UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2022

OR

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

Commission File Number 000-56424

Life360, Inc.

(Exact name of registrant as specified in its charter)

Delaware	26-0197666
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
539 Bryant Street, Suite 402 San Francisco, CA	94107
(Address of principal executive offices)	(Zip Code)

Tel: (415) 484-5244

(Registrant's telephone number, including area code)

Not applicable.

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

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

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

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

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

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

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
Emerging growth company	x

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

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

As of November 14, 2022, the registrant had 62,325,855 shares of common stock, par value $0.001 per share, including shares underlying all issued and outstanding Chess Depository Interests (“CDIs”), outstanding.

Life360, Inc.

FORM 10-Q for the Quarter Ended September 30, 2022

Table of Contents

		Page
Part I - Financial Information
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	40
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4.	Controls and Procedures	59
Part II - Other Information
Item 1.	Legal Proceedings	61
Item 1A.	Risk Factors	61
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63
Signatures		64

Forward-Looking Statements

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

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

Life360, Inc.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

Condensed Consolidated Balance Sheets

(unaudited)

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

	September 30, 2022		December 31, 2021
Assets
Current Assets:
Cash and cash equivalents	$	43,964	$	230,990
Accounts receivable, net	23,186		11,772
Costs capitalized to obtain contracts, net	1,894		1,319
Inventory	15,206		2,009
Prepaid expenses and other current assets	10,805		10,590
Total current assets	95,055		256,680
Restricted cash	14,911		355
Property and equipment, net	525		580
Costs capitalized to obtain contracts, net of current portion	113		330
Prepaid expenses and other assets, noncurrent	7,603		3,691
Right-of-use-asset	1,491		1,627
Intangible assets, net	54,934		7,986
Goodwill	133,620		31,127
Total Assets	$	308,252	$	302,376
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	12,578	$	3,248
Accrued expenses and other liabilities	27,158		10,547
Escrow liability	13,094		—
Contingent consideration	—		9,500
Convertible notes, current ($3,454 and $4,222 measured at fair value, respectively)	3,454		4,222
Deferred revenue, current	27,871		13,929
Total current liabilities	84,155		41,446
Convertible notes, noncurrent ($3,380 and $8,071 measured at fair value, respectively)	3,909		8,284
Derivative liability, noncurrent	213		1,396
Deferred revenue, noncurrent	3,015		—
Other noncurrent liabilities	1,498		1,205
Total Liabilities	$	92,790	$	52,331
Commitments and Contingencies (Note 11)
Stockholders’ Equity
Common Stock, $0.001 par value; 100,000,000 shares authorized as of September 30, 2022 (unaudited) and December 31, 2021; 62,284,507 and 60,221,799 issued and outstanding as of September 30, 2022 (unaudited) and December 31, 2021, respectively	62		61
Additional paid-in capital	460,395		416,278
Notes due from affiliates	(312)		(951)
Accumulated deficit	(244,669)		(165,343)
Accumulated other comprehensive income	(14)		—
Total stockholders’ equity	215,462		250,045
Total Liabilities and Stockholders’ Equity	$	308,252	$	302,376

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

1

Life360, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Subscription revenue	$	38,991	$	23,110	$	107,884	$	59,479
Hardware revenue	11,676		38		28,314		38
Other revenue	6,486		6,549		20,769		18,181
Total revenue	57,153		29,697		156,967		77,698
Cost of subscription revenue	7,768		4,374		22,742		11,894
Cost of hardware revenue	9,327		82		27,906		82
Cost of other revenue	818		932		2,673		2,661
Total cost of revenue	17,913		5,388		53,321		14,637
Gross Profit	39,240		24,309		103,646		63,061
Operating expenses:
Research and development	24,569		13,113		77,337		35,821
Sales and marketing	24,228		13,360		70,365		32,156
General and administrative	11,567		5,584		37,643		13,491
Total operating expenses	60,364		32,057		185,345		81,468
Loss from operations	(21,124)		(7,748)		(81,699)		(18,407)
Other income (expense):
Convertible notes fair value adjustment	(232)		—		1,875		—
Derivative liability fair value adjustment	(145)		(412)		1,183		(412)
Other income (expense), net	455		2		(601)		5
Total other income (expense), net	78		(410)		2,457		(407)
Loss before income taxes	(21,046)		(8,158)		(79,242)		(18,814)
Provision (benefit) for income taxes	73		(144)		84		(144)
Net Loss	$	(21,119)	$	(8,014)	$	(79,326)	$	(18,670)
Net loss per share, basic and diluted	$	(0.34)	$	(0.16)	$	(1.28)	$	(0.37)
Weighted-average shares used in computing net loss per share, basic and diluted	62,173,588		51,217,286		61,753,532		50,608,146
Comprehensive loss
Net loss	(21,119)		(8,014)		(79,326)		(18,670)
Change in foreign currency translation adjustment	(29)		—		(14)		—
Total comprehensive loss	$	(21,148)	$	(8,014)	$	(79,340)	$	(18,670)

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

2

Life360, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

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

	Common Stock			Additional Paid-In Capital		Notes Due from Affiliates		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	60,221,799	$	61	$	416,278	$	(951)	$	(165,343)	$	—	$	250,045
Exercise of stock options	277,995	—		1,508		—		—		—		1,508
Exercise of warrants	66,892	—		—		—		—		—		—
Vesting of restricted stock units	124,059	—		—		—		—		—		—
Taxes paid related to net settlement of equity awards	—	—		(716)		—		—		—		(716)
Issuance of common stock in connection with an acquisition	779,032	1		15,408		—		—		—		15,409
Issuance of common stock	—	—		85		—		—		—		85
Stock-based compensation expense	—	—		6,095		—		—		—		6,095
Interest accrued relating to notes due from affiliates	—	—		—		(5)		—		—		(5)
Net loss	—	—		—		—		(25,222)		—		(25,222)
Change in foreign currency translation adjustment	—	—		—		—		—		29		29
Balance at March 31, 2022	61,469,777	$	62	$	438,658	$	(956)	$	(190,565)	$	29	$	247,228
Exercise of stock options	56,583	—		258		—		—		—		258
Exercise of warrants	20,903	—		1		—		—		—		1
Vesting of restricted stock units	179,118	—		—		—		—		—		—
Taxes paid related to net settlement of equity awards	—	—		(778)		—		—		—		(778)
Stock-based compensation expense	—	—		10,429		—		—		—		10,429
Interest accrued relating to notes due from affiliates	—	—		—		(3)		—		—		(3)
Repayment of notes due from affiliates	—	—		648		648		—		—		1,296
Issuance of common stock in settlement of contingent consideration	360,724	—		4,221		—		—		—		4,221
Net loss	—	—		—		—		(32,985)		—		(32,985)
Change in foreign currency translation adjustment	—	—		—		—		—		(14)		(14)
Balance at June 30, 2022	62,087,105	$	62	$	453,437	$	(311)	$	(223,550)	$	15	$	229,653
Exercise of stock options	58,800	—		228		—		—		—		228
Vesting of restricted stock units	214,522	—		—		—		—		—		—
Taxes paid related to net settlement of equity awards	—	—		(1,233)		—		—		—		(1,233)
Stock-based compensation expense	—	—		7,963		—		—		—		7,963
Interest accrued relating to notes due from affiliates	—	—		—		(1)		—		—		(1)
Cancellation of revesting stock	(75,920)	—		—		—		—		—		—
Net loss	—	—		—		—		(21,119)		—		(21,119)
Change in foreign currency translation adjustment	—	—		—		—		—		(29)		(29)
Balance at September 30, 2022	62,284,507	$	62	$	460,395	$	(312)	$	(244,669)	$	(14)	$	215,462

3

Life360, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

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

	Common Stock			Additional Paid-In Capital		Notes Due from Affiliates		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2020	50,035,408	$	50	$	196,852	$	(927)	$	(131,786)	$	64,189
Exercise of stock options	126,497	—		498		—		—		498
Vesting of restricted stock units	109,482	—		—		—		—		—
Taxes paid related to net settlement of equity awards	—	—		(586)		—		—		(586)
Stock-based compensation expense	—	—		2,199		—		—		2,199
Interest accrued relating to notes due from affiliates	—	—		—		(9)		—		(9)
Net loss	—	—		—		—		(3,852)		(3,852)
Balance at March 31, 2021	50,271,387	50		198,963		(936)		(135,638)		62,439
Exercise of stock options	287,745	—		790		—		—		790
Vesting of restricted stock units	169,915	—		—		—		—		—
Taxes paid related to net settlement of equity awards	—	—		(1,249)		—		—		(1,249)
Stock-based compensation expense	—	—		2,941		—		—		2,941
Interest accrued relating to notes due from affiliates	—	—		—		(6)		—		(6)
Net loss	—	—		—		—		(6,804)		(6,804)
Balance at June 30, 2021	50,729,047	50		201,445		(942)		(142,442)		58,111
Exercise of stock options	350,394	—		935		—		—		935
Exercise of warrants	37,410	—		—		—		—		—
Vesting of restricted stock units	129,448	—		—		—		—		—
Taxes paid related to net settlement of equity awards	—	—		(1,334)		—		—		(1,334)
Issuance of warrants with convertible note	—	—		844		—		—		844
Beneficial conversion feature associated with convertible note	—	—		603		—		—		603
Issuance of common stock in connection with acquisition	765,733	1		13,820		—		—		13,821
Vested option awards assumed in connection with an acquisition	—	—		533		—		—		533
Stock-based compensation expense	—	—		3,260		—		—		3,260
Interest accrued relating to notes due from affiliates	—	—		—		(3)		—		(3)
Net loss	—	—		—		—		(8,014)		(8,014)
Balance at September 30, 2021	52,012,032	$	51	$	220,106	$	(945)	$	(150,456)	$	68,756

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

4

Life360, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

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

	Nine months ended
	September 30, 2022		September 30, 2021
Cash Flows from Operating Activities:
Net loss	$	(79,326)	$	(18,670)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	6,831		459
Amortization of costs capitalized to obtain contracts	2,419		3,164
Stock-based compensation expense	24,487		8,400
Compensation expense in connection with revesting notes (Note 7)	(100)		43
Noncash interest (income) expense, net	345		(18)
Convertible notes fair value adjustment	(1,875)		—
Derivative liability fair value adjustment	(1,183)		412
Gain on revaluation of contingent consideration	(5,279)		—
Noncash revenue from affiliate	(1,008)		—
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	16,412		(3,877)
Prepaid expenses and other assets	7,216		4,047
Inventory	(4,877)		(235)
Costs capitalized to obtain contracts, net	(2,777)		(1,382)
Accounts payable	(13,867)		2,196
Accrued expenses and other liabilities	(5,345)		3,652
Deferred revenue	2,410		2,344
Other noncurrent liabilities	620		(876)
Net cash used in operating activities	(54,897)		(341)
Cash Flows from Investing Activities:
Cash paid for acquisition, net of cash acquired	(113,401)		(2,983)
Internal use software	(701)		—
Cash advance on convertible note receivable	—		(4,000)
Net cash used in investing activities	(114,102)		(6,983)
Cash Flows from Financing Activities:
Proceeds from the exercise of options	1,994		2,223
Taxes paid related to net settlement of equity awards	(2,727)		(3,169)
Issuance of common stock	85		—
Proceeds from repayment of notes due from affiliates	648		—
Payments on borrowings	—		(53)
Repayment of convertible notes	(3,471)		—
Cash received in advance of the issuance of convertible notes	—		2,110
Net cash (used)/provided by financing activities	(3,471)		1,111
Net Decrease in Cash, Cash Equivalents, and Restricted Cash	(172,470)		(6,213)
Cash, Cash Equivalents and Restricted Cash at the Beginning of the Period	231,345		56,611

5

Life360, Inc.

Cash, Cash Equivalents, and Restricted Cash at the End of the Period	$	58,875	$	50,398
Supplemental disclosure:
Cash paid during the period for taxes	$	—	$	(33)
Cash paid during the period for interest	(518)		—
Non-cash investing and financing activities:
Fair value of stock issued in connection with an acquisition	$	15,409	$	13,821
Fair value of convertible debt issued in connection with an acquisition	—		11,597
Fair value of contingent consideration issued in connection with an acquisition	—		5,900
Fair value of vested options assumed in connection with an acquisition	—		533
Forgiveness of convertible note receivable in connection an acquisition	—		4,023
Relative fair value of warrants issued with convertible debt	—		844
Beneficial conversion feature related to convertible debt	—		603
Fair value of bifurcated derivative related to convertible debt	—		663
Fair value of warrants held as investment in affiliate	5,474		—
Fair value of stock issued in settlement of contingent consideration	4,221		—
Total non-cash investing and financing activities:	$	25,104	$	37,984

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

	September 30, 2022		September 30, 2021
Cash and cash equivalents	$	43,964	$	50,050
Restricted cash	14,911		348
Total cash, cash equivalents, and restricted cash	$	58,875	$	50,398

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

6

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

1.    Nature of Business

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

2.    Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States, or (“GAAP”), are presented in U.S. dollars unless otherwise stated, and include the accounts of Life360, Inc. and subsidiaries, Jio, Inc., Tile, Inc., Tile Europe Ltd and Tile Network Canada ULC. All inter-company transactions and balances have been eliminated.

In management’s opinion, the condensed consolidated financial statements include all adjustments necessary to fairly state the Company’s financial position. All adjustments are of a normal recurring nature. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ended December 31, 2022.

The information contained within the condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements and notes thereto included in the Company’s annual financial statements for the year ended December 31, 2021.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting period. Significant estimates made by management include, but are not limited to, the determination of revenue recognition, including the determination of selling prices for distinct performance obligations sold in multiple-performance obligation arrangements, the period over which revenue is recognized for certain arrangements, and estimated delivery dates for orders with title transfer upon delivery, accounts receivable allowance, product returns, promotional and marketing allowances, inventory valuation, average useful customer life, stock-based compensation, legal contingencies, assessment of possible impairment of long-lived assets and goodwill, valuation of contingent consideration, convertible notes and embedded derivatives, useful lives of long lived assets and income taxes including valuation allowances on deferred tax assets. The Company bases its estimates and judgments on historical experience and on various assumptions that it believes are reasonable under the circumstances. Actual results could differ significantly from those estimates.

7

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

Recently adopted accounting pronouncements

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires contract assets and contract liabilities (i.e., deferred revenue) acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers. The guidance should be applied prospectively to acquisitions occurring on or after the effective date. The guidance is effective for the Company beginning January 1, 2024, and interim periods therein. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company elected to early adopt ASU 2021-08 on September 1, 2021, and the Company has recorded the acquired deferred revenue based on historical carrying value rather than fair value in the condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part of its initiative to reduce complexity in accounting standards. ASU 2019-12 removes the following exceptions: exception to the incremental approach for intraperiod tax allocation; exception to accounting for basis differences when there are ownership changes in foreign investments; and exception to interim period tax accounting for year-to-date losses that exceed anticipated losses. ASU 2019-12 also improves financial reporting for franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. ASU 2019-12 is effective for public business entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. For all other entities, the standard is effective in fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. On January 1, 2021, the Company adopted ASU 2019-12, and the standard did not have a material impact on its condensed consolidated financial statements and related disclosures.

Accounting pronouncements not yet adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the existing incurred loss impairment model for financial assets held at amortized cost. The new model uses a forward-looking expected loss method to calculate credit loss estimates. These changes will result in earlier recognition of credit losses. In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses: Troubled Debt Restructurings and Vintage Disclosures, which updates accounting guidance for troubled debt restructurings by creditors and enhances disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the amendments require an entity to disclose gross write-offs by year of origination for financing receivables. The amendments included within ASU 2022-02 become effective after the adoption of ASU 2016-13, which becomes effective for the Company on January 1, 2023 with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-13 and ASU 2022-02 on its condensed consolidated financial statements and related disclosures and does not expect a material impact.

8

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

In August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Among other changes, ASU 2020-06 removes from GAAP the liability and equity separation model for convertible instruments with a cash conversion feature, and as a result, after adoption, entities will no longer separately present in equity an embedded conversion feature for such debt. Similarly, the embedded conversion feature will no longer be amortized into income as interest expense over the life of the instrument. Instead, entities will account for a convertible debt instrument wholly as debt unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC Topic 815, Derivatives and Hedging, or (2) a convertible debt instrument was issued at a substantial premium. Additionally, ASU 2020-06 requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share, which will result in increased dilutive securities as the assumption of cash settlement of the notes will not be available for the purpose of calculating earnings per share. The provisions of ASU 2020-06 are effective for reporting periods beginning after December 15, 2023, with early adoption permitted for reporting periods beginning after December 15, 2020 and can be adopted on either a fully retrospective or modified retrospective basis. The Company is currently evaluating the timing, method of adoption, and overall impact of this standard on its condensed consolidated financial statements.

Revenue Recognition

The Company recognizes revenue upon transfer of control of promised goods or services to customers at transaction price, an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. Transaction price is calculated as selling price net of variable consideration which may include estimates for future returns and sales incentives related to current period revenue. The Company determines revenue recognition through the following steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

Performance Obligations

Some of the Company’s contracts with customers contain multiple performance obligations, primarily hardware and subscription services for the Tile and Jiobit hardware tracking devices. For these contracts, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to the separate performance obligations on a relative stand-alone selling price (“SSP”) basis with the amounts allocated to ongoing services deferred and recognized over a period of time and amounts allocated to hardware tracking devices recognized at a point-in time with a portion of the consideration being allocated to application usage (maintenance) and support. The Company determines SSP based on observable, if available, prices for those related goods and services when sold separately. When such observable prices are not available, the Company determines SSP based on multiple factors including consumer behaviors, the Company’s internal pricing model, and relative costs incurred plus a normal margin. The factors may vary depending upon the facts and circumstances related to each deliverable.

For hardware products, the Company generally offers a limited warranty to end-users covering a period of twelve months for products and obligates the Company to repair or replace products for manufacturing defects or hardware component failures. The warranty is not sold separately and does not represent a separate performance obligation. Therefore, such warranties are accounted for under ASC 460, Guarantees, and the estimated costs of warranty claims are generally accrued as cost of revenue in the period the related revenue is recorded. See Note 11 “Commitments and Contingencies” for further details.

9

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

Variable Consideration

The Company recognizes hardware revenue at the net sales price, which includes certain estimates for variable consideration with our customers. The Company’s variable consideration is primarily in the form of promotional agreements and marketing development fund agreements in relation to the hardware tracking devices.

These agreements are designed to enhance the sale of the Company’s products and consist of incentives to the Company’s customers. The Company estimates variable considerations using the expected value method. All forms of variable consideration are recorded as contra-revenue and a corresponding liability in its condensed consolidated balance sheet. Certain agreements are estimates at period end due to the nature of the incentives or expected and yet-to-be announced incentive programs that apply to current period revenue transactions. These estimates are based on the Company’s incentive program experience, historical and projected sales data and current contractual terms. The remaining portion of this liability is based on contractual amounts and does not require estimation.

Subscription Revenue

The Company’s subscription revenue includes related support and is comprised of Life360 mobile application subscriptions as well as subscription service plans for the Tile and Jiobit hardware tracking devices. The Company’s subscription contracts with customers are established at the point of mobile application download and purchase as indicated through acceptance of the Company’s Terms of Use.

The cloud-based subscriptions are considered single combined performance obligations, consisting of multiple features that can be purchased separately, but which are bundled together and delivered to the customer as a combined output. The Company provides its customers with technical support along with unspecified updates and upgrades to the platform on an if and when available basis.

The subscription service plan for the Tile and Jiobit hardware tracking device is a distinct and separate performance obligation from the hardware. Subscription fees are fixed and recognized on a straight-line basis over the non-cancellable contractual term of the agreement, generally beginning on the date that the Company’s service is made available to the customer.

Subscription revenue was $39.0 million and $23.1 million for the three months ended September 30, 2022 and 2021, respectively, and $107.9 million and $59.5 million for the nine months ended September 30, 2022 and 2021, respectively.

Hardware Revenue

The Company derives hardware revenue from 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. The Company offers limited rights of return and estimates reserves based on historical experience and records the reserves as a reduction of revenue and an accrued liability. Amounts billed to customers for shipping and handling are classified as revenue, and the Company’s related shipping and handling costs incurred are classified as cost of revenue. The customers are billed upon shipment of the hardware tracking devices. Sales taxes collected from customers and remitted to respective governmental authorities are recorded as liabilities and are not included in revenue.

The Company’s hardware and the embedded operating system are one distinct performance obligation and separate from the subscription service plans for the Tile and Jiobit hardware tracking device. The Company’s embedded operating system is a component of the hardware that is integral to the functionality of the hardware and only together produce the essential functionality of the hardware. The Company offers extended warranties and hardware protection plans that are recognized over the contractual service period (typically 1 to 2 years).

Hardware revenue was $11.7 million and $38 thousand for the three months ended September 30, 2022 and 2021, respectively, and $28.3 million and $38 thousand for the nine months ended September 30, 2022 and 2021, respectively.

10

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

Other Revenue

Other revenue consists primarily of data revenue and partnership revenue. For the nine months ended September 30, 2022, the Company’s data revenue includes Life360 data monetization arrangements with certain third parties established through Data Master Service Agreements (collectively, “Data MSAs”), which outline specific terms governing the access and use of data and related fees. The Company determines a contract to exist upon the mutual execution of a Data MSA. Those customers historically had ability to access certain portions of the Company’s user data over the contract term, in which certain customers pay a fee based on average active monthly users. Most of the Company’s Data MSAs have been terminated as of September 30, 2022 as the Company has moved toward an aggregate data sales model.

The transaction price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring data to the customer. 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. At each reporting period, the Company assesses actual and expected data usage that will be earned for the duration of the contract term. The payment terms for Data MSAs are monthly.

The Company recognizes fees for certain data arrangements over time based on the fee per average active monthly user as the customer simultaneously receives and consumes the benefit of the services that the Company provides over the term of the agreement.

In January 2022, Life360 announced a new partnership agreement with Placer.ai (“Placer”), a prominent provider of aggregated analytics for the retail ecosystem, in which executives of the Company have an immaterial ownership interest through a passive investment vehicle. As part of this partnership, Placer will provide data processing and analytics services to Life360 and will have the right to commercialize aggregated data related to place visits during the term of the agreement. This partnership marked the beginning of Life360’s exit from its legacy data sales model and transition to commercialize solely aggregated data, while still providing members the option to opt out of even aggregated data sales. In keeping with the Company’s vision and consistent with that aggregated data sales model, the Company is exploring ways, in the future, to enable members to avail themselves of compelling offers and opportunities by enabling Company partners to use their data with members’ explicit, affirmative opt-in consent. The Placer agreement includes fixed monthly revenue amounts for access to aggregated data for the duration of the three-year agreement. The Company has a stand ready obligation to provide aggregated user data over the term of the agreement and recognizes revenue ratably based on the fixed monthly amounts. 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 connection with the agreement, Placer issued the Company a warrant to purchase up to 5,100,167 shares of Series C Preferred Stock at an exercise price of $4.90 per share. The grant of the warrant is considered noncash consideration, which the Company measured at fair value on the date of issuance. The warrant was valued using an option pricing model, and the fair value of approximately $5.4 million has been included as part of the transaction price of the Placer data partnership agreement, and will be included in prepaid expenses and other assets, noncurrent on the Company’s condensed consolidated balance sheets.

Data revenue was $5.5 million and $5.0 million for the three months ended September 30, 2022 and 2021, respectively, and $17.7 million and $13.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Partnership revenue includes agreements with third parties to provide access to advertising on the Company’s mobile platform. The Company receives a percentage of the advertising spend as a fee, which is recognized as revenue on a net basis. The variable amounts earned under partnership revenue arrangements are allocable to the month in which the advertising is placed, which is reset on a monthly basis. As such, the Company will recognize revenue monthly based on the advertising placed.

11

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

Partnership revenue was $1.0 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively, and $3.1 million and $4.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Remaining Performance Obligations

Remaining performance obligations represent the amount of contracted future revenue not yet recognized as the amounts relate to undelivered performance obligations, including both deferred revenue and non-cancelable contracted amounts that will be invoiced and recognized as revenue in future periods. Revenue allocated to remaining performance obligations was $30.9 million as of September 30, 2022, of which the Company expects $27.9 million to be recognized over the next twelve months.

Cost of Revenue

Cost of subscription revenue includes all direct costs to deliver the Company’s subscription services. These costs include personnel-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, travel-related costs, 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.

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, hosting, app fees, customer support costs, 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 consists of cloud-based hosting costs, as well as costs of product operations function and employee-related costs associated with our data platform.

Costs Capitalized to Obtain Contracts

Costs capitalized to obtain contracts comprise of revenue-share payments to the Company’s Channel Partners in connection with annual subscription sales of the Company’s mobile application on each respective mobile application store platform as well as sales commissions paid to employees on hardware sales. Costs that are incremental and directly related to new customer sales contracts are accrued and capitalized upon execution of a non-cancelable customer contract, and subsequently expensed over the average life of the customer relationship, which is currently estimated to be two to three years depending on the subscription type. The Company has elected the practical expedient under ASC 340-40 to expense incremental costs of obtaining a contract if the amortization periods is one year or less.

Allowance for Doubtful Accounts

The Company makes judgments as to its ability to collect outstanding accounts receivable and provide allowances for accounts receivable when and if collection becomes doubtful. The Company evaluates the collectability of its accounts receivable based on review of its past-due balances, known collection risks and historical experience. In circumstances where the Company is aware of a specific customer’s potential inability to meet its financial obligations to the Company (e.g., bankruptcy filings or substantial downgrading of credit ratings), the Company records a specific reserve for bad debt against amounts due to reduce the net recognized receivable to the amount it reasonably believes will be collected. The allowance for doubtful accounts as of September 30, 2022 and December 31, 2021 and total bad debt expense for the three and nine months ended September 30, 2022 and 2021 was immaterial.

12

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

Inventory and Contract Manufacturing

Inventory is comprised of raw materials and finished goods related to the Tile and Jiobit hardware tracking devices and accessories. Inventory is stated at the lower of cost or net realizable value on a weighted average basis. The Company assesses the valuation of inventory and periodically writes down the value for estimated excess and obsolete inventory based upon estimates of future demand and market conditions. The Company’s inventory is held at third party warehouses and contract manufacturer premises.

The Company outsources a significant portion of its manufacturing to independent contract manufacturers in Asia. A significant portion of its cost of revenue consists of inventory purchased from these manufacturers. The Company’s manufacturers procure components and manufacture the Company’s products based on the demand forecasts provided. These forecasts are based on estimates of future demand for the Company’s products, which are in turn based on historical trends and an analysis from the Company’s sales and marketing organizations, adjusted for overall market conditions. Shipments of inventory from the contract manufacturer are recorded as finished goods inventory upon shipment when title and the significant risks and reward of ownership have passed to the Company.

Significant Risks and Uncertainties

The Company’s business, operations, and financial results are subject to various risks and uncertainties including adverse global economic conditions, such as the coronavirus (COVID-19) pandemic, and competition in our industry that could adversely affect our business, financial conditions, results of operations and cash flows. These important factors, among others, could cause our actual results to differ materially from any future results.

The Company’s customers primarily consist of individual consumers, who subscribe to the Company’s product offerings through market exchanges operated by channel partners, data revenue customers and retail partners, who purchase hardware tracking devices from the Company and resell them directly to individual consumers. Any changes in customer preferences and trends or changes in terms of use of channel partners’ platforms could have an adverse impact on its results of operations and financial condition.

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

The Company derives its accounts receivable from revenue earned from customers located in the United States and internationally. The Company does not perform ongoing credit evaluations of its customers’ financial condition and does not require collateral from its customers. Historically, bad debt expenses have been insignificant. Channel and retail partners account for the majority of the Company’s revenue and accounts receivable for all periods presented.

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

	Percentage of Revenue
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Channel Partner A	50	%	57	%	48	%	57	%
Channel Partner B	16	%	19	%	15	%	18	%
Retail Partner A	*		*		10	%	*
Data Partner A	11	%	*		*		*

*    Represents less than 10%

13

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

	Percentage of Gross Accounts Receivable
	As of September 30,		As of December 31,
	2022		2021
Channel Partner A	37	%	48	%
Channel Partner B	11	%	14	%
Data Partner A	16	%	*

*    Represents less than 10%

Research and Development Costs

The Company charges costs related to research, design, and development of products to research and development expense as incurred. These costs consist of payroll related expenses, contractor fees, outside third-party vendors, and allocated facilities costs.

Advertising Expense

Advertising expense was $4.4 million and $1.9 million for the three months ended September 30, 2022 and 2021, respectively, and $13.4 million and $4.3 million for the nine months ended September 30, 2022 and 2021, respectively. Advertising expenses are recorded in the period in which cost is incurred and are presented within sales and marketing expense on the condensed consolidated statements of operations.

Cash and Cash Equivalents

The Company considers all highly liquid investment securities with remaining maturities at the date of purchase of three months or less to be cash equivalents. Cash and cash equivalents include deposit and money market funds.

Restricted Cash

Deposits of $14.9 million and $0.4 million were restricted from withdrawal as of September 30, 2022 and December 31, 2021, respectively. $13.1 million of the restricted balance as of September 30, 2022 relates to funds placed in an indemnity escrow fund to be held for fifteen months after the acquisition date of Tile, Inc. for general representations and warranties. The remaining restricted cash balance as of September 30, 2022 relates to cash deposits restricted under letters of credit issued on behalf of the Company in support of indebtedness to trade creditors incurred in the ordinary course of business and to securing the Company’s facility leases. The $0.4 million balance restricted from withdrawal as of December 31, 2021 relates to facility lease agreements. These balances are included in restricted cash on the accompanying condensed consolidated balance sheets.

Fair Value of Financial Instruments

The Company uses fair value measurements to record fair value adjustments to certain financial and non-financial assets and liabilities to determine fair value disclosures. The accounting standards define fair value, establish a framework for measuring fair value, and require disclosures about fair value measurements. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the principal or most advantageous market in which the Company would transact are considered along with assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. The accounting standard for fair value establishes a fair value hierarchy based on three levels of inputs, the first two of which are considered observable and the last unobservable, that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

14

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

The three levels of Inputs that may be used to measure fair value are as follows:

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

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

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

The recorded carrying amounts of cash and cash equivalents, prepaid expenses, accounts payable, and accounts receivable as of September 30, 2022 and December 31, 2021 approximate fair value due to their short-term nature. Refer to Note 6 “Fair Value Measurements” for further details.

Property and Equipment, net

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Equipment, computer software, furniture, and product manufacturing equipment have estimated useful lives ranging from three to ten years. Leasehold improvements are amortized on a straight-line basis over the lesser of the estimated useful life or the term of the lease with expected renewals. As of September 30, 2022, all leasehold improvements are amortized over three years.

Costs of maintenance and repairs that do not improve or extend the lives of the respective assets are expensed as incurred. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reported in other income (expense), net in the period realized.

Software Development Costs

For development costs related to internal use software projects, the Company capitalizes costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life of three years. The Company capitalized $0.7 million during the nine months ended September 30, 2022. Capitalized costs are included within intangible assets, net on the condensed consolidated balance sheet. The Company did not capitalize any internal use software costs during the nine months ended September 30, 2021 as the capitalizable costs were not material.

Lease Obligations

Operating lease right-of-use assets and lease liabilities are recognized at the present value of the future lease payments at commencement date. The interest rate implicit in the Company’s operating leases is not readily determinable, and therefore an incremental borrowing rate is estimated to determine the present value of future payments. The estimated incremental borrowing rate factors in a hypothetical interest rate on a collateralized basis with similar terms, payments, and economic environments. Operating lease right-of-use assets also include any prepaid lease payments and lease incentives.

Certain operating lease agreements contain rent concession, rent escalation, and option to renew provisions. Rent concession and rent escalation provisions are considered in determining the straight-line single lease cost to be recorded over the lease term. Single lease cost is recognized on a straight-line basis over the lease term commencing on the date the Company has the right to use the leased property. The lease terms may include options to extend or terminate the lease. The Company generally uses the base, non-cancellable, lease term when recognizing the lease assets and liabilities, unless it is reasonably certain that the renewal option will be exercised.

In addition, certain of the Company’s operating lease agreements contain tenant improvement allowances from its landlords. These allowances are accounted for as lease incentives and decrease the Company’s right-of-use asset and reduce single lease cost over the lease term. Refer to Note 8 “Balance Sheet Components” for additional lease disclosures.

15

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

Business Combinations

The Company uses best estimates and assumptions to assign a fair value to the tangible and intangible assets acquired and liabilities assumed in business combinations as of the acquisition date. These estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed may be recorded, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s condensed consolidated statements of operations.

Goodwill

Goodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired. Goodwill amounts are not amortized but tested for impairment on an annual basis during the fourth quarter. There was no impairment of goodwill during the three and nine months ended September 30, 2022 or the three and nine months ended September 30, 2021.

Intangible Assets, net

Intangible assets, including acquired patents, trademarks, customer relationships, and acquired developed technology are carried at cost and amortized on a straight-line basis over their estimated useful lives. The Company determines the appropriate useful life of the Company’s intangible assets by measuring the expected cash flows of acquired assets. There was no impairment of intangible assets recorded during the three and nine months ended September 30, 2022 or the three and nine months ended September 30, 2021.

Impairment of Long-Lived Assets

The Company assesses the impairment of long-lived assets, such as property and equipment subject to depreciation and acquired intangibles subject to amortization, when events or changes in circumstances indicate that their carrying amount may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

The Company reviews long-lived assets for impairment at least annually, or more frequently if events or changes in circumstances would more likely than not reduce the fair value of its single reporting unit below its carrying value. There was no impairment of long-lived assets recognized during the three and nine months ended September 30, 2022 or the three and nine months ended September 30, 2021.

Deferred Revenue

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

16

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

Investment in Affiliate

Investment in affiliate relates to non-marketable equity securities held in a privately held company without a readily determinable market value. Non-marketable equity securities consist of warrants held to purchase shares of preferred stock of a Data Revenue Partner, refer to Note 2 “Summary of Significant Accounting Policies” for additional information regarding the Company’s Data Revenue Partner. Investments in non-public businesses that do not have readily determinable pricing, and for which the Company does not have control or does not exert significant influence, are carried at cost less impairments, if any, plus or minus changes in observable prices for those investments. Gains or losses resulting from changes in the carrying value of these investments are included as a non-operating expense to the Company’s condensed consolidated statements of operations and comprehensive loss. There have been no adjustments to the basis of the Company’s investment in affiliate to date. The carrying value of the Company’s investment in affiliate is included in prepaid expenses and other assets, noncurrent in the condensed consolidated balance sheets.

Common Stock Warrants

The Company has issued freestanding warrants to purchase shares of common stock in connection with certain debt financing transactions. The warrants are recorded as equity instruments at the grant date fair value using the Black-Scholes option pricing model and are not subject to revaluation at each balance sheet date.

In addition, the Company has issued warrants in connection with the convertible note agreements. The warrants are recorded as equity instruments at the grant date fair value using the Black-Scholes option pricing model. The fair value has been recorded as a debt discount that is being amortized to interest expense under the straight-line method over the term of respective convertible notes.

Stock-Based Compensation

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, restricted stock units, and restricted stock awards, may be granted to employees, nonemployee directors, and nonemployee consultants.

For all equity awards granted to employees, nonemployees and directors, the Company recognizes compensation expense based on the grant-date estimated fair values. The fair value of stock options is determined using the Black-Scholes option pricing model. For restricted stock units and restricted stock awards, the fair value is based on the grant date fair value of the award. The Company recognizes compensation expense for stock option awards, restricted stock units, and restricted stock awards on a straight-line basis over the requisite service period of the award, generally three to four years. Forfeitures are recorded as they occur.

In 2020, the Company granted a market performance award to an executive that is subject to time-based vesting requirements in which vesting is contingent upon the Company’s achievement of certain market performance goals. The fair value of such performance awards was determined using a Monte Carlo simulation and is recognized under the accelerated attribution method over a four year period.

In 2021, the Company issued stock options and restricted stock that have performance-based vesting conditions. For awards that include a performance condition, if the performance condition is determined to be probable of being satisfied, the Company recognizes compensation expense related to such awards using the accelerated attribution method over the required performance period. If a performance condition is not probable of being met, no compensation cost is recognized. Refer to Note 14 “Equity Incentive Plan” for further details.

17

Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

Income Taxes

The Company accounts for income taxes under the asset and liability method. The Company estimates 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 the Company’s balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s 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 the Company’s deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized.

The Company must assess the likelihood that the Company’s deferred tax assets will be recovered from future taxable income, and to the extent the Company believes that recovery is not likely, the Company establishes a valuation allowance. The assessment of whether 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.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. The Company did not accrue any interest or penalties related to income tax positions during the three and nine months ended September 30, 2022 or the three and nine months ended September 30, 2021.

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business. The Company evaluates the likelihood of an unfavorable outcome in legal or regulatory proceedings to which it is a party and records a loss contingency on an undiscounted basis when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These judgments are subjective and based on the status of such legal proceedings, the merits of the Company’s defenses, and consultation with legal counsel. Actual outcomes of these legal proceedings may differ materially from the Company’s estimates. The Company estimates accruals for legal expenses when incurred as of each balance sheet date based on the facts and circumstances known to the Company at that time.

Segment Information

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

Net Loss Per Share

The Company computes basic and diluted net loss per share in conformity with ASC 260, “Earnings per Share.” Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period without consideration for potentially dilutive securities as they do not share in losses. The diluted net loss per share is computed giving effect to all potential dilutive common stock equivalents outstanding for the period. For purposes of this calculation, options to purchase common stock, common stock warrants, common stock convertible notes, and unvested restricted stock units are considered common stock equivalents but have been excluded from the calculation of diluted net loss per share as the effect is antidilutive.

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Life360, Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited)

3.     Revenue

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
North America	$	52,041	$	27,553	$	141,352	$	72,150
Europe, Middle East and Africa