LifeLock 2013 Annual Report Download - page 47


The following table summarizes our key financial metrics for the years ended December 31, 2013, 2012, and 2011:
 
     
 
          
Consumer revenue $ 340,121 $ 254,678 $ 193,949
Enterprise revenue 29,537 21,750 -
Total revenue 369,658 276,428 193,949
Adjusted net income 36,931 22,720 8,326
Adjusted EBITDA 42,156 30,996 12,508
Free cash flow 66,956 40,925 22,313
Adjusted net income, adjusted EBITDA, and free cash flow are non-GAAP financial measures that we believe provide useful information to investors
and others in understanding our operating results in the same manner as we do. For a full description of how these non-GAAP financial measures are
calculated and reconciliations to the most comparable GAAP measure, refer to Item 6 – Selected Financial Data of this Annual Report on Form 10-K.

We expect to continue to make significant expenditures to grow our member and enterprise customer bases. Our average
cost of acquisition per member and the number of new members we generate depends on a number of factors, including the effectiveness of our marketing
campaigns, changes in cost of media, the competitive environment in our markets, the prevalence of identity theft issues in the media, publicity about our
company, and the level of differentiation of our services. Shifts in the mix of our media spend also influence our member acquisition costs. For example, when
we engage in marketing efforts to build our brand, our member acquisition costs increase in the short term with the expectation that they will decrease over the
long term. We also continually test new media outlets, marketing campaigns, and call center scripting, each of which impacts our average cost of acquisition
per member. In addition, given the success of our LifeLock Ultimate service since its launch in the fourth quarter of 2011, we expect to be able to absorb a
higher average cost of acquisition per member and still recognize value over the lifetime of our member relationships.
 Our performance is affected by the mix of members subscribing to our
various consumer services, by billing cycle (annual versus monthly), and by the distribution channel through which we acquire the member. Our adjusted
EBITDA, adjusted net income (loss), free cash flow, and average cost of acquisition per member are all affected by this mix. We have seen a recent shift to
more monthly members, in large part due to the increase in the number of members enrolling through our embedded product channel in which our members
enroll on a monthly basis. We also have seen an increase in the number of LifeLock Ultimate members as a percentage of our gross new members.
We have continued to improve the retention of our members and, as a result, the anticipated lifetime value of our members. Our
member retention rate improved to 87.8% in 2013 from 87.1% in 2012. Our ability to continue to improve our member retention rate may be affected by a
number of factors, including the effectiveness of our services, the performance of our member services organization, external media coverage of identity theft,
the continued evolution of our service offerings, the competitive environment, the effectiveness of our media spend, and other developments.
Our enterprise business relies on the retention of enterprise customers to maintain the effectiveness of our services because our enterprise customers
typically provide us with their customer transaction data as part of our service. Losing a significant number of these customers would reduce the breadth and
effectiveness of our services. In addition, we believe approximately 15% of the 2013 revenue of ID Analytics, or approximately 1% of our overall 2013 revenue,
was derived from direct competitors to our consumer business. As we have given notice of non-renewal to competitors in our consumer segment, we have
allowed such contracts to lapse, and accordingly, this percentage may decline over time.
We will continue to invest to grow our business. Investments in the development and marketing of new services
and the continued enhancement of our existing services will increase our operating expenses in the near term and thus may negatively impact our operating
results in the short term, although we anticipate that these investments will grow and improve our business over the long term.
Our business is subject to regulation by federal, state, local, and foreign authorities. Any changes to the existing applicable
laws, regulations, or rules; any determination that other laws, regulations, or rules are applicable to us; or any determination that we have violated any of these
laws, regulations, or rules could adversely impact our operating results. We recently began collecting and remitting sales tax in several states related to the sale
of our consumer services. Additional states or one or more countries or other jurisdictions may seek to impose sales or other tax collection obligations on us in
the future. A successful assertion by any state, country, or other jurisdiction that we should be collecting sales or other taxes on the sale of our services could,
among
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