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LifeLock, Inc. (NYSE:LOCK)

Q1 2014 Conference Call

April 30, 2014 5:00 PM ET

Executives

Greg Kleiner – Investor Relations

Todd Davis – Chairman and Chief Executive Officer

Hilary Schneider – President

Chris Power – Chief Financial Officer

Clarissa Cerda – Executive Vice President, Chief Legal Officer and Secretary

Analysts

Gregory Dunham – Goldman Sachs Group, Inc.

Kash Rangan – Bank of America Merrill Lynch

Nandan Amladi – Deutsche Bank

Dan Bergstrom – RBC Capital Markets LLC

David E. Hynes – Canaccord Genuity, Inc.

Scott Zeller – Needham & Co. LLC

Robert Paul Breza – Sterne Agee & Leach Inc.

Josh Beck – Pacific Crest Securities, Inc.

Operator

Greetings and welcome to LifeLock’s First Quarter 2014 Earnings. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Mr. Greg Kleiner, Investor Relations for LifeLock. Thank you, you may begin.

Greg Kleiner

Thank you. Good afternoon and welcome to LifeLock’s 2014 first quarter earnings conference call. Joining me today to discuss our 2014 first quarter results are Todd Davis, LifeLock’s Chairman and CEO; Hilary Schneider, LifeLock’s President; and Chris Power, LifeLock’s Chief Financial Officer. Our commentary today will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our earnings press release, which we have posted to our website at lifelock.com.

At times, in our responses to your questions, we may offer incremental metrics to provide greater insight into the dynamics of our business or quarterly results. Please be advised that this additional detail may be one-time in nature and we may or may not provide an update in the future on these metrics. The primary purpose of today’s call is to provide you with information regarding our 2014 first quarter performance, in addition to our financial outlook for our second quarter and full year 2014. Some of our discussion and responses to your questions may contain forward-looking statements. These statements are subject to risks, uncertainties and assumptions.

A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission from time-to-time, including our Form 10-K for the year ended December 31, 2013. Should any of these risks or uncertainties materialize, or should our assumptions, as outlined in our earnings release and the documents referred to in that release, prove to be incorrect, actual company results could differ materially from these forward-looking statements. I encourage you to visit our Investor Relations website at investor.lifelock.com to access our first quarter 2014 earnings press release, periodic SEC reports, a webcast replay of today’s call, or to learn more about LifeLock.

With that, let me turn the call over to Todd.

Todd Davis

Thanks and good afternoon everyone and I thank you for joining us today. I’m pleased to report another strong quarter for our business. Our targeted marketing investments continue to pay dividends and are driving our growth. While the press coverage around the data breaches from Q4 have died down. The recent discussion around the heartbleed SSL flaw has brought securities back into the national discussion.

As we have discussed in the past, as consumers expose more and more of their data in the digital world, their risk profile rises as well. It is our continuing mission to help protect consumers from the ever-changing world of identity theft by relentlessly protecting them in the background.

Overall in the quarter, our total revenue grew by 31% year-over-year, driven once again, by the strength of our consumer business, which grew 34% year-over-year. both of these growth rates showed improvement, compared to our most recent Q4 results.

We had our second best level of gross new members added in our company’s history, bringing 344,000 gross new members on-board in the period and ending the quarter with 3.22 million members. LifeLock Ultimate, our premium offering accounted for more than 40% of our new members added in the quarter, demonstrating the continued success of our efforts to acquire high-quality members. This contributed to the 10% increase in our monthly average revenue per member metric during the quarter. these results were driven by a broad contribution across our direct response efforts, as well as our partner channel.

Our expanded marketing message is resonating with consumers, and we will continue to refine it going that forward in an effort to capture a larger portion of the addressable market. on the partner side of our consumer business, we saw a particular strength across our co-marketing, employee benefit and breach channels.

we launched our partnership with Vivint, a leading home security and automation vendor earlier this month, and we added a number of new co-marketing partners as well, including a credit union and insurance company and risk management firm. In the employee benefit channel, we had a couple of nice wins.

Most notably, we’ve entered into a relationship with a large oil and gas company with approximately 10,000 employees that has consistently been recognized as a top company to work for. In Q1, this company signed a contract, in which they will purchase a LifeLock membership for every one of their employees. This benefit was rolled out earlier this month and will begin to impact our member count and revenue in Q2.

In the breach channel, we saw an up tick as corporations are increasingly realizing that our superior solutions available in the market beyond just the low value legacy credit monitoring products. On the mobile front, we continue to move forward with our plans on both the product and marketing front.

Product-wise, we launched version two of the product yesterday with some significant functionality improvements. A number of which were demoed at our Analyst Briefing in mid-March. In particular, the Apple had a new look-and-feel with better integration between the LifeLock member compartment and the overall wallet experience. In addition, we will be offering the ability to purchase a one-time credit score for a low fee through our app.

Marketing-wise, we remain pleased with the velocity of both downloads and conversion rates. We will continue to enhance both the product and the messaging throughout the year. Our retention rate was about 87% for the six straight quarter, while up on a year-over-year basis. We did see a decline in retention on a sequential basis. We are quite proud of our retention levels, which remain at very high levels for a consumer base company.

Chris will provide some more color on this metric in a moment. The enterprise portion of our business had a mix performance in the quarter. While we continue to make progress expanding our data footprint with new wins, and the auto, and retail vertical, a couple of items cause our revenue to decline on a year-over-year basis in Q1. We have been dealing with the wind down of some legacy business from a few of our consumer competitors for sometime now.

This wind down is happening faster than we had originally anticipated, which is putting pressure on a revenue on this segment. In addition, a few of our end customers had specific items, slowdown and their business in the quarter, which has a flow through impact on ours. The combination of these two items was too much to overcome in the quarter.

Going forward, we believe our pipeline of new business remains strong and while the timing and ramp of new business can be lumpy. We believe that this segment will return to growth in the second half of the year as the impact from these items of abates. We completed another series of training sessions through our relationship with the FBI leader program during the quarter, this time, in the State of Florida, in conjunction with the Attorney General’s office.

We have now trained nearly 10,000 law enforcement officials throughout our history, as we work to continue the educational process, not just on the consumer side of the market, but also with the government official tasked with stopping the crime of identity theft itself.

On a final note, before I turn the call over to Chris, I wanted to provide a brief update on our ongoing discussions with the FTC. As we anticipated earlier this year, we received a letter in mid-March from the FTC. While we are in the process of responding to the FTC’s request, we cannot predict when the FTC’s inquiry will be completed.

So to wrap up, the growing power of our brand, unique data assets, and comprehensive service offering is driving our growth and differentiating us from our legacy competitors in the credit monitoring field. We will continue to push this advantage, as we further expand our efforts in the mobile arena and bring our message to new demographics in an effort to penetrate what we believe as a very large and untapped market.

Now, let me turn the call over to Chris, who will walk you through the financials.

Chris Power

Thanks, Todd. We posted strong growth in the quarter once again with reported revenue coming in at $107.6 million, up 31% year-over-year, and above our guidance of $105 million to $106 million. The consumer portion of our business was the driver, as it increased 34% versus Q1 2013 to $101 million. We added 344,000 gross new members in the quarter, a 38% increase year-over-year, and ended the period with 3.22 million members, up 22% from the prior year’s period.

LifeLock Ultimate contributed more than 40% of our gross new members once again and helped drive our monthly average revenue per member up 10% to $10.81 in the quarter. Our retention rate came in at 87.5%, up from 87.2% in the prior period, but down from 87.8% in Q4 of 2013. We saw an impact in Q1 from members enrolled to our breached channel in prior periods whose coverage had expired, as well as an impact from the credit cards replaced as a result of the large data breaches that occurred during the holiday season.

As we’ve discussed in the past, changing credit card numbers are one of the major sources of churn in our business. Since a large number of our customers were issued new replacement credit cards during this period, when our billing cycles engaged during the quarter, our systems hit a number of invalid credit card numbers. This is something we will work with our members to rectify, but for the time being, this activity shows up as a lost member in our metrics.

As Todd alluded to earlier, breach had a notable contribution in this quarter, accounting for approximately 26,000 new members were almost 8% of the gross new member count in the period. To put that in perspective, the breach channel accounted for roughly 1% of gross new members added in 2013 as a whole.

I mentioned this because of the likely impact this will have in our retention rates starting in Q1 of next year. The breach business has a positive LTB impact for us, due to the low COA, but the retention rate when these contracts lapse is significantly below the overall trend line of the business.

Just as we felt the impact this quarter from breach business signed in the prior year, we will likely see a similar pattern emerge in the first half of 2015. Revenue from our Enterprise segment came in at $6.6 million, down modestly from Q1 of 2013. Todd mentioned the faster than expected roll-off of some of the revenue coming from our consumer competitors.

In addition, one of our credit card customers sold the large portfolio to another issuer during the quarter. While we did lose this business as a result, we are currently in testing with the acquire of this portfolio, and we hope to win this contract back.

The alternative lending industry was also weak in the quarter, due to increased regulatory pressure. The transaction count from the Enterprise segment was $52.7 million in the quarter, down from the prior year’s period and on a sequential basis. The impact from the items I just reviewed and the seasonal drop off that we typically see in the first quarter was matched somewhat by the return of the data stream from a large telco customer. If you recall from Q2 of last year, we had a large telco customer whose top scoring their wireline customers, due to the low levels of fraud they were encountering in this business line. We were able to re-engage with them during this quarter, but the revenue impact on this contract is (indiscernible).

Before, I move further down the (indiscernible) I wanted to preface my comments by stating that my commentary will be focused on adjusted results, which for the quarter excluded a total of $5.5 million of share-based compensation expense and $2.2 million of amortization of acquired and tangible assets. Adjusted gross margin was 72% in the quarter, up from 71% in the first quarter of last year, but down from 75% in Q4 of 2013.

On a year-over-year basis, we saw continued scale benefit to our gross margin line. However, on a sequential basis, we typically see a decline in our gross margin in the first quarter of the year driven by the seasonality of both our enterprise business and the credit card processing fees associated with the pattern of annual renewals of our consumer business.

Adjusted sales and marketing expenses were $56 million in the period, up from $41.5 million in Q1 of 2013. This was driven by our continued investment in the customer acquisition across several fronts, with particular emphasis in the period focused on taking advantage of the press coverage and national discussion spurred by the major breaches that occurred in Q4.

We were quite pleased with the results, as we drove our large and high quality increase in our membership. COA in the quarter was flat year-over-year at $156, though this metrics was constrained somewhat by the increase in our breach business previously discussed. As we’ve mentioned in the past, this metric will vary from quarter-to-quarter, based on the timing of particular marketing programs we have in place and the channel mix of new customers.

The current rate of spending continues to produce attractive lifetime value results, as our monthly average revenue per member and retention rates remain strong. Adjusted technology and development expenses were $11.2 million in the quarter, up from $8.5 million in the year-ago period. This growth was driven by our continued product development investments and the impact from our increased investments in the mobile area. Adjusted G&A expenses were $11.7 million in the quarter, compared to $7.8 million in the year-ago period. The increase largely reflects additional cost associated with Sarbanes-Oxley compliance, legal costs, acquisition-related items and personnel expenses.

Adjusted net loss was $1 million in the quarter, compared to adjusted net income of $600,000 in the first quarter of 2013. Adjusted loss per share in the first quarter was $0.01 based on 91.9 million shares, compared to adjusted earnings per share of $0.01 based on 94.6 million in the year-ago period. This was above our guidance at a loss of $0.02 to $0.03. Adjusted EBITDA was $0.7 million in Q1, compared to $1.9 million in the first quarter of 2013. This compares to our guidance of negative $1 million to $2 million. Cash flow from operations for the quarter was $18.3 million, compared to $12.8 million in the year-ago period. After taking into consideration $3.9 million of capital expenditures, this drove free cash flow of $14.4 million. These results compared to $1.3 million of capital expenditures and free cash flow of $11.5 million in the first quarter of 2013. We generated almost $70 million of free cash flow in the trailing 12 months, resulting in a free cash flow margin of 18%. We ended the quarter with $191.2 million in cash and marketable securities, compared to $172.6 million at the end of Q4.

Now moving on to guidance. For the June quarter, we are initiating guidance as follows. Total revenue is expected to be in the range of $113 million to $114 million. Adjusted net income per share is expected to be in the range of $0.03 to $0.04 based on approximately $100 million fully diluted weighted average shares outstanding. Adjusted EBITDA is expected to be in the range of $5 million to $6 million.

For the full-year 2014, we are increasing our guidance as follows. Total revenue is expected to be in the range of $460 million to $468 million. Adjusted net income per share is expected to be in the range of $0.44 to $0.48 based on approximately $101 million fully diluted weighted average shares outstanding. Please recall that this guidance assumes a 5% cash tax rate.

Adjusted EBITDA is expected to be in the range of $52 million to $56 million. Free cash flow is expected to be in the range of the $77 million to $82 million. As in prior years, our sales and marketing expenditures will remain weighted towards the front half of the year.

In summary, we were pleased with our results in the quarter. As we extended our streak to 36 consecutive quarters of sequential growth in both revenue and cumulative members. Our marketing investments continue to bear fruit and we will continue to expand our efforts.

And with that, we would like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Greg Dunham with Goldman Sachs. Please state your question.

Gregory Dunham – Goldman Sachs Group, Inc.

Hi, guys. Thanks for taking my question. I was muted. It’s been about four months or so since the target breach and we’ve seen a nice uptick in gross ads. Can you talk about how the signings have progressed over the course of the quarter, have you seen a big fade off and drop off in terms of the conversions and the inbound activity on the business?

Todd Davis

Sure. Thanks, Greg, this is Todd. So we certainly saw some benefit in Q1, but again, it’s really hard to quantify what’s directly related to the target. But knowing that that heightened consumer awareness consciousness was there, we did put some extra marketing plans in a motion to capitalize on that, while the press coverage was there. And so, we’re certainly very pleased with those results.

So keep in mind, we believe there are subscriber additions in any given period are influenced by actually the years of brand advertising and this growing acknowledgment of our superior offer. So these types of events do tend to give us some member acquisition kind of boost in the short-term, but that factor may not last for an extended period. But what does last a longer-term is that positive impact on our business in terms of raising that awareness broadly and keeping the identity – the issue of identity theft kind of top of mind for consumers.

Gregory Dunham – Goldman Sachs Group, Inc.

Okay, great. And one follow-up, you highlighted the oil and gas company and the employee benefit side. It’s a big win, I guess, was that an anomaly or is this something that we should see more off going forward?

Todd Davis

Well, it’s early, we’re certainly pleased that there are companies that are recognizes as great places to work to see this superior product offering of a LifeLock realize that it’s both beneficial for their employees and beneficial for their businesses, because when their employees get impacted by identity theft, they have to go deal with the problem if they don’t have a service like LifeLock in place. So it certainly we’re pleased with that sector. This is a nice win. I can’t say it’s the new trend or one-time anomaly, but we’re focused on the employee benefit channel going forward.

Gregory Dunham – Goldman Sachs Group, Inc.

Okay. And one more if you look permit, you mentioned that the enterprise business that you would expect that return to growth in the second half. So should I think of that as September down spec to growth?

Chris Power

Yes. I think in the second half of the year in that sense we just need to for all intensive purposes flush out the consumer competitors to LifeLock. And so that’s going to be happening, the bulk of that’s going to be happening in the first half of this year, and we’ll be through that once we get to the third quarter presumably.

Gregory Dunham – Goldman Sachs Group, Inc.

Okay. Thanks, guys.

Chris Power

Thanks, Greg.

Operator

Thank you. Your next question comes from Kash Rangan with Merrill Lynch. Please state your question.

Kash Rangan – Bank of America Merrill Lynch

Hi, guys. Thank you for taking my question. First, I just wanted to get a quick update on how your tweaks or changes to your advertising strategy or bearing fruit, or is it too early to talk about that.

And also secondly, wanted to just ask you more about the LifeLock Wallet product, which is now available on multiple platforms. What are the things you folks doing from a development side to enhance the functionality to continue to improve the frequency of the updates and the connectedness of the experience, so that in the future you attrition can come down even more. I’m sure even that’s got some positive economic value, I’m wonder if you could comment on that? Thank you.

Hilary Schneider

Sure ,this is Hilary. First of all on the marketing side, I’m sure you’ve seen in the market that new branding campaign we launched, which is around live freely in an always connected world, as well as some new PR TV spots that are now in the marketplace, really taking advantage of a branding that we know resonates with our core market, but importantly also resonates very strongly with the female protector, which is one of the ways in which we’re broadening, our ability to actually penetrate the addressable market.

And we continue to see the kinds of trends we would like to see in terms of the shift members who we start to see more females becoming part of that mix. And we like what we're seeing from a cost acquisition and lifetime value perspective. In terms of mix of advertising, we continue to shift quarter-over-quarter towards a larger percentage of that, that is digital. We love digital, because it gives us the ability to target the message at a very specific level, which results in an attractive cost for acquisition and lifetime value relative to LifeLock Wallet, we continue to invest geographically around the functionality of the wallet. Yesterday, we pushed a new release to both Android and iOS of the wallet. It really focused on the conversion functionality, so that if you start as a user, really taking friction out of the process to mitigate the number of steps and the time it takes to move from a user to a number.

In addition, we continue to test new approaches to understand how to educate and upsell within the production functionality, so each compartment of the wallet has an upsell feature that allows you to understand what the benefit would be of upselling – becoming a member. And lastly we’re testing a feature, which is the idea of a one-time $0.99 credit report. With the idea that there are consumers out there that want a credit report with no strings attached in terms of being subjected to third-party marketing. And once they have that credit report to help them with once again this ability of an up sell into a LifeLock membership where they can get credit, but also protect their identity.

Kash Rangan – Bank of America Merrill Lynch

Got it, to keep that advertisement campaign going because I think I said on the previous calls that my wife’s identity got hacked some six months back and the thief stole $90,000 worth [of stuff] (ph) three cars in total. And our neighbor down the block also got $270,000 of cars procured and stolen in the remains. So keep going stop the bad guys.

Unidentified Company Representative

Thank you, thank you.

Todd Davis

Yes, but it could be an example from cash.

Unidentified Company Representative

I know them Todd come on.

Operator

Thank you. Our next question comes from Nandan Amladi with Deutsche Bank. Please state your question.

Nandan Amladi – Deutsche Bank

Yes hi, thanks for taking the question. So a little bit building on cash question, in the gross ads that you had in the quarter. How many came from the targeted segments versus your core segment and you sort of qualitative commentary on that?

Unidentified Company Representative

What I would just say is that we continue to see progress on the general front in Q1. And we’ve been reporting and also moving the mix younger. What I would say is that in Q1, what we did see was that that there was a move towards older, which was, we think correlated with the target population. So, there was some subset of folks you came in the quarter. And so we didn’t see the same process in this quarter on a moving towards younger demo. But we believe that that is, that in general that the plans we have in place are keeping us on that trajectory.

Nandan Amladi – Deutsche Bank

And quick follow-up if I might. On the breach channel that Chris described the retention rates, how much marketing pushed to, to put behind that? is that one of your bigger channels, one of your stronger channels?

Unidentified Company Representative

Yes, we don’t actually put a lot of marketing push behind that, it tends to be more opportunistic, which is why the cost of acquisition is so incredibly low in that channel. I think it’s more a function of the continued LifeLock branding. And what’s interesting to see is the breach customers that we win the deals that we win are the type of companies, or enterprises, or institutions that want the best for their members not just the cheapest option out there. So, as I mentioned in the prepared remarks, historically, last year that was roughly 1% of our gross new ads for the year. So it was a couple of very significant wins in the first quarter to push the – push it to the levels that we did talk to.

Nandan Amladi – Deutsche Bank

Thank you.

Todd Davis

Thanks, Nandan.

Operator

Our next question comes from Dan Bergstrom with RBC Capital Markets. Please state your question.

Dan Bergstrom – RBC Capital Markets LLC

Yes. Thanks for taking my question. Maybe, another question for Hilary here, it looks like the look-and-feel the website has changed recently and it looks like it’s improved dramatically and maybe, you could talk about some of the changes you made here, particularly, as it ties into branding?

Hilary Schneider

Sure. Thanks for noticing it. We appreciate that. We did redesign the web experience to make sure it matched from a branding perspective this idea of living freely and an always connected world, we actually pulled in some of the creative from the brand campaign. More importantly, you will continue to see us tweet that experience. So we are at any point doing A/B testing to understand, by making small changes within that experience. How we can refine that experience and forward to drive conversion.

We have another test in the market now. But at any point of time, we will have that test going. So that we will continue to see things changed maybe, it won’t be as broad as usual change, but once again, always driving toward increased conversion.

Dan Bergstrom – RBC Capital Markets LLC

Thanks.

Todd Davis

Thanks, Dan.

Operator

Thank you. Your next question comes from Richard Davis with Canaccord. Please state your question.

David E. Hynes Canaccord Genuity, Inc.

Hey guys, it’s DJ in the call for Richard. So Chris maybe, first for you, on the employee benefit channel, we really thought that that’s a really big opportunity. How do those customers compare form a ARPU perspective to kind of the average we saw in the quarter? I assume there a bit lower, but can you help us kind of think of that from a magnitude perspective.

Chris Power

Yes. So one of the things we really, really like about members are coming through that channel is, there is no billing challenges right.

David E. Hynes Canaccord Genuity, Inc.

Right.

Chris Power

So we were – we’re in essence deducting our fees off of folks’ paychecks before they receive them. So there is less of an impact, trying to get those folks and when they do have a cancellation of a credit card, we don’t have to go, chasing them down. so the retention rates are pretty nice in that channel from the billing perspective.

From an ARPU perspective, there is a slightly lower ARPU rate in that channel. but certainly from a lifetime value perspective, in terms of the cost of acquisition and the retention rates, it is still a very attractive channel for us and it has similar lifetime values as the rest of our channels.

David E. Hynes Canaccord Genuity, Inc.

Yes, got it. And then, Todd, there competitors who are making noise about coming with this market with a premium solution, offering a lower dollar value of identity theft insurance for free. Could you talk about maybe how there your solution, Todd differentiates and how you think about kind of implications on pricing longer-term?

Todd Davis

Sure, DJ. So first of all, let me say that I’m an advocate of identity theft protection, right. So even with other folks coming down and talking about it, that gets consumers to take the first steps and talking about how they might protect themselves, I’m all for it, because over time what we have seen historically what we believe here is that as you look at the offerings what’s out there and what makes them look different.

We’ll prevail, given we have the most comprehensive protection. But specifically, for some of those that are out there at this free level. They’re talking about things that are really including like a monthly credit score it’s from only one credit bureau right? So we’ve talked that lean to times although I’m glad to do it again any time you want, but about the limitations of what credit monitoring really provides. Right? The limited visibility, only of ground credit related, reactionary in nature, not as proactive, not as comprehensive.

So, in addition not have they given you some limited visibility, but if you breach there services we’re offering you like $50,000 guarantees, compared to our $1 million total service guarantee and they give you the chance to talk to a specialist who will roll off for you what you need to go do to fix the problem yourself. Right? Versus us that actually have a resolution specialist that we make dedicated. So they have been paid services like $10 a month, that look more similar to the other credit monitoring offerings that are out there in the marketplace, but still don’t compete, don’t compare to our more comprehensive entry level product at a similar price point.

So we’ve really seen this as a way for the market, the conversation to kick up, we’ve had credit monitoring offerings out there at all different price ranges from before LifeLock ever even existed, through now. So nothing that we see is a dynamic change, but I hope it gets people sparked to have the conversation, what do we have and what should we do.

David E. Hynes Canaccord Genuity, Inc.

That makes perfect sense $50,000 shouldn’t have done a whole lot for Kash or his neighbors. Thanks guys.

Todd Davis

Thanks, DJ.

Chris Power

Thanks, DJ.

Operator

Our next question comes from Scott Zeller with Needham and Company. Please state your question.

Scott Zeller – Needham & Co. LLC

Hi, good afternoon. I want to ask about the ultimate tax rate you mentioned that it was I believe over 40%, again inconsistent that way. Could you give us an update on the percentage of the overall base of membership that is on ultimate?

Unidentified Company Representative

Yes. So we won’t give a specific number there, but as you mentioned we just continue to see excellent penetration with that product in terms of our overall base. We’re continuing to see that grow each quarter. What was interesting this quarter is even with the significant percentage of breach business that we drove in the overall mix, we were still able to deliver that ultimate percent above 40% of the quarter. So we’re pretty pleased with the results.

Scott Zeller – Needham & Co. LLC

Okay. And could you give us an update, Todd, on your thoughts around pricing and, Chris, pricing power and your thoughts about maybe rising prices perhaps?

Todd Davis

Well as you know historically we have not really done any pricing changes we typically have entered in the market with new higher price products with more functionality, more capabilities. But we’re continuously kind of testing the market out there to see what the opportunities may look like and we’re taking that be back given to us directly by consumers and evaluating that about things that we could know in the future. So we don’t certainly don’t rule out that there could be changes going forward, but we’ll base that decision on the test when we do in the results presented by the market.

Scott Zeller – Needham & Co. LLC

And that the last question I have is on the ID Analytics enterprise business. We talked about how target and our breaches have impacted the consumer side, but can give me some color on how perhaps the customers for enterprise might change their behavior because of new breach for instance with the way a cell phone provider treats its customers and screens them change in all because of the breach, with that impact the way they use ID Analytics?

Unidentified Company Representative

Yes I would tell you I don’t think in the long term it’s necessarily changes how they use ID Analytics. I would tell you there can be though different forces that come into play. So there are not one, they still want to mitigate the risk of freight for the enterprise. And from an ID score perspective, ID Analytics has certainly an industry leader with our over 250 enterprises that we serve.

A part of what we see though is as they’re looking at in the regulatory scrutiny that comes with the enterprises as they aggregate data or look at data, or work with third-parties we certainly see that heightened. So it takes and makes it what is already long sales cycle and complex sales cycle. And it certainly adds a little bit to that process.

But the good news is we’ve had high scrutiny before we’re integrated with all these operations and within the infrastructure today. So I think it makes some more aware I think there’s heightened kind of cognizance to regulatory and scrutiny that they may be under, but at the end of the day, they want to mitigate the risk for themselves as an enterprise and for their consumers. And that will probably serve ID Analytics well.

Scott Zeller – Needham & Co. LLC

Thank you.

Unidentified Company Representative

Sure.

Operator

Our next question comes from Robert Breza with Sterne Agee. Please state your question.

Robert Paul Breza – Sterne Agee & Leach Inc.

Hi may be for Todd or Hilary you talked about the partnerships in Europe. I was wondering if you could talk more in depth about where you think you see additional partnerships going forward, may be what avenues, whether it’s financial service companies, Internet companies, et cetera? Thanks.

Unidentified Company Representative

Sure, thanks Rob. So we certainly see from financial institutions, those are great opportunities. Now we still see from the big large banks, that used to be the resellers of credit mark, we haven’t seen any material activity some settlements with Bank of America and others that just get some of their previous activities further behind them, but I can’t say that’s an indicator of what’s going to come in the future in that space, but we have dedicated resources. They call those areas, because that would be so relevant.

The other places that we do see the strength are in verticals like we’ve mentioned of employee benefit, like with other insurance providers, like these affinity type groups where they can go market or with the announcement that we just made with folks like Vivant where it’s a very relevant customer base, they over index to want something like customers that have identity protection typically are similar customers who will want home protection and the most advanced and some of the best services.

So those are the type of verticals where it that credible, trusted source making the recommendation of the premium offer for identity theft protection. Those are really the verticals that we’ve seen both great success and it will continue to focus on going forward.

Unidentified Company Representative

Thanks.

Robert Paul Breza – Sterne Agee & Leach Inc.

Sure thanks.

Operator

Our next question comes from Josh Beck with Pacific Crest. Please state your question.

Josh Beck – Pacific Crest Securities, Inc.

Hi there thanks. I just wanted to dig into retention a little bit more. I know versus last year, it’s certainly up and there’s a couple of dynamics whether it’s price share elasticity of Ultimate or the cohort number of different post dynamics inflict this quarter. There was another dynamic with credit card cancellations, I think Andrew’s list that was very similar for I’m their call. So could you just help us understand how you see these dynamic playing out over time and if relevant a normalized retention rate for the quarter?

Todd Davis

Sure so at a high-level we are not going to guide or forecast this specific metrics but certainly something we are look into continued improve time but and definitely we are going to look to track down those customer we lost on the transition of those credit cards this we definitely going to seek out those folks but remember our retention rates are already best in class for consumer based product and that something we are really proud of.

So having said that I won’t expect a dramatic change in either direction absent some of the unique items that we saw on this quarter so we talked about the tailwind in terms of retention rate improvement with the ageing of our cohorts and we talked about some of the headwinds associated with the continued perpetration of our premium products which because they have a higher price point and slightly lower retention. So sort of absence and some of this unique situation we had in this quarter I would anticipate you would see a dramatic move in retention rate in either direction.

Josh Beck – Pacific Crest Securities, Inc.

Okay. Great and one thought of from me ID Analytics I know that you released new product really focused on card not present and e-commerce transaction I think that’s the area that gain increasing focus, certainly the U.S. DMV rolls out in that sort of thing. So just help us understand where you like to see that product progress what is the key mile stones are and where we are and that product cycle would be helpful thing?

Todd Davis

Sure, so really within our ID score we had a new release of our ID Score product that demonstrated not just specifically for any one transaction type like e-commerce but across the board, continued improvement and our ability to accurately score whether someone is who they say they are, what the risk of doing business. So what you will see across and going forwards as we’ll continues to enhance both of the algorithm, we’ll look for additional attributes so things like e-commerce or e-commerce transactions or other behavioral level attributes that we can include within those algorithm to continue to maintain and even extend our lead as the industry leader in identify authentication with our ID score product. So we were very pleased with these initial results on the new release and scan well received by the market.

Josh Beck – Pacific Crest Securities, Inc.

Great thanks.

Unidentified Company Representative

Thank Josh.

Operator

Ladies and gentlemen there are no further questions at this time I will turn the conference back over to Mr. Todd Davis for closing remarks.

Todd Davis

Thanks very much I appreciate everybody join in us for this 2014 first quarter earnings call. We look forward to following up with you more and I do encouraging and want to visit our investor relations website at again investor.lifelock.com to get more from this call or other filing. Thank you so much for your time today.

Operator

Thank you. All parties may disconnect. Have a great day.

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