LifeLock 2013 Annual Report Download - page 43

a sales and marketing expense. In general, increases in revenue and cumulative ending members occur during and after periods of significant and effective
direct retail marketing efforts.
Our revenue grew from $276.4 million in 2012 to $369.7 million in 2012, an increase of 34%, including year-over-year growth within our consumer
segment of 34%. We generated income from operations of $13.6 million and net income of $53.0 million in 2013. Our net income in 2013 includes an income
tax benefit of $39.7 million recognized as a result of the release of substantially all of the valuation allowance on our deferred tax assets.

Following our acquisition of ID Analytics in the first quarter of 2012, we began operating our business and reviewing and assessing our operating
performance using two reportable segments: our consumer segment and our enterprise segment. We review and assess our operating performance using segment
revenue, income (loss) from operations, and total assets. These performance measures include the allocation of operating expenses to our reportable segments
based on management’s specific identification of costs associated to those segments.

We evaluate the lifetime value of a member relationship over its anticipated lifecycle. While we generally incur member acquisition costs in advance of
or at the time of the acquisition of the member, we recognize revenue ratably over the subscription period. As a result, a member relationship is not profitable at
the beginning of the subscription period even though it is likely to have value to us over the lifetime of the member relationship.
When a member’s subscription automatically renews in each successive period, the relative value of that member increases because we do not incur
significant incremental acquisition costs. We also benefit from decreasing fulfillment and member support costs related to that member, as well as economies
of scale in our capital and operating and other support expenditures.

In our enterprise business, the majority of our costs relate to personnel primarily responsible for data analytics, data management, software
development, sales and operations, and various support functions. We incur minimal third-party data expenses, as our enterprise customers typically provide
us with their customer transaction data as part of our service. New customer acquisition is often a lengthy process requiring significant investment in the sales
team, including costs related to detailed retrospective data analysis to demonstrate the return on investment to prospective customers had our services been
deployed over a specific period of time. Since most of the expenses in our enterprise business are fixed in nature, as we add new enterprise customers, there are
typically modest incremental costs resulting in additional economies of scale.

We regularly review a number of operating and financial metrics to evaluate our business, determine the allocation of our resources, measure the
effectiveness of our sales and marketing efforts, make corporate strategy decisions, and assess operational efficiencies.

The following table summarizes our key operating metrics for the years ended December 31, 2013, 2012, and 2011:
    
      
  
  
           
Cumulative ending members 2,999 2,480 2,075 
Gross new members 944 762 704 
Member retention rate 87.8% 87.1% 82.7%
Average cost of acquisition per member $ 160 $ 150 $ 130 
Monthly average revenue per member $ 10.32 $ 9.28 $ 8.54 
Enterprise transactions 216,729 227,039 184,012 
40