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LifeLock Announces Third Quarter 2012 Results

Stocks in this article: LOCK

LifeLock has included adjusted EBITDA, non-GAAP adjusted net income, and non-GAAP adjusted net income per share in this press release because they are key measures used by LifeLock’s management and board of directors to understand and evaluate its core operating performance and trends, to prepare and approve its annual budget, and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating adjusted EBITDA and non-GAAP adjusted net income can provide a useful measure for period-to-period comparisons of LifeLock’s core business. Additionally, adjusted EBITDA is a key financial measure used in determining management’s incentive compensation.

LifeLock has included free cash flow in this press release because it typically presents a more conservative measure of cash flow as purchases of property and equipment are necessary components of ongoing operations. LifeLock believes that this non-GAAP financial measure is useful in evaluating its business because free cash flow reflects the cash surplus available to fund the expansion of its business after payment of capital expenditures relating to the necessary components of ongoing operations. LifeLock also believes that the use of free cash flow provides consistency and comparability with its past financial performance, facilitates period-to-period comparisons of operations, and also facilitates comparisons with other companies, many of which use similar non-GAAP financial measures to supplement their GAAP results.

Although adjusted EBITDA, non-GAAP adjusted net income, and free cash flow are frequently used by investors in their evaluations of companies, these non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Because of these limitations, these non-GAAP financial measures should be considered alongside other financial performance measures.

LifeLock has not reconciled adjusted EBITDA guidance to net income guidance or non-GAAP adjusted net income per share guidance to net income per share guidance because it does not provide guidance for share-based compensation expense, provision for income taxes, interest income, interest expense, change in fair value of warrant liabilities, change in fair value of embedded derivatives, other income and expenses, depreciation expense or amortization of intangible assets, which are reconciling items between net income (loss) and adjusted EBITDA and net income (loss) and non-GAAP adjusted net income (loss). As items that impact net income (loss) are out of LifeLock’s control and/or cannot be reasonably predicted, LifeLock is unable to provide such guidance. Accordingly, reconciliation to net income (loss) is not available without unreasonable effort. For a reconciliation of historical non-GAAP financial measures to the nearest comparable GAAP measures, see the reconciliation tables included in this press release.

   
 

Supplemental Financial Information

 

LifeLock, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

 
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
  2012       2011     2012       2011  
Consumer revenue $ 65,579 $ 49,998 $ 183,903 $ 140,994
Enterprise revenue   6,538     -     13,709     -  
 
Total revenue 72,117 49,998 197,612 140,994
Cost of Services   19,762     15,339     57,727     46,479  
 
Gross profit 52,355 34,659 139,885 94,515
Costs and expenses:
Sales and marketing 29,926 26,443 91,431 70,192
Technology and development 7,943 4,357 20,936 13,367
General and administrative 6,297 4,343 15,834 13,113
Amortization of acquired intangible assets   1,966     -     4,291     -  
  46,132     35,143     132,492     96,672  
Income (loss) from operations 6,223 (484 ) 7,393 (2,157 )
Other income (expense):
Interest expense (854 ) (17 ) (2,139 ) (215 )
Change in fair value of warrant liabilities 6,058 - 3,117 (4,124 )
Change in fair value of embedded derivative (3,499 ) - (2,785 ) -
Interest income 4 - 6 7
Other   (1 )   -     (3 )   -  
 
Total other income (expense)   1,708     (17 )   (1,804 )   (4,332 )
 
Income (loss) before provision for income taxes 7,931 (501 ) 5,589 (6,489 )
Income tax (benefit) expense   63     14     (13,834 )   96  
 
Net income (loss) 7,868 (515 ) 19,423 (6,585 )
Accretion of convertible redeemable preferred stock (4,207 ) (5,644 ) (8,959 ) (16,004 )
Net income allocable to convertible redeemable preferred
stockholders   (2,550 )   -     (7,067 )   -  
 
Net income available (loss attributable) to common
stockholders $ 1,111   $ (6,159 ) $ 3,397   $ (22,589 )
 
Net income available (loss attributable) per share to
common stockholders:
Basic $ 0.06 $ (0.33 ) $ 0.17 $ (1.21 )
Diluted $ (0.16 ) $ (0.33 ) $ 0.07 $ (1.21 )
Weighted-average common shares outstanding:
Basic 19,501 18,825 19,469 18,658
Diluted 19,501 18,825 52,993 18,658
 
 

LifeLock, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except per share amounts)

(Unaudited)

 
September 30, December 31,
  2012     2011  
Assets
Current assets:
Cash and cash equivalents $ 76,662 $ 28,850
Restricted cash - 398
Trade and other receivables, net 7,193 1,446
Prepaid expenses and other current assets   7,131     5,637  
 
Total current assets 90,986 36,331
Property and equipment, net 7,267 4,049
Goodwill 129,553 -
Intangible assets, net 53,208 -
Other non-current assets   3,096     1,680  
 
Total assets $ 284,110   $ 42,060  
 
Liabilities, convertible redeemable preferred stock and stockholders’ deficit
Current liabilities:
Accounts payable $ 9,918 $ 4,084
Accrued expenses and other liabilities 23,386 18,300
Preferred stock embedded derivative 10,719 -
Deferred revenue 89,483 70,020
Current portion of long-term debt   17,000     -  
Total current liabilities 150,506 92,404
Long-term debt, net of current portion 45,560 -
Other non-current liabilities 306 521
Preferred stock warrant liabilities   19,451     18,195  
 
Total liabilities 215,823 111,120
Commitments and contingencies
Convertible redeemable preferred stock: 267,874 145,207
 
Stockholders’ deficit:
Common stock 20 19
Additional paid-in capital 21,606 17,391
Accumulated deficit   (221,213 )   (231,677 )
 
Total stockholders’ deficit   (199,587 )   (214,267 )
 
Total liabilities, convertible redeemable preferred stock and stockholders’ deficit $ 284,110   $ 42,060  
 
 

LifeLock, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 
For the Nine Months
Ended September 30,
  2012       2011  
Operating activities
Net income (loss) $ 19,423 $ (6,585 )
Adjustment to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 7,487 2,736
Share-based compensation 3,994 2,362
Loss on disposal of assets 3 -
Provision for doubtful accounts (10 ) (72 )
Change in fair value of warrant liabilities (3,117 ) 4,124
Change in fair value of embedded derivative 2,785 -
Deferred income tax (benefit) expense (13,834 ) 96
Change in operating assets and liabilities:
Trade and other receivables (2,344 ) 47
Prepaid expenses and other current assets 2,039 (1,571 )
Accounts payable 5,822 (490 )
Accrued expenses and other liabilities 959 2,478
Other non-current assets (1,184 ) (165 )
Deferred revenue 19,388 15,624
Other non-current liabilities   (690 )   (343 )
 
Net cash provided by operating activities 40,721 18,241
 
Investing activities

Acquisition of ID Analytics, net of cash acquired

(157,430 ) -
Acquisition of property and equipment (3,506 ) (1,474 )
Decrease in restricted cash   1,748     250  
 
Net cash used in investing activities (159,188 ) (1,224 )
 
Financing activities
Proceeds from:
Long-term debt 68,000 -
Issuance of warrants 4,372 -
Issuance of convertible redeemable preferred stock, net of offering costs 102,165 -
Stock option exercises 222 222
Payments for:
Term loan (5,440 ) -
Revolving line of credit - (13,010 )
Obligations under capital lease - (115 )
Initial public offering costs (1,530 ) -
Debt issuance costs   (1,510 )   (132 )
 
Net cash provided by (used in) financing activities   166,279     (13,035 )
 
Net increase in cash and cash equivalents 47,812 3,982
Cash and cash equivalents at beginning of period   28,850     17,581  
 
Cash and cash equivalents at end of period $ 76,662   $ 21,563  
 
Supplemental cash flow information
Cash paid during the period for:
Interest $ 1,650 $ 306
Income taxes 109 90
Supplemental information for non-cash financing activities:
Convertible redeemable preferred stock issued as part of purchase price for ID Analytics 11,542 -
Preferred stock embedded derivative issued as part of purchase price for ID Analytics 7,934 -
 
 

Share Based Compensation

   
Three months ended Nine months ended
September 30, September 30,
  2012     2011   2012     2011
Cost of services $ 186 $ 73 $ 437 $ 234
Sales and marketing 299 140 712 448
Technology and development 498 190 1,208 560
General and administrative   648   379   1,637   1,120
 
Total cost related to share-based
compensation expense $ 1,631 $ 782 $ 3,994 $ 2,362
 
 

Key Financial Metrics

   
Three months ended Nine months ended
September 30, September 30,
  2012     2011   2012     2011  
(in thousands)
Consumer revenue $ 65,579 $ 49,998 $ 183,903 $ 140,994
Enterprise revenue   6,538   -   13,709   -  
 
Total revenue 72,117 49,998 197,612 140,994
Adjusted net income 8,906 267 13,066 (99 )
Adjusted EBITDA 10,938 1,204 18,874 2,941
Free cash flow 16,196 6,179 37,215 16,767
 
 

Key Operating Metrics

   

Three months ended

Nine months ended

September 30, September 30,
  2012       2011     2012       2011  
(in thousands, except percentages and per member data)
Cumulative ending members 2,376 1,970 2,376 1,970
Gross new members 187 172 564 498
Member retention rate 85.9 % 82.6 % 85.9 % 82.6 %
Average cost of acquisition per member $ 147 $ 153 $ 153 $ 142
Monthly average revenue per member $ 9.39 $ 8.68 $ 9.18 $ 8.43
Enterprise transactions 57,295 46,958 162,774 127,591
 
 

Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)

   

For the Three Months

For the Nine Months

Ended September 30, Ended September 30,
  2012       2011     2012       2011  
(in thousands)
Net income (loss) $ 7,868 $ (515 ) $ 19,423 $ (6,585 )
Amortization of acquired intangible assets 1,966 - 4,291 -
Change in fair value of warrant liabilities (6,058 ) - (3,117 ) 4,124
Change in fair value of embedded derivative 3,499 - 2,785 -
Tax benefit from acquisition - - (14,310 ) -
Share-based compensation   1,631     782     3,994     2,362  
 
Adjusted net income (loss) $ 8,906   $ 267   $ 13,066   $ (99 )
 
 
Adjusted net income available (loss attributable) per share to
common stockholders:
Non GAAP Basic $ 0.14 $ 0.01 $ 0.22 $ (0.00 )
Non GAAP Diluted $ 0.12 $ 0.01 $ 0.20 $ (0.00 )
Weighted-average common shares outstanding:
Non GAAP Basic 64,100 48,064 59,976 47,898
Non GAAP Diluted 71,494 53,277 66,397 47,898

Reconciliation of Diluted Shares to Non-GAAP Diluted Shares

   
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2012     2011 2012     2011
Diluted Shares 19,501 18,825 52,993 18,658
Assumed preferred stock conversion 44,599 29,240 13,404 29,240
Dilutive securities excluded due to net loss 10,837 5,212 2,526 -
Other dilutive equity awards excluded (3,443 ) - (2,526 ) -
71,494   53,277 66,397   47,898
 
 

Reconciliation of Diluted EPS to Non-GAAP Diluted EPS

   

For the Three Months

For the Nine Months

Ended September 30,

Ended September 30,
2012     2011   2012     2011  
 
GAAP diluted earnings (loss) per share (0.16 ) (0.33 ) 0.07 (1.21 )
Net income attributable to participating securities - - 0.09 -
Non-GAAP adjustments to net income 0.01 0.01 (0.10 ) 0.14
Non-GAAP adjustments to diluted shares 0.27   0.33   0.14   1.07  
0.12   0.01   0.20   (0.00 )
 
 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

   
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
  2012       2011     2012       2011  
(in thousands)
Net income (loss) $ 7,868 $ (515 ) $ 19,423 $ (6,585 )
Depreciation and amortization 3,084 906 7,487 2,736
Interest expense 854 17 2,139 215
Interest income (4 ) - (6 ) (7 )
Change in fair value of warrant liabilities (6,058 ) - (3,117 ) 4,124
Change in fair value of embedded derivative 3,499 - 2,785 -
Other 1 - 3 -
Income tax (benefit) expense 63 14 (13,834 ) 96
Share-based compensation   1,631     782     3,994     2,362  
Adjusted EBITDA $ 10,938   $ 1,204   $ 18,874   $ 2,941  
 
 

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

   
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
  2012       2011     2012       2011  
(in thousands)
Net cash provided by operating activities $ 17,622 $ 6,419 $ 40,721 $ 18,241
Acquisitions of property and equipment   (1,426 )   (240 )   (3,506 )   (1,474 )
Free cash flow $ 16,196  

$

6,179   $ 37,215   $ 16,767  




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