LifeLock 2013 Annual Report Download - page 40

Because of these limitations, you should consider adjusted net income (loss) alongside other financial performance measures, including various cash
flow metrics, net income (loss), and our other GAAP results. The following table presents a reconciliation of adjusted net income (loss) to net income (loss) for
each of the periods indicated:
 
         
  
Net income (loss) $52,451 $ 23,503 $ (4,257) $ (15,376) $ (58,663)
Amortization of acquired intangible assets 7,909 6,258 - - -
Share-based compensation 14,700 6,758 3,285 3,251 2,141
Change in fair value of warrant liabilities - (3,117) 8,658 1,333 1,919
Change in fair value of embedded derivative - 2,785 - - -
Acquisition expenses 1,068 718 640 - -
Deferred income tax benefit (39,197) (14,185) - - -
Adjusted net income (loss) $36,931 $ 22,720 $ 8,326 $ (10,792) $ (54,603)
In the fourth quarter of 2013, we modified our calculation of adjusted net income to also exclude acquisition related expense. For comparative
purposes, we also modified our calculation of adjusted net income for 2012 and 2011 to exclude the acquisition related expenses incurred during our
acquisition of ID Analytics.
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Adjusted EBITDA is a non-GAAP financial measure that we calculate as net income (loss) excluding depreciation and amortization, interest expense,
interest income, change in fair value of warrant liabilities, change in fair value of embed ded derivatives, other income (expense) (which consists primarily of
gains and losses on disposal of fixed assets), income tax (benefit) expense, acquisition related expenses, and share-based compensation. We have included
adjusted EBITDA in this Annual Report on Form 10-K because it is a key measure 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 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.
Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating
results in the same manner as we do. We believe that it is useful to exclude charges for depreciation and amortization, change in fair value of warrant liabilities,
change in fair value of embedded derivatives, acquisition related expenses, income taxes, and share-based compensation from net income (loss) because (i) the
amount of such non-cash expenses in any specific period may not directly correlate to the underlying operational performance of our business, and/or (ii) such
expenses can vary significantly between periods as a result of new acquisitions and full amortization of previously acquired intangible assets.
Our use of adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our
operating results as reported under GAAP. Some of these limitations include the following:
·although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the
future, and adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure
requirements;
·adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs ;
·adjusted EBITDA does not consider the potentially dilutive impact of share-based compensation;
·adjusted EBITDA does not reflect cash interest income or expense;
·adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to us;
·adjusted EBITDA does not reflect the expenses incurred for new acquisitions; and
·other companies, including companies in our industry, may calculate adjusted EBITDA or similarly titled measures differently, limiting their
usefulness as a comparative measure.
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