AVG Announces Third Quarter 2015 Financial Results

AMSTERDAM, Nov. 4, 2015 /PRNewswire/ -- AVG® Technologies N.V. (NYSE: AVG), the online security company™ for more than 200 million monthly active users, today reported results for the third quarter ended September 30, 2015.

Third quarter 2015 highlights

• Revenue grew 17 percent over the same period last year, to $108.2 million; adjusting for foreign exchange movements, third quarter revenue would have grown 20 percent to more than $111 million.
• Total paid users grew 43 percent over the same period last year to over 20 million, driven primarily by strength in the number of paid Mobile users, which surpassed 6 million during the third quarter.
• Subscription-based revenue grew 28 percent over the same period last year and comprised 81 percent of total revenue.
• Operating cash flow was $31.8 million, and non-GAAP free cash flow exceeded $27 million during the third quarter, resulting in a cash conversion rate of 25 percent.

Third quarter 2015 financial results

Revenue for the third quarter of 2015 grew 17 percent to $108.2 million, compared with $92.3 million in the third quarter of 2014.  Non-GAAP net income for the quarter, which includes $3.8 million in investments being made to enhance the Company's internal financial controls and procedures, was $22.2 million, or $0.42 per diluted ordinary share.  This compares with non-GAAP net income of $29.4 million, or $0.56 per diluted ordinary share for the same period of the prior year.[1] 

Excluding the previously mentioned investments, non-GAAP net income would have been $26 million, or $0.49 per diluted ordinary share.  AVG has been implementing new and more robust internal controls that are commensurate with the scale and complexity of the business.  The company believes it is making significant progress towards strengthening its financial controls and believes that these costs will decrease substantially by the first quarter of 2016.  

Operating cash flow was $31.8 million for the quarter, compared with $18.6 million for the third quarter of last year.  Non-GAAP free cash flow was $27.4 million for the quarter, compared with $16.4 million for the same period in the prior year. 

GAAP net income for the third quarter was $7.9 million, or $0.14 per diluted ordinary share.  This compares with GAAP net income of $18.2 million, or $0.35 per diluted ordinary share in the prior year's third quarter.  Operating income was $15.7 million, compared with $23.3 million for the third quarter of 2014. 

"Revenue growth in the third quarter was driven by strength in our strategic areas of focus," said Gary Kovacs, chief executive officer of AVG Technologies.  "These results were achieved despite stiff foreign exchange headwinds, as well as a reduction in total platform revenue as we execute our controlled exit from the third-party search business.  Our carrier-based distribution channels drove exponential annual mobile revenue growth as well as record SaaS revenue.  Revenue from SMB grew 13 percent in the third quarter despite undergoing a significant restructuring of the business to improve our ability to capitalize on this large and growing opportunity.  We ended the quarter with 17 million total users of Zen-enabled products, up 54 percent since the end of the second quarter."

Kovacs continued, "Looking ahead, we will continue to invest in our key focus areas of mobile, SMB, and Zen, and optimize our traditional desktop business. In search, we are seeing market dynamics that have the potential to impact this business, creating uncertainty in our search revenue expectations over the next several quarters. We believe our success in diversifying our revenue stream over the past year can mitigate some of this potential impact. We remain completely confident in our long-term growth strategy."

Financial Outlook

Based on information available as of November 4, 2015, AVG is narrowing its previous range for revenue expectations and its financial outlook for fiscal year 2015 as follows:

• Revenue is expected to be in the range of $426 million to $430 million.
• Non-GAAP net income is expected to be approximately $95 million, or roughly $1.80 per diluted ordinary share.
• GAAP net income is expected to be approximately $42 million, or roughly $0.75 per diluted ordinary share.

AVG's expectation of non-GAAP net income for fiscal year 2015 excludes share-based compensation expense, acquisition amortization and certain other adjustments, and assumes a normalized tax rate of 12.5%.  For the purpose of calculating GAAP net income per diluted ordinary share and non-GAAP net income per diluted ordinary share, the Company assumes approximately 53 million weighted-average diluted ordinary shares outstanding for the full year.

The financial information presented in this press release is not audited or reviewed.

Conference Call Information

AVG will hold its quarterly conference call today at 4:30 p.m. ET/1:30 p.m. PT/ 10:30 PM CET to discuss its third quarter 2015 financial results, business highlights and outlook.  The conference call may be accessed via webcast at http://investors.avg.com or using the following phone numbers and conference ID: +1 646 254 3366 (USA); +1 514 841 2154 (Canada); +44 20 3427 1905 (UK); +420 225 376 429 (Czech Republic); Conference ID: 1514257.

Live and replay versions of the webcast can be accessed via http://investors.avg.com.

Use of Non-GAAP Financial Information

This press release contains supplemental non-GAAP financial measures that are not calculated in accordance with U.S. GAAP.  These non-GAAP measures provide additional information on the performance or liquidity of our business that we believe are useful for investors.

Adjusted net income, free cash flow and their related ratios are non-GAAP measures and should not be considered alternatives to the applicable U.S. GAAP measures.  In particular, adjusted net income and free cash flow, and their related ratios, should not be considered as measurements of our 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 our liquidity.

Adjusted net income and free cash flow are measures of financial performance and liquidity, respectively, and have limitations as analytical tools, and should not be considered in isolation from, or as substitutes for, analysis of our results of operations, including our operating income and cash flows, as reported under U.S. GAAP. We provide these non-GAAP financial measures because we believe that such measures provide important supplemental information to management and investors about the Company's core operating results and liquidity, 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 or liquidity. 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. Some of the limitations of adjusted net income and free cash flow and their related ratios as measures are:

• they do not reflect our cash expenditure or future requirements for capital expenditure or contractual commitments, nor do they reflect the actual cash contributions received from customers;
• they do not reflect changes in, or cash requirements for, our working capital needs;
• 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 our industry may calculate these measures differently than we do, 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.

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 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 meaning of the Private Securities Litigation Reform Act of 1995, including those relating to an expected range of revenue, net income, EPS, non-GAAP adjusted net income and non-GAAP EPS for the fiscal year ending December 31, 2015 and/or future periods, as well as those relating to the future prospects of AVG.  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 our growth strategies; changes in our future prospects, business development, results of operations and financial condition; the impact of changes in market dynamics relating to our search business; the anticipated costs and benefits of our other acquisitions; our ability to remediate the material weaknesses and other deficiencies identified in our internal controls or IT systems; our ability to comply with our credit agreements; 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; changes in international or national tax regulations and related proposals; the assumptions underlying the calculation of our key metrics, including the number of our active users, mobile users, revenue per average active user, subscription revenue per subscriber and platform-derived revenue per thousand searches; potential effects of changes in the applicable search guidelines of our search partners; the status of, or changes to, our relationships with our partners, including Yahoo!, Google and other third parties; changes in our and our partners' responses to privacy concerns; our ability to successfully exit the third party search distribution business; our plans to launch new products and online services and monetize our full user base; the performance of our products, including AVG Zen; our ability to attract and retain active and subscription users; our ability to retain key personnel and attract new talent; our ability to adequately protect our intellectual property; our geographic expansion plans; the outcome of ongoing or any future litigation or arbitration, including litigation or arbitration relating to intellectual property rights; our legal and regulatory compliance efforts, including with respect to PCI compliance; and worldwide economic conditions and their impact on demand for our 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 U.S. 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 third quarter, ended September 30, 2015 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 the Company's website at http://investors.avg.com.  Information on the AVG website is not part of this release.  All forward-looking statements in this press release are based on information currently available to the Company, and AVG assumes no obligation to update these forward-looking statements in light of new information or future events.

About AVG

AVG is the online security company providing leading software and services to secure devices, data and people. AVG's award-winning technology is delivered to over 200 million monthly active users worldwide. AVG's Consumer portfolio includes internet security, performance optimization, and personal privacy and identity protection for mobile devices and desktops. The AVG Business portfolio - delivered by managed service providers, VARs and resellers - offers IT administration, control and reporting, integrated security, and mobile device management that simplify and protect businesses.

All trademarks are the property of their respective owners.

¹ Non-GAAP results for the third quarter of 2015 exclude $4.1 million in share based compensation expense, $7.5 million in acquisition amortization, nil in charges associated with litigation settlements, $1.0 million in acquisition related charges, $0.9 million in charges related to the unwinding of discounts and changes in fair value and $1.2 million in charges associated with the rationalization of the Company's global operations, offset against $0.8 million in net reversals of capitalized development charges, and adjusted for impact of normalized tax rate of 12.5% as described in the Reconciliation of GAAP measures to non-GAAP measures.

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SOURCE AVG Technologies N.V.