Life360, Inc.(LIF) - 2025 Q2 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements (Unaudited) Life360, Inc.'s unaudited condensed consolidated financial statements and accompanying notes are presented for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets Total assets significantly increased due to higher cash and convertible notes, mirroring a substantial rise in total liabilities from new convertible note issuances | Metric | June 30, 2025 (in millions) | December 31, 2024 (in millions) | Change (in millions) | % Change | | :--------------------------------- | :---------------------------- | :------------------------------ | :------------------- | :------- | | Assets | | | | | | Cash and cash equivalents | $432.7 | $159.2 | $273.5 | 171.7% | | Total current assets | $521.2 | $241.0 | $280.2 | 116.3% | | Total Assets | $753.6 | $441.6 | $312.0 | 70.7% | | Liabilities | | | | | | Total current liabilities | $73.0 | $77.3 | $(4.4) | (5.7)% | | Convertible notes, net, noncurrent | $309.3 | — | $309.3 | N/A | | Total Liabilities | $386.9 | $83.0 | $303.9 | 366.0% | | Stockholders' Equity | | | | | | Total stockholders' equity | $366.7 | $358.5 | $8.1 | 2.3% | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company transitioned from a net loss to net income for Q2 and H1 2025, driven by strong revenue growth across all segments and favorable changes in other income/expense | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Subscription revenue | $88.6 | $65.7 | 35% | $170.5 | $127.3 | 34% | | Hardware revenue | $12.3 | $11.9 | 3% | $21.2 | $22.1 | (4)% | | Other revenue | $14.5 | $7.3 | 100% | $27.4 | $13.7 | 99% | | Total revenue | $115.4 | $84.9 | 36% | $219.0 | $163.1 | 34% | | Gross profit | $90.5 | $63.6 | 42% | $174.1 | $123.6 | 41% | | Income (loss) from operations | $2.0 | $(2.4) | 184% | $4.2 | $(8.7) | 148% | | Total other income (expense), net | $4.6 | $(3.1) | 248% | $6.6 | $(5.1) | 229% | | Income (loss) before income taxes | $6.6 | $(5.5) | 221% | $10.8 | $(13.9) | 178% | | Provision for (benefit from) income taxes | $(0.4) | $5.5 | (107)% | $(0.6) | $6.9 | (109)% | | Net income (loss) | $7.0 | $(11.0) | 164% | $11.4 | $(20.7) | 155% | | Net income (loss) per share, basic | $0.09 | $(0.15) | | $0.15 | $(0.30) | | | Net income (loss) per share, diluted | $0.08 | $(0.15) | | $0.14 | $(0.30) | | Condensed Consolidated Statements of Stockholders' Equity Total equity increased, primarily from net income and stock-based compensation, partially offset by capped call purchases and taxes on equity award settlements | Metric (in millions) | Balance at December 31, 2024 | Balance at June 30, 2025 | | :------------------------------------ | :--------------------------- | :----------------------- | | Total Stockholders' Equity | $358.5 | $366.7 | | Net income | N/A | $11.4 | | Stock-based compensation expense | N/A | $25.8 | | Purchase of capped calls | N/A | $(33.7) | Condensed Consolidated Statements of Cash Flows Net cash significantly increased, primarily from financing activities, including convertible note issuance, which offset cash used in investing activities | Cash Flow Activity (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $25.4 | $13.9 | | Net cash used in investing activities | $(32.1) | $(2.3) | | Net cash provided by financing activities | $280.5 | $79.7 | | Net Increase in Cash, Cash Equivalents, and Restricted Cash | $273.8 | $91.3 | | Cash, Cash Equivalents and Restricted Cash at the End of the Period | $434.2 | $162.0 | - Proceeds from issuance of convertible senior notes in 2025 amounted to $320.0 million, significantly boosting financing cash flow[30] - Investing activities in 2025 included a $25.0 million convertible note investment and $2.8 million cash paid for an acquisition[30] Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering significant accounting policies, financial components, and related transactions Note 1. Nature of Business Life360, Inc. operates a leading technology platform focused on family connectivity and safety, offering a 'freemium' mobile application with features like location sharing and driving safety, alongside hardware tracking devices (Tile and Jiobit), and completed its U.S. IPO on June 6, 2024 - Life360's core offering is a 'freemium' mobile application with subscription options, complemented by hardware tracking devices (Tile, Jiobit)[35][36] - The company completed its U.S. IPO on June 6, 2024, issuing 3,703,704 shares of common stock and receiving net proceeds of $93.0 million[38] Note 2. Summary of Significant Accounting Policies This note outlines the basis of presentation for the unaudited condensed consolidated financial statements, emphasizing conformity with GAAP and SEC requirements for interim reporting, detailing the use of estimates, discussing recent accounting pronouncements, and highlighting concentrations of risk - The financial statements are prepared in conformity with GAAP for interim periods and SEC requirements, with certain footnotes condensed or omitted[41] - Significant estimates and judgments are made for revenue recognition, credit losses, inventory valuation, stock-based awards, legal contingencies, and fair value measurements[45][50] Major Customer Revenue Concentration: | Channel Partner | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Apple | 54% | 55% | 55% | 56% | | Google | 19% | 18% | 19% | 18% | Major Customer Accounts Receivable Concentration: | Channel Partner | As of June 30, 2025 | As of December 31, 2024 | | :-------------- | :------------------ | :---------------------- | | Apple | 57% | * | | Google | 12% | 49% | | Data Partner A | 10% | 11% | | Retail Partner A| 12% | 17% | - The company outsources hardware manufacturing to a sole contract manufacturer, but believes alternative suppliers are available[52] Note 3. Segment and Geographic Revenue Life360 operates as a single operating segment, with financial performance evaluated on a consolidated basis, and the majority of its revenue is generated from North America, particularly the United States - The Company operates as one operating segment, with the CEO evaluating financial information and resources on a consolidated basis[55] Revenue by Geographic Region (in millions): | Region | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | North America | $100.1 | $74.9 | $191.5 | $145.2 | | Europe, Middle East and Africa | $8.8 | $6.3 | $15.4 | $10.9 | | Other international regions | $6.4 | $3.6 | $12.1 | $6.9 | | Total revenue | $115.4 | $84.9 | $219.0 | $163.1 | U.S. Revenue as Percentage of Total Revenue: | Period | 2025 | 2024 | | :--------------------------- | :--- | :--- | | Three months ended June 30 | 85% | 87% | | Six months ended June 30 | 85% | 87% | Note 4. Deferred Revenue Deferred revenue primarily consists of advance payments for subscription services, recognized over the contractual term, with a significant portion of prior year's deferred revenue recognized in current periods and substantial remaining performance obligations - Deferred revenue primarily arises from advance payments for subscription services, recognized ratably over the contract term[57] Revenue Recognized from Prior Deferred Revenue (in millions): | Period | 2025 | 2024 | | :--------------------------- | :--- | :--- | | Three months ended June 30 | $8.6 | $7.8 | | Six months ended June 30 | $31.6| $26.2| - Remaining performance obligations totaled $234.6 million as of June 30, 2025, with 38% expected to be recognized within the next twelve months[59] Note 5. Fair Value Measurements The company measures certain assets and liabilities at fair value using a three-level hierarchy, with significant changes including a new $25.0 million Convertible Note Investment in Aura and the conversion of a Related Party SAFE to an investment, resulting in a $0.9 million gain - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[61][62] Recurring Fair Value Measurements (in millions): | Asset | As of June 30, 2025 (Level 1) | As of June 30, 2025 (Level 3) | As of June 30, 2025 (Total) | As of December 31, 2024 (Level 1) | As of December 31, 2024 (Total) | | :-------------------------- | :---------------------------- | :---------------------------- | :-------------------------- | :-------------------------------- | :------------------------------ | | Money market funds | $384.7 | — | $384.7 | $134.0 | $134.0 | | Convertible Note Investment | — | $25.4 | $25.4 | — | — | | Total assets | $384.7 | $25.4 | $410.1 | $134.0 | $134.0 | - A $25.0 million Convertible Note Investment in Aura was made in May 2025, measured at fair value using a scenario-based, probability-weighted option pricing model (Level 3)[64][65] - The conversion of a Related Party SAFE to a Related Party Investment in April 2025 resulted in a $0.9 million gain on change in fair value[67][68] Note 6. Business Combinations On February 27, 2025, Life360 acquired certain assets of Fantix, Inc. for $4.5 million, consisting of cash and common stock, resulting in the recognition of $3.6 million in intangible assets and $0.9 million in goodwill - Life360 acquired assets from Fantix, Inc. for $4.5 million ($3.5 million cash, $1.0 million common stock) on February 27, 2025[69] - The acquisition resulted in $3.6 million in intangible assets and $0.9 million in goodwill, reflecting anticipated synergies and growth opportunities[70] Note 7. Balance Sheet Components This note provides a detailed breakdown of various balance sheet components, including accounts receivable, inventory, prepaid expenses, property and equipment, noncurrent assets, leases, goodwill, and intangible assets, highlighting changes and related expenses Accounts Receivable, Net (in millions): | Metric | As of June 30, 2025 | As of December 31, 2024 | | :---------------------- | :------------------ | :---------------------- | | Accounts receivable | $58.9 | $58.4 | | Allowance for credit losses | $(0.1) | $(0.4) | | Total accounts receivable, net | $58.9 | $58.0 | Inventory (in thousands): | Metric | As of June 30, 2025 | As of December 31, 2024 | | :-------------- | :------------------ | :---------------------- | | Raw materials | $50 | $24 | | Finished goods | $9,623 | $8,033 | | Total inventory | $9,673 | $8,057 | Prepaid Expenses and Other Current Assets (in millions): | Metric | As of June 30, 2025 | As of December 31, 2024 | | :----------------------------------- | :------------------ | :---------------------- | | Prepaid expenses | $14.9 | $11.1 | | Other receivables | $3.8 | $3.5 | | Total prepaid expenses and other current assets | $18.7 | $14.6 | Property and Equipment, Net (in millions): | Metric | As of June 30, 2025 | As of December 31, 2024 | | :----------------------------------- | :------------------ | :---------------------- | | Total property and equipment, gross | $4.3 | $2.8 | | Less: accumulated depreciation | $(1.2) | $(1.0) | | Total property and equipment, net | $3.0 | $1.8 | - Depreciation expense for property and equipment increased from $49 thousand (Q2 2024) to $95 thousand (Q2 2025) and from $95 thousand (H1 2024) to $190 thousand (H1 2025)[76] Prepaid Expenses and Other Assets, Noncurrent (in millions): | Metric | As of June 30, 2025 | As of December 31, 2024 | | :----------------------------------- | :------------------ | :---------------------- | | Prepaid expenses, noncurrent | $3.2 | $1.8 | | Convertible Note Investment | $25.4 | — | | Data Revenue Partner Warrant | $10.9 | $10.9 | | Related Party Investment | $5.9 | — | | Related Party Warrant | $3.9 | $3.9 | | Related Party SAFE | — | $5.0 | | Total prepaid expenses and other assets, noncurrent | $49.2 | $21.6 | Goodwill and Intangible Assets, Net (in millions): | Metric | As of June 30, 2025 | As of December 31, 2024 | | :----------------------------------- | :------------------ | :---------------------- | | Total Intangible assets, net | $42.5 | $40.6 | | Goodwill | $134.6 | $133.7 | - Amortization expense for intangible assets increased from $2.3 million (Q2 2024) to $2.9 million (Q2 2025) and from $4.6 million (H1 2024) to $5.7 million (H1 2025)[87] - Goodwill increased by $0.9 million due to the Fantix, Inc. acquisition[90] Note 8. Convertible Notes In June 2025, Life360 issued $320.0 million in 0.00% convertible senior notes due 2030, which are senior unsecured obligations, and entered into capped call transactions to mitigate dilution, recorded as a reduction to additional paid-in capital - Issued $320.0 million aggregate principal amount of 0.00% convertible senior notes due June 1, 2030, in June 2025[92] - The notes are convertible into common stock under specific conditions, with an initial conversion price of approximately $80.97 per share[92][93] - The net carrying amount of the June 2025 Convertible Notes was $309.3 million as of June 30, 2025, with an effective interest rate of 0.68%[98] - Entered into capped call transactions for $33.7 million to reduce potential dilution, recorded as a reduction to additional paid-in capital[101][102] Note 9. Commitments and Contingencies Life360 has non-cancellable purchase commitments with its cloud platform provider and contract manufacturer totaling $74.0 million through 2027 and is involved in various legal proceedings, including a settled patent infringement claim and a pending class action lawsuit, but currently has no material litigation reserves Future Non-Cancellable Purchase Commitments (in millions): | Year | Amount | | :---------------- | :----- | | Remainder of 2025 | $22.5 | | 2026 | $25.5 | | 2027 | $26.0 | | Total | $74.0| - A patent infringement claim against Tile was settled at no cost on August 5, 2025, following a summary judgment of non-infringement and statutory disclaimer of the patent[107] - A putative class action lawsuit alleging misuse of Tile trackers is pending, but a loss is not probable or estimable, and no legal accrual has been recorded[108] Note 10. Common Stock The company has reserved a significant number of common stock shares for issuance under its stock incentive plan, stock options, and restricted stock units, totaling over 25 million shares as of June 30, 2025 Common Stock Reserved for Issuance: | Category | As of June 30, 2025 | As of December 31, 2024 | | :---------------------------------------- | :------------------ | :---------------------- | | Issuances under stock incentive plan, stock options | 4,816,119 | 5,673,947 | | Issuances upon exercise of common stock warrants | 7,761 | 7,761 | | Issuances upon vesting of restricted stock units | 5,216,444 | 5,091,601 | | Shares reserved for shares available to be granted but not granted yet | 15,324,977 | 12,815,029 | | Total | 25,365,301 | 23,588,338 | Note 11. Warrants As of June 30, 2025, Life360 had 7,761 outstanding warrants to purchase common stock at an exercise price of $6.44, expiring in September 2025, with automatic exercise if not prior to expiration - 7,761 warrants to purchase common stock were outstanding as of June 30, 2025, with an exercise price of $6.44 and a September 2025 expiry date[112] Note 12. Equity Incentive Plan The company's equity incentive plan allows for grants of RSUs and stock options, with significant unrecognized compensation costs for both, and stock-based compensation expense increased significantly across all functional areas - Unrecognized compensation cost for outstanding RSUs was $120.9 million as of June 30, 2025, to be recognized over approximately 2.9 years[116] - Unrecognized compensation cost for outstanding stock options was $1.1 million as of June 30, 2025, to be recognized over approximately 0.5 years[118] Stock-based Compensation Expense (in millions): | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :------------------------ | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Cost of revenue | $1.2 | $0.4 | 170% | $1.6 | $0.8 | 101% | | Research and development | $7.8 | $6.5 | 20% | $13.5 | $11.8 | 14% | | Sales and marketing | $2.0 | $0.8 | 164% | $3.4 | $1.4 | 140% | | General and administrative| $4.2 | $3.1 | 36% | $6.7 | $5.1 | 32% | | Total | $15.2 | $10.8 | 41% | $25.1 | $19.0 | 32% | Note 13. Income Taxes Life360 recorded a benefit from income taxes for the three and six months ended June 30, 2025, a shift from a provision in the prior year, primarily due to estimated growth in the annual effective tax rate in the U.S., while maintaining a full valuation allowance on deferred tax assets Income Tax Provision (Benefit) (in millions): | Period | 2025 | 2024 | | :--------------------------- | :---- | :--- | | Three months ended June 30 | $(0.4) | $5.5 | | Six months ended June 30 | $(0.6) | $6.9 | - The shift from a tax provision to a tax benefit is due to estimated growth in the U.S. annual effective tax rate[120][121] - A full valuation allowance is maintained on federal and state deferred tax assets, as their realization is not considered more likely than not[120] Note 14. Related-Party Transactions Life360 entered into a strategic partnership with Hubble Network, Inc., involving a technology exclusivity and revenue share agreement, a Related Party SAFE (which converted to an investment), and a Related Party Warrant, and paid $5.5 million in U.S. IPO expenses on behalf of selling securityholders - Strategic partnership with Hubble Network, Inc. includes a technology exclusivity and revenue share agreement, a Related Party SAFE, and a Related Party Warrant[122] - The Related Party SAFE converted to a $5.9 million Related Party Investment in April 2025, resulting in a $0.9 million gain[125] - The Related Party Warrant, valued at $3.9 million, generated $0.2 million and $0.5 million in other revenue for the three and six months ended June 30, 2025, respectively[124] - Life360 paid $5.5 million in U.S. IPO expenses on behalf of selling securityholders, including executive officers and board members, recorded as Other income (expense), net[129][130] Note 15. Net Income (Loss) Per Share The company calculates basic and diluted net income (loss) per share, with diluted EPS at $0.08 (three months) and $0.14 (six months) for the periods ended June 30, 2025, reflecting the dilutive effect of options, RSUs, and warrants, but not the June 2025 Convertible Notes Net Income (Loss) Per Share: | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $7.0 million | $(11.0) million | $11.4 million | $(20.7) million | | Weighted-average shares outstanding: Basic | 76,797,385 | 70,760,080 | 76,254,119 | 69,647,853 | | Diluted | 84,476,048 | 70,760,080 | 83,980,695 | 69,647,853 | | Net income (loss) per share: Basic | $0.09 | $(0.15) | $0.15 | $(0.30) | | Net income (loss) per share: Diluted | $0.08 | $(0.15) | $0.14 | $(0.30) | - The June 2025 Convertible Notes were not dilutive for the three and six months ended June 30, 2025, as the average stock price did not exceed the conversion price[133] Note 16. Subsequent Events Subsequent events include the enactment of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, which may impact future tax rates, and a change in executive leadership effective August 11, 2025, with Lauren Antonoff appointed CEO and Chris Hulls becoming Executive Chairman - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, with potential future impacts on financial statements and disclosures due to changes in tax provisions[135] - Lauren Antonoff was appointed CEO and Chris Hulls became Executive Chairman of the Board, effective August 11, 2025[136] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Life360's financial condition and operational results, highlighting key factors affecting performance, detailed revenue and expense analysis, and key performance indicators, while also discussing liquidity, capital resources, and critical accounting policies Overview Life360 is a leading technology platform for family connectivity and safety, offering a 'freemium' mobile application with subscription options and hardware tracking devices (Jiobit and Tile), aiming to provide a vertically integrated, cross-platform solution - Life360 is a leading technology platform for family connectivity and safety, offering a 'freemium' mobile application and hardware tracking devices (Jiobit and Tile)[138] Key Factors Affecting Our Performance Key factors influencing Life360's performance include maintaining brand trust, attracting and retaining members, efficient member acquisition, growth in hardware sales, expanding platform offerings, talent acquisition, seasonality, and international expansion - Performance is affected by brand trust, member attraction/retention, efficient acquisition, hardware sales growth, platform expansion, talent, seasonality, and international expansion[139] Key Components of Our Results of Operations This section details the various revenue streams (subscription, hardware, other) and cost components (cost of revenue, operating expenses, other income/expense) that constitute Life360's financial results, explaining how each component is generated, recognized, and influenced by trends - Revenue is categorized into direct (subscription, hardware) and indirect (data, partnership, advertising)[141] - Subscription revenue is recognized ratably over the contractual term, while hardware revenue is recognized upon product delivery[142][143] - Other revenue includes data and partnership revenue, such as location-based analytics and advertising, and revenue from the Related Party Warrant[144] - Operating expenses comprise research and development, sales and marketing, and general and administrative costs, with continued investment planned for growth[150][151][153][154] - Other income (expense) includes fair value adjustments for convertible notes and derivatives (historical), gains on investments, and interest income/expense[155][156][157][158][159][160][161] Results of Operations Life360 achieved significant financial improvements for the three and six months ended June 30, 2025, transitioning from a net loss to net income, driven by strong revenue growth across all segments, particularly subscription and other revenue, and improved gross margins, with operating expenses increasing in absolute dollars but decreasing as a percentage of revenue | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :------------------------------------ | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Total revenue | $115.4 | $84.9 | 36% | $219.0 | $163.1 | 34% | | Gross profit | $90.5 | $63.6 | 42% | $174.1 | $123.6 | 41% | | Income (loss) from operations | $2.0 | $(2.4) | 184% | $4.2 | $(8.7) | 148% | | Net income (loss) | $7.0 | $(11.0) | 164% | $11.4 | $(20.7) | 155% | Results of Operations as a Percentage of Total Revenue: | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross profit | 78% | 75% | 79% | 76% | | Total operating expenses | 77% | 78% | 78% | 81% | | Income (loss) from operations | 2% | (3)% | 2% | (5)% | | Net income (loss) | 6% | (13)% | 5% | (13)% | Revenue Total revenue increased significantly, driven by strong subscription revenue growth (35% for Q2, 34% for H1) due to increased Paying Circles and price increases, while other revenue doubled, and hardware revenue saw modest Q2 growth but a slight H1 decline due to increased discounts and bundled offerings Revenue (in millions): | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :---------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Subscription revenue | $88.6 | $65.7 | 35% | $170.5 | $127.3 | 34% | | Hardware revenue | $12.3 | $11.9 | 3% | $21.2 | $22.1 | (4)% | | Other revenue | $14.5 | $7.3 | 100% | $27.4 | $13.7 | 99% | | Total revenue | $115.4 | $84.9 | 36% | $219.0 | $163.1 | 34% | - Subscription revenue growth was primarily due to 25% growth in Paying Circles and 18% growth in total subscriptions, along with price increases for Life360 subscriptions[168][171] - Other revenue increased due to a $4.9 million (Q2) / $9.4 million (H1) increase in partnership revenue (including advertising) and a $2.3 million (Q2) / $4.2 million (H1) increase in data revenue from the Placer.ai agreement[170][173] Cost of Revenue, Gross Profit, and Gross Margin Gross profit increased significantly, with subscription gross margin improving due to price increases, while hardware gross margin decreased in H1 2025 due to increased discounts and tariff costs, despite flat Q2 performance, and other gross margin improved as revenue growth outpaced cost increases Cost of Revenue and Gross Profit (in millions): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | % Change | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | % Change | | :---------------------- | :------------------------------- | :------------------------------- | :------- | :----------------------------- | :----------------------------- | :------- | | Cost of subscription revenue | $13.0 | $10.4 | 26% | $23.2 | $19.7 | 18% | | Cost of hardware revenue| $10.2 | $9.9 | 3% | $18.8 | $17.9 | 5% | | Cost of other revenue | $1.6 | $0.9 | 78% | $3.0 | $1.8 | 64% | | Total cost of revenue | $24.9 | $21.2 | 17% | $45.0 | $39.5 | 14% | | Gross profit | $90.5 | $63.6 | 42% | $174.1 | $123.6 | 41% | Gross Margin: | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Subscription | 85% | 84% | 86% | 85% | | Hardware | 17% | 17% | 11% | 19% | | Other | 89% | 87% | 89% | 87% | - Subscription cost of revenue increased due to higher personnel-related costs, stock-based compensation, and technology expenses, as well as amortization of internally developed software[177][183] - Hardware gross margin decline in H1 2025 was primarily due to a $2.2 million increase in discounts, increased freight costs, and higher tariff costs[186] Research and Development Research and development expenses increased by 19% for Q2 and 15% for H1 2025, primarily driven by higher personnel-related and stock-based compensation costs, and increased technology expenses, reflecting continued investment in platform development Research and Development Expenses (in millions): | Period | 2025 | 2024 | % Change | | :--------------------------- | :---- | :---- | :------- | | Three months ended June 30 | $32.3 | $27.0 | 19% | | Six months ended June 30 | $62.7 | $54.3 | 15% | - Increases were mainly due to $4.3 million (Q2) / $6.9 million (H1) in personnel-related and stock-based compensation costs and $1.1 million (Q2) / $2.1 million (H1) in technology and other costs[189][190] Sales and Marketing Sales and marketing expenses increased substantially (60% for Q2, 51% for H1 2025), primarily due to increased growth media spend and higher commissions paid to Channel Partners, aligning with the growth in subscription revenue Sales and Marketing Expenses (in millions): | Period | 2025 | 2024 | % Change | | :--------------------------- | :---- | :---- | :------- | | Three months ended June 30 | $38.9 | $24.4 | 60% | | Six months ended June 30 | $74.2 | $49.1 | 51% | - Key drivers were increases in growth media spend ($5.2 million Q2 / $8.6 million H1) and commissions to Channel Partners ($4.2 million Q2 / $8.0 million H1)[191][192] General and Administrative General and administrative expenses increased by 19% for Q2 and 14% for H1 2025, mainly due to higher personnel-related and stock-based compensation costs and increased technology expenses, partially offset by lower professional and outside services spend General and Administrative Expenses (in millions): | Period | 2025 | 2024 | % Change | | :--------------------------- | :---- | :---- | :------- | | Three months ended June 30 | $17.4 | $14.6 | 19% | | Six months ended June 30 | $33.0 | $29.0 | 14% | - Increases were primarily due to $3.3 million (Q2) / $4.9 million (H1) in personnel-related and stock-based compensation costs and $0.5 million (Q2) / $1.3 million (H1) in technology and other expenses[193][194] - Partially offset by a $0.9 million (Q2) / $1.9 million (H1) decrease in professional and outside services, mainly due to lower Sarbanes-Oxley compliance costs[193][194] Convertible Notes Fair Value Adjustment No gain or loss was recorded for convertible notes fair value adjustment in Q2 and H1 2025, as the September 2021 and July 2021 Convertible Notes were converted to common stock in 2024 - No convertible notes fair value adjustment was recorded in Q2 and H1 2025 due to the conversion of prior convertible notes in 2024[195] Derivative Liability Fair Value Adjustment No gain or loss was recorded for derivative liability fair value adjustment in Q2 and H1 2025, as the embedded derivative liability related to the July 2021 Convertible Notes was settled in June 2024 - No derivative liability fair value adjustment was recorded in Q2 and H1 2025 due to the settlement of the embedded derivative liability in June 2024[196] Loss on Settlement of Convertible Notes No gain or loss was recorded on the settlement of convertible notes in Q2 and H1 2025, as the September 2021 and July 2021 Convertible Notes were converted to common stock in 2024 - No loss on settlement of convertible notes was recorded in Q2 and H1 2025 due to the conversion of prior convertible notes in 2024[197] Gain on Settlement of Derivative Liability No gain or loss was recorded on the settlement of derivative liability in Q2 and H1 2025, as the derivative liability related to the July 2021 Convertible Notes was settled in June 2024 - No gain on settlement of derivative liability was recorded in Q2 and H1 2025 due to the settlement of the derivative liability in June 2024[198] Gain on Change in Fair Value of Investments Life360 recorded a total gain of $1.3 million for Q2 and H1 2025 from changes in fair value of investments, including a $0.9 million gain from the conversion of a Related Party SAFE and a $0.4 million gain from the Convertible Note Investment in Aura - A $0.9 million gain was recorded for Q2 and H1 2025 from the conversion of the Related Party SAFE to a Related Party Investment[199] - An additional $0.4 million gain was recorded for Q2 and H1 2025 from the change in fair value of the Convertible Note Investment in Aura[200] Other Income (Expense), Net Other income (expense), net, significantly increased by $8.0 million (Q2) and $9.6 million (H1) in 2025, primarily due to a decrease in U.S. IPO transaction costs, an increase in dividend and interest income from higher cash balances, and a favorable change in currency revaluation - Other income (expense), net, increased by $8.0 million (173%) for Q2 2025 and $9.6 million (224%) for H1 2025[202][203] - Key drivers include a $5.6 million decrease in U.S. IPO transaction costs and a $1.4 million (Q2) / $2.4 million (H1) increase in dividend and interest income[202][203] - A favorable $1.2 million (Q2) / $1.6 million (H1) change in currency revaluation also contributed to the increase[202][203] Provision for (benefit from) Income Taxes Life360 recorded a benefit from income taxes in Q2 and H1 2025, a significant improvement from a provision in the prior year, driven by estimated growth in the U.S. annual effective tax rate, while continuing to maintain a full valuation allowance on its deferred tax assets - Benefit from income taxes increased by $5.9 million (Q2) and $7.5 million (H1) in 2025, compared to a provision in 2024[204] - This change is attributed to estimated growth in the U.S. annual effective tax rate[204] - A full valuation allowance is maintained on federal and state deferred tax assets[204] Key Performance Indicators Life360 demonstrated strong growth across its key performance indicators, including Annualized Monthly Revenue (AMR), Monthly Active Users (MAUs), Paying Circles, and Average Revenue per Paying Circle (ARPPC), with subscriptions and Net Hardware Units Shipped also increasing, while Net Average Sales Price (ASP) saw a slight decrease Key Operating Metrics (in millions, except ARPPC, ARPPS and ASP): | Metric | As of and for the Three Months Ended June 30, 2025 | As of and for the Three Months Ended June 30, 2024 | % Change | As of and for the Six Months Ended June 30, 2025 | As of and for the Six Months Ended June 30, 2024 | % Change | | :------------------------ | :------------------------------------------------- | :------------------------------------------------- | :------- | :------------------------------------------------ | :------------------------------------------------ | :------- | | AMR | $416.1 | $304.8 | 36% | $416.1 | $304.8 | 36% | | MAUs | 88.0 | 70.6 | 25% | 88.0 | 70.6 | 25% | | Paying Circles | 2.5 | 2.0 | 25% | 2.5 | 2.0 | 25% | | ARPPC | $135.42 | $125.96 | 8% | $134.49 | $124.41 | 8% | | Subscriptions | 3.1 | 2.7 | 18% | 3.1 | 2.7 | 18% | | ARPPS | $116.06 | $104.00 | 12% | $114.57 | $102.60 | 12% | | Net hardware units shipped| 0.8 | 0.7 | 21% | 1.3 | 1.2 | 8% | | ASP | $14.81 | $15.92 | (7)% | $15.64 | $16.18 | (3)% | Annualized Monthly Revenue Annualized Monthly Revenue (AMR) increased by 36% year-over-year to $416.1 million as of June 30, 2025, primarily driven by continued subscriber growth - AMR increased 36% year-over-year to $416.1 million as of June 30, 2025, driven by subscriber growth[209] Monthly Active Users Monthly Active Users (MAUs) on the Life360 platform grew by 25% year-over-year to 88.0 million as of June 30, 2025, reflecting strong new member growth and retention - MAUs increased 25% year-over-year to 88.0 million as of June 30, 2025, due to strong new member growth and retention[210] Paying Circles Paying Circles increased by 25% year-over-year to 2.5 million as of June 30, 2025, driven by converting free members to subscribers and retaining them with high-quality services - Paying Circles increased 25% year-over-year to 2.5 million as of June 30, 2025[212] Average Revenue per Paying Circle Average Revenue per Paying Circle (ARPPC) increased by 8% year-over-year to $135.42 for Q2 2025 and $134.49 for H1 2025, benefiting from price increases for new and existing subscribers and a shift towards higher-priced product mixes in both U.S. and international markets - ARPPC increased 8% year-over-year to $135.42 (Q2 2025) and $134.49 (H1 2025)[214] - Growth was driven by price increases for new and existing Life360 subscriptions and a shift to higher-priced product mixes in U.S. and international markets[215] Subscriptions Total paid subscriptions across Life360, Tile, and Jiobit brands increased by 18% year-over-year to 3.1 million as of June 30, 2025, driven by hardware sales and conversion/retention of free members - Total paid subscriptions increased 18% year-over-year to 3.1 million as of June 30, 2025[216] Average Revenue per Paying Subscription Average Revenue per Paying Subscription (ARPPS) increased by 12% year-over-year to $116.06 for Q2 2025 and $114.57 for H1 2025, primarily due to price increases for U.S. annual subscribers and a shift towards higher-priced product tiers - ARPPS increased 12% year-over-year to $116.06 (Q2 2025) and $114.57 (H1 2025)[219] - This increase was a result of price increases for new and existing annual U.S. subscribers and a shift towards higher-priced products and tiers in international markets[220] Net Hardware Units Shipped Net hardware units shipped increased by 21% for Q2 and 8% for H1 2025, driven by an increase in online retail sales - Net hardware units shipped increased 21% (Q2) and 8% (H1) year-over-year, primarily due to increased online retail sales[222] Net Average Sales Price (ASP) Net Average Sales Price (ASP) per unit decreased by 7% for Q2 and 3% for H1 2025, primarily due to a shift in channel mix and an increase in promotional discounts - Net ASP per unit decreased 7% (Q2) and 3% (H1) year-over-year, mainly due to a shift in channel mix and increased promotional discounts[224] Liquidity and Capital Resources Life360's cash and cash equivalents significantly increased to $432.7 million as of June 30, 2025, from $159.2 million at December 31, 2024, with the company believing its current liquidity is sufficient for the next 12 months, driven by a substantial net increase in cash from financing activities, particularly the issuance of convertible notes Cash and Cash Equivalents (in millions): | Metric | As of June 30, 2025 | As of December 31, 2024 | | :---------------------- | :------------------ | :---------------------- | | Cash and cash equivalents | $432.7 | $159.2 | | Restricted cash | $1.5 | $1.2 | - Existing cash and cash equivalents are believed to be sufficient for working capital and capital expenditures for at least the next 12 months[226] - Net cash provided by financing activities was $280.5 million for H1 2025, primarily from $320.0 million in convertible notes proceeds[234] Cash Flows Operating activities provided $25.4 million in cash for H1 2025, driven by net income and non-cash adjustments, despite cash used by changes in operating assets and liabilities, while investing activities used $32.1 million, mainly for a convertible note investment and software capitalization, and financing activities provided $280.5 million, primarily from convertible note issuance Cash Flow Activities (in millions): | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $25.4 | $13.9 | | Net cash used in investing activities | $(32.1) | $(2.3) | | Net cash provided by financing activities | $280.5 | $79.7 | | Net Increase in Cash, Cash Equivalents, and Restricted Cash | $273.8 | $91.3 | - Operating cash flow for H1 2025 was positively impacted by net income of $11.4 million and $30.4 million in non-cash adjustments[230] - Investing cash flow for H1 2025 included a $25.0 million Convertible Note Investment and $3.5 million in internally developed software capitalization[232] - Financing cash flow for H1 2025 was primarily driven by $320.0 million from convertible senior notes issuance, offset by $9.6 million in debt issuance costs and $33.7 million for capped calls[234] Obligations and Other Commitments Life360's principal commitments include operating leases for office space and non-cancellable purchase commitments with its cloud platform provider and contract manufacturer, as detailed in the financial statement notes - Principal commitments include operating leases and non-cancellable purchase commitments with cloud platform and contract manufacturers[236] Critical Accounting Policies and Significant Management Estimates The preparation of financial statements requires significant estimates and assumptions, which could materially differ from actual results, and no significant changes were made to these policies during the six months ended June 30, 2025 - Financial statements rely on estimates and assumptions, which may differ from actual results[237] - No significant changes to critical accounting policies occurred during the six months ended June 30, 2025[237] Item 3. Quantitative and Qualitative Disclosures About Market Risk Life360 is exposed to market risks primarily from fluctuations in interest rates and foreign currency exchange rates, but does not believe a hypothetical 10% change in interest rates or a 1,000 basis-point change in foreign exchange rates would materially impact its financial statements, and it does not currently engage in active hedging - Market risk exposure primarily stems from interest rate and foreign currency exchange rate fluctuations[238] - A hypothetical 10% change in interest rates or a 1,000 basis-point change in foreign currency exchange rates is not expected to have a material impact[239][240] - The company does not currently use active hedging arrangements for foreign currency risk[240] - Inflation has not had a material effect on the business, but significant inflationary pressures could pose future risks[241] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that Life360's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter, while acknowledging inherent limitations in control systems - Disclosure controls and procedures were effective as of June 30, 2025[242] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2025[243] - Control systems have inherent limitations and can only provide reasonable, not absolute, assurance against errors and fraud[244] Part II - Other Information Item 1. Legal Proceedings Life360 is involved in various legal proceedings, including regulatory inquiries related to data protection and consumer rights, and claims such as patent infringement and class action lawsuits, which the company vigorously defends, and for which no material litigation reserve has been recorded - The company is subject to legal proceedings, claims, and government investigations, including those related to data protection and consumer rights[246] - A patent infringement claim against Tile was settled at no cost, and a class action lawsuit is pending, but no material litigation reserve has been recorded[247][107][108][110] Item 1A. Risk Factors This section updates previously disclosed risk factors, focusing on new risks related to legal and regulatory changes concerning subscription renewals and taxation in multiple jurisdictions, as well as risks associated with the company's indebtedness, particularly the June 2025 Convertible Notes and related capped call transactions Risks Related to Legal Matters and Our Regulatory Environment New risks include potential adverse impacts from evolving laws regulating subscription and auto-payment renewals, and taxation risks in multiple jurisdictions due to changing global tax laws (e.g., digital services taxes, Pillar II global minimum tax, OBBBA in the U.S.) - Changes in laws regulating subscription and auto-payment renewals could adversely affect the business, reputation, financial condition, and results of operations[249] - The company is subject to taxation risks in multiple U.S. and foreign jurisdictions, with potential challenges from tax authorities and impacts from new laws like digital services taxes, Pillar II global minimum tax, and the U.S. OBBBA[250][251][252][253] Risks Related to Our Indebtedness Risks related to indebtedness include the significant cash required to service $320.0 million in June 2025 Convertible Notes, potential inability to repurchase notes upon a fundamental change or maturity, and the impact of capped call transactions on common stock value, which could limit cash flow, restrict operations, and dilute existing stockholders - Servicing $320.0 million in June 2025 Convertible Notes requires significant cash flow, potentially limiting funds for operations and exposing the company to adverse economic conditions[254][255] - The company may be unable to raise funds to repurchase convertible notes following a fundamental change or pay cash amounts due upon maturity or conversion, which could lead to default[258] - Capped call transactions,