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Last updated on April 19, 2014 at 13:20 EDT

AVG Reports Fourth Quarter and Fiscal Year 2012 Financial Results

February 21, 2013

AMSTERDAM, Feb. 21, 2013 /PRNewswire/ — AVG Technologies N.V. (NYSE: AVG) today reported results for the fourth quarter and fiscal year ended December 31, 2012.

Revenue for the fourth quarter of 2012 was $95.2 million, compared with $74.3 million in the fourth quarter of 2011, an increase of 28 percent. Net income for the fourth quarter of 2012 was $4.9 million, or $0.09 per diluted share, based on 54.5 million weighted-average diluted shares outstanding. This compares with a net loss of $0.03 per diluted ordinary share in the equivalent period last year based on 36 million diluted ordinary shares. Net cash flow provided by operations was $41.2 million in the fourth quarter, an increase of over 100 percent compared with $20.2 million for the same period last year.

User numbers were 146 million at December 31, 2012, an increase of 38 million or 35 percent compared with the prior year. Non-GAAP adjusted net income for the fourth quarter was $17.3 million or $0.32 per diluted share. This compares with non-GAAP adjusted net income of $10.9 million, or $0.21 per diluted share, for the same period of the prior year.1 Unlevered free cash flow was $36.5 million for the quarter, compared with $24.4 million for the prior year.

“Our strong fourth quarter reflects the successful release of AVG’s 2013 product editions in September. The subscription software business delivered 18 percent growth in the fourth quarter and deferred revenues grew $19 million which helps to position us for predictable software growth in 2013,” said JR Smith, CEO of AVG Technologies. “Platform revenue continued to contribute meaningfully and we took significant steps on our strategy to diversify this revenue stream by signing important new search contracts with Google and Yahoo!. We had 100 percent growth in operating cash flow in the quarter to over $40 million reflecting a 43 percent cash margin – driven by our strong operational efficiency and cost optimization, underpinned by our cost- efficient online business model.”

For the fiscal year 2012 revenue was $356.0 million, compared with $272.4 million in 2011, an increase of 31 percent. Net income for fiscal year 2012 was $45.8 million, or $0.84 per diluted share, based on 54.3 million weighted-average diluted shares outstanding, compared with net income of $100.4 million, or $1.69 per diluted ordinary share based on 39.0 million weighted-average diluted ordinary shares outstanding for fiscal year 2011. Fiscal year 2011 included a tax benefit of $56.3 million.

Non-GAAP adjusted net income for 2012 was $76.2 million, or $1.40 per diluted share. This compares to non-GAAP adjusted net income of $56.5 million, or $1.11 per diluted share, for the prior year. Non-GAAP results for fiscal 2012 exclude $16.2 million in share-based compensation expense, $8.2 million in acquisition amortization, and $7.2 million in rationalization and other charges, offset by a $1.3 million adjustment to normalize to a tax rate of 14 percent. This compared with $6.4 million in share-based compensation expense, $4.5 million in acquisition amortization, and $3.7 million in acquisition related charges, offset by a $56.5 million adjustment to normalize to a tax rate of 14 percent, in 2011.

Deferred revenue as of December 31, 2012 was $181.2 million, compared with $151.1 million one year previously. Cash and cash equivalents totaled $51.9 million and net debt was $45.3 million as of December 31, 2012 compared with $60.7 million and $164.7 million respectively at December 31, 2011.2

AVG generated $119.3 million in cash from operating activities in fiscal year 2012, compared with $82.9 million in 2011. Non-GAAP unlevered free cash flow was $115.8 million, or $2.13 per diluted share, for the fiscal year 2012, representing a 33 percent conversion rate and 29 percent growth over the $89.6 million reported in the previous year.

“The fourth quarter wrapped up a great year for AVG – a year of expansion, diversification and growth. We made significant progress in mobile, privacy and the cloud, closing the year with a broader product line that positions us well as we move into 2013. We entered into a non-exclusive search contract with Google and signed additional search contracts including a search and software distribution agreement with Yahoo!. We diversified beyond security with more than half of our revenue coming from other areas such as search and PC optimization. Our user base at December 31, 2012 was 146 million, representing a 35 percent year over year increase; including the expansion of our mobile footprint to 26 million users,” continued Smith. “Turning to our financial performance, we grew revenue, cash flow and the bottom line while increasing both operating and net income margins. In summary, we closed our first year as a public company in a much stronger place than we entered it, and I would like to thank all of our employees, customers, business partners and investors who contributed to this achievement.”

Financial Outlook

Based on information available as of February 21, 2013, AVG is providing the following financial outlook for fiscal year 2013:

  • Revenue is expected to be in the range of $408 million to $420 million.
  • Net income is expected to be in the range of $70 million to $75 million; diluted EPS is expected to be in the range of $1.24 to $1.33.
  • Non-GAAP adjusted net income is expected to be in the range of $95 million to $105 million; non-GAAP diluted EPS is expected to be in the range of $1.68 to $1.88.
  • Operating cash flow is expected to be in the range of $140 million to $150 million; non-GAAP unlevered free cash flow is expected to be in the range of $130 million to $140 million representing $2.30 to $2.50 of free cash flow per diluted share.

Similarly, AVG is providing the following financial outlook for the first quarter of 2013:

  • Revenue is expected to be in the range of $95 million to $98 million.
  • Net income is expected to be in the range of $11 million to $14 million; diluted EPS is expected to be in the range of $0.20 to $0.25.
  • Non-GAAP adjusted net income is expected to be in the range of $20 million to $22 million; non-GAAP diluted EPS is expected to be in the range of $0.35 to $0.40.

AVG’s expectation of non-GAAP adjusted net income for the first quarter of 2013 and fiscal year 2013 excludes share-based compensation expense and acquisition amortization and assumes a tax rate of 14 percent. For the purpose of calculating diluted EPS and non-GAAP diluted EPS, the company assumes approximately 56.3 million weighted-average shares outstanding.

Conference Call Information

AVG will hold its quarterly conference call today at 23:00 CET/5:00 p.m. ET/2:00 p.m. PT to discuss its fourth quarter and fiscal year 2012 financial results, business highlights and outlook. The conference call may be accessed via webcast at http://investors.avg.com or by calling 1 (877) 941-8416 (United States and Canada) or +1 (480) 629-9808 (International).

A replay of the webcast can be accessed via http://investors.avg.com. Additionally, an audio replay of the conference call will be available through February 28, 2013 by calling 1 (800) 406-7325 (United States and Canada) or +1 (303) 590-3030 (International), (conference passcode required: 4592425#).

Use of Non-GAAP Financial Information

This press release contains supplemental non-GAAP financial measures including the following: non-GAAP adjusted net income, non-GAAP adjusted net income per diluted share and non-GAAP unlevered free cash flow. The presentation of this supplemental non-GAAP financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with generally accepted accounting principles in the United States. In particular, adjusted net income, adjusted net income per diluted share and unlevered free cash flow should not be considered as measurements of the company’s financial performance or liquidity under U.S. GAAP, as alternatives to income, operating income, cash flow from operations or any other performance measures derived in accordance with U.S. GAAP or as alternatives to cash flow from operating activities as a measure of the company’s liquidity. Adjusted net income, adjusted net income per diluted share and unlevered free cash flow have limitations as analytical tools and should not be considered in isolation from, or as substitutes for, analysis of AVG’s results of operations, including its cash flows, as reported under U.S. GAAP. Some of the limitations of adjusted net income, adjusted net income per diluted share and unlevered free cash flow as financial measures are:

  • they do not reflect the company’s future requirements for capital expenditure or contractual commitments, nor, in the case of the income measures, do they reflect the actual cash contributions received from customers;
  • except in the case of free cash flow, they do not reflect changes in, or cash requirements for, the company’s working capital needs;
  • they do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on the company’s debt;
  • although amortization and share-based compensation are non-cash charges, the assets being amortized will often have to be replaced in the future and such measures do not reflect any cash requirements for such replacements; and
  • other companies in AVG’s industry may calculate these measures differently than AVG does, limiting their usefulness as comparative measures.

Because of these limitations, investors should rely on AVG’s consolidated financial statements prepared in accordance with U.S. GAAP and treat the company’s non-GAAP financial measures as supplemental information only.

AVG is providing these non-GAAP financial measures because it believes that such measures provide important supplemental information to management and investors about the company’s core operating results, primarily because the non-GAAP financial measures exclude certain expenses and other amounts that management does not consider to be indicative of the company’s core operating results or business outlook. AVG management uses these non-GAAP financial measures, in addition to the corresponding U.S. GAAP financial measures, in evaluating the company’s operating performance, in planning and forecasting future periods, in making decisions regarding business operations and allocation of resources, and in comparing the company’s performance against its historical performance.

For a reconciliation of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with U.S. GAAP, please see “Reconciliation of U.S. GAAP to non-GAAP Financial Measures.” All non-GAAP financial measures should be read in conjunction with the comparable information presented in accordance with U.S. GAAP.

Forward-Looking Statements

This press release contains forward-looking statements within the Private Securities Litigation Reform Act of 1995, including those relating to an expected range of revenue, net income, EPS, operating cash flow, non-GAAP adjusted net income, non-GAAP EPS and non-GAAP unlevered free cash flow for the three-month period ending December 31, 2012 and/or the fiscal year ending December 31, 2012. Words such as “expects,” “expectation,” “intends,” “assumes,” “believes” and “estimates,” variations of such words and similar expressions are also intended to identify forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated herein. Factors that could cause or contribute to such differences include but are not limited to: changes in the company’s growth strategies; changes in the company’s future prospects, business development, results of operations and financial condition; changes to the online and computer threat environment and the endpoint security industry; competition from local and international companies, new entrants in the market and changes to the competitive landscape; the adoption of new, or changes to existing, laws and regulations; flaws in the assumptions underlying the calculation of the number of the company’s active users; potential effects of changes in the applicable search guidelines of our search partners; the termination of or changes to the company’s relationships with its partners, including Google, and other third parties; changes in the company’s and its partners’ responses to privacy concerns; the ability for the company to successfully diversify its portfolio of search partners; the company’s plans to launch new products and online services and monetize its full user base; the company’s ability to attract and retain active and subscription users; the company’s ability to retain key personnel and attract new talent; the company’s ability to adequately protect its intellectual property; flaws in the company’s internal controls or IT systems; the company’s geographic expansion plans; the anticipated costs and benefits of the company’s acquisitions; the outcome of ongoing or any future litigation or arbitration, including litigation or arbitration relating to intellectual property rights; the company’s legal and regulatory compliance efforts; and worldwide economic conditions and their impact on demand for the company’s products and services. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements.

Further information on these factors and other risks that may affect the company’s business is included in filings AVG makes with the Securities and Exchange Commission (SEC) from time to time, including its Annual Report on Form 20-F, particularly under the heading “Risk Factors”.

The financial information contained in this press release should be read in conjunction with the consolidated financial statements and notes thereto to be included in the company’s reports on Form 6-K and Form 20-F. The company’s results of operations for the fourth quarter and full year ended December 31, 2012 are not necessarily indicative of the company’s operating results for any future periods.

These documents are available online from the SEC or in the Investor Relations section of our website at http://investors.avg.com. Information on our website is not part of this release. All forward-looking statements in this press release are based on information currently available to us, and we assume no obligation to update these forward-looking statements in light of new information or future events.

(Logo: http://photos.prnewswire.com/prnh/20120306/SF65434LOGO)

About AVG

AVG’s mission is to simplify, optimize and secure the Internet experience, providing peace of mind to a connected world. AVG’s powerful yet easy-to-use software and online services put users in control of their Internet experience. By choosing AVG’s software and services, users become part of a trusted global community that benefits from inherent network effects, mutual protection and support. AVG has grown its user base to 146 million active users as of December 31, 2012 and offers a product portfolio that targets the consumer and small business markets and includes Internet security, PC performance optimization, online backup, mobile security, identity protection and family safety software.

(1 )Non-GAAP adjusted net income per non-GAAP diluted share is calculated based on adjusted net income including earnings attributable to preferred shares in 2011. Non GAAP results for the fourth quarter of 2012 exclude $5.4 million in share based compensation expense, $2.3 million in acquisition amortization, $5.1 million in charges associated with the rationalization of the company’s global operations and $2.1 million in other charges described in the Notes to Non-GAAP Adjustments following the Reconciliation of GAAP measures to Non-GAAP measures, offset by a $2.5 million adjustment to normalize to a tax rate of 14 percent. For further details, see the reconciliation note at the end of this press release.

(2 )Net debt represents current and non-current debt less cash and cash equivalents.

                                       AVG Technologies N.V.
                               Condensed Consolidated Balance Sheets
                                   (In thousands of U.S. Dollars)

                                              December 31, 2011        December 31, 2012
                                              -----------------        -----------------
    ASSETS
    Current assets:
    Cash and cash equivalents                                 $60,740                  $51,890
    Restricted cash                                                 -                      514
    Trade accounts receivable,
     net                                                       25,363                   32,664
    Inventories                                                   883                      702
    Deferred income taxes                                      18,394                   24,361
    Prepaid expenses                                            3,975                    5,080
    Prepaid share issuance
     cost                                                       6,820                        -
    Other current assets                                        6,363                    6,684
                                                                -----                    -----
    Total current assets                                      122,538                  121,895
    Property and equipment,
     net                                                       12,436                   14,594
    Deferred income taxes                                      59,750                   53,805
    Intangible assets, net                                     35,035                   41,207
    Goodwill                                                   71,367                   81,276
    Investment in equity
     affiliate                                                    511                        -
    Investments                                                 9,750                    9,750
    Other assets                                                  248                      939
    Total assets                                             $311,635                 $323,466
                                                             ========                 ========

    LIABILITIES, PREFERRED
     SHARES AND SHAREHOLDERS'
     DEFICIT
    Current liabilities:
    Accounts payable                                          $11,035                   $8,757
    Accrued compensation and
     benefits                                                  15,941                   20,682
    Accrued expenses and other
     current liabilities                                       30,878                   29,680
    Current portion of long
     term debt                                                 41,125                   12,226
    Income taxes payable                                        4,161                    3,343
    Deferred tax liabilities                                        -                    1,091
    Deferred revenue                                          120,269                  148,308
    Total current liabilities                                 223,409                  224,087
    Long-term debt, less
     current portion                                          184,315                   85,005
    Deferred revenue, less
     current portion                                           30,839                   32,848
    Other non-current
     liabilities                                                3,397                    4,096
    Total liabilities                                         441,960                  346,036
                                                              -------                  -------
    Class D preferred shares                                  191,954                        -
                                                              -------                      ---
    Ordinary shares                                               476                      722
    Additional paid-in
     capital (Distributions in
     excess of capital)                                      (388,225)                (130,432)
    Treasury shares                                                 -                   (3,826)
    Accumulated other
     comprehensive loss                                        (6,324)                  (4,090)
    Retained earnings                                          71,794                  115,056
                                                               ------                  -------
    Total shareholders'
     deficit                                                 (322,279)                 (22,570)
    Total liabilities,
     preferred shares and
     shareholders' deficit                                   $311,635                 $323,466
                                                             ========                 ========

                                                                    AVG Technologies N.V.
                                                  Condensed Consolidated Statements of Comprehensive Income
                                          (In thousands of U.S. Dollars, except for share data and per share data)

                                Three months ended                             Year ended
                                   December 31,                               December 31,
                                   ------------                               ------------
                                                   2011                                       2012                       2011        2012
                                                   ----                                       ----                       ----        ----

    Revenue:
    Subscription                                $45,583                                    $53,648                   $175,654    $196,858
    Platform-derived                             28,716                                     41,557                     96,738     159,108
    Total revenue                                74,299                                     95,205                    272,392     355,966
                                                 ------                                     ------                    -------     -------
    Cost of revenue:
    Subscription                                  6,087                                      7,467                     23,374      27,064
    Platform-derived                              1,332                                      7,106                      7,849      27,320
    Total cost of revenue                         7,419                                     14,573                     31,223      54,384
                                                  -----                                     ------                     ------      ------
    Gross profit                                 66,880                                     80,632                    241,169     301,582
    Operating expenses:
    Research and development                     10,530                                     16,504                     35,008      55,485
    Sales and marketing                          23,029                                     28,488                     76,933      92,198
    General and administrative                   24,726                                     24,903                     60,710      73,491
    Total operating expenses                     58,285                                     69,895                    172,651     221,174
                                                 ------                                     ------                    -------     -------
    Operating income                              8,595                                     10,737                     68,518      80,408
    Other expense, net                           (4,826)                                    (5,207)                   (17,104)    (22,939)
                                                 ------                                     ------                    -------     -------
    Income before income taxes
     and loss from investment
     in equity affiliate                          3,769                                      5,530                     51,414      57,469
    Benefit (Provision) for
     income taxes                                (2,952)                                      (296)                    49,260     (11,141)
    Loss from investment in
     equity affiliate                               (62)                                      (333)                      (242)       (511)
    Net income                                      755                                      4,901                    100,432      45,817
                                                    ---                                      -----                    -------      ------
    Comprehensive income                        $(1,087)                                    $5,940                    $95,680     $48,051

    Earnings per share:
    Net income                                     $755                                     $4,901                   $100,432     $45,817
    Preferred share dividends                    (1,802)                                         -                     (7,208)       (753)
    Distributed and
     undistributed earnings to
     participating securities                         -                                          -                    (27,513)          -
    Net income available to
     ordinary shareholders -
     basic                                      $(1,047)                                    $4,901                    $65,711     $45,064
                                                =======                                     ======                    =======     =======

    Net income available to
     ordinary shareholders -
     diluted                                    $(1,047)                                    $4,901                    $65,711     $45,817
    Earnings per ordinary share
     -basic                                      $(0.03)                                     $0.09                      $1.83       $0.86
    Earnings per ordinary share
     -diluted                                    $(0.03)                                     $0.09                      $1.69       $0.84
    Weighted-average shares
     outstanding - basic                     36,000,000                                 54,016,616                 36,000,000  52,395,427
    Weighted-average shares
     outstanding - diluted                   36,000,000                                 54,528,498                 38,974,953  54,308,518

                                                                                                  AVG Technologies N.V.
                                                                                     Condensed Consolidated Statements of Cash Flows
                                                                                              (In thousands of U.S. Dollars)

                                                                            Three months ended                       Year ended
                                                                               December 31,                         December 31,
                                                                               ------------                         ------------
                                                                                            2011                                 2012                                   2011                                   2012
                                                                                            ----                                 ----                                   ----                                   ----

    OPERATING ACTIVITIES:
    Net income                                                                              $755                               $4,901                               $100,432                                $45,817
    Adjustments to reconcile net income to net cash
     provided by
    operating activities:

    Depreciation,amortization and impairments                                              3,905                                6,217                                 11,849                                 18,869
    Share-based compensation                                                               3,384                                5,430                                  6,396                                 16,183
    Deferred income taxes                                                                 (4,220)                              (1,321)                               (56,217)                                 2,166
    Change in the fair value of contingent consideration
     liabilities                                                                             826                                  202                                    425                                   (130)
    Amortization of financing costs and loan discount                                        706                                2,416                                  2,108                                  5,928
    Loss from investment in equity affiliate                                                  63                                  333                                    242                                    511
    Loss (gain) on sale of property and equipment                                             57                                    9                                    289                                    (41)
    Net change in assets and liabilities, excluding effects
     of
    acquisitions:

    Trade accounts receivable, net                                                        (4,277)                               2,451                                  1,219                                 (6,178)
    Inventories                                                                             (168)                                 239                                   (293)                                   197
    Accounts payable and accrued liabilities                                               2,068                                1,337                                  3,445                                  9,426
    Accrued compensation and benefits                                                      2,378                                1,224                                  2,677                                  1,712
    Deferred revenue                                                                      11,969                               18,135                                 15,006                                 27,675
    Income taxes payable                                                                     423                                 (171)                                 1,372                                   (974)
    Other assets                                                                           3,437                                  517                                 (4,470)                                  (951)
    Other liabilities                                                                     (1,111)                                (720)                                (1,569)                                  (904)
    Net cash provided by operating activities                                             20,195                               41,199                                 82,911                                119,306
                                                                                          ------                               ------                                 ------                                -------
    INVESTING ACTIVITIES:
    Purchase of property and equipment and intangible
     assets                                                                               (3,620)                              (7,650)                               (11,373)                               (17,914)
    Proceeds from sale of property and equipment                                             (54)                                   -                                     46                                     83
    Cash payments for acquisitions, net of cash acquired                                  (9,568)                              (7,450)                               (48,467)                               (11,897)
    Purchase of investment in debt securities                                             (9,750)                                   -                                 (9,750)                                     -
    Decrease (increase) in restricted cash                                                     -                                 (514)                                     -                                   (514)
    Net cash used in investing activities                                                (22,992)                             (15,614)                               (69,544)                               (30,242)
                                                                                         -------                              -------                                -------                                -------
    FINANCING ACTIVITIES:
    Payment of contingent consideration                                                   (1,438)                                (546)                                (4,222)                               (11,786)
    Payment of deferred purchase consideration                                                 -                               (1,600)                                     -                                 (3,500)
    Proceeds from long-term debt, net of discount                                              -                                    -                                230,285                                      -
    Debt issuance costs                                                                     (423)                                   -                                 (7,004)                                     -
    Proceeds from issuance of ordinary shares                                                  -                                    -                                      -                                 64,000
    Share issuance costs                                                                  (4,703)                                   -                                 (4,703)                                (8,302)
    Proceeds from exercise of share options                                                    -                                   32                                      -                                    379
    Excess tax benefit                                                                         -                                 (194)                                     -                                    480
    Repayment of principal on long-term borrowings                                             -                              (58,087)                                (1,125)                              (134,137)
    Decrease in restricted cash                                                                -                                  527                                  1,333                                      -
    Dividends paid                                                                        (1,802)                                   -                               (229,893)                                (2,555)
    Repurchase of own shares                                                                   -                                    -                                      -                                 (3,869)
    Repurchases of share options from employees                                                -                                  (13)                                     -                                 (1,035)
    Net cash used in financing activities                                                 (8,366)                             (59,881)                               (15,329)                              (100,325)
                                                                                          ------                              -------                                -------                               --------
    Effect of exchange rate fluctuations on cash and cash
     equivalents                                                                          (1,385)                                (517)                                  (444)                                 2,411
    Change in cash and cash equivalents                                                  (12,548)                             (34,813)                                (2,406)                                (8,850)
    Beginning cash and cash equivalents                                                   73,288                               86,703                                 63,146                                 60,740
    Ending cash and cash equivalents                                                     $60,740                              $51,890                                $60,740                                $51,890
                                                                                         =======                              =======                                =======                                =======
    Supplemental cash flow disclosures:
    Income taxes paid                                                                    $(2,044)                             $(2,727)                               $(6,746)                               $(8,755)
    Interest paid                                                                        $(4,457)                             $(2,935)                              $(13,479)                              $(15,650)
    Suplemental non-cash disclosures:
    Issuance of ordinary shares on conversion of Class D
     preferred shares                                                 $                        -           $                        -           $                          -                               $191,954

                                                         AVG Technologies N.V.
                                          Reconciliation of GAAP Measures to Non-GAAP Measures
                (In thousands of U.S. Dollars, except for users, active users and revenue per average active user data)

                                                             Three months ended                        Year ended
                                                                December 31,                          December 31,
                                                                ------------                          ------------
                                                              2011                     2012                      2011                      2012
                                                              ----                     ----                      ----                      ----
    Net cash provided by
     operating
     activities                                          $20,195                  $41,199                   $82,911                  $119,306
    Less: Payments for property and
     equipment and intangible assets                      (3,620)                  (7,650)                  (11,373)                  (17,914)
    Add: Interest expense, net of tax
     (1)                                                   4,708                    2,641                    14,861                    14,085
    Less: Other adjustments, net of
     tax (see note)                                        3,159                      353                     3,159                       353
    Unlevered free cash
     flow, adjusted                                      $24,442                  $36,543                   $89,558                  $115,830

    (1) The tax adjustment for interest expense is based on an assumed tax rate of approximately 10%. Beginning in the quarter ended March 31, 2012, for interest expense
     the Company is using interest paid from the cash flow statement to calculate unlevered free cash flow. For prior periods, for interest expense the Company has
     continued to use interest expense from the income statement (which includes amortization of financing costs and loan discount). The Company has not adjusted the
     presentation for prior periods as this change in presentation of unlevered free cash flow, adjusted would not have had a material impact.

                                                         Three months ended                     Year ended
                                                            December 31,                       December 31,
                                                            ------------                       ------------
                                                            2011                     2012                      2011                      2012
                                                            ----                     ----                      ----                      ----
    Revenue                                              $74,299                  $95,205                  $272,392                  $355,966
    Unlevered free cash flow,
     adjusted                                             24,442                   36,543                    89,558                   115,830
    Cash conversion                                           33%                      38%                       33%                       33%
                                                             ===                      ===                       ===                       ===

    Revenue                                              $74,299                  $95,205                  $272,392                  $355,966
    Active users at period end (in
     millions)                                               108                      146                       108                       146
    Average active users (in
     millions) (1)                                           107                      145                       103                       127
    Three/twelve months
     revenue per average
     active user                                           $0.69                    $0.66                     $2.65                     $2.80

                                                                                            Twelve months ended
                                                                                               December 31,
                                                                                               ------------
                                                                                                   2011                      2012
                                                                                                   ----                      ----
    Revenue                                                                                    $272,392                  $355,966
    Active users at period end (in
     millions)                                                                                      108                       146
    Average active users (in
     millions) (1)                                                                                  103                       127
    Rolling twelve months revenue per
     average active user                                                                          $2.65                     $2.80
                                                                                                  =====                     =====

    (1) The number of average active users is calculated as the simple average of active users at the beginning of a period and the end of a period.

                                                          AVG Technologies N. V.
                                           Reconciliation of GAAP Measures to Non-GAAP Measures
                                 (In thousands of U.S. Dollars, except for share data and  per share data)

                                                                Three months ended                        Year ended
                                                                   December 31,                          December 31,
                                                                   ------------                          ------------
                                                                 2011                     2012                      2011            2012
                                                                 ----                     ----                      ----            ----
    Gross profit                                            $66,880                  $80,632                  $241,169        $301,582
    Add back:
    - Share-based compensation                                    4                       (2)                       21              (1)
    - Acquisition amortization                                  953                    1,283                     2,541           4,547
    - Other adjustments (see note)                     -                       57                        -                57
    Non-GAAP adjusted
     gross profit                                           $67,837                  $81,970                  $243,731        $306,185

    Revenue                                                 $74,299                  $95,205                  $272,392        $355,966
    Non-GAAP adjusted gross profit
     margin                                                      91%                      86%                       89%             86%
                                                                ===                      ===                       ===             ===

    Operating expenses                                      $58,285                  $69,895                  $172,651        $221,174
    Less:
    - Share-based compensation                               (3,380)                  (5,432)                   (6,375)        (16,184)
    - Acquisition amortization                                 (953)                  (1,002)                   (1,925)         (3,668)
    - Other adjustments (see note)                           (3,673)                  (7,156)                   (3,673)         (7,156)
    Non-GAAP adjusted
     operating expenses                                     $50,279                  $56,305                  $160,678        $194,166

    Operating income                                         $8,595                  $10,737                   $68,518         $80,408
    Add back:
    - Share-based compensation                                3,384                    5,430                     6,396          16,183
    - Acquisition amortization                                1,906                    2,285                     4,466           8,215
    - Other adjustments (see note)                            3,673                    7,213                     3,673           7,213
    Non-GAAP adjusted
     operating income                                       $17,558                  $25,665                   $83,053        $112,019

    Revenue                                                 $74,299                  $95,205                  $272,392        $355,966
    Non-GAAP adjusted operating income
     margin                                                      24%                      27%                       30%             31%
                                                                ===                      ===                       ===             ===

    Net income                                                 $755                   $4,901                  $100,432         $45,817
    Add back:
    - Share-based compensation                                3,384                    5,430                     6,396          16,183
    - Acquisition amortization                                1,906                    2,285                     4,466           8,215
    - Other adjustments (see note)                            3,673                    7,213                     3,673           7,213
    -Benefit (Provision) for income
     taxes                                                    2,952                      296                   (49,260)         11,141
                                                              -----                      ---                   -------          ------
    Adjusted profit before taxes                             12,670                   20,125                    65,707          88,569
    Less: Tax effect (see note)                              (1,774)                  (2,818)                   (9,199)        (12,400)
    Non-GAAP adjusted net
     income                                                 $10,896                  $17,307                   $56,508         $76,169

    Weighted-average shares
     outstanding - diluted (in
     thousands)                                              39,386                   54,528                    38,975          54,309
    Add back: Class D preferred shares
     (in thousands)                               12,000                        -                   12,000                 -
    Non-GAAP fully diluted shares (in
     thousands)                                              51,386                   54,528                    50,975          54,309
                                                             ======                   ======                    ======          ======
    Non-GAAP adjusted net
     income                                                 $10,896                  $17,307                   $56,508         $76,169
    Non-GAAP EPS, diluted                                     $0.21                    $0.32                     $1.11           $1.40

                                                     Share-Based Compensation
                                                  (In thousands of U.S. Dollars)

                                                            Three months ended                     Year ended
                                                               December 31,                       December 31,
                                                               ------------                       ------------
                                                               2011                     2012                      2011            2012
                                                               ----                     ----                      ----            ----
    Cost of revenue                                             $(4)                      $2                      $(21)             $1
    Research and Development                                    (97)                    (378)                   (1,116)         (1,652)
    Sales and Marketing                                        (335)                    (349)                     (949)         (2,036)
    General and Administrative                               (2,948)                  (4,705)                   (4,310)        (12,496)
    Share-based
     compensation                                           $(3,384)                 $(5,430)                  $(6,396)       $(16,183)

                                                     Acquisition Amortization
                                                  (In thousands of U.S. Dollars)

                                                            Three months ended                     Year ended
                                                               December 31,                       December 31,
                                                               ------------                       ------------
                                                               2011                     2012                      2011            2012
                                                               ----                     ----                      ----            ----
    Cost of revenue                                           $(953)                 $(1,283)                  $(2,541)        $(4,547)
    Research and Development                           -                       (4)                     (55)              (10)
    Sales and Marketing                                        (953)                    (998)                   (1,870)         (3,658)
    Acquisition
     amortization                                           $(1,906)                 $(2,285)                  $(4,466)        $(8,215)

                                            AVG Technologies N.V.
                                            ---------------------
                             Reconciliation of GAAP Measures to Non-GAAP Measures
                             ----------------------------------------------------

    Notes to Non-GAAP
     Adjustments
    -----------------

    Tax adjustment
    --------------

    The Company's profit and loss tax charge varies from period to period
     and has shown significant variations from its cash tax charge. In
     particular, the Company's entry into an innovation tax regime in the
     Netherlands resulted in a significant tax credit in June 2011, which
     will be reversed in future periods. In order to remove the period to
     period impact of these variations, the Company has used an estimated
     normalized tax rate of approximately 14% in its historic financial
     reporting and future projections to better reflect the core
     operational changes in the business. The normalized tax rate of
     approximately 14% is based on an estimate of the Company's future
     cash tax rate as well as its recent cash and income statement tax

    Preferred Share
     Adjustment
    ---------------

    During the 2011 fiscal year the Company had 12 million preferred
     shares which were entitled to a preferred dividend of approximately
     $1.8 million per calendar quarter, as well as their pro rata amount
     of net income assuming distribution to each separate class of
     shareholder. These shares were excluded from calculations of net
     income available to ordinary shareholders. At the time of the
     Initial Public Offering these shares converted to ordinary shares on
     a 1 for 1 basis, and preferred dividends are no longer payable. In
     order to reflect the underlying income attributable to ordinary
     shareholders in the non-GAAP calculation of adjusted net income per
     diluted share, the Company has included net income available to all

    Other adjustments
    -----------------

    Other adjustments between GAAP and Non-GAAP measures in the fourth
     quarter of 2012 comprise $5.1 million in charges associated with the
     rationalization of the Company's global operations and $2.1 million
     in acquisition related charges. In the fourth quarter of 2011 the
     Company recorded an adjustment of $3.7 million related to
     acquisition related charges.

SOURCE AVG Technologies N.V.


Source: PR Newswire