LifeLock 2013 Annual Report Download - page 41

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Because of these limitations, you should consider adjusted EBITDA 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 EBITDA to net income (loss) for each of the
periods indicated:

    
 
Net income (loss) $52,451 $ 23,503 $ (4,257) $ (15,376) $ (58,663)
Depreciation and amortization 12,796 10,427 3,740 4,214 3,838
Share-based compensation 14,700 6,758 3,285 3,251 2,141
Interest expense 353 3,677 231 1,368 1,385
Interest income (124) (30) (8) (28) (110)
Change in fair value of warrant liabilities - (3,117) 8,658 1,333 1,919
Change in fair value of embedded derivatives - 2,785 - - -
Other expense 21 5 5 41 49
Acquisition expenses 1,068 718 640 - -
Income tax (benefit) expense (39,109) (13,730) 214 8 39
Adjusted EBITDA $42,156 $ 30,996 $ 12,508 $ (5,189) $ (49,402)
In the fourth quarter of 2013, we modified our calculation of adjusted EBITDA to also exclude acquisition related expense. For comparative
purposes, we also modified our calculation of adjusted EBITDA for 2012 and 2011 to exclude the acquisition related expenses incurred during our acquisition
of ID Analytics.

We use free cash flow as a measure of our operating performance; for planning purposes, including the preparation of our annual operating budget; to
allocate resources to enhance the financial performance of our business; to evaluate the effectiveness of our business strategies; to provide consistency and
comparability with past financial performance; to determine capital requirements; to facilitate a comparison of our results with those of other companies; and
in communications with our board of directors concerning our financial performance.
We use free cash flow to evaluate our business because, although it is similar to net cash provided by (used in) operating activities, 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.
Although free cash flow is frequently used by investors in their evaluations of companies, free cash flow 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:
·free cash flow does not reflect our future requirements for contractual commitments to third- party providers;
·free cash flow does not reflect the non-cash component of employee compensation or depreciation and amortization of property and
equipment; and
·other companies, including companies in our industry, may calculate free cash flow or similarly titled measures differently, limiting their
usefulness as comparative measures.
Because of these limitations, you should consider free cash flow alongside other financial performance measures, including net cash provided by (used
in) operating activities, net income (loss), and our other GAAP results. The following table presents a reconciliation of free cash flow to net cash provided by
(used in) operating activities for each of the periods indicated:

    

 
Net cash provided by (used in) operating activities $77,373 $ 48,423 $ 24,344 $ (14,510) $ (23,396)
Acquisitions of property and equipment (10,417) (7,498) (2,031) (1,485) (5,092)
Free cash flow $66,956 $ 40,925 $ 22,313 $ (15,995) $ (28,488)
38