LOCK Lifelock, Inc. (delisted)

Company announces agreements with FTC staff and members of nationwide class on settlement of outstanding litigation

Q3 adjusted net income was $0.28 per diluted share, up 75% year-over-year

Q3 cumulative ending members of approximately 4.1 million, up 16% year-over-year

Recorded the 42nd consecutive quarter of sequential growth in revenue and cumulative ending members

LifeLock, Inc. (NYSE: LOCK), an industry leader in identity theft protection, today announced financial results for the third quarter ended September 30, 2015.

The Company also announced that it has reached agreements with the staff of the Federal Trade Commission and representatives of a national class of consumers on a comprehensive settlement resolving outstanding litigation relating to its past marketing representations and information security programs. The Company noted that the agreements are not yet final, as the FTC staff’s recommendation to approve the settlement must still be approved by the Commission itself and a federal judge, and the class action settlement will require review and approval by the court.

The proposed FTC settlement does not require us to change our current products, services, or business and information security practices, including in particular, our current marketing and advertising practices. In light of the agreements, LifeLock has accrued an additional $96 million in reserves, bringing the total amount of its reserves for this matter to $116 million. This $116 million also includes a $3 million reserve for a potential settlement with state attorneys general.

“We are pleased with our performance in the quarter, which reflected a 24% increase in revenues and strong gains in adjusted net income and Adjusted EBITDA,” said Todd Davis, LifeLock’s Chairman and CEO. “In addition, we believe the agreements we announced today are in the best interest of our shareholders and represent a positive step toward achieving closure on substantial outstanding litigation against the Company. These settlements, if approved, will enable all of us to focus on our mission of protecting our members.”

Third Quarter 2015 Financial Highlights:

• Revenue: Total revenue was $152.0 million for the third quarter of 2015, up 24% from $123.0 million for the third quarter of 2014. Consumer revenue was $144.6 million for the third quarter of 2015, up 25% from $116.1 million for the third quarter of 2014. Enterprise revenue was $7.3 million for the third quarter of 2015, up 5.6% from $6.9 million for the third quarter of 2014.
• Net income (loss): Net loss was $65.1 million for the third quarter of 2015, which included a pre-tax charge of $96.0 million related to a proposed settlement with the FTC, a consumer class action suit, and state attorneys general, compared with net income of $5.5 million for the third quarter of 2014. Net loss per diluted share was $0.68 for the third quarter of 2015 based on 95.3 million weighted-average shares outstanding, compared with net income per diluted share of $0.06 for the third quarter of 2014 based on 98.5 million weighted-average shares outstanding.
• Adjusted Net Income*: Adjusted net income was $27.6 million for the third quarter of 2015, compared with adjusted net income of $15.9 million for the third quarter of 2014. Adjusted net income per diluted share was $0.28 for the third quarter of 2015 based on 99.5 million weighted-average shares outstanding, compared with adjusted net income per diluted share of $0.16 for the third quarter of 2014 based on 98.5 million weighted-average shares outstanding.
• Adjusted EBITDA*: Adjusted EBITDA was $29.8 million for the third quarter of 2015, compared with $17.9 million for the third quarter of 2014.
• Cash Flow: Cash flow from operations was $20.8 million for the third quarter of 2015, leading to 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 related to the FTC litigation. This compares with cash flow from operations of $26.1 million and free cash flow of $22.7 million, after taking into consideration $3.5 million of capital expenditures, for the third quarter of 2014.
• Balance Sheet: Total cash and marketable securities at the end of the third quarter of 2015 was $332.2 million, up from $326.0 million at the end of the second quarter of 2015.

* 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.”

Third Quarter 2015 & Recent Business Highlights:

• Recorded the 42nd consecutive quarter of sequential growth in revenue and cumulative ending members.
• Acquired a team of product and development data experts who have extensive expertise in large scale data processing from BitYota, Inc., for $12.8 million for the purpose of developing new data-based products within our consumer segment.
• Added approximately 251,000 gross new members in the third quarter of 2015 and ended the quarter with approximately 4.1 million members.
• Increased monthly average revenue per member to $11.91 for the third quarter of 2015 from $11.22 for the third quarter of 2014.

Guidance:

As of October 28, 2015, we are initiating guidance for our fourth quarter of 2015 as well as updating our guidance for the full year 2015.

• Fourth Quarter 2015 Guidance: Total revenue is expected to be in the range of $153 million to $155 million. Adjusted net income per share is expected to be in the range of $0.28 to $0.30 based on approximately 101 million fully diluted weighted-average shares outstanding. Adjusted EBITDA is expected to be in the range of $32 million to $34 million.
• Full Year 2015 Guidance: Total revenue is expected to be in the range of $584 million to $586 million. Adjusted net income per diluted share is expected to be in the range of $0.61 to $0.63 based on approximately 100 million fully diluted weighted-average shares outstanding and a cash tax rate of 5%. Adjusted EBITDA is expected to be in the range of $71 million to $73 million. Free cash flow is expected to be in the range of $95 million to $100 million.
• Our fourth quarter 2015 and full year 2015 guidance for adjusted net income per share and adjusted EBITDA and our full year 2015 guidance for free cash flow excludes the impact of the expenses for the FTC and related litigation.

Conference Call Details:

• What: LifeLock third quarter 2015 financial results.
• When: Wednesday, October 28, 2015 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 13622020 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 13622020.

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, Inc., 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, profitability, long-term growth prospects, adjusted net income per diluted share, adjusted EBITDA, free cash flow for the third quarter of 2015 and for fiscal year 2015, and the resolution of the FTC and consumer class action matters, along with a potential settlement with certain states’ attorneys general for related claims. 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; the outcome of the FTC litigation; 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, 2014, 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, share-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, share-based compensation, interest expense, interest income, other income (expense), income tax (benefit) expense, and acquisition related expenses. For the nine-month period ended September 30, 2015, we have also excluded from adjusted net income and adjusted EBITDA the impact of the legal reserve for the proposed settlements with the FTC and a nationwide class of consumers, along with a possible settlement with certain states' attorneys general for related claims. 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.

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. 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 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, 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.

Beginning in the quarter ended September 30, 2015, we have also excluded the expenses related to the FTC litigation from our adjusted net income per share, adjusted EBITDA and free cash flow.

Although adjusted net income, 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.

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 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, 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 items that impact net income (loss) are out of our control and/or cannot be reasonably predicted, we are 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.

 

LifeLock, Inc.Condensed Consolidated Statements of Operations(in thousands, except per share amounts)(Unaudited)

   

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2015

 

2014

2015

 

2014

Revenue: Consumer revenue $ 144,648 $ 116,115 $ 411,178 $ 326,448 Enterprise revenue   7,304     6,916     20,139     19,882   Total revenue 151,952 123,031 431,317 346,330 Cost of services   33,988     30,327     103,470     89,675   Gross profit 117,964 92,704 327,847 256,655 Costs and expenses: Sales and marketing 62,850 51,818 209,470 166,710 Technology and development 19,396 12,341 52,928 37,996 General and administrative 120,984 16,781 160,815 45,489 Amortization of acquired intangible assets   2,084     2,231     6,251     6,693   Total costs and expenses   205,314     83,171     429,464     256,888   Income (loss) from operations (87,350 ) 9,533 (101,617 ) (233 ) Other income (expense): Interest expense (89 ) (89 ) (265 ) (264 ) Interest income 219 73 498 189 Other   —     (134 )   (183 )   (151 ) Total other expense   130     (150 )   50     (226 ) Income (loss) before provision for income taxes (87,220 ) 9,383 (101,567 ) (459 ) Income tax (benefit) expense   (22,075 )   3,933     (27,784 )   (116 ) Net income (loss) $ (65,145 ) $ 5,450   $ (73,783 ) $ (343 ) Net income available (loss attributable) per share to common stockholders: Basic $ (0.68 ) $ 0.06 $ (0.78 ) $ (0.00 ) Diluted $ (0.68 ) $ 0.06 $ (0.78 ) $ (0.00 ) Weighted-average common shares outstanding: Basic 95,340 92,925 94,660 92,437 Diluted 95,340 98,524 94,660 92,437    

LifeLock, Inc.Condensed Consolidated Balance Sheets(in thousands)(Unaudited)

    September 30,2015 December 31,2014 Assets Current assets: Cash and cash equivalents $ 135,542 $ 146,569 Marketable securities 196,697 127,305 Trade and other receivables, net 10,508 10,220 Deferred tax assets, net 48,808 21,243 Prepaid expenses and other current assets   8,862     7,841   Total current assets 400,417 313,178 Property and equipment, net 25,973 24,204 Goodwill 172,139 159,342 Intangible assets, net 32,064 38,315 Deferred tax assets, net - non-current 22,713 22,494 Other non-current assets   9,593     5,783   Total assets $ 662,899   $ 563,316   Liabilities and stockholders' equity Current liabilities: Accounts payable $ 13,362 $ 11,543 Accrued expenses and other liabilities 184,166 67,025 Deferred revenue   170,835     145,206   Total current liabilities 368,363 223,774 Other non-current liabilities   6,970     6,706   Total liabilities 375,333 230,480 Commitments and contingencies Stockholders' equity: Common stock 95 94 Additional paid-in capital 524,385 495,912 Accumulated other comprehensive loss (77 ) (116 ) Accumulated deficit   (236,837 )   (163,054 ) Total stockholders' equity   287,566     332,836   Total liabilities and stockholders' equity $ 662,899   $ 563,316      

LifeLock, Inc.Condensed Consolidated Statements of Cash Flows(in thousands)(Unaudited)

 

Nine Months EndedSeptember 30,

2015

 

2014

Operating activities Net loss $ (73,783 ) $ (343 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 13,292 12,259 Share-based compensation 20,287 13,229 Provision for doubtful accounts 150 333 Amortization of premiums on marketable securities 2,310 1,213 Deferred income tax benefit (27,784 ) (124 ) Other 250 39 Change in operating assets and liabilities: Trade and other receivables (3,469 ) 566 Prepaid expenses and other current assets (1,022 ) (701 ) Other non-current assets 357 716 Accounts payable 1,548 5,282 Accrued expenses and other liabilities 117,693 11,303 Deferred revenue 25,629 26,742 Other non-current liabilities   265     1,617   Net cash provided by operating activities 75,723 72,131 Investing activities Acquisition of businesses, net of cash acquired (12,797 ) — Acquisition of property and equipment (9,057 ) (11,127 ) Purchases of marketable securities (191,846 ) (95,686 ) Sale and maturities of marketable securities 122,936 34,418 Premiums paid for company-owned life insurance policies   (4,337 )   (4,337 ) Net cash used in investing activities (95,101 ) (76,732 ) Financing activities Proceeds from share-based compensation plans 10,144 9,704 Proceeds from warrant exercises — 375 Payments for employee tax withholdings related to restricted stock units and awards   (1,793 )   (760 ) Net cash provided by financing activities   8,351     9,319   Net increase (decrease) in cash and cash equivalents (11,027 ) 4,718 Cash and cash equivalents at beginning of period   146,569     123,911   Cash and cash equivalents at end of period $ 135,542   $ 128,629      

Share-Based Compensation(in thousands)(Unaudited)

   

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2015

 

2014

2015

 

2014

Costs of services $ 449 $ 334 $ 1,286 $ 910 Sales and marketing 1,238 761 3,385 2,235 Technology and development 2,514 867 6,226 3,766 General and administrative   3,662   2,340   9,390   6,318 Total share-based compensation expense $ 7,863 $ 4,302 $ 20,287 $ 13,229    

Key Financial and Operating Metrics(in thousands except percentages and per member data)(Unaudited)

   

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2015

 

2014

2015

 

2014

Revenue: Consumer revenue $ 144,648 $ 116,115 $ 411,178 $ 326,448 Enterprise revenue   7,304     6,916     20,139     19,882   Total revenue $ 151,952 $ 123,031 $ 431,317 $ 346,330 Adjusted net income $ 27,579 $ 15,909 $ 32,323 $ 19,455 Adjusted EBITDA $ 29,797 $ 17,929 $ 39,314 $ 25,255 Free cash flow $ 18,378 $ 22,653 $ 68,302 $ 61,004 Cumulative ending members 4,080 3,524 4,080 3,524 Gross new members 251 264 989 912 Member retention rate 86.6 % 87.5 % 86.6 % 87.5 % Average cost of acquisition per member $ 237 $ 184 $ 202 $ 173 Monthly average revenue per member $ 11.91 $ 11.22 $ 11.68 $ 11.02 Enterprise transactions 74,280 66,104 208,324 173,360    

Reconciliation of GAAP to Adjusted Results(in thousands, except per share amounts)(Unaudited)

   

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2015

 

2014

2015

 

2014

Reconciliation of Gross Profit to Adjusted Gross Profit Gross profit $ 117,964 $ 92,704 $ 327,847 $ 256,655 Share-based compensation   449     334     1,286     910   Adjusted gross profit $ 118,413   $ 93,038   $ 329,133   $ 257,565  

Reconciliation of Sales and Marketing Expenses toAdjusted Sales and Marketing Expenses

Sales and marketing expenses $ 62,850 $ 51,818 $ 209,470 $ 166,710 Share-based compensation   (1,238 )   (761 )   (3,385 )   (2,235 ) Adjusted sales and marketing expenses $ 61,612   $ 51,057   $ 206,085   $ 164,475  

Reconciliation of Technology and Development Expenses toAdjusted Technology and Development Expenses

Technology and development expenses $ 19,396 $ 12,341 $ 52,928 $ 37,996 Share-based compensation (2,514 ) (867 ) (6,226 ) (3,766 ) Acquisition related expenses   (2,970 )   —     (2,970 )   —   Adjusted technology and development expenses $ 13,912   $ 11,474   $ 43,732   $ 34,230  

Reconciliation of General and Administrative Expenses toAdjusted General and Administrative Expenses

General and administrative expenses $ 120,984 $ 16,781 $ 160,815 $ 45,489 Share-based compensation (3,662 ) (2,340 ) (9,390 ) (6,318 ) Legal reserves and settlements (96,000 ) — (98,500 ) — Expenses related to the FTC litigation (5,733 ) — (5,733 ) — Acquisition related expenses   (149 )   —       (149 )   —   Adjusted general and administrative expenses $ 15,440   $ 14,441   $ 47,043   $ 39,171  

Reconciliation of Income (Loss) from Operations toAdjusted Income from Operations

Income (loss) from operations $ (87,350 ) $ 9,533 $ (101,617 ) $ (233 ) Share-based compensation 7,863 4,302 20,287 13,229 Amortization of acquired intangible assets 2,084 2,231 6,251 6,693 Legal reserves and settlements 96,000 — 98,500 — Expenses related to the FTC litigation 5,733 — 5,733 — Acquisition related expenses   3,119     —     3,119     —   Adjusted income from operations $ 27,449   $ 16,066   $ 32,273   $ 19,689   Reconciliation of Net Income (Loss) to Adjusted Net Income Net income (loss) $ (65,145 ) $ 5,450 $ (73,783 ) $ (343 ) Amortization of acquired intangible assets 2,084 2,231 6,251 6,693 Share-based compensation 7,863 4,302 20,287 13,229 Deferred income tax (benefit) expense (22,075 ) 3,926 (27,784 ) (124 ) Legal reserves and settlements 96,000 — 98,500 — Expenses related to the FTC litigation 5,733 — 5,733 — Acquisition related expenses   3,119     —     3,119     —   Adjusted net income $ 27,579   $ 15,909   $ 32,323   $ 19,455    

Three Months EndedSeptember 30,

 

Nine Months EndedSeptember 30,

2015

 

2014

2015

 

2014

Reconciliation of Diluted Shares to Adjusted Diluted Shares Diluted shares 95,340 98,524 94,660 92,437 Dilutive securities excluded due to net loss   4,186     —     5,143     6,428   Adjusted diluted shares   99,526     98,524     99,803     98,865  

Reconciliation of Net Income (Loss) per Diluted Share toAdjusted Net Income per Diluted Share

Net income (loss) per diluted share $ (0.68 ) $ 0.06 $ (0.78 ) $ (0.00 ) Adjustments to net income (loss) 0.93 0.10 1.06 0.20 Adjustments to diluted shares   0.03     —     0.04     —   Adjusted net income per diluted share $ 0.28   $ 0.16   $ 0.32   $ 0.20   Reconciliation of Net Income (Loss) to Adjusted EBITDA Net income (loss) $ (65,145 ) $ 5,450 $ (73,783 ) $ (343 ) Depreciation and amortization 4,432 4,094 13,292 12,259 Share-based compensation 7,863 4,302 20,287 13,229 Interest expense 89 89 265 264 Interest income (219 ) (73 ) (498 ) (189 ) Other — 134 183 151 Income tax (benefit) expense (22,075 ) 3,933 (27,784 ) (116 ) Legal reserves and settlements 96,000 — 98,500 — Expenses related to the FTC litigation 5,733 — 5,733 — Acquisition related expenses   3,119     —     3,119     —   Adjusted EBITDA $ 29,797   $ 17,929   $ 39,314   $ 25,255  

Reconciliation of Net Cash Provided by Operating Activitiesto Free Cash Flow

Net cash provided by operating activities $ 20,826 $ 26,118 $ 75,723 $ 72,131 Acquisitions of property and equipment (4,084 ) (3,465 ) (9,057 ) (11,127 ) Expenses related to the FTC litigation   1,636     —     1,636     —   Free cash flow $ 18,378   $ 22,653   $ 68,302   $ 61,004  

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For LifeLockMedia Contact:Kelley Bonsall, 480-457-2170Media@lifelock.comorInvestor Relations Contact:Jamison Manwaring, 480-457-5000VP, Investor RelationsInvestor.relations@lifelock.com