AVG Reports Fourth Quarter and Fiscal Year 2011 Financial Results

Revenue Grows 29% in Q4 and 25% in Fiscal Year; Non-GAAP Unlevered Free Cash Flow Reaches $89.6 million and Net Cash Provided by Operating Activities Reaches $82.9 million in Fiscal Year

MELBOURNE March 7 2012 - AVG Technologies N.V. (NYSE: AVG) today reported results for the fourth quarter and fiscal year ended December 31, 2011.

Revenue for the fourth quarter of 2011 was $74.3 million, compared with $57.4 million for the fourth quarter of fiscal 2010, an increase of 29 percent. For the fiscal year 2011, revenue was $272.4 million, compared to $217.2 million reported in fiscal year 2010, an increase of 25 percent.

Net income for the fourth quarter of 2011 was $0.8 million, compared to net income of $10.1 million in the fourth quarter a year ago. Reduced net income in the fourth quarter of 2011 reflects increased investment in new products and initiatives intended to drive long-term growth, certain professional costs including those related to AVG's conversion to U.S. GAAP and controls based assessments related to its IPO and future public reporting, interest costs, the impact of the deferred tax asset release, the impact of acquisition accounting for TuneUp and the payment to AVG's German distributor in connection with the settlement of pre-existing relationships between the parties. These increased costs were offset by optimization of AVG's revenue streams in the security business. Loss per diluted ordinary share was $(0.03) for the fourth quarter of 2011, as compared to earnings per diluted ordinary share of $0.16 in the fourth quarter of 2010(1).

 

Non-GAAP adjusted net income for the fourth quarter of 2011 was $10.9 million, resulting in $0.21 per diluted share(2). This compares to non-GAAP adjusted net income of $13.4 million, resulting in $0.26 per diluted share, for the same period of the prior year. Reduced non-GAAP adjusted net income in the fourth quarter of 2011 reflects increased investment in new products and initiatives intended to drive long-term growth, certain professional costs including those related to AVG's conversion to U.S. GAAP and controls based assessments related to its IPO and future public reporting, interest costs, the impact of the deferred tax asset release and the impact of acquisition accounting for TuneUp. These increased costs were offset by optimization of AVG's revenue streams in the security business. Non-GAAP results for the fourth quarter of 2011 exclude $3.4 million in share-based compensation expense, $1.9 million in acquisition amortization and $3.7 million relating to an acquisition adjustment and reflect a $1.2 million adjustment to normalize to a tax rate of 14 percent.

 

Net income for fiscal year 2011 was $100.4 million, resulting in $1.69 per diluted ordinary share, compared to net income of $57.9 million, resulting in $0.99 per diluted ordinary share, in fiscal year 2010. 

 

Non-GAAP adjusted net income for fiscal year 2011 was $56.5 million, resulting in $1.11 per diluted share. This compares to non-GAAP adjusted net income, of $66.2 million, resulting in $1.31 per diluted share, reported in 2010. Non-GAAP results for fiscal year 2011 exclude $6.4 million in share-based compensation expense, $4.5 million in acquisition amortization and $3.7 million relating to an acquisition adjustment and reflect a $58.5 million adjustment to normalize to a tax rate of 14 percent. 

 

Deferred revenue as of December 31, 2011 was $151.1 million, an increase of $15.7 million, or 12 percent, compared to $135.4 million at December 31, 2010, and an increase of $10.9 million, or 8 percent, compared to $140.2 million at September 30, 2011. Cash and cash equivalents totaled $60.7 million as of December 31, 2011. 

 

AVG generated $20.2 million in cash from operating activities in the fourth quarter of 2011, and $24.4 million in non-GAAP unlevered free cash flow, an increase of 24 percent over the same period of the prior year. For the fiscal year, AVG generated $82.9 million in cash from operating activities and $89.6 million in non-GAAP unlevered free cash flow, an increase of 18 percent over fiscal year 2010. For the fiscal year, this equates to a 33 percent revenue to non-GAAP unlevered free cash flow conversion rate. In the fourth quarter of 2011 and in full year 2011, AVG made a $3.2 million adjustment (net of tax) to non-GAAP unlevered free cash flow associated with its acquisition of its German distributor. 

 

“Our fourth quarter results capped a year of solid execution across AVG’s business where we continued to grow our customer base, increase revenue per active user, diversify our product portfolio and advance our disruptive business model,” stated J.R. Smith, chief executive officer of AVG. “During the year, we continued to successfully evolve our business beyond “freemium” computer security through the enhancement of our portfolio of products to include, amongst other things, system tune-up as well as tablet and mobile phone security suites. This has enabled AVG to deliver on its promise to provide true “Peace of Mind” products and services to its customers. At AVG we engage customers by simplifying, optimizing and securing their computers, mobile devices and online experiences and in so doing, we've created a platform through which AVG has become a more relevant and important part of our customers’ lives.” 

 

Financial Outlook 

 

Based on information available as of March 6, 2012, AVG is providing financial guidance for the first quarter and fiscal year 2012.

 

For the quarter ending March 31, 2012: 

 

• Revenue is expected to be in the range of $76.0 million to $78.0 million. 

• Net income is expected to be in the range of $4.0 million to $5.0 million. 

• Non-GAAP adjusted net income is expected to be in the range of $10.0 million to $11.5 million. 

 

AVG’s expectation of non-GAAP adjusted net income for the first quarter of 2012 excludes share-based compensation expense, acquisition amortization and the assumed tax effects of such adjustments. The company assumes a tax rate of 14 percent. For the purpose of calculating US GAAP EPS in the first quarter, the company would assume approximately 47 million weighted average shares outstanding. For the purpose of calculating non-GAAP EPS in the first quarter, the company would assume approximately 54 million shares. The difference of 7 million shares primarily reflects the preference shares only being recognized for part of the period under US GAAP as they converted to ordinary shares at the time of the company’s Initial Public Offering.

 

For the fiscal year 2012 ending December 31, 2012: 

 

• Revenue is expected to be in the range of $317.0 million to $325.0 million. 

• Net income is expected to be in the range of $30.0 million to $33.0 million. 

• Non-GAAP adjusted net income is expected to be in the range of $52.0 million to $55.0 million. 

• Non-GAAP unlevered free cash flow is expected to be in the range of $100.0 million to $104.0 million, with operating cash flow expected to be in the range of $99 million to $103 million. 

 

AVG’s expectation of non-GAAP adjusted net income for the fiscal year 2012 excludes share-based compensation expense, acquisition amortization and assumes a tax rate of 14 percent. For the purpose of calculating US GAAP EPS for 2012, the company would assume approximately 54 million weighted average shares outstanding. For the purpose of calculating non-GAAP EPS for 2012, the company would assume approximately 55.5 million shares. The difference of 1.5 million shares primarily reflects the preference shares only being recognized for part of the year under US GAAP as they converted to ordinary shares at the time of the company’s Initial Public Offering. 

 

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 financial results, business highlights and outlook. The conference call may be accessed via webcast at http://investors.avg.com/ or by calling +1 (877) 941-1427 (United States and Canada) or +1 (480) 629-9664 (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 March 13, 2012 by calling +1 (800) 406-7325 (United States and Canada) or +1 (303) 590-3030 (International), (conference passcode required: 4516822#).

 

Use of Non-GAAP Financial Information

 

This press release includes the following supplemental non-GAAP financial measures: 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 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 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, non-GAAP adjusted net income per share and non-GAAP unlevered free cash flow for the three-month period ending March 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; the termination of or changes to the company’s relationships with its partners and other third parties; 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 Registration Statement on Form F-1, 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 report on Form 20-F. The company's results of operations for the fourth quarter and full year ended December 31, 2011 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.


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