Life360 Inc

NASDAQ:LIF

Earnings Call Transcript 2022-Q3

[Jolanta Masojada, executive]

Good morning and thank you for joining the Life360 2022 Q3 Results Conference Call. This is Jolanta Masojada and I'm Head of Investor Relations for Life360. This call is being conducted as a Zoom audio webinar. [Operator Instructions].

The agenda for this morning's call will include a business and strategy update by Co-Founder and CEO, Chris Hulls, which will be followed by an overview of the quarterly financials by CFO, Russell Burke. Chris will then provide some outlook comments, which will be followed by a Q&A session.

I would now like to turn the call over to Chris.

[Chris Hulls, executive]

Good morning, everyone, and thanks for joining our call today. We had an exceptionally strong Q3 back-to-school period with our largest ever quarterly MAU growth, both internationally and in the U.S. Additionally, AMR of $184 million is up 53% year-on-year, and we finished the quarter with cash and cash equivalents of almost $59 million. We delivered more than 100,000 net Paying Circle additions in Q3 despite our price increase of almost 50% for new U.S. monthly subscribers which took full effect in August and is currently being implemented for existing iOS monthly subscribers with full effects coming in December. This performance, together with lower-than-expected churn, is a testament to the value we provide to our subscribers and sets us up for a very strong recurring revenue growth in CY '23.

Tile's Q3 hardware unit sales were in line with expectations and improved versus Q2, which saw the impact of returns undertaken to rightsize channel inventory and exit less profitable channels. However, we currently see headwinds in the U.S. consumer electronics market with major retailers taking a very cautious approach and significantly reducing targeted weeks of inventory for current orders into the holiday period. This has been evident in recent public announcements from retailers, including Amazon and from other consumer electronics hardware companies. While this will likely result in Q4 hardware sales being below our previous forecast, the impact on our CY '22 adjusted EBITDA and cash flow are expected to be much more limited due to strong momentum in membership, disciplined cost control and our prudent approach to hardware inventory. We expect to exit CY '22 with an AMR excluding hardware of more than $215 million, a growth rate in excess of 15%.

Looking forward to CY '23, we believe we have very strong membership revenue momentum due to our successful price increase which listed U.S. ARPPC by more than 47% year-on-year for the month of October for new U.S. membership subscribers. At the end of Q3, less than 10% of U.S. subscribers were on the new pricing tiers, providing significant ARPPC upside as higher pricing takes effect for all existing monthly iOS subscribers. While Q4 net adds will likely be flat due to the expected onetime increase in churn by existing subscribers, to date, churn is well within our target parameter of a 10% reduction in retention. Importantly, we expect significant improvement in paid user acquisition and retention from the full integration of hardware bundling, which is on track for early CY '23 Q1 as a third phase integration plan.

On our August call, I outlined the initial phases of our Tile integration plan, which included bundling via promotions, delivering the up to 10x expansion and the size of the Tile finding network, and Tile is now visible on the Life360 map in the U.S., with international rollout to be completed in CY '23 Q1. These show strong early signs of success and have been or are in the process of being rolled out to our user base as we speak. While we delayed our third phase launch to accommodate work on the price increase, we are on track for a Q1 launch, and we expect this new bundle to begin the catalyst for our next wave of membership growth. The benefits of bundling together with our higher price points, give us the confidence to bring forward by a quarter, our target for consistently positive adjusted EBITDA and operating cash through CY '23 Q3.

This expectation takes into account turbulence from the macroeconomic environment with current headwinds in stand-alone hardware retail and incorporates an appropriate balance of fiscal responsibility with prudent investment to leverage the many exciting growth opportunities that are available to us. We're also encouraged by the steady state progress -- steady progress we are making in driving efficiencies from integration and controlling costs even in the face of increasing inflationary pressures while maintaining our focus on the core customer experience.

Turning now to detail for the quarter. We finished Q3 with a global MAU of $47 million, an increase of $5 million with record net additions in both the U.S. and international markets. U.S. MAU increased 32% year-over-year, with international delivering a 52% uplift due to ongoing strong growth in developed markets and surges in new users in the Philippines and Japan. Paying Circles continued strong momentum, up 36% year-on-year, with net additions of $100,000. U.S. net adds held up strongly despite a significant price increase for new members introduced in August. International net adds were a quarterly record with a nominal marketing spend. U.S. subscribers in our membership plans reached $813,000, up 80% year-over-year, making up 68% of U.S. Paying Circles. Average revenue per Paying Circle delivered ongoing momentum, lifting 7% year-on-year. U.S. ARPPC increased 10% with an offset from international due to currency impacts.

Net hardware units reduced year-on-year, reflecting the backdrop of weaker consumer electronics category. The improvement versus Q2, which I mentioned earlier, reflected our actions to rightsize channel inventory and exit less profitable sales channels. Actions in CY '22 to optimize hardware inventory management mean we will be entering CY '23 with appropriate levels of inventory on hand for planned CY '23 bundling in retail channels.

Consolidated revenue in Q3, including Tile and Jiobit, increased more than 90% to $57.2 million. Total subscription revenue increased 70% with Life360 subscription revenue up 48% year-over-year, benefiting from our ongoing growth in Paying Circles and the 7% uplift in ARPPC. Hardware revenue of $11.7 million increased from Q2 for the reasons outlined earlier. Other revenue of $6.5 million was in line with last year as expected, due to the transition to the new data arrangement with Placer.ai. AMR for the month of September of $184 million lifted 53% year-over-year reflecting the strong subscription performance and the inclusion of Tile and Jiobit subscription revenue.

With that, I'll hand over to Russell to discuss the remainder of the financials.

[Russell Burke, executive]

Thanks, Chris. I'll begin with gross profit, which increased more than 60% year-on-year to $39.2 million. This reflected a gross margin of close to 69% on a GAAP basis, substantially higher than the 60% gross margin in Q2 and lower than the 81.9% delivered in the same quarter a year ago, which did not include hardware. I also note that GAAP hardware margins were negatively impacted by the inclusion of amortization expense recognized on acquired technology related to intangible assets as well as the inclusion of additional personnel-related costs and stock-based compensation due to increased headcount. Excluding hardware, gross margins remained stable at 81%.

Consolidated operating expenses of $60.4 million increased from $32.1 million in the prior year, reflecting the acquisitions of Tile and Jiobit, and the investment to establish a platform to support the rollout of the bundled membership offering. However, Q3 expenses reduced from $62.8 million in Q2, reflecting cost efficiencies realized from the leaner organizational structure that we implemented during the first half, even as the organization continued to scale. We've also seen the successful implementation of a number of specific cost initiatives, including consistent improvement in the unit economics of cloud computing expenses.

As part of our overall prudent approach to financial management, we've also looked closely at all expenses as we move into year-end. These cost initiatives, together with the rightsizing of Tile's inventory and ongoing strong subscription revenue growth, delivered an adjusted EBITDA loss of $9.4 million, an improvement from $18.7 million loss in Q2.

Turning now to balance sheet and cash flow. Net cash used in operating activities of $16.4 million was largely in line with Q2. The gap between operating cash flow and adjusted EBITDA is due to timing differences related to prepayments, returns processing and acquisition costs for some final integration pieces excluded from adjusted EBITDA. Net cash used in financing activities of $3.8 million reflects the repayment of convertible notes associated with the Jiobit acquisition, which came due as expected. Life360 finished the quarter with cash, cash equivalents and restricted cash of $58.9 million, on track for our guidance for year-end, which Chris will speak to.

And with that, I'll hand back to Chris to provide an update on earnings guidance.

[Chris Hulls, executive]

As a result of our price increase, we expect to exit CY '22 with significantly higher than previously anticipated AMR and ARPPC. The price increase is also expected to drive a onetime increase in churn that will result in largely flat net subscriber additions in Q4, ahead of subscriber growth resuming in CY '23 Q1. While our guidance for continued strong subscription revenue performance is unchanged, our consolidated revenue expectations are lower due to continuing headwinds in the stand-alone hardware business. We will not have high levels of visibility on hardware revenues until after the traditional Black Friday holiday sales period in the U.S. We remain very confident in our ability to use Tile devices to drive membership in CY '23 and beyond and note that the strong momentum in our membership business will likely mean that stand-alone hardware sales will continue to reduce as a proportion of group revenue in future years.

For CY '22, Life360 expects to deliver core Life360 subscription revenue, excluding Tile and Jiobit, growth in excess of 55%. Consolidated revenue of $225 million to $240 million for subscription direct hardware and other indirect revenue. The revenue range is highly dependent on Q4 stand-alone hardware revenue performance. Adjusted EBITDA loss in the range of $37 million to $41 million.

Life360 expects to finish CY '22 with an annualized monthly revenue, excluding hardware, of more than $215 million, noting this does not include any price changes for existing subscribers -- existing Android subscribers. Year-end cash and cash equivalents are forecast in the range of $55 million to $60 million, and we expect Life360 to be on a trajectory to consistently positive adjusted EBITDA and operating cash flow by CY '23 Q3 such that we record positive adjusted EBITDA and operating cash flow for CY '24. This target is being brought forward by 1 quarter, reflecting the very strong momentum in our recurring membership revenues and assumes no improvement in the current headwinds impacting stand-alone hardware sales. Additionally, the substantial discretionary spending levers in the business mean we are confident in Life360's ability to fund its future growth.

That concludes our prepared remarks, and now I'll turn over the call to Melissa, who will manage the Q&A portion of our call today.

[Melissa Goodell, executive]

Thanks, Chris. [Operator Instructions ] First up, we have Laf.

[Lafitani Sotiriou, analyst]

Lafitani Sotiriou from MST Financial. A few questions, if I may. And the first I just wanted to unpack the guidance for financial year '23 first. Just want to understand what -- how much, if any, of bundling is included in that guidance for next year? And when you say that there's no improvement in the current headwinds for the hardware sales. So are you assuming roughly flat hardware in '23 versus '22?

[Russell Burke, executive]

So Laf, in terms of the sort of formal guidance, we will, of course, do that as part of our year-end results. To your specific question, we have -- when we look at the cash flow forecast that we've made. What we've factored in there is pretty fairly sluggish hardware situation for next year. We have not assumed that, that improved significantly.

[Lafitani Sotiriou, analyst]

And is there much bundling included in your estimate for next year?

[Russell Burke, executive]

So on the bundling, we've definitely assumed success because we are very confident given the testing that we've done. But as we think about the projections we're not necessarily assuming a step function immediately.

[Lafitani Sotiriou, analyst]

Got it. I understand. Can I just unpack a few other things that have floated around in the past. So one thing specifically were commissions and what's paid away to Apple and Google. And initially, when the bundling was first raised, there was talk of some of the commission rates falling away over time. And it seems to have fallen away a little bit in the presentation. Could you just give us an update as to what the strategy is around the commission expenses and whether there's anything included for next year's guidance?

[Chris Hulls, executive]

Laf, this is Chris. So I'll start at a high level, Russell can take specifics on the model. But we, I would say, are much more confident in our ability to move away from in-app purchase next year. Because of a lot of what we're seeing with Apple in terms of antitrust stuff coming up, different rulings on different legislative bodies, different apps, we're seeing exemptions happen much more regularly. We don't want to predict timing because that is very hard. But I would say that within a 1-year time frame, I feel very good about it. But because we can't forecast and because we are in a world of a little bit more conservatism. We're being very careful not to make assumptions into '23 that we can't stand behind.

So to Russell's point on even the bundling, we're assuming success but no step functions. We're not modeling much for movement to a different commission structure, but it means we have different opportunities to outperform because we do want to make sure that we don't need to come to the market if we make any assumptions that are wrong, we want to be able to fund our growth, and we have taken a very prudent and I'd say, more conservative view than in the past on revenue just given where the market is.

[Lafitani Sotiriou, analyst]

No, understood. That makes sense. And can I just clarify, you mentioned that the AMR for the end of this calendar year of $215 million includes the price changes, including for iOS, but it doesn't include price changes for Android. Are you able to give us an update on the Android back book and what the technical limitations are and whether where on the road map is your best guess of, if you can, also reprice that back book?

[Chris Hulls, executive]

Sure. Why don't I take the high level, Russell can share some numbers in terms of the overall mix, which would help determine impact. Google historically follows Apple on almost everything mobile-oriented. They don't tell us anything definitively, but we know it's on the radar because this is something that is a competitive disadvantage for Android relative to Apple. And the platform, given that they're losing the ability to have full control due to antitrust, they need to make their own platforms competitive because they're going to look for ways to entice users and developers like not to move away from their own billing platforms. So very similar to things with Apple in terms of not being able to know when something can happen. I'm confident it will happen, but no guidance on timing.

[Russell Burke, executive]

And just to put that in perspective, Laf, see you could interpret it from our previous release that Android monthly users probably around 17% of our U.S. user base.

[Lafitani Sotiriou, analyst]

Okay. And so we can go back and work that out. And just the last question for me is just in relation to hardware. And you've given guidance that it's quite challenging next year, and I understand that. But how should we think about the internal sales transfer or the component. Obviously, in the bundling, you're going to have to buy the hardware from 1 division, I guess, and use a lot of the hardware units. So how should we think about that in calendar '23 when the bundling starts?

[Russell Burke, executive]

Yes. I think I said from -- previously from a GAAP perspective, we will need to include the value of hardware as part of the subscription. So the -- if you like, the pure subscription would be broken out into subscription and hardware components. But for management reporting purposes, and we will provide sort of non-GAAP information on the -- what we view as the subscription -- the pure subscription piece.

[Lafitani Sotiriou, analyst]

And is it overall demand in that area? Do you like is there's any number of units? Do you?

[Russell Burke, executive]

Yes, we will provide units as part of that data.

[Melissa Goodell, executive]

Thanks, Laf. Up next, we have Chris. Chris, please repeat your full name and which company you're calling from.

[Chris Gawler, analyst]

Chris Gawler from Goldman Sachs. Can you hear me guys?

[Chris Hulls, executive]

We hear you now, yes.

[Chris Gawler, analyst]

Brilliant. Yes, just a few questions from me. Firstly, just on the AMR guidance. Just unpacking that a little bit more, does that include subscription revenue from Tile and Jio? Or is that pure Life360 app?

[Russell Burke, executive]

It includes all subscription revenues, so including the Tile and Jiobit subscription revenues, and it includes the consistent indirect revenue.

[Chris Gawler, analyst]

Okay. And of the -- okay, so just unpacking that a bit more. I mean, are you able to sort of split out how much of that is the core app versus the recurring indirect and the Tile and Jio subscriptions?

[Russell Burke, executive]

In terms of the AMR?

[Chris Gawler, analyst]

Yes, that's right.

[Russell Burke, executive]

I guess broadly, if you look at our indirect revenue is roughly sort of $26 million on an annualized basis as a component of that. And then I believe we've split out the Tile and Jiobit revenues, subscription revenues in the past, and they probably -- they are growing quite well, but not as quickly as the Life360 subscription revenue. So if that gives you the pieces to look at that.

[Chris Gawler, analyst]

Yes, that's helpful. And then just on the price increases. I mean, what sort of substitution are you expecting from monthly to annual subscriptions when you do roll out the price increases? And just interested to get your thoughts around the calculus between the LTV of a monthly subscription on the higher price versus an annual subscription on a lower price?

[Chris Hulls, executive]

So to look at that, you need to back up a little bit and think about how people convert, and this might sound very academic, but it's very, very meaningful. Most of our users will just go through upsell hooks. They're kind of new to the service. They -- on onboarding where they had a pay wall, they just convert and you'll click, click, click with whatever we put in front of them. That is purely algebraic and we're going to test what highest LTV. Is it monthly? Is it annual? Is it putting gold in front of people to putting platinum in front of people? We don't have a view of the right answer there because, again, that's where it's not really a vision thing. It's just a testing thing, and the team is very well set up to do that type of growth testing.

So we're not really assuming that much of a mix shift in those funnels. The other funnel, which I would estimate is probably 1/3 of our subscribers are people who are going to the membership tab and really exploring and getting a sense of everything they get for their dollars, they will probably shift to annual because it's such a better deal. And if you're a longer-term user, why would you not pay for annual when you're getting that discount obviously that's a little bit lower ARPPC, but then much earlier cash recovery and historically lower churn. And we're going to be testing this with where we put in Tile, how we include it. So I think it is a safe assumption that more users will go to annual, but how much is still very unclear, and it might not be as intuitively obvious as just saying, "Oh, everyone is going to go to annual because that gap is higher.

[Chris Gawler, analyst]

Yes, that makes sense. And just 1 last question, just on the payer conversion. I mean you saw a little bit of a step down in the month -- sorry, in the new user conversion to paying this month as the price increases came through for new users. Do you think that can recover back to over 2% where it was before the price increases?

[Chris Hulls, executive]

I think over time, it definitely can. That's the whole point of Tile and hardware is that we'll be able to show more value. We'll be able to bring this front end center when people have something they can touch and feel on their keys every single day, it's going to change that tender. And what we observe a very common observation that a lot of times, premium subscribers, they don't even really articulate why they're paying for something, but we're getting the value and they're kind of feeling this thing has tested to it, they just will retain higher.

So we certainly think, over time, that can happen. We are taking a very prudent view given we are coming up to a downturn economically. So we haven't modeled out, well, this is what we think had happened because of the macro going worse, we're just kind of saying, "Hey, let's not make any big assumption, hopefully, Tile at that outperform. But again, it's just a general theme, all our guidance both for the rest of the year and CY '23 is with a bit more of a saying when a cautiously optimistic view of the world, but realizing that the economy has very much changed.

[Melissa Goodell, executive]

Thanks, Chris. Next up, we have Julian. Julian, please tell us your full name and which company you're calling from.

[Julian Mulcahy, analyst]

Julian Mulcahy from Evans & Partners. Just a couple of questions for me. Firstly, with your guidance for this year in terms of the Tile inventory. You said you don't really know until you see sort of what -- how Black Friday would be. If sales are better than expected, do you have the inventory to restock the retailers for this year?

[Russell Burke, executive]

The short answer to that, Julian, is yes. The -- but to give a little more color on that, we have certainly been managing inventory pretty closely. And the headwinds that we're seeing will mean that we'll have a little more inventory on hand unless we do get that pick up. But we are moving quickly into the 2023 cycle where we launched the bundled product, and we want to make sure we have sufficient inventory for that as well. But -- so the short answer is, yes, we could cover a pickup post Black Friday.

[Julian Mulcahy, analyst]

Right. And is there a time line sort of used by data on the inventory because of the battery life?

[Russell Burke, executive]

No. It's because of -- it's essentially -- yes, it would go stale over a long period of time, but it's essentially activated once you get it out of the box.

[Julian Mulcahy, analyst]

Yes. Okay. And then finally, with the price increases for the legacy groups, would you expect a higher level of churn given they've been on fairly normal rates to date, and the price increase is quite substantial for them?

[Russell Burke, executive]

Yes. We do expect an elevated level of churn from that group, but it's factored into the blended target that we talked to in the -- on the call. So that's all part of our calculations. And the early indications are that, that's falling well within our parameters.

[Chris Hulls, executive]

And to be a little more pointed, that is what will be the driver of essentially flat net adds. Of course, when you tell people they're going to have to double their payments in some cases, that's going to increase churn. But we did some early testing with a smaller holdout group, so that didn't help us have a model we feel pretty good about for the rest of the year, and that's why we'll come back to growth. So we encourage investors to look at increasing ARPPC, look at more about the overall LTV from the user base versus number of net adds because it is going to be a shift. So it will not be a bad thing if overall net adds slows down even for a while because the ARPU, which is the revenue across the entire user base, will be going up significantly.

[Melissa Goodell, executive]

Thanks. And next up we have James.

[James Bales, analyst]

James Bales from Morgan Stanley. I just wanted to firstly cover off a couple of questions. Lower hardware sales, the only factor in the revised year-end cash balance.

[Russell Burke, executive]

Yes.

[James Bales, analyst]

But so I should understand that...

[Russell Burke, executive]

Yes. No, I mean, -- the answer is yes. I mean the revised cash balance it has been impacted by the decline in hardware revenues. We have mitigated that, as you can see, by a number of sort of additional cost savings levers. We've talked before about the levers that we have in the business, and we -- we've certainly activated some of those to make sure that we stay within a reasonable range on cash.

[James Bales, analyst]

Right. Okay. So on the $20 million revision down in hardware sales and a much smaller revision down in where the cash balance ends. And basically, I guess I wanted to sort of understand that there was no other sort of factors moving the needle on the cash balance, apart from the timing of payments and receipts relating to hardware. That's the way we should think about it?

[Russell Burke, executive]

Well, yes, but also the -- what I just referred to is we've made some moves on discretionary spending and sort of additional cost efficiency. So that's all contributing to that smaller movement in EBITDA and cash versus what you might expect from the larger movement in revenues.

[Chris Hulls, executive]

And to zoom out even more on that, genuinely as a business, it's -- we have a ton of flexibility. Clearly, there are always trade-offs between growth and profitability. But as we showed during COVID, so much of what we do is discretionary. And we would obviously love to be investing in growth mode, but we know that the market has changed, and we've rebalanced our overall plan to account for what could be a pretty choppy macro for 2023.

[James Bales, analyst]

Got it. So I guess I'm trying to get at, what sort of working capital swing the other way, do you expect from having to hand over the cash to make good on the payables from peak selling season in hardware in the first quarter of FY '23.

[Russell Burke, executive]

There'll be a pretty limited impact in that respect, James. I understand what you're trying to get to, but probably most of the cash -- incremental cash movement that you're focused on here is driven by the discretionary spend reductions that we're talking about.

[James Bales, analyst]

Okay. Got it. And maybe just a quick one, just following up on 1 of the questions you had got earlier on pricing. Do you plan to meaningfully shift the mix to annual plans because you see it as LTV accretive? Or do you see this more as leading price increases with monthly plans and maintaining a similar mix of monthly versus annual?

[Chris Hulls, executive]

In some respects, I'd give the same answer to the related question from a few minutes ago, which is there are the 2 components where it's just the upsell hooks and we optimize, it's just a simple LTV math, whichever one works is the one we put in there, and we really are indifferent. If you look at the membership tab where people are navigating directly and they're easily more value-conscious customers, we just assume they'll go more to annual that does obviously have the benefit on marketing spend, the more we can move that with the more predictable the cash recovery is and we see the dollars coming in sooner. It's a lower ARPPC.

So again, largely indifferent and is whatever we give -- however we can give value great. And 1 thing I think does fall to monthly versus annual changes is now we can segment our customers. There is something a little bit better for the conscious customer, and then there is something for the people who want to try before they make a longer commitment. The team will test and we'll come out with something.

[James Bales, analyst]

Okay. So to put it another way, the price differential between monthly and annual pricing is here to stay.

[Chris Hulls, executive]

The price differential, yes, sorry, that's what you're asking. We're not going to change that.

[Melissa Goodell, executive]

Great. Thanks, James. Up next, we have Chris. Chris, please tell us your full name and which company you're calling from.

[Chris Savage, analyst]

It's Chris Savage from Bell Potter. Just first question is upon a clarification really. You've said in the guidance, positive adjusted EBITDA and operating cash flow in CY '24. Does this therefore imply that you still expect negative adjusted EBITDA and cash flow in CY '23?

[Russell Burke, executive]

Chris, I guess I give the same answer is we -- the company is going through our planning cycle at the moment. So we will give formal guidance as part of our year-end release. And that's part of our normal process. So we'll be working through that. We'll be able to give very specific guidance at that point. What we are very focused on is the trajectory to get to cash flow breakeven and EBITDA breakeven. And that's why we've specifically said that we have enough visibility for the -- given the flow-through of pricing increases to be able to bring that forward from Q4 of next year to Q3.

[Chris Savage, analyst]

Okay. Second question is a bit of a follow-on from James' question just before. Can you when you see the lowering cash being yet in CY '23? And are the working capital movements going to be similar to what we saw this year?

[Russell Burke, executive]

So I guess to start with, we're certainly not concerned about the runway. Given what we see at the moment and the levers that we have talked about within the business, we will -- we're very confident that we have sufficient runway to move through without sort of additional funding. So that low point will depend on how we timed a number of things like the launch of the bundled product, the marketing around that. That will all come out of our planning process. But the overall view is that we're -- you're not concerned with the runway, and that will clearly have enough ability with the levers within the business to manage through that.

[Chris Savage, analyst]

What low in cash would you be comfortable with next year? Is it sort of the $20 million to $30 million range?

[Russell Burke, executive]

I don't think it's changed from what we've said previously, which is that sort of range.

[Chris Savage, analyst]

Okay. Just last question, a bit more of a high-level question. Just the delay in bundling from Q4 to Q1, what drove that specifically? Like was it your choice? Was it internally driven? Or is it out of your control?

[Chris Hulls, executive]

It was internally driven because we decided to do this price increase. It's a longer story in terms of exactly the specifics, but no, that was an internal decision.

[Chris Savage, analyst]

So no delay driven by Apple?

[Chris Hulls, executive]

No, no, unrelated. It was just -- we had to make resource allocation decisions a price increase -- I'm giving you over simplified answer here. The price increase is not just a button you push, it's user com, it's training, it's epic huge update, making sure customer support is ready. It is a very significant undertaking. And we were hearing from other CEOs, a lot of the success they had in increasing prices. While we're also hearing other companies having much higher churn than us, it made us feel very confident that we did have a lot of pricing power. And when we thought about timing, especially given the macro, there's a lot of air cover right now for companies to raise prices because everybody is doing it.

So the thought was we had strong data that says it's a good thing, especially given how well it looked like it was doing for new users. We had a moment of air cover to do it. This has a huge, huge, huge impact on run rate going to '23, and I hope that's not missed on this call, which is the part of the business that everyone needs to do well, did extremely well. And essentially, by doing the price increase now, given how well it's holding, it sets us up for if all external assumptions remain flat, '23 is a really good year.

So is this that resource trade-offs said, "Hey, we can do this quickly. We have a good time to do it. Does it delay the bundling? Yes. Is that frustrating? Sure, we'd love to have it both ways. But we are now set up with this great run rate coming in '23, and we've gotten the price increase out while we're in a slew of the majority of companies raising pricing versus if we do it in Q1, maybe the economy is in a worse spot and everyone has done it, and we're more of an outlier. We've kind of just snuck under the radar, so to speak, from a consumer standpoint.

[Chris Savage, analyst]

And was there any -- is there any discussion with Apple around commission rates because now you're going to be bundling hardware, software, any change there?

[Chris Hulls, executive]

That ties into what I said earlier is that I have increased my confidence that we will be able to move off in-app purchase. And some of that confidence is just even some of Apple has done with other companies that are not even hardware related, where keep it a little close to our chest to be prepared for our fight with Apple. But we see other companies that are getting the exceptions that we think from a guideline standpoint have much less of a case. So Apple does seem to be backing down more. And the fact that Tile has been a big part of the whole antitrust movement against Apple, we think when that bundling happens, they are going to really struggle to push back at us. But again, Apple can be extremely fickle. I do not want to set any expectations around timing. So we just don't know. But if I were a betting man, this will change next year. And if I'm optimistic, you could be in the early part, but I don't want to anchor anyone on that expectation.

[Melissa Goodell, executive]

Thanks, Chris. We are going back over to Chris Gawler, who has more questions for you.

[Chris Gawler, analyst]

Just a couple of follow-up questions. I just wanted to ask another sort of operational question on the Tile integration. I mean noting the other day that now you can see Tile's within the core app in the U.S. But it sounds like for a Life360 user to be part of the Tile finding network you need to opt in. Do you have any sense for what the opt-in rate would be and how far that would go to mitigating our tags network effect?

[Chris Hulls, executive]

Sure. So that's actually rolled out. So I have hard numbers on that. Last I checked, it was around 70-plus percent of users opting in, so they call it plus minus 10% as that fully rolls out. Now we have permission from all those users, in all Life360 users who have the app update, are now act -- and give us that opt-in are now acting as beacons. We are taking a more conservative approach to turning up the dial around when we scan, how we scan, it's -- that could go for hours on the technical pieces of that.

But we do believe it is going to go a huge way to mitigate the lead that AirTag has because if you think about Life360, we're on over 13% of all iPhones in the country right now. So yes, Apple is much bigger. But if you look at where you're most likely to lose things, it's where you have a lot of people. So airports, sports stadiums, bars, restaurants, schools, malls, just imagine how many people walk by and you count to 10 and you've already seen someone with Life360 in their pocket walk past your Tile.

So obviously, if you're out in the country, areas without a lot of kids were penetration, AirTag will be better. But if you think about practically speaking, where we need density, we will have it. So I think absolutely, it's going to go a long way, and it's going to be pretty exciting when we can credibly say that the only 2 people in the world with a meaningful finding network are us and Apple, because that is when -- as the category emerges and everyone who's not on an iPhone or as a cross-platform family, will really be the only choice out there.

And also not the question you asked, but while we're on the topic, the first half of the year was extremely frustrating disappointing with all the anti stocking press, which is really sell the category. In the last few months that has changed dramatically, where just look at the coverage around AirTag and look at lost luggage, all these use cases. Although the numbers have been frustrating from the early part of the year, if you look at the predictions we made around this category emerging, they are starting to look really good.

[Chris Gawler, analyst]

And just on that opt-in point, Chris. So when a user gets the update and gets the Tile integration, is the opt-in turned on by default and you need to turn it off for? How does that actually work?

[Chris Hulls, executive]

It's a system dialogue. So when it's a system dialogue, Apple actually has to throw the prompt. So I'm an oversimplified as we've built flows that allow us to throw the prompt if the user accepts the problem the first time, it's all done very natively if they decline the prompt, then we have to make them manually go back to settings. But when we do that first task, it's a simple button click.

[Chris Gawler, analyst]

Yes. Great. And just last question. I just wanted to get an update on the international side of the business, specifically. Do you mind just giving an update on the Canada membership expansion and your thoughts around going into the U.K. at middle of next year?

[Chris Hulls, executive]

Sure. Just for backdrop for people who might not be familiar, we launched Canada late last year. And when we say launch, we just basically made the product 1:1 between the U.S. and Canada. There are some minor differences that they are not overly material. But for all intents and purposes, now the experience between the U.S. and Canada is the same. We did not really give any marketing support.

But what we've seen is revenue is essentially more than doubled in a single year without us doing anything. And it does seem like organic demand in a way that someone actually were pleasantly surprised about has picked up more. I mean a record net adds for international even outside of Canada last quarter. Canada itself, obviously, is not going to move the needle in terms of numbers because it's smaller than a single U.S. state. It's also tied to why we have not launched in Australia. We love everyone here, but we're trying to do the big needle movers.

But what we now firmly have is a playbook for international, where in Canada, we really didn't do much of anything like that doubled revenue. So the plan this year was to launch in the U.K., the Ukraine or the situation did really, really impact our R&D capacity, but that's all now fully readjusted in the U.K. and possibly Europe is on track for next year. So we're pretty excited about that, and we're not forecasting huge increases just because especially due to the macro, we think we want to see success before we make it update the plan significantly, but we're optimistic about it and very much on track for that U.K. launch.

[Melissa Goodell, executive]

Thanks, Chris. We have Laf again to ask a few more questions.

[Lafitani Sotiriou, analyst]

Just one follow-up question. I just wanted to -- I think Russell made the comment that you have a usual process for setting guidance for the year ahead that you're still yet to go through. Could you just talk a little bit more about what that process is, when it occurs and when we should expect an update on that?

[Russell Burke, executive]

Sure. Sure, Laf. We're going through as with most year-end companies, we're going through our planning process now. So that will sort of continue through to the end of the year and that will help us sort of flush out our very specific priorities for next year. In terms of the sort of formal guidance, as is part of our sort of standard process. And I think for most companies with the year-end release, we would plan to give full guidance for 2023.

[Lafitani Sotiriou, analyst]

So that in January, we would -- sorry, when the result comes out in early February, you would expect the full year guidance for 2030 to be clarified in detail.

[Russell Burke, executive]

Under the new schedule, our year-end release won't be until mid-March. We will look at updating the market before then if there's something significant to say.

[Melissa Goodell, executive]

Thanks, Laf. And as there are no more questions, I will now hand it back over to Chris for some last remarks.

[Chris Hulls, executive]

Thanks, everyone, for joining. This is a bit of a recap on the overall period. We have 2 elements of the business now, membership and hardware. We obviously bought Tile to drive membership and that is going well ahead of plan, which excites us. We are disappointed by the stand-alone hardware performance for the year. But net-net, the piece of the business that we needed and wanted to go well is doing great, and we're very excited for the rest of the year and CY '23 where a lot of this bet around the R&D we've built really pays off.

So thank you, everyone, for joining, and have a great day.