LifeLock, Inc. (NYSE: LOCK), an industry leader in identity theft protection, today announced financial results for the third quarter ended September 30, 2016.

Third Quarter 2016 Financial Highlights:

  • Revenue: Total revenue was $170.3 million for the third quarter of 2016, up 12% from $152.0 million for the third quarter of 2015. Consumer revenue was $161.7 million for the third quarter of 2016, up 12% from $144.6 million for the third quarter of 2015. Enterprise revenue was $8.6 million for the third quarter of 2016, up 18% from $7.3 million for the third quarter of 2015.
  • Net Income: Net income was $14.4 million for the third quarter of 2016, compared with net loss of $65.1 million for the third quarter of 2015. The net loss for the quarter ended September 30, 2015 included the accrual of $96 million for the settlement with the FTC and related litigation. Net income per diluted share was $0.15 for the third quarter of 2016 based on 97.3 million weighted-average shares outstanding, compared with net loss per diluted share of $0.68 for the third quarter of 2015 based on 95.3 million weighted-average shares outstanding.
  • Adjusted Net Income*: Adjusted net income was $33.5 million for the third quarter of 2016, compared with adjusted net income of $27.6 million for the third quarter of 2015. Adjusted net income per diluted share* was $0.34 for the third quarter of 2016 based on 97.3 million weighted-average shares outstanding, compared with adjusted net income per diluted share of $0.28 for the third quarter of 2015 based on 99.5 million weighted-average shares outstanding.
  • Adjusted EBITDA*: Adjusted EBITDA was $36.5 million for the third quarter of 2016, compared with $29.8 million for the third quarter of 2015.
  • Cash Flow: Cash flow from operations was $5.6 million for the third quarter of 2016, leading to free cash flow* of $22.9 million after taking into consideration $2.0 million of capital expenditures, and $18.6 million of payments for previously accrued legal settlements and $0.6 million of payments for expenses incurred in connection with the FTC litigation. This compares with cash flow from operations of $20.8 million and free cash flow* of $18.4 million, after taking into consideration $4.1 million of capital expenditures and $1.6 million of payments for expenses incurred in connection with the FTC litigation for the third quarter of 2015.
  • Balance Sheet: Total cash and marketable securities at the end of the third quarter of 2016 was $166.1 million, up from $155.9 million at the end of the second quarter of 2016.

* A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures".

Chief Executive Officer and President Hilary Schneider said, “LifeLock delivered solid financial results in our third quarter with strong annual retention rates, continued adoption of our premium products and strength in our enterprise business." Schneider continued: “We also reached a number of important strategic milestones that provide the foundation for continued and meaningful product differentiation including the completion of our flexible and extensible Identity Theft Protection or ITPS platform, the launch of our new LifeLock mobile app and our IDENTITY mobile app that helps consumers simplify the management of their digital identity."

Third Quarter 2016 & Recent Business Highlights:

  • Recorded the 46th consecutive quarter of sequential growth in revenue and cumulative ending members.
  • Announced new partnership agreement with a leading wireless carrier.
  • ID Analytics announced the launch of the Online Lending Network, a new consortium expected to enhance responsible lending, help protect consumers and businesses, and address credit and fraud risks.
  • Added approximately 254,000 gross new members in the third quarter of 2016 and ended the quarter with approximately 4.4 million members.
  • Increased monthly average revenue per member to $12.25 for the third quarter of 2016 from $11.91 for the third quarter of 2015.
  • We will be hosting an Investor and Analyst Day on February 23, 2017 in Menlo Park, CA.

Guidance:

As of November 1, 2016, we are initiating guidance for our fourth quarter of 2016 as well as updating guidance for the full year 2016.

  • Fourth Quarter 2016 Guidance: Total revenue is expected to be in the range of $172 million to $174 million. Adjusted net income per diluted share is expected to be in the range of $0.40 to $0.42 based on approximately 99 million fully diluted weighted-average shares outstanding and a cash tax rate of 3%. Adjusted EBITDA is expected to be in the range of $42 million to $44 million.
  • Full Year 2016 Guidance: Total revenue is expected to be in the range of $666 million to $668 million. Adjusted net income per diluted share is expected to be in the range of $0.76 to $0.78 based on approximately 98 million fully diluted weighted-average shares outstanding and a cash tax rate of 3%. Adjusted EBITDA is expected to be in the range of $86 million to $88 million. Free cash flow is expected to be in the range of $83 million to $88 million.

We have not reconciled adjusted net income per diluted share guidance to net income (loss) per diluted share guidance or adjusted EBITDA guidance to net income (loss) guidance because we do not provide guidance for stock-based compensation expense, provision for income taxes, interest income, interest expense, other income and expenses, depreciation expense, amortization of intangible assets, acquisition expenses, legal reserves and settlements, or income tax (benefit) expense, which are reconciling items between net income (loss) and adjusted net income and net income (loss) and adjusted EBITDA. As these items that impact net income (loss) are out of our control and/or cannot be predicted with reasonable certainty, we are unable to provide such guidance. Accordingly, reconciliation of these non-GAAP measures to net income (loss) is not available without unreasonable effort. For a reconciliation of these historical non-GAAP financial measures to net income (loss), which provides information about the historical significance of the reconciling items, see the reconciliation tables included in this press release.

Conference Call Details:

  • What: LifeLock third quarter 2016 financial results.
  • When: Tuesday, November 1, 2016 at 2PM PT (5PM ET).
  • Dial in: To access the call in the United States, please dial (877) 407-3982, and for international callers dial (201) 493-6780. Callers may provide confirmation number 13644513 to access the call more quickly, and are encouraged to dial into the call 10 to 15 minutes prior to the start to prevent any delay in joining.
  • Webcast:http://investor.lifelock.com/ (live and replay)
  • Replay: A replay of the call will be available via telephone for seven days, beginning two hours after the call. To listen to the telephone replay in the United States, please dial (877) 870-5176, and for international callers dial (858) 384-5517 and enter access code 13644513.

About LifeLock

LifeLock, Inc. (NYSE:LOCK) is a leading provider of proactive identity theft protection services for consumers and consumer risk management services for enterprises. LifeLock’s threat detection, proactive identity alerts, and comprehensive remediation services help provide peace of mind for consumers amid the growing threat of identity theft. Leveraging unique data, science and patented technology from ID Analytics, LLC, a wholly owned subsidiary, LifeLock offers identity theft protection that goes significantly beyond credit monitoring. As part of its commitment to help fight identity theft, LifeLock works to train law enforcement and partners with a variety of non-profit organizations to help consumers establish positive habits to combat this threat.

Forward-Looking Statements

This press release contains “forward-looking” statements, as that term is defined under the federal securities laws, including statements regarding our expected total revenue, adjusted net income per diluted share and adjusted EBITDA for the fourth quarter of 2016 and for fiscal year 2016, and free cash flow for fiscal year 2016. These forward-looking statements are based on our current assumptions, expectations, and beliefs and are subject to substantial risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ materially from those expressed or implied in any forward-looking statement.

The risks and uncertainties referred to above include, but are not limited to, risks associated with our ability to maintain profitability on an annual basis; our ability to protect our customers’ confidential information; our ability to maintain and enhance our brand recognition and reputation; the competitive nature of the industries in which we conduct our business; our ability to retain our existing customers and attract new customers; our ability to improve our services and develop and introduce new services with broad appeal; our ability to maintain existing and secure new relationships with strategic partners; regulatory compliance and litigation outcome; and other “Risk Factors” set forth in our most recent SEC filings.

Further information on these and other factors that could affect our financial results and the forward-looking statements in this press release is included in our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2015, particularly under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Forms 10-Q. Copies of these documents are available on our Investor Relations website at http://investor.lifelock.com/ or the SEC's website at www.sec.gov.

We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

Non-GAAP Financial Measures

Our reported results include certain non-GAAP financial measures, including adjusted net income, adjusted net income per diluted share, adjusted EBITDA, and free cash flow. We calculate adjusted net income as net income (loss) excluding amortization of acquired intangible assets, stock-based compensation, income tax benefits and expenses resulting from changes in our deferred tax assets, and acquisition related expenses. We calculate adjusted net income per diluted share by dividing our adjusted net income by the weighted-average diluted shares outstanding. We calculate adjusted EBITDA as net income (loss) excluding depreciation and amortization, stock-based compensation, interest expense, interest income, other income (expense), income tax (benefit) expense, and acquisition related expenses. For the three and nine-months ended September 30, 2016 and 2015, we have also excluded from adjusted net income, adjusted net income per diluted share and adjusted EBITDA expenses related to the FTC litigation and the impact of a legal reserve for the settlement of a derivative lawsuit. We believe that the exclusion of certain items of income and expense from net income (loss) in calculating adjusted net income, adjusted net income per diluted share and adjusted EBITDA is useful because the amount of such income or expense may not directly correlate to the underlying operational performance of our business and/or such income and expense can vary significantly between periods.

We define free cash flow as net cash provided by operating activities less net cash used in investing activities for acquisitions of property and equipment. For the three- and nine-months ended September 30, 2016 and 2015, we have added back to net cash provided by operating activities cash paid for expenses and legal settlements related to the FTC litigation.

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

We have included free cash flow in this press release because we believe it typically presents a more conservative measure of cash flow as purchases of property and equipment are necessary components of ongoing operations. For the three and nine-months ended September 30, 2016 and 2015, we have added back legal settlements and expenses related to the FTC litigation because the amount of such cash flow may not directly correlate to the underlying operational performance of our business and can vary significantly between periods. We believe that this non-GAAP financial measure is useful in evaluating our business because free cash flow reflects the cash surplus available to fund the expansion of our business, excluding expenses related to the FTC litigation and eventual settlement, after payment of capital expenditures relating to the necessary components of ongoing operations. We also believe that the use of free cash flow provides consistency and comparability with our past financial performance and facilitates period-to-period comparisons of operations.

Although adjusted net income, adjusted net income per diluted share, adjusted EBITDA, 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. Further, these non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP and are not necessarily comparable to similarly-titled measures presented by other companies.

For a reconciliation of these historical non-GAAP financial measures to net income (loss), which provides information about the historical significance of the reconciling items, see the reconciliation tables included in this press release.

 

LifeLock, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)

       

Three Months Ended
September 30,

Nine Months Ended
September 30,
2016   2015 2016   2015
Revenue:
Consumer revenue $ 161,671 $ 144,648 $ 470,260 $ 411,178
Enterprise revenue 8,623   7,304   23,746   20,139  
Total revenue 170,294 151,952 494,006 431,317
Cost of services 34,782   33,988   118,410   103,470  
Gross profit 135,512 117,964 375,596 327,847
Costs and expenses:
Sales and marketing 68,416 62,850 240,492 209,470
Technology and development 20,379 19,396 61,509 52,928
General and administrative 21,882 120,984 73,700 160,815
Amortization of acquired intangible assets 1,982   2,084   8,344   6,251  
Total costs and expenses 112,659   205,314   384,045   429,464  
Income (loss) from operations 22,853 (87,350 ) (8,449 ) (101,617 )
Other income (expense):
Interest expense (111 ) (89 ) (403 ) (265 )
Interest income 272 219 875 498
Other (85 ) —   (214 ) (183 )
Total other income 76   130   258   50  
Income (loss) before provision for income taxes 22,929 (87,220 ) (8,191 ) (101,567 )
Income tax (benefit) expense 8,527   (22,075 ) (3,801 ) (27,784 )
Net income (loss) $ 14,402   $ (65,145 ) $ (4,390 ) $ (73,783 )
Net income (loss) per share attributable to common stockholders:
Basic $ 0.16 $ (0.68 ) $ (0.05 ) $ (0.78 )
Diluted $ 0.15 $ (0.68 ) $ (0.05 ) $ (0.78 )

Weighted-average common shares outstanding used in computing net
income (loss) per share attributable to common stockholders:

Basic 92,034 95,340 93,052 94,660
Diluted 97,321 95,340 93,052 94,660
 
 

LifeLock, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

(Unaudited)

       
September 30, December 31,
2016 2015
Assets
Current assets:
Cash and cash equivalents $ 34,806 $ 50,239
Marketable securities 131,298 196,474
Trade and other receivables, net 17,080 13,974
Prepaid expenses and other current assets 9,168   12,303  
Total current assets 192,352 272,990
Property and equipment, net 44,665 30,485
Goodwill 172,087 172,087
Intangible assets, net 21,830 30,174
Deferred tax assets, net - non-current 81,164 77,363
Other non-current assets 13,627   9,710  
Total assets $ 525,725   $ 592,809  
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 8,645 $ 24,747
Accrued expenses and other liabilities 57,362 76,226
Deferred revenue 189,034   166,403  
Total current liabilities 255,041 267,376
Other non-current liabilities 20,113   7,367  
Total liabilities 275,154 274,743
Commitments and contingencies
Stockholders' equity:
Common stock 101 96
Treasury stock (74,974 ) —
Additional paid-in capital 544,009 532,388
Accumulated other comprehensive loss (118 ) (361 )
Accumulated deficit (218,447 ) (214,057 )
Total stockholders' equity 250,571   318,066  
Total liabilities and stockholders' equity $ 525,725   $ 592,809  
 
 

LifeLock, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

       
Nine Months Ended
September 30,
2016   2015
Operating activities
Net loss $ (4,390 ) $ (73,783 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 17,082 13,292
Stock-based compensation 25,509 20,287
Provision for doubtful accounts 352 150
Amortization of premiums on marketable securities 1,521 2,310
Deferred income tax benefit (3,801 ) (27,784 )
Other 343 250
Change in operating assets and liabilities:
Trade and other receivables (3,956 ) (3,469 )
Prepaid expenses and other current assets 3,136 (1,022 )
Other non-current assets 167 357
Accounts payable (14,622 ) 1,548
Accrued expenses and other liabilities (18,120 ) 117,693
Deferred revenue 22,631 25,629
Other non-current liabilities 408   265  
Net cash provided by operating activities 26,260 75,723
Investing activities
Acquisition of businesses, net of cash acquired — (12,797 )
Acquisition of property and equipment, including capitalization of internal use software (11,299 ) (9,057 )
Purchases of marketable securities (83,896 ) (191,846 )
Sale and maturities of marketable securities 148,298 122,936
Premiums paid for company-owned life insurance policies (4,337 ) (4,337 )
Net cash provided by (used in) investing activities 48,766 (95,101 )
Financing activities
Proceeds from stock-based compensation plans 15,780 10,144
Purchases of Company stock (100,000 ) —
Payments for employee tax withholdings related to restricted stock units and awards (6,239 ) (1,793 )
Net cash provided by (used in) financing activities (90,459 ) 8,351  
Net decrease in cash and cash equivalents (15,433 ) (11,027 )
Cash and cash equivalents at beginning of period 50,239   146,569  
Cash and cash equivalents at end of period $ 34,806   $ 135,542  
 
 

Stock-Based Compensation

(in thousands)

(Unaudited)

       

Three Months Ended
September 30,

Nine Months Ended
September 30,
2016   2015 2016   2015
Costs of services $ 486 $ 449 $ 1,445 $ 1,286
Sales and marketing 1,672 1,238 4,793 3,385
Technology and development 2,574 2,514 7,893 6,226
General and administrative 3,880   3,662   11,378   9,390
Total stock-based compensation expense $ 8,612   $ 7,863   $ 25,509   $ 20,287
 

Key Financial and Operating Metrics

(in thousands except percentages and per member data)

(Unaudited)

       

Three Months Ended
September 30,

Nine Months Ended
September 30,
2016   2015 2016   2015
Revenue:
Consumer revenue $ 161,671 $ 144,648 $ 470,260 $ 411,178
Enterprise revenue 8,623   7,304   23,746   20,139  
Total revenue $ 170,294 $ 151,952 $ 494,006 $ 431,317
Adjusted net income $ 33,549 $ 27,579 $ 35,060 $ 32,323
Adjusted EBITDA $ 36,548 $ 29,797 $ 43,540 $ 39,314
Free cash flow $ 22,927 $ 18,378 $ 41,097 $ 68,302
Cumulative ending members 4,414 4,080 4,414 4,080
Gross new members 254 251 903 989
Member retention rate 85.5 % 86.6 % 85.5 % 86.6 %
Average cost of acquisition per member $ 255 $ 237 $ 255 $ 202
Monthly average revenue per member $ 12.25 $ 11.91 $ 12.05 $ 11.68
Enterprise transactions 103,240 74,280 272,504 208,324
 
 

Reconciliation of GAAP to Non-GAAP Results

(in thousands, except per share amounts)

(Unaudited)

       

Three Months Ended
September 30,

Nine Months Ended
September 30,
2016   2015 2016   2015
Reconciliation of Gross Profit to Adjusted Gross Profit
Gross profit $ 135,512 $ 117,964 $ 375,596 $ 327,847
Stock-based compensation 486   449   1,445   1,286  
Adjusted gross profit $ 135,998   $ 118,413   $ 377,041   $ 329,133  

Reconciliation of Sales and Marketing Expenses to Adjusted Sales
and Marketing Expenses

Sales and marketing expenses $ 68,416 $ 62,850 $ 240,492 $ 209,470
Stock-based compensation (1,672 ) (1,238 ) (4,793 ) (3,385 )
Adjusted sales and marketing expenses $ 66,744   $ 61,612   $ 235,699   $ 206,085  

Reconciliation of Technology and Development Expenses to Adjusted
Technology and Development Expenses

Technology and development expenses $ 20,379 $ 19,396 $ 61,509 $ 52,928
Stock-based compensation (2,574 ) (2,514 ) (7,893 ) (6,226 )
Acquisition related expenses —   (2,970 ) —   (2,970 )
Adjusted technology and development expenses $ 17,805   $ 13,912   $ 53,616   $ 43,732  

Reconciliation of General and Administrative Expenses to Adjusted
General and Administrative Expenses

General and administrative expenses $ 21,882 $ 120,984 $ 73,700 $ 160,815
Stock-based compensation (3,880 ) (3,662 ) (11,378 ) (9,390 )
Legal reserves and settlements — (96,000 ) (6,000 ) (98,500 )
Expenses related to the FTC litigation (26 ) (5,733 ) (3,398 ) (5,733 )
Acquisition related expenses —   (149 )   —   (149 )
Adjusted general and administrative expenses $ 17,976   $ 15,440   $ 52,924   $ 47,043  

Reconciliation of Income (Loss) from Operations to Adjusted
Income from Operations

Income (loss) from operations $ 22,853 $ (87,350 ) $ (8,449 ) $ (101,617 )
Stock-based compensation 8,612 7,863 25,509 20,287
Amortization of acquired intangible assets 1,982 2,084 8,344 6,251
Legal reserves and settlements — 96,000 6,000 98,500
Expenses related to the FTC litigation 26 5,733 3,398 5,733
Acquisition related expenses —   3,119   —   3,119  
Adjusted income from operations $ 33,473   $ 27,449   $ 34,802   $ 32,273  
Reconciliation of Net Income (Loss) to Adjusted Net Income
Net income (loss) $ 14,402 $ (65,145 ) $ (4,390 ) $ (73,783 )
Stock-based compensation 8,612 7,863 25,509 20,287
Amortization of acquired intangible assets 1,982 2,084 8,344 6,251
Legal reserves and settlements — 96,000 6,000 98,500
Expenses related to the FTC litigation 26 5,733 3,398 5,733
Acquisition related expenses — 3,119 — 3,119
Deferred income tax (benefit) expense 8,527   (22,075 ) (3,801 ) (27,784 )
Adjusted net income $ 33,549   $ 27,579   $ 35,060   $ 32,323  
 
           

Three Months Ended
September 30,

   Nine Months Ended
September 30,
2016   2015 2016   2015
Reconciliation of Diluted Shares to Adjusted Diluted Shares
Diluted shares 97,321 95,340 93,052 94,660
Dilutive securities excluded due to net loss —   4,186   4,252   5,143  
Adjusted diluted shares 97,321   99,526   97,304   99,803  

Reconciliation of Net Income (Loss) per Diluted Share to Adjusted
Net Income per Diluted Share

Net income (loss) per diluted share $ 0.15 $ (0.68 ) $ (0.05 ) $ (0.78 )
Adjustments to net income (loss) 0.19 0.93 0.41 1.06
Adjustments to diluted shares —   0.03   —   0.04  
Adjusted net income per diluted share $ 0.34   $ 0.28   $ 0.36   $ 0.32  
Reconciliation of Net Income (Loss) to Adjusted EBITDA
Net income (loss) $ 14,402 $ (65,145 ) $ (4,390 ) $ (73,783 )
Depreciation and amortization 5,057 4,432 17,082 13,292
Stock-based compensation 8,612 7,863 25,509 20,287
Interest expense 111 89 403 265
Interest income (272 ) (219 ) (875 ) (498 )
Other 85 — 214 183
Income tax (benefit) expense 8,527 (22,075 ) (3,801 ) (27,784 )
Legal reserves and settlements — 96,000 6,000 98,500
Expenses related to the FTC litigation 26 5,733 3,398 5,733
Acquisition related expenses —   3,119   —   3,119  
Adjusted EBITDA $ 36,548   $ 29,797   $ 43,540   $ 39,314  

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

Net cash provided by operating activities $ 5,626 $ 20,826 $ 26,260 $ 75,723
Acquisitions of property and equipment (1,962 ) (4,084 ) (11,299 ) (9,057 )
Legal settlements paid 18,642 — 21,142 —
Expenses paid for the FTC litigation 621   1,636   4,994   1,636  
Free cash flow $ 22,927   $ 18,378   $ 41,097   $ 68,302