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LifeLock Cuts Guidance; Shares Fall

By Joe Tenebruso - Jul 29, 2015 at 6:30PM

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The identity-theft protection provider expects an FTC lawsuit to dampen revenue and profits in the quarters ahead.

Source: LifeLock.

LifeLock (LOCK) reported second-quarter results after the market close today. The identity-theft protection specialist reduced its full-year revenue and earnings guidance as a result of the expected negative publicity from a recently announced Federal Trade Commission lawsuit. That appears to have investors seeking protection elsewhere, with shares down 7% in after -hours trading as I write this at 5:45 p.m. ET.

Operating results
Revenue rose 25% year over year to $145 million, as consumer revenue jumped 27% to $138.3 million, and enterprise revenue crept 4% higher to $6.6 million. Analysts were expecting $143.63 million in total revenue.

Helping to drive the sharp increase in consumer revenue was an 18% rise in members, which ended the quarter at 4 million. The 317,000 gross new members added in Q2 made it the 41st consecutive quarter of sequential growth in cumulative ending members.

In addition, LifeLock once again did an admirable job of retaining its customers, with an 87.1% retention rate for the second quarter. That's the 11th consecutive quarter LifeLock's retention rate has been above 87%. That occurred even as LifeLock's customers pay more for its services, with monthly average revenue per member increasing 6% from the year-ago period to $11.68.

"During the second quarter, we continued to see strong demand for our highly differentiated offerings as LifeLock works tirelessly to protect our members from identity theft," said Chairman and CEO Todd Davis in a press release. "We crossed the four million member milestone during the quarter, which is a result of our proven track record of protecting our members, our focus on delivering value to our customers, the power of our brand, [and] the ongoing severity of the breach environment."

Net income was $520,000, or $0.01 on a per-share basis, compared with a net loss of $1.5 million, or $0.02 per share, for the second quarter of 2014.

Adjusted net income, which excludes the effects of share-based compensation and acquisition-related expenses, rose 119% to $10 million. And adjusted earnings per share, affected by a higher average share count compared with the prior-year quarter, doubled to $0.10.

Wall Street had expected $0.09 in EPS.

Balance sheet and cash flow
Cash flow from operations increased 24% to $34.4 million, and free cash flow surged 34% to $32.2 million. This strong cash generation continues to strengthen LifeLock's balance sheet, which ended the quarter with no debt and cash and marketable securities rising to $326 million, up from $293.4 million at the end of the first quarter of 2015.

Guidance
Management expects third-quarter revenue to be in the range of $147 million to $149 million and adjusted earnings per share to be in the range of $0.25 to $0.26. Analysts were projecting $150 million in revenue and $0.24 in EPS. 

LifeLock also cut guidance for its full-year results because of the anticipated negative effects of a Federal Trade Commission lawsuit. Expected revenue for 2015 was lowered to a range of $577 million to $582 million, down from management's previous forecast of between $584 million and $590 million. Adjusted EPS estimates were also reduced and are now expected to be in the range of $0.58 to $0.61, compared with prior guidance for $0.64 to $0.67 in EPS. 

"While we are still early in the process, our updated guidance assumes that the publicity from the lawsuit with the FTC will cause an increase in attrition and headwind to our new member acquisition on a short-term basis," said LifeLock CFO Chris Power in a press release. "Irrespective, we continue to expect the company to generate strong revenue growth and meaningful cash flow and profitability during the third quarter and full year, and we remain confident in our long-term growth prospects."

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends LifeLock. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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