AVG Technologies N.V. (NYSE: AVG), the online security company™ providing leading software and services to secure devices, data and people, today reported results for the second quarter ended June 30, 2016.
Revenue for the second quarter of 2016 was $105.0 million, compared with $107.8 million in the second quarter of 2015, a decrease of 2.6% compared to the prior year. GAAP net income for the second quarter was$6.9 million, or $0.13 per diluted ordinary share. This compares with net income of $8.5 million, or $0.15 per diluted ordinary share in the prior year’s second quarter.
Non-GAAP net income for the second quarter was $22.8 million, or $0.44 per diluted ordinary share. This compares with non-GAAP net income of $24.6 million, or $0.47 per diluted ordinary share for the same period of the prior year.1
GAAP Operating income was $12.4 million, compared with $13.8 million for the second quarter of 2015. Operating cash flow was $19.3 million for the quarter, compared with $15.5 million for the second quarter last year. Free cash flow was $15.1 million for the quarter, compared with $11.8 million for the same period in the prior year.
AVG also reported that it is continuing to make progress on its strategic and operating plans against challenging market conditions. Subscription revenue continued to expand, growing to 83 percent of total revenues. Additionally, AVG’s shift to mobile products and services continues to progress and total mobile revenue grew substantially during the period, up 28 percent over the same period last year.
Financial Outlook
Based on information available as of August 8, 2016, AVG is updating its outlook for fiscal year 2016 as follows:
| (1) | Revenue outlook is expected to be in the range of $430 million to $440 million. |
| (2) | GAAP net income is expected to be in the range of $43 million to $46 million; GAAP net income per diluted ordinary share is expected to be in the range of $0.81 to $0.89. |
| (3) | Non-GAAP adjusted net income is expected to be in the range of $100 million to $104 million; non-GAAP adjusted net income per diluted ordinary share is expected to be in the range of $1.91 to $1.99. |
AVG’s expectation of non-GAAP adjusted net income for fiscal year 2016 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 neither audited nor reviewed.
Purchase Agreement with Avast
On July 7, 2016 AVG and Avast Software announced that they have entered into a purchase agreement in which Avast will offer to purchase all of the outstanding ordinary shares of AVG for $25.00 per share in cash, for a total consideration of approximately $1.3 billion. In connection with the agreement, AVG management has elected not to host a conference call to discuss its second quarter earnings results. The transaction is expected to close between September 15, and October 15, 2016.
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, net debt, free cash flow, cash conversion 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, net debt, free cash flow, cash conversion 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, net debt, free cash flow and cash conversion are measures of financial performance and liquidity, and have limitations as analytical tools, and should not be considered in isolation from, or as substitutes for, an 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.
