 2021 $ % (in thousands) General and administrative$ 48,110 $ 23,670 $ 24,440 103 % General and administrative expense increased$24.4 million , or 103%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . As a result of our continued investment in headcount and acquisitions, personnel and related costs and stock-based compensation increased by$20.6 million . In addition, professional and outside services increased by$12.5 million primarily due to Tile Acquisition costs of approximately$5.0 million and increased expenses related to accounting, legal and advisory services in connection with the Company's initial Form 10 filing inApril 2022 and the subsequentSEC review process, which was completed inJuly 2022 . These increases were partially offset by a change in the gain or loss on the contingent consideration between 2022 and 2021 related to the Jiobit Acquisition of approximately$8.9 million as it was determined a portion of the contingent consideration metrics would not be met. The remaining increase of$0.2 million is attributable to other general and administrative expenses associated with Company growth. 61
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Convertible Notes Fair Value Adjustment
For the years ended
Derivative Liability Fair Value Adjustment
The derivative liability fair value decreased by$1.3 million , or 93%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The changes are due to the revaluation of the derivative liability at each reporting period and are related to embedded redemption features bifurcated from theJuly 2021 Convertible Notes issued to investors.
Other Income (Expense), Net
Other income (expense), net increased$0.2 million , or 107%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . Other income (expense) includes interest income, foreign exchange losses, and interest expense associated with the Convertible Notes.
Provision (Benefit) for Income Taxes
The provision (benefit) for income taxes increased$0.4 million , or 346%, during the year endedDecember 31, 2022 as compared to the year endedDecember 31, 2021 . The increases are primarily due to the tax effects related to the Tile Acquisition. Key Performance Indicators We review several operating metrics, including the following key performance indicators, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions. We believe these key performance indicators are useful to investors because they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and they may be used by investors to help analyze the health of our business. Key operating metrics are presented in millions, except ARPPC, Average Revenue per Paying Subscription ("ARPPS") and Net Average Sales Price ("ASP"), however percentage changes are calculated based on actual results. As a result, percentage changes may not recalculate based on figures presented due to rounding. Please refer to "-Results of Operations" for additional metrics management reviews in conjunction with the consolidated financial statements. Key Operating Metrics As of and for the years ended December 31, 2022 2021 % Change (in millions, except ARPPC, ARPPS and ASP) AMR$ 224.4 $ 139.8 61 % MAUs 48.6 35.5 37 % Paying Circles 1.5 1.2 23 % ARPPC$ 95.40 $ 80.20 19 % Subscriptions* 2.1 1.8 20 % ARPPS*$ 79.75 $ 67.70 18 % Net hardware units shipped* 3.6 6.2 (42) % ASP*$ 13.47 $ 15.04 (10) % *Metrics presented for the years endedDecember 31, 2022 and 2021 are adjusted and include pre-acquisition data for Tile and Jiobit related to periods before the acquisitions of Tile onJanuary 5, 2022 and Jiobit onSeptember 1, 2021 . 62
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Annualized Monthly Revenue
We use Annualized Monthly Revenue ("AMR") to identify the annualized monthly
value of active customer agreements for a particular period. AMR includes the
annualized monthly value of subscription, data and partnership agreements. All
components of these agreements that are not expected to recur are excluded. AMR
as of December 31, 2022 , and 2021 was $224.4 million and $139.8 million ,
respectively, representing an increase of 61% year-over-year.
Monthly Active Users
We have a large and growing global member base as ofDecember 31, 2022 . A Life360 Monthly Active User ("MAU") is defined as a unique user who engages with our Life360 branded services each month, which includes both paying and non-paying members. As ofDecember 31, 2022 and 2021, we had approximately 48.6 million and approximately 35.5 million MAUs on the Life360 Platform, respectively, representing an increase of 37% year-over-year. We believe this has been driven by continued strong organic member growth and retention.
Paying Circles
We define a
As of
We grow the number of Paying Circles by increasing our free member base, converting free members to subscribers, and retaining them over time with the provision of high-quality family and safety services. We have experienced strong recent growth in the number of paying subscribers.
Average Revenue per
We define Average Revenue perPaying Circle ("ARPPC") as subscription revenue derived from the Life360 mobile application for the reported period divided by the Average Paying Circles during the same period. Average Paying Circles are calculated based on adding the number of Paying Circles as of the beginning of the period to the number of Paying Circles as of the end of the period, and then dividing by two. For the years endedDecember 31, 2022 and 2021, our ARPPC was$95.40 and$80.20 , respectively. As a result of an increase in Paying Circles combined with an increased mix of sales towards higher-priced subscription plans, we experienced an increase of 19% in our ARPPC year-over-year. ARPPC is a key indicator utilized by Life360 to determine the effective penetration of our tiered product offering for Paying Circles. The increase in pricing for new Paying Circles inAugust 2022 has led to subscribers signing up for higher price products over time, increasing ARPPC.
Subscriptions
We define Subscriptions as the number of paying subscribers associated with the Life360, Tile and Jiobit brands as of the end of the period.
Average Revenue per Paying Subscription
We define ARPPS as total subscription revenue for the respective period divided by the average number of paying subscribers during the same period. The average number of paying subscribers is calculated by adding the number of paying subscribers as of the beginning of the period to the number of paying subscribers as of the end of the period, and then dividing by two. ARPPS for the years endedDecember 31, 2022 and 2021 was$79.75 and$67.70 , respectively, representing an increase of$12.05 , or 18% year-over-year. ARPPS has increased year over year as a result of the percentage of subscribers who select higher priced subscriptions, including Life360 membership tiers, has increased over time. 63
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Net Hardware Units Shipped
Net hardware units shipped represents the number of tracking devices sold during a period, net of returns by our retail partners and directly to consumers. Selling units contributes to hardware revenue and ultimately increases the number of users eligible for a Tile or Jiobit subscription. For the year endedDecember 31, 2022 , Life360 sold approximately 3.6 million units, down approximately 42% as compared to the 6.2 million units sold during the year endedDecember 31, 2021 , reflecting the backdrop of weaker consumer electronics category demand and high retail channel inventory levels.
Net Average Sales Price
To determine the net ASP of a unit, we divide hardware revenue recognized during
a period by the number of net hardware units shipped ("ASP") during the same
period. ASP is largely driven by the price we charge customers, including the
price we charge our retail partners, net of customer allowances, and directly to
consumers. For the year ended December 31, 2022 , the net ASP of a unit was
$13.47 , a decrease of 10% compared to the year ended December 31, 2021 ,
reflecting a change in product mix, increased promotional activity and higher
levels of returns.
Liquidity and Capital Resources
We believe that our existing cash and cash equivalents and cash provided by sales of our subscriptions and hardware devices will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors and as a result, we may be required to seek additional capital. If we are unable to raise additional capital on terms acceptable to us or generate cash flows necessary to expand our operations and invest in continued innovation, we may not be able to compete successfully, which would harm our business, financial condition and results of operations. OnMarch 10, 2023 , we had a banking relationship with SVB. As of the closure of SVB onMarch 10, 2023 , we held$6.1 million in direct deposits with SVB, which represented approximately 6.4% of our total cash and cash equivalents as of that date. We also held$75.4 million in shares of money market mutual funds managed by Morgan Stanley, Blackrock and Western Asset, for which SVB acted as custodian. SVB was closed onMarch 10, 2023 by theCalifornia Department of Financial Protection and Innovation , which appointed theFDIC as receiver. OnMarch 12, 2023 , theU.S. Treasury ,Federal Reserve , andFDIC announced that SVB depositors will have access to all of their money startingMarch 13, 2023 . OnMarch 13, 2023 , we regained access to our funds held in SVB accounts. While we have not experienced any losses in such accounts, the recent failure of SVB exposed us to significant credit risk prior to the completion by theFDIC of the resolution of SVB in a manner that fully protected all depositors. We are in the process of transferring our accounts to one or more alternate depository institutions, the financial position of which management believes does not expose our company to significant credit risk or jeopardize our liquidity. Additionally, we may be impacted by adverse developments which affect financial institutions, transactional counterparties, other companies in the financial services industry, or the financial services industry generally, which have in the past and may in the future threaten our ability to access our existing cash and cash equivalents and could have a material adverse effect on our business and financial condition. A number of our users pay in advance for annual subscriptions, while a majority pay in advance for monthly subscriptions. Deferred revenue consists of the unearned portion of customer billings, which is recognized as revenue in accordance with our revenue recognition policy. As ofDecember 31, 2022 and 2021, we had deferred revenue of$32.8 million and$13.9 million , respectively, of which$30.1 million and$13.9 million is expected to be recorded as revenue in the next 12 months, provided all other revenue recognition criteria have been met.
Our cash flow activities were as follows for the periods presented:
Year Ended December 31,
2022 2021
(in thousands)
Net cash used in operating activities $ (57,055) $ (12,153)
Net cash used in investing activities (111,634) (7,064)
Net cash provided by financing activities 27,709 193,951
Net Increase (Decrease) in Cash, Cash Equivalents, and
Restricted Cash $ (140,980) $ 174,734
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Operating Activities
Our largest source of operating cash is cash collections from our paying users for subscriptions to our platform and hardware device sales. Our primary uses of cash from operating activities are for employee-related expenditures, inventory, infrastructure-related costs, commissions and other marketing expenses. Net cash used in operating activities is impacted by our net loss adjusted for certain non-cash items, including depreciation and amortization expenses, amortization of costs capitalized to obtain contracts, change in fair value of convertible notes, derivative liability, and contingent consideration, and stock-based compensation, as well as the effect of changes in operating assets and liabilities. For the year endedDecember 31, 2022 , net cash used in operating activities was$57.1 million . The primary factors affecting our operating cash flows during this period were our net loss of$91.6 million , impacted by$37.3 million of non-cash charges, and$2.8 million of cash provided by changes in our operating assets and liabilities. The non-cash charges primarily consisted of$34.7 million in stock-based compensation,$9.2 million of depreciation and amortization,$5.3 million in gains on revaluation of contingent consideration,$2.9 million of amortization of costs capitalized to obtain contracts,$1.8 million gain in convertible notes fair value adjustment,$1.5 million non-cash revenue from affiliate, and$1.3 million gain in derivative liability fair value adjustment. The cash provided by changes in our operating assets and liabilities was primarily due to a$10.6 million decrease in prepaid expenses and other assets, a$6.5 million decrease in accounts receivable, net, and a$4.7 million increase in deferred revenue. These amounts were partially offset by a$12.7 million decrease in accounts payable, a$7.7 million decrease in accrued expenses and other liabilities, a$3.3 million increase in costs capitalized to obtain contracts, a$0.5 million increase in inventory, and a$0.3 million increase in other noncurrent liabilities. For the year endedDecember 31, 2021 , net cash used in operating activities was$12.2 million . The primary factors affecting our operating cash flows during this period were our net loss of$33.6 million , impacted by$21.8 million non-cash charges and$0.4 million of cash used by changes in our operating assets and liabilities. The non-cash charges primarily consisted of$11.8 million in stock-based compensation,$4.0 million in amortization of costs capitalized to obtain contracts,$3.6 million loss on revaluation of contingent consideration, a$0.7 million loss attributable to the derivative liability fair value adjustment, and$0.9 million of depreciation and amortization. The cash used by changes in our operating assets and liabilities was primarily due to a$4.7 million increase in accrued expenses and other liabilities, a$1.7 million increase in deferred revenue, and a$0.6 million increase in accounts payable. These amounts were partially offset by a$2.7 million increase in accounts receivable, net, a$1.7 million increase in costs capitalized to obtain contracts, net, a$1.2 million decrease in other noncurrent liabilities, a$0.9 million increase in prepaid expenses and other assets, and a$0.9 million increase in inventory.
Investing Activities
For the year endedDecember 31, 2022 , net cash used in investing activities was$111.6 million , which relates to$110.9 million of cash paid for the Tile Acquisition, net of cash acquired and$0.7 million related to the capitalization of internal use software costs. For the year endedDecember 31, 2021 , net cash used in investing activities was$7.1 million , which relates to a$4.0 million cash advance on convertible note receivable and$3.0 million of cash paid for the Jiobit Acquisition, net of cash acquired. Financing Activities For the year endedDecember 31, 2022 , net cash provided by financing activities was$27.7 million , which relates to$32.2 million of proceeds from a capital raise,$2.4 million of proceeds from the exercise of options, and$0.6 million of proceeds from the repayment of notes due from affiliates, partially offset by$4.1 million of taxes paid related to net settlement of equity awards and$3.5 million of repayment of convertible notes. For the year endedDecember 31, 2021 , net cash provided by financing activities was$194.0 million , which primarily related to$193.1 million of proceeds from a capital raise,$3.5 million of proceeds from the exercise of options, and$2.1 million in cash received associated with the issuance of convertible notes offset by$4.7 million of taxes paid related to net settlement of equity awards. 65
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Obligations and Other Commitments
Our principal commitments consist of obligations under our convertible notes, operating leases for office space, and other purchase commitments. Our obligations under our convertible notes are described in Notes 6 and 9 to our consolidated financial statements. Information regarding our non-cancellable lease and other purchase commitments as ofDecember 31, 2022 , can be found in Notes 8 and 11 to our consolidated financial statements.
Critical Accounting Policies and Significant Management Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of consolidated financial statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates. Critical accounting policies and estimates are those that we consider the most important to the portrayal of our financial condition and results of operations because they require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The critical accounting estimates, assumptions, and judgments that we believe to have the most significant impact on our consolidated financial statements are described below. This discussion is provided to supplement the descriptions of our accounting policies contained in Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements and to our interim financial statements included elsewhere in this Annual Report on Form 10-K.
Revenue Recognition
We derive revenue from subscription fees (which include support fees), the sale of Tile and Jiobit hardware devices, and other data revenue. We sell subscriptions to our platform through arrangements that are generally monthly to annual in length. Our arrangements are generally non-cancellable and non-refundable. Our subscription arrangements do not provide customers with the right to take possession of the software supporting the platform and, as a result, are accounted for as service arrangements.
We determine revenue recognition through the following steps:
•Identification of the contract, or contracts, with a customer;
•Identification of the performance obligations in the contract;
•Determination of the transaction price;
•Allocation of the transaction price to the performance obligations in the contract; and
•Recognition of revenue when, or as, we satisfy a performance obligation.
Subscription Revenue
Subscription revenue, which includes support, is recognized on a straight-line basis over the non-cancellable contractual term of the arrangement, generally beginning on the date that our service is made available to the customer. We also generate revenue from the Tile Premium Subscription and Jiobit Subscription offerings. We consider delivery of services to have occurred as control is transferred.
Hardware Revenue
We derive a majority of our hardware revenue from sales of Tile and Jiobit
hardware devices. We consider delivery of our products to have occurred once
control has transferred and delivery of services to have occurred as control is
transferred. We recognize revenue, net of estimated sales returns, sales
incentives, discounts, and sales tax.
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Other Revenue
The majority of the Company's traditional data partner contracts have been terminated in 2022 and as discussed herein, the Company is in the process of winding down the traditional data brokerage business and has moved toward an aggregated data sales model. In the meantime, other revenue includes agreements with third parties to provide access to and use of Life360 data as well as advertising on the Company's mobile platform. The Company estimates and includes variable consideration in the transaction price at contract inception to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. In estimating variable consideration in data arrangements, the Company considers historical experience and other external factors that may impact the expectation of future data usage. Access to the Company's data represents a series of distinct services as the Company continually provides access to the data, fulfills its obligation to the customer over the non-cancelable contractual term, and the customer receives and consumes the benefit of the data throughout the contract period. The series of distinct services represents a single performance obligation that is satisfied over time.
Arrangements with Multiple Performance Obligations
Our hardware sales arrangements typically contain multiple performance obligations, consisting of the hardware sale, application usage, hardware support, and in some cases, subscriptions. For arrangements with multiple performance obligations where the contracted price differs from the stand-alone selling price (the "SSP") for any distinct good or service, we may be required to allocate the transaction price to each performance obligation using our best estimates for the SSP. Our process for determining the SSP considers multiple factors including consumer behaviors, our internal pricing model, and cost-plus margin, and may vary depending upon the facts and circumstances related to each deliverable. For business-to-business hardware sales, we will estimate the expected consideration amount after credits and discounts. Amounts allocated to the delivered hardware devices are recognized at the time of delivery, provided the other conditions for revenue recognition have been met, with a portion of the consideration being allocated to application usage (maintenance) and support. Amounts allocated to subscriptions are deferred and recognized ratably over the subscription term.
Sales Incentives
We offer sales incentives through various programs, consisting primarily of cooperative advertising and pricing promotions to retailers and distributors. We record advertising with customers as a reduction to revenue unless we receive a distinct benefit in exchange for credits claimed by the customer and can reasonably estimate the fair value of the distinct benefit received, in which case we record it as a marketing expense. We recognize a liability and reduce revenue for rebates or other incentives based on the estimated amount of rebates or credits that will be claimed by customers.
Product Warranty
We offer a standard product warranty that our products will operate under normal use for a period of one year from the date of original purchase. We also offer extended warranties generally for a period of three years for devices with replaceable batteries. We will either repair or replace the defective product. At the time revenue is recognized, an estimate of future warranty costs is recorded as a component of cost of revenues. Factors that affect the warranty obligation include product failure rates, service delivery costs incurred in correcting the product failures, and warranty policies. Our products are manufactured by contractor manufacturers, and in certain cases, we may have recourse to such contract manufacturers.
Inventory Valuation
Inventories consist of raw material and finished goods which are purchased from
contract manufacturers. Inventories are stated at the lower of cost or net
realizable value, with costs being computed on a weighted average basis. We
assess the valuation of inventory and periodically write down the value for
estimated excess and obsolete inventory based upon estimates of future demand
and market conditions.
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Costs Capitalized to Obtain Contracts
Revenue-share payments to third parties in connection with initial annual subscription sales of the Company's mobile application on third-party store platforms, are considered to be incremental and recoverable costs of obtaining a contract with a customer. These costs are recognized and amortized over the average customer life, which was approximately two to three years depending on the subscription type. The Company determines the period of benefit by taking into consideration the average customer life based upon its assessment of historical data and other factors.
Stock-Based Compensation Expense
The Company has an equity incentive plan under which various types of
equity-based awards including, but not limited to, incentive stock options,
non-qualified stock options, and Restricted Stock Units ("RSUs") may be granted
to employees, non-employee directors, and non-employee consultants. Compensation
expense is measured and recognized in the consolidated financial statements
based on fair value. The fair value of each option award is estimated on the
grant date using the Black-Scholes option pricing model. The fair value of stock
options that are expected to vest is recognized as compensation expense on a
straight-line basis over the requisite service period. The fair value of RSUs is
based on the fair value of the common stock on the date of grant. The
stock-based compensation expense is based on awards ultimately expected to vest.
Forfeitures are recorded as they occur.
Our use of the Black-Scholes option pricing model requires the input of highly
subjective assumptions, including the fair value of the underlying shares of our
common stock, the expected term of the option, the expected volatility of the
price of our common stock, risk-free interest rates and the expected dividend
yield of our common stock. The assumptions used to determine the fair value of
the awards represent management's best estimates. These estimates involve
inherent uncertainties and the application of management's judgment.
These assumptions and estimates are as follows:
•Fair Value of Common Stock. Since the listing of our CDIs on the ASX, the fair value of common stock is based on the closing price of our CDIs on the ASX as reported in Australian dollars, adjusted to reflect the CDI/per share of common stock ratio in effect, and translated toU.S. dollars based on the date of grant of our common stock. •Expected Term. The expected term for employees is based on the simplified method, as the Company's stock options have the following characteristics: (i) granted at-the-money; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable, or "plain vanilla" options, and the Company has limited history of exercise data. The expected term for non-employees is based on the remaining contractual term. •Expected Volatility. Since we have limited trading history of CDIs, interests in our common stock, the expected volatility is determined based on the historical stock volatilities of our comparable companies, and the Company's trading data since listing on the ASX. Comparable companies consist of public companies in our industry, which are similar in size, stage of life cycle and financial leverage. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company's common stock becomes available.
•Risk-Free Interest Rate. We base the risk-free interest rate on the implied
yield available on
•Dividend Yield. The expected dividend assumption is based on our current expectations about our anticipated dividend policy. As we have no history of paying any dividends and have no plans to pay dividends in the foreseeable future, we used an expected dividend yield of zero.
The following table summarizes the assumptions used in the Black-Scholes option pricing model to determine the fair value of our stock options:
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Year Ended December 31,
2022 2021
Expected term (in years) 3.87 4.24
Expected stock price volatility 65 % 49 %
Risk-free interest rate 2.22 % 0.68 %
Dividend yield 0 % 0 %
We will continue to use judgment in evaluating the expected volatility and expected term utilized in our share-based compensation expense calculations on a prospective basis.
Common Stock Valuations After completion of the listing of our CDIs on the ASX, our Board determines the fair value of each underlying share of our common stock based on the closing price of our CDIs as reported on the date of grant.
Income Taxes
We account for income taxes under the asset and liability method. We estimate actual current tax exposure together with assessing temporary differences resulting from differences in accounting for reporting purposes and tax purposes for certain items, such as accruals and allowances not currently deductible for tax purposes. These temporary differences result in deferred tax assets and liabilities, which are included in our balance sheet. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our statements of operations and comprehensive loss become deductible expenses under applicable income tax laws or when net operating loss or credit carryforwards are utilized. Accordingly, realization of our deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized. We must assess the likelihood that our deferred tax assets will be recovered from future taxable income, and to the extent we believe that recovery is not likely, we establish a valuation allowance. The assessment of whether or not a valuation allowance is required often requires significant judgment including current and historical operating results, the forecast of future taxable income and on-going prudent and feasible tax planning initiatives. Should the actual amounts differ from estimates, the amount of valuation allowance could be materially impacted. Any adjustment to the deferred tax asset valuation allowance would be recorded in the consolidated statement of operations for the periods in which the adjustment is determined to be required.
Recent Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies," to our consolidated financial statements included in Item 8 of Part II hereof for a discussion of recent accounting pronouncements.
Jumpstart Our Business Startups ("JOBS") Act Accounting Elections
We are an emerging growth company, as defined in the JOBS Act. The JOBS Act
provides that an emerging growth company can take advantage of an extended
transition period for complying with new or revised accounting standards. This
provision allows an emerging growth company to delay the adoption of some
accounting standards until those standards would otherwise apply to private
companies. We have elected to use the extended transition period under the JOBS
Act for the adoption of certain accounting standards until the earlier of the
date we (i) are no longer an emerging growth company or (ii) affirmatively and
irrevocably opt out of the extended transition period provided in the JOBS Act.
As a result, our consolidated financial statements may not be comparable to
companies that comply with new or revised accounting pronouncements as of public
company effective dates.
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