Life360, Inc. (360) Earnings Call Transcript & Summary

Good day, everyone, and welcome to Life360's Investor Briefing. Today's call is being conducted as a Zoom audio webinar [Operator Instructions ]. The purpose of this call is to provide investors with an opportunity to hear directly from management regarding Life360's recently completed offering of convertible senior notes. Please note that we will not be commenting on or addressing questions related to the company's financial outlook during this session. The call is scheduled to run for approximately 30 minutes. To make the most efficient use of time, we'll begin by addressing questions submitted in advance by the sell-side analysts joining us today. If time permits, and additional questions arise, analysts on the line may use the raise hand feature at the bottom center of your Zooms green and we'll unmute lines in the order received. Before we begin, please note that any forward-looking statements made during today's call, including those regarding future events or potential financial performance are subject to significant risks and uncertainties that could cause actual results to differ materially. These risks are described in detail in the Risk Factors section of our annual report on Form 10-K filed with the SEC on February 27, 2025, and our most recent quarterly report on Form 10-Q. Any forward-looking statements made today reflect our views and assumptions as of June 5, 2025. We undertake no obligation to update these statements, except as required by law.

With that, I'll begin with the first question for Chris. Chris, why raise capital and why now?

So this is a proactive raise. The market has obviously been doing very well while we also have some pretty severe volatility. I think everyone probably saw the drama from today in our political system and without taking any sort of side, we felt this is a moment that fortifies our balance sheet. It gives us strong optionality whichever way the markets go. And we have a lot of growth opportunities, both organic and strategic that we can keep out -- that are now available to us. And we will remain capital efficient. We should be clear there's no change -- no plan change to our operating plan as of now.

This next question is from a group of analysts, James Bales, Rob Sanderson, Maria Ripps, Andrew Boone and Lafitani Sotiriou, are there firm plans for the funds? Is this for M&A or organic growth? Chris.

No firm plans as mentioned before, this really is looking at the market conditions and making sure we're well positioned, whichever way things go, up or down in the market. It's great to have a good balance sheet. M&A is something we are excited about. There's nothing imminent. We look at deals very regularly, but this gives us strategic optionality.

Great. Next question is from Lafitani Sotiriou for Chris. How many M&A targets are typically under consideration?

I think to say under consideration is -- let me answer that more indirectly, 0 in terms of typically under consideration, multiple in terms of ongoing dialogues. I think I've made the joke on a few earnings calls that had a long-standing thing with the tile founders, right, who's going to buy who, and obviously, 8 years later after we started that we bought them. So I know leaders of many, many companies who are interested in working with us. One thing that has shifted lately is people are recognizing our position as an ecosystem and platform. We have hired a VP of Corp Dev, Dennis, who I hope many of you will meet in coming months, specifically because we are -- our recognition as a company is way, way up. And so we are now building a more concerted program to maintain these relationships and stay -- have a pulse of what's out there.

Next question from Wei-Weng Chen, Lafitani Sotiriou and Mark Kelly for Chris. What kind of M&A targets are in focus, product or capability, pet or aged care?

I'd say all of the above. We will -- if we do M&A, especially anything larger, it would be very pointed. And when we've done it in the past, we have had competing work streams that look very different from each other and so much of what we have to do is allocate resources and make a bet. So we are looking at things, and I'm saying this generically versus tenting anything imminent. What is going to expand on each different life stages. What is going to accelerate things like the ads business, how would we accelerate internationally? So there's no one size fits all there. And I'm specifically saying that in the context of larger acquisitions, we do small bolt-ons all the time, like the Fantix deal, but we did not need to do a raise for that. And I'm specifically again talking about if we were to do more transformational size M&A.

Great. This next question is for Russell from Wei Sim and Wei-Weng Chen. Could you have used script for M&A, why raise cash instead?

We could use equity. Of course, that would be partially dilutive, but we could use it where appropriate. This raise, however, gives us a lot of balance sheet flexibility. It's not a replacement one way or the other. The structure that we have now allows us to move quickly if the right opportunity emerges.

Next question from Lafitani Sotiriou also for Russell. Does this raise preclude using term or bank debt in the future?

The short answer is no. We've retained that flexibility. We could layer in traditional debt if we needed it for a specific purpose or a specific transaction.

Next question again from Lafitani Sotiriou. This is also for Russell. Can Life360 fund organic growth without this raise?

Yes. As you know, our underlying business is generating a healthy free cash flow at this point. So this raise really just enhances our strategic flexibility, definitely not a requirement for ongoing operations.

Next, we're going to group 2 questions together from Mark Mahaney, Wei Sim and Lafitani Sotiriou, why convertible notes versus equity or traditional debt and why issue $320 million before fees and the cap call, that's from James Bales, this is for Russell.

So a couple of questions there, obviously. The 0 coupon convertible note is essentially the lowest available form of capital today. So we looked at it. We just saw -- so it was very, very attractive at this point in time. The cap call -- in addition to that, the cap call structure protects shareholders by really effectively eliminating dilution up to that $122.2 per share, 100% premium. And the number I'm talking there is obviously the U.S. dollar and NASDAQ listed number. And that's what we'll be talking to in any of our answers here. The size of the raise was calibrated to give us flexibility without overcapitalizing. At this point, after the raise, we're really sort of matching a very similar structure to most of our U.S. peers.

Next question also for Russell from Apoorv Sehgal and Jennifer [indiscernible]. What's the actual conversion price and how is it set?

So I'll talk to this question to the conversion price on the base convertible note itself. And within that base, we were able to obtain -- again, we were able to obtain in really good terms, the 0% coupon and a 32.5% premium on the conversion price. So given that that's based on the closing price on June 2, that equates to $80.97 per share.

Another question from Jennifer [indiscernible] for Russell. Can the $80.97 conversion price change over time?

It could change in fairly limited circumstances. The conversion price is subject to standard anti-dilution adjustments, including for stock splits, dividends or tender offers or certain other corporate events. And really unless any of those are triggered that the price remains fixed through 2030.

Next question from Apoorv Sehgal and Jennifer [indiscernible]. Does the 130% conversion price mean 130% of $80.97 and for how long was the stock trade at that level?

And the 130% that they're referencing here is really the trigger that allows us -- gives us the ability to call after a 3-year period. So yes, the 130% threshold refers to 130% of the conversion price of $80.97, which equates to $105.26 per share. To qualify for that redemption, the stock must exceed that threshold for 20 trading days out of 30 consecutive trading days ending on or including the day before the redemption notice is issued. So it's -- there's a formula for it, but it's basically trading above that rate.

Next question from Apoorv Sehgal and Jennifer [indiscernible]. This is also for Russell. What triggers redemption or conversion before maturity?

There's a whole lot of complicated potential relatively unlikely scenarios that -- under which that would happen. I won't go into a huge amount of detail, but just to cover those, stock price trigger if the -- if our stock trades above the 130% as we just talked about, that the first possible time of that is in Q1 '26. If the notes themselves, and there is a trading mechanism, private trading mechanism essentially for the notes, if they traded below a certain level, for the notes that would, again, relatively unlikely scenario, but that's part of the triggers here. Certain corporate events and distributions if we call the notes for redemption, and that again is after June 5, '28 at that $105.26 trigger point. And basically going into maturity anytime from March 1, 2030, onward.

Next question from James Bales. This is also for Russell. How does the cap call hedge work above $122.22. What is the dilution impact?

I mean the really attractive feature of the cap call is that it protects shareholders from any dilution up to that $122.22 point. So that cap call essentially protects us up to that point. Beyond that point, any value above the cap would result in some incremental dilution or additional cash settlement depending on the election. Without that cap call, dilution would have started at the $80.97. So that's the benefit of us putting in the cap call is to really drive up that effective conversion price.

Next question is from James Bales and Chris Savage with the hint of disbelief. What is the interest rates and the cost of the cap call?

The notes carry 0 coupon. So no interest and no accretion, meaning that there is no ongoing direct interest burden related to the notes themselves. We -- as you've seen in the press releases, we've allocated $33.7 million of the proceeds for the cap call cost which mitigates dilution and protects that shareholder value up to that point.

Next question is from James Bales. This is also for Russell. Does this appear as debt on the balance sheet?

Yes. The notes will appear as debt really at their face value on the balance sheet. But as we've said, there's no cash interest and the 5-year maturity. So the impact on cash flows and our income statement is relatively minimal. In terms of cash flows, it's basically sort of nothing being sort of going forward. In terms of income statement, it's just the sort of effective interest cost related to the capitalized portions. So -- but -- what I would point out is at the moment, that's significantly lower than the interest that we can obtain on those funds.

Next question from Chris Savage is a housekeeping question related to, are there any existing convertible notes? Is this purely a new raise?

Sorry. Yes, this is entirely new issuance. We have had no prior convertible notes outstanding other than the very small ones related to the Jiobit acquisition some time ago, which have been extinguished.

Next question from James Bales for Russell, relates to the green shoe, what's the purpose of the additional $45 million? And has it been completely exercised?

The green shoe acts in a similar fashion is the green shoe for an IPO sort of gives the banks the opportunity to buy additional bonds as part of the stabilization effort. But that -- given the strong demand for the bonds and the initial trading, the green shoe has -- that option has been exercised and the green shoe has been filled. So that's all in the press release, which is out today. And this is just a very standard feature to support that flexibility on execution.

Next question is from Wei-Weng Chen. Who are the investors? And were there any related parties involved?

The offering was made to qualified U.S. institutional buyers under Rule 144A. There were no related parties involved. Final allocations were managed by the book runners and reflect sort of typical market participation for this type of instrument.

Next question is from Wei Sim. This is for Russell. Are you thinking about capital management going forward?

Yes. Really, our capital management framework is unchanged. We're looking at efficient reinvestment. We -- an important feature is sort of shareholder value and flexibility, and this helps us with all of those. Really, it sort of just strengthens our ability to pursue growth while preserving optionality and very much keeping in mind shareholder dilution.

Next question is from Wei Sim. How are noteholders hedging their exposure, if you have any insight there?

It is a very standard process, and that's already happened effectively. The noteholders and their counterparties hedge using cap call related derivatives. It's part of a standard process in the U.S. for the -- as part of the issuance of convertible notes. The transactions themselves are structured to minimize the potential market impact and that's factored into the raise and in particular, the way we structured it, including the cap call. So you've effectively seen the impact on our stock price in the last couple of days.

Next question is for Chris from Maria Ripps and Mark Kelley relating to the business. Has there been any progress on the Apple Pay front checkout or App Store rule changes?

Yes. So we're still in the early days. For those of you who have followed the journey for a number of years, we've been pretty consistent in our very strong belief that over time, Apple will lose its script on App Store payments. Similarly, though, it's going to be very noisy and lots of 2 steps forward, 1 step back. Clearly, the ruling was a big win for us. The recent stay, which I think just came out yesterday was another big win. Apple is doing everything to push back. We have a whole bunch of tests that are going to be coming out soon. I would need to get very technical to explain all of them. And it's unclear what Apple is going to be forced to allow us to do, namely around using Apple Pay in the app or within an iFrame. The very quick thing is if someone has to enter credit card manually, you get a big conversion drop, which negates the impact of lower commissions. But if you can use something like Apple Pay, in particular, within the app or an iFrame if you can't do that, then everything changes in a very big way. It's unclear if Apple is going to allow or is it going to be forced to allow people to use Apple Pay. So I would repeat and somewhat summarize by saying, this is a good validation that our belief that the pressure on Apple will only increase in the long run is good for us. We will, of course, be very open with the market when we have hard data we want to make sure people don't get ahead of themselves while everything is still in limbo, though, because I do think there's still a lot of unknown, but net-net, this is obviously a good news for us.

That concludes the pre-submitted questions. So we're going to shift now to -- we have a few minutes left, so we'll go to the queue. Wei-Weng Chen with the hand raised, and we can open up the line to you to ask a question.

So just wanted to ask what, I guess, the lessons learned from the Tile acquisition were? And I guess, how will you kind of do things differently in a new sort of potentially larger acquisition?

Yes. There are -- I'd answer that in a number of ways. Number one is don't do a deal right before a big market crash and you have to get cash flow breakeven. I say that happen just, but we are in a very different position because we're already generating cash. So it's -- I don't think there's a similar issue where we would have to move into loss-making mode. So we're not looking at anything that would really change our overall burn profile. There's a lot we learned just in terms of general integrations. Some of the -- one thing I learned just from a founder standpoint is a company can look similar in terms of how it operates, you can have very similar sounding values, but how you operate when you kind of peel back the onion a few layers is very different. And so I'm older and wiser, and we also have a much more experienced management team. So I think market crash is notwithstanding and I think we're much more educated there, and Lauren has a huge amount of experience doing M&A, and I've been learning a ton from her -- with her, there's been a partner in crime now. But each acquisition is so different. And when I look at different companies, we're looking at, some are more speculative and high risk. And Tile is a very long game bet. I think we're now kind of have proven that it was a good idea, but it took a while. Certain things which are more capability expansion, they show a benefit right away, even if the upside can be a little bit more contained. So I don't feel like I'm giving you the most satisfactory answer there other than that we're -- we will be very intentional and thoughtful. We are looking at deals that would be accretive. We don't have any plans to do anything. Well, first off, we don't have any firm plans anyway, but we're being very intentional given how much we've grown as a company. We don't get -- we're not going to get back to a position of being a loss-making company, which does insulate us from the gyrations of the market. And not exactly about integration per se, but what we liked a lot about doing this convert right now is it lets us have dry powder regardless of which direction the market goes and a lot of cash to do things in ways that give us a little bit more flexibility around not having to [ issue ] as many shares and things like that.

Next Wei Sim, we're going to open up your line to ask questions.

Okay. So first one, maybe just for Russ. You were mentioning before that the structure that we're using right now and not needing to, I guess, do kind of like an equity raise to have the hedging coming through is a pretty standard practice. And I guess, what you're doing right now is standard practice within U.S. companies. I'm less familiar with the space. So can you give us a few examples of other companies who have done something similar in the past, just so that we can have a look at that and better understand how this has played out.

Yes, absolutely. I mean [ Xero ] did one a while ago, although that was not a U.S.-based transaction. The -- if you look in the [ inner one ].

Sorry, for the Xero one, I think there were also like equity raises associated to [indiscernible]. I guess, that's where I'm getting a bit more, yes, confused.

If you look at in the very recent past, just in the -- about a week ago, DoorDash did a convertible note raise, which they actually upsized to about $2.5 billion. In a similar fashion, Hims & Hers did one about a month ago, which was probably closer to a similar size, although ended up much bigger than ours in a similar fashion where very similar structure basically with favorable terms on the actual convertible note and then added on the cap call structure that effectively took the conversion price up significantly to, I think it was a little more than 100% in that case. But the structure is very similar. What has emerged in the recent past is just very, very favorable terms. Being able to get a 0% interest rate and a very high conversion price at the same time is a unique opportunity that we wanted to take advantage of. And that enables us to do that raise, put the cash on our balance sheet and really protect shareholders against dilution all at the same time.

Okay. And then just the second question is, if we are already kind of like cash flow generating, why do we need all this dry powder?

Yes. It's, as we've said, it just gives us complete strategic flexibility. We could -- we've always said that we look at potential M&A, not that there's anything imminent, but it would give us the opportunity to move quickly in that case. But even with the amount of cash that we've now raised, if you look at our U.S. peers in the same area. This is not an unusual amount of cash to have on your balance sheet really to provide that not only the strategic flexibility, but just the financial stability as well.

Okay. And so just to understand it, like now that I guess it's -- just with this amount that we've got, what kind of size of potential acquisition or investment could we look at doing with this type of balance sheet?

Yes. Look, there's so many potential alternatives that it's a little hard to very specifically answer that question. As Chris mentioned, we will look at everything from the very small tuck-in type acquisitions similar to the Fantix asset acquisition to larger ones that could potentially involve a combination of cash and equity. But it just gives us that optionality to act on something across that range of things. So it's a great ability for us at the moment.

So if it was at the large end, how large would you be comfortable going with post this raise?

Yes. I don't think it's appropriate for me to speculate on at this point. You can really draw conclusions based on our cash and overall capitalization. I think we'd evaluate that very much on a case-by-case basis.

We're coming to the end of our time. So we're going to open up the line to Laf for one final question, and then we will close out.

Just one question around some of the structures. So is there a preference for equity stakes? Or are you considering -- or is there a preference to make a full acquisition and integrate it fully into your business? Because if you look in the last few years, you've kind of been doing both, but there's probably been a move more towards taking equity stakes. If you could just add some color, that would be great.

I can take that one. I don't think there's necessarily a pattern. Each thing is very specific and it depends on the company size and what we're trying to achieve. When you look at what we now have on the balance sheet, in general, that is more looking at being able to do M&A. But again, each thing is coming up independently. If you take Aura as the most recent one, that was more trying to establish a relationship where by investing, they could invest more aggressively in our partnership, more clearly that will then tie into some revenue. That won't be the case for everything. And I'd say there is maybe some level of rubric for how we decide if there's something that really we need to own, it needs to be fully part of our system, then M&A would make a lot of sense. So if I go back to something like Hubble, we definitely would not buy something like Hubble because their core is the enterprise business. And so we don't want to be in the enterprise business because it's really splitting what we do. So something has to be very in line with us for to be fully in-house. There are things on the ad side. We are trying to be a full-service ads platform because that is something where we could do M&A even though it's not traditional B2C, but we also don't want to distract ourselves and have incongruent business units.

And just sorry, one sort of add on to that is in targeting acquisitions, M&A is it as important to get the teams and capabilities of those teams to help accelerate your offering? Or is it -- are you looking to fill gaps more so.

Again, there's no one size fits all. This is a people business we're in. That's the upside and downside of software and getting people who are the best at what they do bring in DNA that we don't have. That's something it's very hard to build an organic competency for something that's more orthogonal. That's why we have been looking at the ad space more. It's just we have all -- 2 sales people in the entire company now. Our DNA is premium software. So people are very important. There could be certain things or bolt-ons are different, but for the most part, the team is always going to be a very important aspect.

Great. That concludes the Q&A. Chris, I'll turn it over to you to sign off.

Very excited to continue this march forward. We will obviously keep everybody updated in terms of the Apple situation and net-net, very good news. And a lot of the timing is already mentioned, this was opportunistic in the sense that we do not have to do anything imminently with this money. I think Russell even undersold the interest rate. And in fact, we're paid to just sit on this money because we can get a yield on it and there's no dilution until we hit that cap call number. So it's -- this is really a great moment in time, that I also think will drive a good return for investors who have been more downside focused in a volatile market. So it truly does feel like there's been a win-win with this transaction and looking forward to connecting with everyone in coming weeks and months.

That concludes our call. Thank you so much.

Thanks.