AVG Technologies' CEO Discusses Q4 2012 Results - Earnings Call Transcript

| About: AVG Technologies (AVG)

AVG Technologies N.V. (NYSE:AVG)

Q4 2012 Results Earnings Call

February 21, 2013 5:00 PM ET


Erica Abrams - The Blueshirt Group, IR

J. R. Smith - Chief Executive Officer

John Little - Chief Financial Officer


Melissa Gorham - Morgan Stanley

Peter Lowry - JMP Securities

Gregg Moskowitz - Cowen

Greg Dunham - Goldman Sachs


Good day, ladies and gentlemen. And welcome to the AVG Fourth Quarter and Fiscal 2012 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following today’s presentation, the conference will be open for questions. (Operator Instructions)

As a reminder, this conference is being recorded today, February 21, 2013. I would now like to turn the conference over to Ms. Erica Abrams of The Blueshirt Group. Please go ahead, ma’am.

Erica Abrams

Thank you, Chris. Thank you all for joining us today for AVG’s fourth quarter and fiscal year 2012 financial results conference call. Joining me on this call today are J. R. Smith, CEO; and John Little, CFO of AVG.

Before we get started today, I would like to remind you that this call is being webcasted and recorded. The webcast can be access live on the Investor Relations section of our website and via replay on our website shortly after the conclusion of our call. Our website can be access at investors.avg.com.

On this call today, we will be providing you information about our performance in Q4 and fiscal year of 2012. Some of our comments may include forward-looking statements, such as statements regarding our outlook for the first quarter and fiscal year 2013.

These forward-looking statements are based on certain assumptions and are subject to a number of risk and uncertainties. Actual results may vary materially. Please refer to the section entitled Forward-Looking Statements in our earnings release and read the risk factors including in our filings with SEC, including those in our annual report on Form 20-F.

I would also like to point out that results discuss today include certain non-GAAP measures, we provide these non-GAAP measures because we believe they are a valuable way to review our core operating results. These non-GAAP financial measures have not been prepared under any comprehensive set of accounting rule. We have provided a reconciliation of non-GAAP measures to their comparable GAAP measures.

Please refer to our earnings release with -- our earnings release which is available on our website and has also been filed on Form 6-K. They include reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures. For those interested we will also be posting our investor presentation on the AVG Investor Relations website at investors.avg.com within the next several days.

Now, I will turn the call over to J. R. for his remarks.

J. R. Smith

Thanks Erica. Thanks everybody for joining the call today. 2012 was a very exciting year for all of us here at AVG. Our first year as a publicly traded company, we grew our user base 35% year-over-year to 146 million users.

We accelerated our core software revenue growth from single digits at the time of IPO to 18% in Q4. We grew mobile users to 26 million and we delivered the most downloadable security solutions on the market today.

We also began successfully to deliver on our search revenue diversification strategy by signing non-exclusive search contracts with multiple search providers. The largest being of course Google and Yahoo! and we grew our platform revenue 64% year-over-year.

Today our connected world is border free, has multiple screens, multiple products and platforms, and provides us with infinite opportunities to communicate, share and access content from just about anywhere.

With this in mind, we create innovative software solutions, services and mobile applications that make our customers user experience more intuitive and easier, makes our devices offer a faster and more efficiently, and most importantly we keep them safe. I’ll add more color to this when I speak in more detail about our products later.

Our business has two main elements, both of which leverage our massive customer base, our brand and our technical expertise that drive growth. Our consumer business which includes software and mobile, and search business. Let me explain each parts of our business.

Let’s start with search, since I know that’s what in everyone’s mind. On February 1st Google change the guidelines for search distribution. Let’s talk about how we view this. We became aware of Google’s proposed guideline changes during our contract negotiations last year, so they have been factored into our 2013 thinking. All we have been both seen a decrease in our installed up take rates with Google, our search diversification strategy has limited the impact on our overall forecast for 2013.

Why? Well, there are basically four reasons. First, we’ve always been cautious in our forecast and we remain so as we enter into 2013. We significantly outperformed our projection in 2012 and while we expect our search business to grow in 2013, it will be at a slower rate.

Second, we’ve effectively diversified and de-risk our search business by signing multiple non-exclusive search contracts and again, the two more significant players being with Google and with Yahoo! We’ve successfully put ourselves in a position to decide where we send our search traffic.

Third, since the guideline modification and increased number of potential search distribution partners have begin to approach us due to the fact that our search product has great value. That’s why 90 million people today use it. We’ve already entered into 15 new distribution partnerships since the new guidelines have gone into effect.

And finally, as a number of our customers using our core software products continues to grow so will our search revenue.

We continue to work for new areas to optimize this business, including third-party distribution, search optimization and improving the overall customer experience. It’s important to point out that we will remain focused on margin accretive growth.

The way I look at the search business is pretty simple. As we drive solid growth in other parts of the business, we will continue to balance the amount of investment that we dedicate to search partnerships and/or [tech].

Now, let’s discuss our consumer business. It’s of course a predictable source of high growth revenue and it drives strong user base growth. In terms of our PC security offering, I’m really proud of our team this year for delivering a product that not only provide industry-leading protection but also increases your PCs speed.

A recent independent test confirmed that AVG 2013 on a Windows 8 device provides both great protection but also make your PC run faster, focused on privacy, performance and protection, this AVG 2013 product brings our system performance software, web and computer security, privacy and mobile products together in one integrated package. This product has five out of five rating on CNN.

With respect to system optimization, I’m sure you’ve all experienced the inevitable slowdowns that come with using a computer over two or three year period of time. Our Tuneup product eliminates these frustrating slowdowns by continuously optimizing your machine in real time. This type of functionality which we call live optimization is very unique in the industry.

In 2012, the number of malicious sites on Internet grew more than 600% and 85% of these sites were hosted on legitimate web platform that had been compromised. When you couple that with the fact that over 95% of all malware is delivered through the browser, it explains why over 90 million people choose to use AVG’s secure search product.

Our Do Not Track functionality is included in our software products and let you control your privacy settings. It helps you identifying block ad networks, social buttons and web analytics that potentially track your activity.

We were the first security company to release a Do Not Track product last year and today we are still the largest DNT company in the world by users and we will continue to take a thought leadership position in this arena.

In addition, we unify the customer experience within our products and across platforms. Our PC AntiVirus product now shares a similar customer experience to our mobile Android products. We also unified our messaging and are targeting capabilities across these products to support our future monetization efforts.

When we went public last February, this portion of our business was growing in single digits in Q4 it grew 18%. By continued growth far outpaces the industry growth rate which means we continue to take market share.

We will continue to diversify and grow this portion of our business across new devices and new product, while at the same time we’ll be looking for opportunities to drive efficiencies and to reduce costs. We expect to continue to see double-digit software growth in 2013.

On the mobile side of consumer, we have 26 million active mobile users. We are one of the largest players in this space. We have seen apps currently in the market, there are seven apps, excuse me, on the market today and we own the number spot with respect to download within Google Play for security apps. This part of our business has been wildly successful with respect to user growth.

As of the end of last year we’ve been adding 2 million new customers per month, which makes us arguably the fastest growing mobile company in the industry. Our mobile strategy remains focused around penetration. We acquire customers through a multiple products across a diverse set of devices and platforms.

With future monetization in mind, we have also been developing and testing our internal offer engines. This year, we released the latest version of our mobile product suite which is a fully integrated suite of functionality, one of the most comprehensive in the industry. As a result of this new release, our download volumes have doubled over the last few months.

When I joined AVG, my focus was on accelerating user growth and creating monetization vehicles to drive revenue growth. Over the last six years, we focused on customer acquisition and as a result, we’ve now got well over 100 million users that we monetize via our cross-sell and our up-sell engines, and through search.

So with respect to mobile, we’ve been here before. We have experience -- we have the experience and the technical expertise to effectively execute our mobile strategy. That’s why today we are once again focused on acquiring as many customers as possible -- as quickly as possible. We are mindful of the future need to monetize our mobile users and that’s why we’ve developed enough advertising capabilities, as well as analytics and auto offer functionality.

As I talked to you about last quarter, operational efficiency is always at the top of our mind and we are constantly looking to improve in this area. In Q4, we rationalize a significant part of our operations by saving approximately $13 million. We are going to reinvest this savings with a focus on mobile technologies, search partnerships and potential mobile acquisitions.

To wrap up, we finished 2012 much stronger than we started. We added 38 million more users to the AVG family. We increased deferred revenue by $30 million and we diversified our search business.

In 2013 our main focus will be on mobile user growth, on continued expansion and diversification of our search business, on the optimization and growth of our core software business and to accelerate our CloudCare, small business solutions and to continue to improve an unify analytics and offer platforms.

I want to thank all of the AVG family, which includes our investors, our employees and of course, our customers. We are thankful to all of you.

And now, I’d like to hand this over to John for more information.

John Little

Hello, everybody. I’ll review our performance for the fourth quarter and fiscal year 2012, and provide our outlook for the first quarter and fiscal year 2013. Before I get started, I’ll remind you that all figures are presented today will be on a non-GAAP basis, reconciliation to GAAP our available in our related SEC of earnings results.

In Q4, we reported revenue of $95.2 million, earnings of 33% per share, unlevered free cash flow $0.68 per share and free cash flow conversion 38%. Revenue was within the range of the outlook we provided last quarter and both EPS and cash flow exceeded our expectation. Net income for the fourth quarter increased by 59% and cash flow increased by 60% year-over-year.

For the fiscal year, we reported a record $356 million in revenue, net income of $1.40 per diluted share and unlevered free cash flow of $2.13 per share. Our active user account was 100 million at the year end, an increase from 143 million in the prior quarter, continuing the growth we saw an increase of $38 million during the year, most notably with the large increase in mobile users to 26 million from 20 million at the end of Q3.

Subscription user accounts at the end of the year was a gain about 15 million. As we ran this number to the nearest [million], we can confirm that his grew approximately 5% during the year.

Subscription revenue in the fourth quarter represented $53.6 million, or 18% organic growth. For the fiscal year, subscription revenue increased 12% year-over-year demonstrating solid reacceleration compared to 2011. Within our subscription business, our consumer segment grew 18% in 2012, driven by first purchase revenue from PC optimization and security renewal.

Our renewal tool and renewal rate continues to grow and improve. The SMB segment contracted 5% during 2012. We anticipate a reacceleration in SMB in 2013 as we transitioned our CloudCare product.

Turning to our platform-derived business. This represented $41.6 million in revenue, a 45% growth over the prior year’s fourth quarter. This is below what we expected due to a lower number of distribution partners during the quarter.

We suspended several partnerships that were not performing for our margin requirement. Searches continued to grow and we approached 2 billion searches for the quarter. For the fiscal year, platform revenue increased 64% reflecting good growth in our organic search business as well as better-than-expected performance in third-party distribution agreement, which developed mostly in the second half.

On a geographic and distribution basis, our business was broadly consistent with the prior quarter. Gross margin for the fourth quarter was 86% compared to 91% one year ago. This is primarily due to increased pack in our platform business.

Operating income was $25.6 million and operating margin was 27% as compared to 24% in the prior year, an improvement of more than 300 basis points. This operating performance was in line with our expectations.

As J. R. said during the fourth quarter, we rationalized our TuneUp operation and reduced headcounts in a number of locations. This led to $5.1 million in one-time charges which have been adjusted out for non-GAAP purposes. These actions allows us to redirect spending to key areas of growth principally on mobile business while maintaining operating margins at around 30% for 2013.

Interest and other expense in the fourth quarter was $5.3 million versus $6.3 million in the prior quarter reflecting the pay down of our debt.

Turning to the balance sheet, the deferred revenue December 31st was $181.3 million, up $90 million from the prior year and $30 million or 20% from December 31 at the prior year. Cash and cash equivalents totaled $55.1 million at December 31st. Net debt was $42.3 million.

During the fourth quarter, we made debt repayment of another $68.1 million. This leaves us with approximately $100 million of debt, which we expect will facilitate a positive outcome to our refinancing discussions.

Our debt was upgraded by S&P to BB status in the fourth quarter as a result of our continued business outperformance. During 2012 as a whole, we repaid $134 million of debt, which we’ll focus approximately $10 million in interest payments in 2013.

Turning to free cash flow. We generated $36.5 million in unlevered free cash flow during the quarter, a conversion rate of 38% compared to $24.4 million one year ago. For the fiscal, we generated $115.8 million in unlevered free cash flow, a conversion rate of 33%. This equates to $2.13 per share of free cash flow.

Cash tax rate for the full year was 15%. Interest paid in the fourth quarter was $2.9 million and for the full year $15.6 million. Today, we are introducing our outlook for fiscal 2013. We are guiding the total revenue in the range of $408 million to $420 million.

In our subscription business, we are planning for growth in the range of 19% to 23% for an outcome of $234 million to $240 million of revenue. We are confident in growth in our subscription business in 2013 for a number of reasons. First, deferred revenue has increased significantly. And 65% of 2013 revenues are already on the balance sheet.

Next, we continue to expect good sales from our PC optimization product. As people keep their PC longer, increasing our opportunity in this area. Finally, with an increase levels of renewals benefiting from the success of our auto renewal. In 2012, approximately 70% of our security concealment elected to participate in our auto-renewal program.

In our platform business for 2013, we are planning for revenue growth in the range of 9% to 13% for an outcome of $174 million to $180 million, comping of a very strong 2012.

As we realigned around recent Google guideline changes, we expect slightly less than 50% of that revenue from the platform business to come in the first half of the year, the growth accelerating in the second half. We are confident in growth in this business in 2013 because first, we’re seeing the increasing number of search distribution agreement while we are already seeing encouraging results.

Next, we have reduced our revenue concentration in the platform business through agreements with new search providers such as Yahoo! And finally, we are undertaking various other initiatives to expand our platform beyond pure research. Overall, our 2013 revenue outlook equates to estimated topline growth in the range of 15% to 18%.

Fiscal year 2013, we expect net income in the range of $95 million to $105 million, a non-GAAP EPS in the range of $1.68 to $1.88, growth of 20% to 33%. Unlevered free cash flow is expected to be in the range of $130 million to $140 million, which represents 12% to 21% growth over 2012.

For the first quarter of 2013, we are guiding the revenue in the range of $95 million to $98 million. We expect net income in the range of $20 million to $22 million, an EPS in the range of $0.35 to $0.40.

In summary, 2012 marked a positive year for AVG, our first as a public company. We significantly over performed on both the platform and subscription business to deliver 31% topline growth. Sales on deferred revenue by 20%, grew user traffic by 35% and translated all of this to operating and net income growth of 35%.

We did this while still investing in our future and delivering cash flow conversion of 33%. As we move into 2013, we are positioned to continue to drive topline growth while generating even stronger growth in net income and unlevered free cash flow. We look forward to reporting our progress to you during the year.

Now, let me turn back the call to J. R. for closing remarks.

J. R. Smith

Thanks John. John and I are very focused on a daily basis on the successful execution of our business strategy as evidenced by our strong financial results. We’re in an important phase of our growth as a leading provider of solutions that make our customers online experiences safer, faster and easier.

We are very pleased with our performance thus far and we’re really excited about the opportunities that lie ahead of us. With that, I’d like to open it up for questions.

Question-and-Answer Session


(Operator Instructions) And our first question comes from the line of John DiFucci with J.P. Morgan. Please go ahead.

Unidentified Analyst

Hello. This is Ken in for John. Just taking a look at your revenue guidance by segment. I wanted to drill into that a bit. When you look at your estimates for 2013 platform revenue, does that take into account any significant exchange between Google and Yahoo!

And then on the growth rate estimate for the subscription side, is any part of that deferred revenue built-up related to your ability to recognize deferred, relative to the TuneUp acquisition?

J. R. Smith

So we’re looking at two elements back. I mean, obviously TuneUp has been an enormous success for us in 2012. And so we’ve accelerated that significantly from when we bought it. Organic growth has been tremendous. Yeah, that has certainly significantly contributed to the business. And we would expect search as well as renewal that continued to grow that.

The platform business, again we modeled that as we did at the beginning of last year which is that we model what we have visibility on right now. And so that does include our estimate for the diversification of that revenue absolutely.

Unidentified Analyst

And just from a, one of the questions that we get is how economics might differ between Google and Yahoo! I just want to understand that are they similar. Can you give us anything that directionally might help us understand the difference that you guys would recognize even over a lifetime value or short-term from a user doing a search through either Google or Yahoo!

J. R. Smith

I think it’s important to understand that these fields aren’t really apples-to-apples, that there are different aspects of both. And so we can’t really speak to that due to our confidentiality agreement. I don’t think they would appreciate if I start to talk too much about the economics of those fields.

But we’re in a position now where we have to evaluate a lot of different variables and really look at where we’re going to get the best return. And so that’s how we will remove our traffic. But I’m comfortable in saying that diversification strategy is working and it is good that we’ve got two viable sources of revenue, in fact, more but those are the two biggest. So that we can make those choice.

Unidentified Analyst

Great. Thank you very much.


And our next question comes from the line of Greg Dunham with Goldman Sachs. Please go ahead.

Unidentified Analyst

Hi. This is [James] in for Greg Dunham. Some of the questions we’re getting from investors about the toolbar changes at Google. Is this Yahoo! is likely to implement similar restrictions? What level of comfort do you have about Yahoo! to follow Google with those changes? Thank you.

J. R. Smith

Yeah. I can give you my personal opinion on that. I think that Marissa has made it very clear that she wants to take market share into space. I think companies like AVG, they’re very transparent about the installation of software, I’m sorry, the installation of search and the toolbars and also making it easy to uninstall our products, if we just decide, they don’t want to use it, puts us in a position where, we’re considered to be very, very non-aggressive, I guess.

I don’t think that Yahoo! is going to make any strategic moves or any aggressive moves to eliminate or to go the direction that Google is going simply because right now they’re in very much an acquisition and market share or a market grab tight situation.

Unidentified Analyst

Okay. Thank you.


And our next question comes from the line of Adam Holt with Morgan Stanley. Please go ahead.

Melissa Gorham - Morgan Stanley

Hi. This is Melissa Gorham calling in for Adam. I just have a question on the number net ads in the quarter. So it seems like you added 3 million users quarter-on-quarter but you added 6 million mobile users quarter-on-quarter. So that sort of implies that the number of desktop active users declined quarter-on-quarter. Is that right and if so why is that?

J. R. Smith

That is right, Melissa. And that is as a result of the search distribution again, taking there the number of partnerships or the number of active partnerships that we did during the quarter, resulted in a reduction of the search distribution users in the quarter. And that was wholly responsible for that reduction that you saw?

Melissa Gorham - Morgan Stanley

Okay. That makes sense. And then just going back to the subscription business, you all are seeing a nice acceleration in growth this quarter and obviously guiding to the nice acceleration as well. So what -- can you characterize what is driving that in terms of your core security products versus some of the adjacent products like PC Tuneup. Is it mostly just coming from the adjacent products or you also seeing growth in your core base as well?

J. R. Smith

I think there is a couple of things to look at there. I think number one is a lot of that growth was driven out by the fact, as John mentioned during his conversation that we’ve improved our renewal rates and so you’re seeing that number continue to grow and to drive revenue. And also with our Tuneup product, as we continue to diversify our software portfolio and lot of the first purchases are coming through that that product as well. John, do you have anything else you would like to add?

John Little

No. I think that’s just the key point. As the PC population is getting older, people are replacing PCs less frequently than that PC optimization is just a big opportunity for us and we’ve seen good growth in 2012 and we expect to see that continue.

On the renewal side, there are a number things going on. Auto renewal is clearly the most successful at 70% uptake on that now. If you remember two years ago, we were getting 15%. So that’s just tremendous acceleration and the best thing is, of course the best is still to come in terms of the real upside that’s been delivered through that program. So we are pretty excited about those two things.

Melissa Gorham - Morgan Stanley

Okay. Great. And then are you seeing any impact from Windows 8 on at this point in terms of that churn in your base?

J. R. Smith

You cannot just -- first, I was taking on the first part of that question. You say again.

Melissa Gorham - Morgan Stanley

Are you seeing any impact from Windows 8 yet on the churn rate of your base?

J. R. Smith

No. Absolutely not. They are still behaving very, very nicely with respect to how they offer the product and I can go into that detail but it hasn’t changed since the last time we spoke.

Melissa Gorham - Morgan Stanley

Okay. Great. Thank you.


And our next question comes from the line of Peter Lowry with JMP Securities. Please go ahead.

Peter Lowry - JMP Securities

Hi. Great. Thanks. I guess, can you elaborate a little bit on, what it was specifically that lead to the few partnerships that you suspended during the quarter?

J. R. Smith

Yeah. Definitely. Those were mainly driven out the fact that we are in a position where we constantly evaluate partnerships and we are looking at this revenue stream and the margins that we make up with each businesses into these partnerships need to be margin accretive. And if they are not then we work a little bit with the partners to see how we can optimize that and if not, then we terminate those contracts and that was the main driver behind that.

Peter Lowry - JMP Securities

Okay. Great. And then, could you comment just if you’ve seen any changes in the competitive environment, I guess specifically on the page side with Symantec and then on the street side with Avast! and something.

J. R. Smith

At what environment, can your repeat?

Peter Lowry - JMP Securities

The competitive environment?

J. R. Smith

The competitive environment. I think that with our increased growth percentage within our software business, we believe that we are definitely taking market share. I don’t -- we don’t see a lot of competition coming from McAfee due to -- I think the product itself. I think Symantec continues to be a strong player in the market as the number one brand. But again, I think that we’ve really focused on requirements such as do not track and mobile and I think that those are paying great. Does that answer your question?

Peter Lowry - JMP Securities

That was great. Thanks.


And our next question comes from the line of Gregg Moskowitz with Cowen. Please go ahead.

Gregg Moskowitz - Cowen

Hi. Thank you very much. Just a follow-on from Melissa’s question on the auto-renew. So getting up to 70% currently, obviously, a good improvement over the past couple of years, just wondering how much more headroom you see looking forward and kind of what are you accounting on there around for 2013?

John Little

So, I think on the 70%, we seem to have stabilized with approximately that number, Greg. So, again, we are not creating anything else into the way that we model it right now. I think what is encouraging is that that’s going to start to see through the numbers. Let me just give you another stats around that, which might be helpful.

During 2012, approximately 25% of our renewables came from auto-renewal sources. So you can see that there is still a big lot of headroom for that to move up to the 70% overall. So that’s I think the element we would see is encouraging over the next, but not just the next year actually but beyond that.

Gregg Moskowitz - Cowen

Okay. That’s very helpful, John. And then on the platform side, so you did talk about as J. R. did as well of the suspension of some of those partners. But in terms of looking at the sequential revenue decline for platform which was about 10%, can you give us a sense of what we might have seen on an apples-to-apples basis? In another words, if we did not have a significant number of partners that were suspended during the quarter.

John Little

I think on the last call, we said to you that Q3 was just a fantastic quarter for us. We did $46 million upfront, $35 million the quarter before that. And if you look at that trend, if you think about it in trend terms, $35 million at the half year of the second quarter, $41 million for the fourth quarter, that’s still a pretty positive trend that we are putting in there. So, I think it’s probably better overall to think of it in terms of the over performance in Q3. And then it’s quite hard to quantify the extent to which we really mix -- where we would mix that particular bit of revenue. I mean, we reduced the number of partners but seeing what it might have been, it’s an awful lot.

Gregg Moskowitz - Cowen

Okay. Okay. And then, J. R. also, obviously all of us now about the guideline changes from Google recently. I’m just kind of wondering if you might be willing to walk-through in a little more detail. Which of the changes you see as being relevant to AVG and what the expected effect of each might be? And I realize this might potentially require us a more longer answer, but at the same time it might be helpful to everybody on the call?

J. R. Smith

Yeah. Happy to talk about that. The guideline changes are -- there’s a lot of different elements, some impact but some don’t. Some impact us quite positively. Some impact us just a little bit negatively. I can give you the examples of both if you like. But at the end of the day, I think the biggest change was we are required to have a forced decision in the downward process as opposed to an opt-out.

So we’ve always been pretty transparent about that. So it will have an impact on those numbers. But the fact that we’ve not been aggressive and the fact that we could have to diversified this revenue stream will have a split impact on us and thus, we’ve seen our guidance.

I think it’s going to impact more than just the opting status. When you look at our business, we’ve got tens of million people that are already using that product on a daily basis and those are off the back of Google platform. And so that’s another reason why we feel people are optimistic. We can be a little bit more optimistic.

I can’t really go into super detail on this, simply because it’s a confidence of document. So that probably is -- I think I pointed out the biggest win. I could give a positive in there. We have come back and said, we can more ads on every single page which could have anywhere from a, 8% to 15% increase in that number. So, I that think there’s again some positives.

Gregg Moskowitz - Cowen

Okay. Thanks, J. R. That’s very helpful.


(Operator Instructions) And our next question comes from the line of Greg Dunham with Goldman Sachs. Please go ahead.

Greg Dunham - Goldman Sachs

Yeah. This is Greg. I have been on a couple of different calls today. Can you hear me?

J. R. Smith

Yeah. We can.

Greg Dunham - Goldman Sachs

Hey, guys. I wanted to follow-up on Gregg’s question just a little bit and just maybe get a sense. I know you guys provided an outlook for the platform business for the year that was pretty healthy given the fact that I think there are some concerns out there given the impact of some of these changes going on. And I guess perhaps maybe you could address, what you’ve seen thus far in Q1 and maybe perhaps even in February in terms of the platform business and how that’s trending?

J. R. Smith

I think the one important thing that we’ve seen is that due to some of the changes, the guideline changes, we are seeing a large interest in AVG with respect to our products and becoming a partner, a distribution partner. So we signed 15 deals since February because there is just a lot more demand that has been pretty positive.

I think that with the diversification strategy -- it is just really nice to be able to provide where you change your traffic and we’ve been able to balance that and we will continue to balance that and to experiment and optimize that and also wait. So, I don’t know if that gives you guidance.

Greg Dunham - Goldman Sachs

It helps. I guess the other question I had is, with Aqua, the cost in the acquisition line that you did from a cash perspective. What did you acquire and maybe can you address plan for acquisition strategy when you look out to 2013?

J. R. Smith

When you look at last year and you look at this year, we are really focused on mobile. And I think that there’s a lot of opportunity to consolidate and to expand our footprint as far as applications and needs that generate revenue. And so we are very focused on that. So, I can say that you are going to hear some good news on that front with respect to our unbelievable acquisitions. And again that’s the key, that’s where we are mainly focused.

John Little

The acquisition that you saw in Q4 was the completion of our Australia distribution partner that we spoke to on the Q3 call. That’s the movement that you can see that as the specific item where you can see it and how we expect in that. So there is nothing else apart from that we did in Q4.

Greg Dunham - Goldman Sachs

Okay. Great. Thanks.


And we have a follow-up from the line of Gregg Moskowitz with Cowen. Please go ahead.

Gregg Moskowitz - Cowen

Thanks very much. Hi, guys. Just a couple of follow-ups. Inclusive of the 15th social distribution that you have signed up since early February, obviously it’s a big number. Just wondering roughly where you stand right now in terms of total number of distribution partners? Hello.

J. R. Smith

Can you hear me, Gregg?

Gregg Moskowitz - Cowen

Now, I can.

John Little

Okay. Yeah. That number has gone well over 30 today.

Gregg Moskowitz - Cowen

Okay. And, J. R., how are you thinking about the -- I know this is obviously very early days. We haven’t really seen anything yet, but how are you thinking about the opportunity in mobile search as you look at 2013 and beyond?

J. R. Smith

I think mobile search is going to be a difficult one, because you’re competing in a new market, which is predominantly owned by Google. You are also competing with the operator with respect to search because they’ve also got their tactical search window in there and we are engaging and we are distributing the product through a lot of operators

And so, well, I think there will be some opportunity there. I think there is bigger opportunities to understanding the customer through the spot offers and some of the downer technologies that we are putting in. And we’ve got quite a few other things I’d like to talk about right now, but I think it’s better for competitive reasons not to. So we are looking at a very diverse and sometimes new ways to monetize mobile platform, we are really excited to talk about but in distant future.

Gregg Moskowitz - Cowen

Great. Thanks, again.


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