UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)



x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 333-189129-16

Ancestry.com LLC

(Exact name of registrant as specified in its charter)




Delaware		37-1708583
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

360 West 4800 North Provo, Utah		84604
(Address of principal executive offices)		(Zip Code)

(801) 705-7000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ý No ¨

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No ý

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No ý

As of February 19, 2016, 100% of the registrant’s common interests outstanding (all of which are privately owned and are not traded on any public market) were owned by a sole member.

DOCUMENTS INCORPORATED BY REFERENCE

None

Ancestry.com LLC

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	Page
PART I
Forward Looking Statements	3
Terminology	4
Item 1. Business	4
Item 1A. Risk Factors	11
Item 1B. Unresolved Staff Comments	32
Item 2. Properties	32
Item 3. Legal Proceedings	32
Item 4. Mine Safety Disclosures	34

PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	35
Item 6. Selected Financial Data	36
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 7A. Quantitative and Qualitative Disclosures about Market Risk	61
Item 8. Financial Statements and Supplementary Data	61
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	62
Item 9A. Controls and Procedures	62
Item 9B. Other Information	62

PART III
Item 10. Directors, Executive Officers and Corporate Governance	63
Item 11. Executive Compensation	66
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	72
Item 13. Certain Relationships and Related Transactions, and Director Independence	74
Item 14. Principal Accountant Fees and Services	75

PART IV
Item 15. Exhibits, Financial Statement Schedules	76

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PART I

Forward-Looking Statements

This Annual Report on Form 10-K (the “Annual Report”), including the sections entitled “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements relating to future events and future performance. All statements other than those that are purely historical may be forward-looking statements. We may, in some cases, use words such as “project,” “believe,” “anticipate,” “continue,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “potentially,” “will” or “may,” or other words that convey uncertainty of future events or outcomes, to identify these forward-looking statements. Forward-looking statements in this Annual Report include statements about:


•	our future financial performance, including our revenues, cost of revenues and operating expenses, and our ability to sustain profitability and achieve long-term growth;


•	our ability to generate additional revenues on a cost-effective basis;


•	our ability to attract and retain customers;


•	the size of our total addressable market;


•	our high degree of leverage and our ability to service our debt;


•	our intention to make payments to our parent, including those related to the PIK Notes;


•	our ability or our parent’s ability to take on additional debt;


•	risks related to the “Notes” and to high yield debt securities generally;


•	the potential impact of debt covenant restrictions on our flexibility in operating our business;


•	our ability to monetize and to create a meaningful mobile experience for our customers;


•	our ability to develop new services or technologies that will appeal to our customers and drive growth in our business;


•	our competitive position;


•	our pricing and subscription package mix;


•	our ability to protect users’ data and privacy concerns and to comply with privacy and security standards and laws, including data related to our AncestryDNA and AncestryHealth services;


•	our ability to acquire content and make it available online;


•	our ability to attract and retain highly qualified personnel;


•	our continued investment in and expansion of our international operations, including our international expansion of AncestryDNA;


•	our ability to manage costs and control margins and trends;


•	the impact of current and potential legislation and regulatory changes on privacy, subscription renewal, DNA or other aspects of our business;


•	our liquidity and working capital requirements and the availability of cash and credit; and


•	the impact of claims or litigation.

Although we believe that the assumptions underlying the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. There are a number of important factors that could cause actual results to differ materially from the results anticipated by these forward-looking statements. These important factors include those that we discuss in this Annual Report under the caption “Risk Factors” and elsewhere. You should read these factors and the other cautionary statements made in this Annual Report as being applicable to all related forward-looking statements wherever they appear in this Annual Report.

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If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. All subsequent written or spoken forward-looking statements attributable to our company or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this Annual Report are made only as of the date of this Annual Report, and we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

As used herein, “Ancestry.com,” “we,” “our” and similar terms include Ancestry.com LLC and its wholly-owned subsidiaries, unless the context indicates otherwise.

Terminology

In this Annual Report, we use the terms core Ancestry websites, subscriber, customer, user and record.

Our operations consist primarily of our flagship site, www.ancestry.com, and its affiliated international websites including Ancestry.co.uk, Ancestry.com.au and Ancestry.ca, among others. We refer to these websites collectively as our core Ancestry websites. A subscriber is an individual who pays for renewable access or redeems a gift subscription to one of our core Ancestry websites. A customer is an individual who pays for any of our services, such as our AncestryDNA service, and includes subscribers. A user is a person who interacts with any of our websites or services and includes subscribers and customers.

We use the term “record” in different ways depending on the content source. When referring to the number of records in certain of our company-acquired content collections, such as a census record, we mean information about each specific person. For example, a draft card will typically be counted as one record, as will each line in a census, because each contains information about a specific individual. When referring to unstructured data, such as a newspaper, we define each page in those data sources as a record.

Item 1. Business

Overview

Ancestry.com is the world’s largest provider of family history and personal DNA testing services, harnessing the information found in family trees, historical records and genetics to help people gain a new level of understanding about their lives. We believe most people have a fundamental desire to understand who they are and from where they came. By leveraging the latest technology and science, we help people discover, preserve and share their family history.

Our core Ancestry websites have over 2.2 million paying subscribers around the world and an extensive collection of more than 17 billion historical records that we have digitized and indexed as of December 31, 2015. These digital records and documents, combined with our proprietary online search technologies and tools, enable our subscribers to research their family history, build their family trees, upload their own records and make meaningful discoveries about the lives of their ancestors. In 2015, approximately 1.5 billion records were attached to family trees. Subscription revenues from our core Ancestry websites accounted for approximately 78% of total revenues for the year ended December 31, 2015.

Our AncestryDNA service, with approximately 1.4 million DNA samples in its database as of December 31, 2015, enables customers to uncover their ethnic mix, discover distant cousins and identify shared common ancestors. AncestryDNA leverages its growing DNA database together with proprietary algorithms to help customers identify their unique family history.

We also offer other subscription-based and family history research services, such as Archives.com (“Archives”), Fold3.com (“Fold3”), Newspapers.com and AncestryProGenealogists, which extend and complement our core Ancestry websites. Subscriptions to Fold3 and Newspapers.com are often sold in conjunction with one of our core Ancestry website subscriptions.

Our services provide people with multiple paths to discovering their family history. We believe we provide ongoing value to our subscribers by regularly adding new historical content, by enhancing our services and platforms, by utilizing the latest technology and science and by enabling greater collaboration among our users.

In 2015, we delivered strong financial results and continued to position the company for long-term growth through execution of our business strategy. Our key business highlights during the year include the following:


•	total subscribers to our core Ancestry websites as of December 31, 2015 increased approximately 7% compared to December 31, 2014;

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•	AncestryDNA sold approximately one million DNA kits for the year ended December 31, 2015, an increase of over 93% in comparison to the year ended December 31, 2014;


•	we completed our upgrade to the core Ancestry websites, a broad redesign that allow users to build family stories in a narrative format;


•	we launched new features to existing services including New Ancestor Discoveries—an experience using the latest genetic technology to discover new ancestors without the customer having to search records or build a family tree;


•	we added more than 1.7 billion records of content to our core Ancestry websites, including an extensive collection of probate and will records from across all 50 states; and


•	we introduced new services, such as our beta launch of Ancestry Health.

Business Strategy

Our goal is to remain the leading provider of family history and personal DNA testing. In pursuit of our goal, we will continue to focus on the following objectives:


•	Further enhance our services by investing in technology, content and user experiences;


•	Diversify and grow our revenue streams;


•	Continue to expand our services globally; and


•	Strengthen our premium brand.

We believe that our investments in the latest technologies and sciences and our investments in acquiring new and relevant historical content, including the growth and promotion of user-generated content, enhance our services and make family history research easier, more enjoyable and more accessible. We also believe that our ongoing efforts to invest and grow our AncestryDNA service as well as our other subscription-based and family history research services are diversifying our revenue streams and providing additional growth opportunities for our business. We seek to do that, in part, by cross-promoting our services or up-selling premium services to our current customers. In addition, we expect to expand globally by growing our existing brands and service lines into new international markets. Furthermore, we believe that these efforts as well as our continued investments in television media and consumer marketing will allow us to strengthen our premium brand, increase awareness of the family history category and enhance our ability to acquire new customers.

Our Services

We offer a wide array of family history services that enable people to uncover their family history in a personalized way, ranging from searching family history records on our subscription-based websites to helping people discover their detailed genetic ethnicity through advanced DNA testing services. In addition to offering each of our services individually, our premium services may include a bundled offering of multiple service lines, such as our all-access subscription, which includes a subscription to a core Ancestry website, Fold3, a Newspapers.com basic subscription and Ancestry Academy.

Core Ancestry Websites. Our core Ancestry websites consist of our flagship site, www.ancestry.com, and its affiliated international websites including Ancestry.co.uk, Ancestry.com.au and Ancestry.ca, among others. Each core Ancestry website offers various subscription packages to access collections of digitized historical records and user-generated content, including family trees. Subscribers can efficiently search through our extensive and growing collection of global and specialized records, attach relevant records to individuals in their family trees and build a narrative of their family history that can be shared with family members and other members of the subscriber network. Using proprietary algorithms, Ancestry also offers hints to subscribers to enhance their discovery of new records and family connections. Ancestry's content covers a wide range of historical and cultural subject areas, including birth, marriage and death records, census records, immigration documents, photographs, maps, military records, personal narratives and newspapers.

AncestryDNA. AncestryDNA is an advanced DNA testing service that helps people discover their ethnic origins and find family connections. AncestryDNA identifies potential ancestors to add to a customer's family tree and connects customers whose DNA suggests they have common ancestors. Customers, who also have a subscription to a core Ancestry website, are then able to view additional content associated with these DNA matches, which further enables new discoveries and collaboration between members. As our DNA database grows, our ability to provide improved ethnicity results to our customers also increases. Additionally, we continue to provide our customers with new hints and content regarding these potential DNA matches as our DNA database grows.

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Archives. Archives is a family history website that makes discovering family history simple and affordable. Archives offers a differentiated service to a complementary segment of the family history market and access to approximately 4.3 billion historical records, including birth records, obituaries, immigration and passenger lists, historical newspapers and U.S. and U.K. censuses.

Fold3. Fold3 is our website specializing in military records, including the stories, photos and personal documents of the men and women who served. Users are able to discover and share these records and, combined with their own documents, create an online memorial for someone who served.

Newspapers.com. Newspapers.com is our website specializing in historical newspaper records with over 120 million pages of historical newspapers from across the United States and beyond. Newspapers.com collaborates with various newspaper publishers and archives worldwide to obtain new content, including a collaboration with Gannett Co., Inc. to digitize more than 80 daily U.S. newspapers. Newspapers provide a unique view of the past and help users understand and connect with the people, events and attitudes of an earlier time.

AncestryProGenealogists. AncestryProGenealogists is our provider of professional family history services that offers customers dedicated, personal support for their family history research. These services range from record searches to the preparation of comprehensive family histories. Clients typically pay a per-hour rate for these services. In addition, AncestryProGenealogists conducts family history research that supports Ancestry’s marketing and public relations initiatives.

Find A Grave. Find A Grave is a free website for finding and researching the final resting places of famous individuals, family members and friends. The Find A Grave website provides a significant collection of burial information and images with more than 141 million grave records and 122 million photos.

Ancestry Academy. Ancestry Academy is a new educational resource that offers high-quality video instruction from family history and genealogy experts. Ancestry Academy covers a wide range of topics of interest in family history research, including Native American ancestry, online US census research and DNA testing.

AncestryHealth. AncestryHealth is a free beta website that we launched during 2015 that helps users trace medical conditions along family lines and gain insights to their health. We are in the early stages of investing in AncestryHealth and expect to invest in additional health initiatives in 2016.

Marketing and Advertising

Our marketing efforts are focused on three primary goals: promoting our brand and acquiring new customers; retaining existing customers; and winning back former customers.

Brand Marketing and Customer Acquisition. We pursue a multi-channel marketing and customer acquisition program that includes television and sponsorship advertising, paid and organic search marketing, online display advertising, content marketing, promotions and affiliate programs. Through our advertising, we seek to increase brand and category awareness while attracting new customers. We actively manage our media mix with a goal of maximizing the efficiency of our marketing investment while effectively driving new customer growth. We focus on improving conversion through all stages of the acquisition process, from contemplation of visiting one of our sites to purchasing a service. As part of this process, we continuously test and optimize messaging flows, pricing and packaging. Once an individual is in our contact database, we engage them through on-going targeted communications and offers.

Retention Marketing. Our retention marketing is focused on establishing and maintaining long-term relationships with our customers through personalized direct marketing, including on-site and off-site messaging and email and through our customer support. We seek to increase engagement and maximize retention by delivering a superior customer experience and demonstrating ongoing value. We also cross promote additional services or up-sell premium services, such as our all-access package, to our current customers in order to increase our revenue per customer. We monitor subscription package and duration mix on our various websites, payment processing, cancellation reasons, customer engagement and overall customer satisfaction.

Win-Back Marketing. We attract, or “win back,” a significant number of lapsed or former customers who return to their family history research after a period of inactivity. We seek to win back these customers through personalized direct marketing, on-site and off-site messaging, targeted offers and compelling features like record hinting on new and existing content collections and matches to other users’ family trees. We also may market a different service offering from what was originally purchased, such as AncestryDNA to a former subscriber, to reignite their interest in family history.

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Technology

We have applied substantial resources to develop and maintain proprietary technologies designed to provide a rewarding experience and compelling value proposition to our customers. For example, in 2015, we completed a broad redesign of our core Ancestry websites to provide subscribers the features and tools to better build their family stories in a narrative format that is more engaging and easier to share with family and friends. We believe our investments in these areas provide us with a competitive advantage, and we intend to continue developing and enhancing these proprietary technologies. Total technology and development expenses were $97.1 million, $94.2 million and $85.7 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Search. Historical documents can be difficult to search effectively using general search engines because of variations in names, changes in geographic boundaries and other factors. Our proprietary search engine provides an innovative, technology-driven solution to the challenges created by the inherent difficulty of searching historical content. Our search solution focuses on structured and semi-structured records in addition to free text search, automatically corrects for incomplete information and incorporates name, date and location proximity algorithms to make searching easier for our subscribers.

Hints. Our proprietary record hinting technology performs an algorithmic analysis of users’ family trees and then suggests new records to help subscribers discover more information about their ancestors. We believe that these personalized hints can accelerate our subscribers’ research, thereby making them more successful and their experience more rewarding. In 2015, approximately 1.2 billion hints were accepted by our subscribers. We plan to continue to make improvements to our hinting functionality to help make discoveries even easier.

DNA. Our AncestryDNA service uses a microarray-based autosomal DNA test, which surveys a person’s entire genome at over 700,000 regions of their genetic code using DNA extracted from a saliva sample. We then leverage proprietary algorithms and DNA reference samples from around the world to estimate a user’s ethnic origins. Our DNA technology also identifies potential ancestors and enables users to connect with groups of other users with whom they share DNA and with whom they share a common ancestor in their family tree.

Mobile. We continue to invest in mobile technology and believe our mobile apps and mobile web experience are well-suited to provide a simple and convenient way for new users to get started in family history and to provide greater accessibility to existing customers. We recently enhanced our mobile web experience with improved responsive design capabilities as part of the upgrade of our core Ancestry websites. Our mobile Ancestry apps for both iOS and Android have been downloaded more than 13 million times and offer a near-complete Ancestry experience, including the ability to create family trees, access their existing family trees, receive and evaluate hints, search for records, upload photos and collaborate with other members of our community.

Big Tree. We refer to our ability to aggregate records and calculate relationship paths to other users and potential ancestors as the Big Tree. Through this technology, we have stitched together 8 billion profiles from over 78 million family trees from our core Ancestry websites. The Big Tree enables us to more quickly onboard customers into a subscription and make improvements to our search results and hints provided to these subscribers.

Content Process and Technologies

We believe the foundation of our services is our extensive content offering. In 2015, we added more than 1.7 billion records to our core Ancestry websites' content collections, including over 150 million images of U.S. probate and will records from across all 50 states, 200 million Mexican Civil Registration records and 70 million German records. In addition, our DNA database has approximately 1.4 million samples as of December 31, 2015. Our vast family tree and DNA data not only allow us to better hint new content discoveries to our customers but also has created a database resource for private third-party research. We regularly add new content so that our customers are able to continue making new discoveries in their family history research. We acquire content primarily through the following methods:

Institutional Content. Institutional content represents content that we have acquired, digitized and/or indexed, including content we have acquired through business acquisitions. These records include birth, marriage and death records, census records, immigration documents, maps, military records, newspapers, among others.

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•

Acquisition. We acquire the rights to historical records from national, state and local government archives, historical societies, religious institutions and private collectors of historical content around the world. We have built long-term relationships with these content partners, such as the United States National Archives and Records Administration, The National Archives of the United Kingdom and FamilySearch. We seek to maintain and extend our existing strategic relationships with these partners and to find new sources of unique family history content throughout the world. We believe our content collections and relationships provide us with a competitive advantage. We plan to continue to acquire new content and build new relationships on an ongoing basis to offer our users additional historical records for their research. We own most of the images in our databases though we generally do not own the underlying original historical documents.

•

Digitization. Working with historical documents is challenging because many source documents are handwritten or damaged, and many microfilm images are of poor quality. We have developed proprietary technologies and processes that have allowed us to efficiently handle and digitize hundreds of millions of documents that vary significantly in format and quality. We digitize content in our headquarters in Provo, Utah and in multiple locations around the world.

•

Indexing. We have invested significant resources in creating indexes of records to make our content collection accessible and searchable for our subscribers. We outsource a significant portion of our indexing projects to vendors that create these indexes from handwritten documents. We generally own the indexes that our vendors create. We have also developed proprietary algorithmic technologies that allow us to efficiently create fielded and searchable indexes for printed record sources, such as directories and electoral rolls.

User-Generated Content. Our users are a meaningful source of content, principally by creating family trees through their research. As of December 31, 2015, we have more than 78 million family trees containing more than 8 billion profiles on our core Ancestry websites. Additionally, our Find-A-Grave website has more than 141 million grave records and 122 million photos that were contributed to the site by users. Individuals often have significant family records, photographs and stories that are of interest to others with common family history. Uploading these records not only preserves them from damage or destruction, but also makes them sharable and accessible globally to other subscribers. The publicly-shared family trees on our website can offer many subscribers a head start in their family history research. As of December 31, 2015, users with publicly-shared family trees have uploaded over 176 million pieces of content, such as photographs, written stories and scanned documents to our core Ancestry websites.

DNA Content. Our growing DNA database forms a genetic network that is expanding rapidly and can be leveraged to provide deeper insights. Our DNA network, in combination with our 78 million family trees, allows users to receive content hints regarding distant living cousins and potential ancestors. As our DNA database grows, our ability to provide customers with additional family history discoveries also increases. In addition, our DNA database is a resource for private third-party research.

Other Content Sources. We also scan, or crawl, searchable external online resources for additional content that is then made accessible on our websites. Crawling content in this manner allows our core Ancestry websites to function as a genealogical search engine, providing users access to a broader range of family history content on the web with the functionality of our core Ancestry websites’ proprietary tools and features. The source of the crawled content is attributed to the third parties from which the content is derived and can provide a valuable source of traffic to the websites of small archives, libraries, and family history societies around the world.

We also produce instructional videos on various topics of interest in family history research. In addition, we have created narratives around historical events, such as the Revolutionary War or the Irish potato famine, to help our customers discover the stories behind their family trees.

Operations

Substantially all of our communications, network and computer hardware used to operate our websites are co-located in a third-party facility in Salt Lake City, Utah. We also store certain data in a third-party facility in Ireland. In addition, we utilize a combination of third-party, Internet-based or “cloud” computing services and off-site backup services in connection with our business operations and our disaster recovery systems. We have designed our websites to be highly available, secure and cost-effective using a variety of proprietary software, third-party services and freely available and commercially supported tools. We can scale to accommodate increasing numbers of users by adding relatively inexpensive industry-standard hardware. We use encryption technologies and certificates for secure transmission of personal information between users and our websites, and we employ additional security controls in regards to DNA and personal identifiable information. Maintaining the integrity and security of our websites and data is critical, and we have a dedicated security team that drives compliance with data security standards.

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For further discussion refer to the following risk factors within Item 1A. Risk Factors – Risks Related to Our Business:


•	Cyber-attacks, continued service outages or significant disruptions in service on our websites or in our computer systems, which are currently hosted primarily by a single third party, could damage our reputation and result in a loss of customers, which would harm our business and operating results; and


•	Our possession and use of personal information presents risks that could harm our business. Unauthorized disclosure or use of such data, whether through breach of our network security or otherwise, could expose us to significant liability and damage our reputation.

Competition

We face competition from a variety of sources including profit and non-profit entities, government agencies, genealogical societies and DNA testing providers. We expect our competition to grow primarily through the emergence of new participants in our existing markets. We generally compete on the basis of content, technology, ease of use, brand recognition, quality and breadth of our products, service and support, price, genotype database size and the number of network users with whom other users can collaborate. Many external factors, including the cost of marketing, third-party services, content acquisition, technology, regulatory requirements and approval and our current and future competitors’ pricing and marketing strategies, can significantly affect our competitive strategies, including pricing. We believe that we compete favorably with respect to these factors, and that none of our competitors offers as broad an array of services or as compelling a value proposition to consumers interested in online or genetic family history research.

Our competitors may have greater resources, more well-established brand recognition or more sophisticated technologies, such as search algorithms or DNA or health technologies, than we do. Additionally, our competitors may more easily provide products and services in domestic and international markets or offer new categories of content, products or services before we do, or at lower prices, which may give them a competitive advantage in attracting customers. The markets for Internet-based services, health information, and genetic services evolve at a very rapid pace, and our competitors may offer products and services that are superior to any of our products and services or may release new products and services sooner than we can. In addition to competition from outside sources, certain of our services may compete with our core Ancestry websites for subscribers.

For further discussion refer to Item 1A. “Risk Factors – Risks Related to Our Business – We face competition from a number of different sources, some of which offer products or services at lower prices than we do, and our failure to compete effectively could materially impact our revenues, results of operations and financial condition.”

Intellectual Property

We regard protection of our intellectual property, including content, as an important factor to our success. To protect our proprietary content and intellectual property, we rely on trademark, copyright, patent and trade secret protection laws and on contractual agreements with third parties. We rely primarily on trade secret and similar intellectual property laws to protect our search technology, software products and digitization and indexing processes. In the United States, we currently have several patents issued, including for digitization, indexing, storage, correlation, display of content and related to our AncestryDNA service, and we have additional patents pending. We own numerous trademark registrations for the trademarks for our services in the U.S. and internationally. Some of our trademarks contain words or terms having an arguably common usage and, as a result, may not be protectable under applicable law. Because of this concern, we have elected not to file applications with respect to certain of our trademarks, and some of our trademarks for which we have filed applications have encountered and may encounter obstacles.

While we possess intellectual property rights in aspects of our digital content databases, these content databases are not protected by any registered copyrights or other registered intellectual property or statutory rights. Our content databases are protected by user agreements that limit access to and use of our data. However, compliance with use restrictions is difficult to monitor, and our proprietary rights in these content databases may be more difficult to enforce or protect than other forms of intellectual property rights.

For further discussion refer to Item 1A. “Risk Factors – Risks Related to Intellectual Property.”

Employees

At December 31, 2015, we had 1,342 employees of whom 1,176 were employed full-time. None of our employees is covered by a collective bargaining agreement, except to the extent required by the laws of certain foreign jurisdictions. We have not experienced employment-related work stoppages, and we consider our employee relations to be good.

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Financial Information about Segments and Geographic Areas

We are organized as, and operate in, a single segment. For financial information about our segment and our geographic areas, refer to Note 12 to the Consolidated Financial Statements included in this Annual Report.

Other Information

Our corporate headquarters are located at 360 West 4800 North, Provo, UT 84604, and our telephone number at that address is (801) 705-7000. Our corporate website address is http://corporate.ancestry.com, and our investor relations website is http://ir.ancestry.com. The following filings are available for download free of charge through our investor relations website after we file them with the SEC: Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports. The contents of our websites are not incorporated in, or otherwise to be regarded as part of, this Annual Report.

All of our public filings, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, all amendments to those reports are available on the SEC’s website at www.sec.gov.

Ancestry.com LLC is a holding company, and substantially all of our operations are conducted by wholly-owned subsidiaries. Ancestry.com LLC is a limited liability company organized in 2012 under the laws of Delaware. Our primary operating subsidiary, Ancestry.com Operations Inc., was originally incorporated in Utah in 1983 and reincorporated in Delaware in 1998.

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Item 1A. Risk Factors

A wide range of factors could materially affect our performance. The following factors and other information included in this Annual Report should be carefully considered. Although the risk factors described below are the ones management deems significant, additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations. If any of the following events actually occur, our business, financial condition and results of operations could be adversely affected.

Risks Related to Our Business

We may have already engaged as subscribers substantially all of the total addressable market for family history services. If our efforts to retain existing and to attract new subscribers do not succeed, our number of subscribers could decline and our revenues may be materially adversely affected.

We generate a large majority of our revenues from subscriptions to our services, and we expect that we will continue to depend upon subscription revenues as the primary source of our revenues in the foreseeable future. We must continue to retain existing and to attract new subscribers both to grow our business and to replace subscribers who choose to cancel their subscriptions. We seek to do this in part by investing in product platforms, services and technologies, such as AncestryDNA, Newspapers.com, and mobile, and by expanding to new markets and by offering new services, such as AncestryHealth. If consumers do not perceive our services to be reliable, valuable and of high quality, if we fail to sufficiently invest in our product platform, if we fail to regularly introduce new and improved services and more content, if we introduce new services that are not favorably received by the market, if we fail to adequately address public concern regarding privacy and data security, if consumer interest in online family history services declines, or if we find that we have already engaged as subscribers substantially all of the total addressable market for family history services, we may not be able to retain existing or to attract new subscribers and our revenues could be materially adversely affected. Subscribers choose to cancel their subscriptions for many personal reasons, including a desire to reduce discretionary spending, a perception that they do not have sufficient time to use the service or otherwise do not use the service sufficiently or customer service issues are not satisfactorily resolved.

The relative service levels, pricing and related features of competitors to our services, and the size of the family history market are some additional factors that may adversely impact our ability to retain existing subscribers and to attract new subscribers. Some of our current competitors provide genealogical records free of charge. Some governments or private organizations may make historical records available online at no cost to consumers, and some commercial entities could choose to make such records available on an advertising-supported basis rather than a subscription basis. In addition to competition from outside services, certain of our services may compete with our core Ancestry websites for subscribers. If consumers are able to satisfy their family history research needs at no or lower cost, they may not perceive value in our higher priced services. Further, our number of subscribers may decrease as a result of a full penetration of the total addressable market for, or a declining interest in, family history research.

Any of these factors could cause our number of subscribers to fall, which could materially adversely impact our business, financial condition and results of operations. If we are unable to effectively retain existing subscribers and to attract new subscribers or our number of subscribers declines, our business, financial condition and results of operations could be materially adversely affected.

Our business may not grow or may contract, which could negatively affect our financial condition and results of operations.

While we have experienced growth in the past, our business may not grow or may contract in the future. Additionally, a large portion of our revenue growth in 2015 was driven by our AncestryDNA service. The rapid growth of our AncestryDNA service may not continue and may even decline. As such, you should not rely on the growth of any prior year or other period as an indication of our future performance. If our business does not grow while we continue to devote substantial resources and funds to improving our existing or to developing new technologies and service offerings, to continue acquiring new and relevant content and also to expanding awareness of our brand and category through marketing, our margins in the near term may be reduced. In addition, if growth of lower margin services, such as our AncestryDNA service, outpace growth of higher margin services, such as our subscription services, key financial metrics including adjusted EBITDA may slow or decline. If our growth rates were to decline or become negative, it could materially adversely affect our financial condition and results of operations.

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Our business strategy and projections rely on a number of assumptions, some or all of which may be incorrect. For example, it is difficult to predict the acceptance by the market of our services. Also, we believe that consumers will be willing to pay for subscriptions to our online family history resources, notwithstanding the fact that some of our current and future competitors may provide such resources free of charge. We cannot accurately predict whether our services will achieve significant acceptance by potential users in larger numbers than at present as we may have already engaged substantially all of the total addressable market for family history research. You should, therefore, not rely on our historic growth rates as an indication of future growth.

An increasing number of our users are engaging with our services utilizing mobile devices. If we are unable to provide our mobile users with the same important functionality available on our websites or are unable to adapt our mobile services to technological changes and user expectations, we may not remain competitive, and our business may decline.

An increasing number of our users are engaging with our services utilizing mobile devices. Despite our efforts to date, we have not been able to meaningfully monetize users of our mobile apps and mobile website, and we may not be able to monetize the engagement of our mobile users in the future. Our mobile web experience may not be fully optimized or may be more difficult to use than our website. Additionally, our mobile apps do not contain the full functionality of our web experiences and may not be as compelling to users. As new devices and platforms are released and mobile technology changes, we may encounter difficulties in adapting our mobile experience. If our mobile app or mobile web experience is slow, subject to intermittent failures, difficult to use or does not contain the same important functionality available on our website, it may not meet the user’s expectations and as a result could damage our reputation, prevent us from retaining existing or acquiring new customers and may have a material adverse effect on our business and results of operations.

Services or technologies we invest in or develop could be costly, may not be well received by the market and may not ultimately drive growth in our business.

As part of our business strategy, we have made and will continue to make significant investments in the development or acquisition of new services and technologies, such as our planned investment in AncestryHealth in 2016. There is no assurance that new services or technologies will positively contribute to our results of operations in the future. Our existing customers may not be attracted to or may react negatively to the services that we offer as a result of these investments. These services or businesses may not succeed in enticing new customers or may face regulatory obstacles. Acquiring or launching new services and technologies may demand a disproportionate amount of management’s attention and distract them from their focus on our existing offerings. If acquisitions, new businesses, new services, or major service feature releases, are unsuccessful or cause negative reactions with our existing customers, our brand and reputation, our results of operations, financial condition and key metrics, such as net subscriber additions, may be materially adversely affected. We may not be successful in addressing these risks or any other problems encountered in connection with our investments.

The technologies that we use in our business are rapidly changing. To remain competitive, we must continue to provide relevant content, invest in robust technologies and sciences and enhance and improve the functionality and features of our services. For example, we recently made significant improvements to our core Ancestry websites. Existing subscribers that have become accustomed to the prior experience on our website may not agree that the changes are improvements and may prefer the prior experience and as such, may cancel their subscription. However, if we fail to improve our services and technologies in step with the evolution of technology, or if competitors introduce new solutions embodying new technologies, our existing services may become obsolete. Our future success will depend on, among other things, our ability to:


•	anticipate demand for new services;


•	enhance our existing solutions, systems capacity and processing speed; and


•	respond to technological advances on a cost-effective and timely basis.

Developing or acquiring the technologies for our services entails significant technical and business risks. We may use new or acquired technologies ineffectively, or we may fail to adapt our services to the demands of our customers. If we face material delays in introducing new or enhanced technology, our subscribers may forego the use of our services in favor of those of our competitors.

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Our operating results fluctuate from period to period and may not immediately reflect downturns or upturns in certain financial and operational metrics, which could make our operating results difficult to predict and affect future operating results.

Our quarterly and annual operating results are tied to certain financial and operational metrics that have fluctuated in the past and may fluctuate significantly in the future. As a result, you should not rely upon our past operating results as indicators of future performance. Our operating results depend on numerous factors, many of which are outside of our control. For the reasons set forth in this Risk Factors section or other reasons, the results of any prior quarterly or annual periods should not be relied upon as indicators of our future performance, and our revenues and operating results in the future may differ materially from the expectations of management or investors.

We recognize revenues from subscribers ratably over the term of their subscriptions. Since the majority of our subscription durations have historically been greater than six months, a large portion of our revenues for each quarter has reflected deferred revenues from subscriptions entered into during previous quarters. Sales from our DNA testing services are recognized as revenues when the DNA results are delivered, which is contingent upon when a customer submits his or her DNA sample to us. Historically, most of our customers have returned their DNA samples within six months of the order date. Consequently, a decline in amounts billed to customers in any one quarter will not necessarily be fully reflected in revenues in that quarter but will negatively affect our revenues in future quarters. Accordingly, the effect of significant downturns or upturns in amounts billed to customers or market acceptance of our service, or changes in cancellation rates, may not fully impact our results of operations until future periods.

We continuously attempt to attract customers through marketing. If our marketing efforts do not attract additional customers on a cost-effective basis, or if we are unable to manage our marketing and advertising expenses, it could materially harm our results of operations.

Our future profitability, as well as the maintenance and enhancement of our brands, will depend in large part on the effectiveness and efficiency of our marketing and advertising expenditures, which are significant. We use a diverse mix of marketing and advertising programs to promote our services, and we periodically adjust our mix of these programs. Significant increases in the pricing of one or more of our marketing and advertising channels could increase our marketing and advertising expense or cause us to choose less effective marketing and advertising channels. We have experienced price increases in some of our marketing and advertising channels. Television advertising comprises a large percentage of our marketing and advertising expense, which may have significantly higher costs than other channels and which could materially adversely affect our profitability. Further, we may over time become disproportionately reliant on one channel or partner, which could increase our operating expenses.

If we are unable to maintain our marketing and advertising channels on cost-effective terms or replace existing marketing and advertising channels with similarly effective channels, our marketing and advertising expenses could increase substantially, our revenues could be affected adversely, and our business, financial condition and results of operations may suffer. In addition, we may be required to incur significantly higher marketing and advertising expenses than we currently anticipate if we are unable to acquire customers through cost-effective channels or for other reasons. Our expanded marketing efforts may increase our customer acquisition cost, as additional expenses may not result in sufficient growth in customers to offset cost, which would have an adverse effect on our business, financial condition and results of operations.

We have purchased and intend to continue to purchase product integration in and television advertising associated with television shows relevant to family history research, which have aired in the United States and other countries in past years. Television shows that focus on family history research have caused increased interest in our core business. If we do not receive benefits from family history research related television shows or if such shows do not continue to be well received or are canceled, the visibility of our core business and our brand may be reduced and our results of operations, financial condition and key metrics, such as net subscriber additions, may be materially adversely affected.

We face competition from a number of different sources, some of which offer products or services at lower prices than we do, and our failure to compete effectively could materially impact our revenues, results of operations and financial condition.

We face competition in our business from a variety of organizations, some of which provide products or services at lower prices than we do, including for free. Many external factors, including the cost of marketing, third-party services, content acquisition, technology, regulatory requirements and approval and our current and future competitors’ pricing and marketing strategies can significantly affect our competitive strategies, including pricing. If we fail to meet our customers' expectations, we could fail to retain existing or attract new customers either of which could harm our business and results of operations.

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Our core Ancestry websites and our other services face competition from:

•

FamilySearch, and its website FamilySearch.org, a genealogy organization that is part of The Church of Jesus Christ of Latter-day Saints. FamilySearch has an extensive collection of paper and microfilm records. FamilySearch has digitized a large quantity of these records and has published them online at FamilySearch.org, where it makes them available to the public for free and through thousands of family history centers located throughout the world. FamilySearch is a well-funded organization and is undertaking a large-scale digitization project to make its collection available online. While we have engaged, and continue to engage, in certain collaborative efforts with FamilySearch to digitize and make historical records available online, FamilySearch has partnered and may in the future partner with other commercial entities to broaden the distribution of its records.


•	Commercial entities, including online genealogical research services, genetic testing services, library content distributors, search engines and portals, retailers of books and software related to genealogical research and family tree creation and family history oriented social networking websites.


•	Non-profit entities and organizations, genealogical societies, governments and agencies that may make vital statistics or other records available to the public for free or that partner with commercial entities to make their records widely available.

We expect our competition to grow primarily through the emergence of new participants in our existing markets. We will also face competitors, and potentially greater competition, in new markets that we have entered or will enter into in the future, such as the competition we face in our AncestryDNA and AncestryHealth businesses. Our current and future competitors may include other Internet-based businesses, genetic companies or health service providers, governments, religious organizations, not-for-profit entities and other entities. The markets for high technology services, health information and genetic services evolve at a very rapid pace, and our competitors may offer content, products and services that are superior to any of our content, products and services or may release new content, products and services sooner than we can. In addition, Internet business models are constantly changing. The online family history market could move to an advertising-supported model to the detriment of our subscription-based model, or the consumer genetic testing market could move to a research-supported model. Our competitors may have greater resources, more well-established brand recognition or more sophisticated technologies, such as search algorithms or DNA or health technologies, than we do. Our competitors may more easily provide products and services in domestic and international markets or offer new categories of services before we do, or at lower prices, which may give them a competitive advantage in attracting customers. In addition to competition from outside sources, certain of our services may compete with our core Ancestry websites for subscribers.

To compete effectively, we may need to expend significant resources on content acquisition, technology or marketing and advertising, or lower the prices we charge to customers, which could reduce our margins and have a material adverse effect on our business, financial condition and results of operations. If we do not compete effectively, our ability to retain and expand our customer base and our revenues, results of operations and financial condition could be materially adversely affected.

Changes that we make to the prices and the types of subscriptions that we offer may affect our subscriber mix and cancellation rates, which could have a significant negative impact on our revenues and number of total subscribers.

We continually evaluate and test the types of subscriptions that we offer. Based on the results of any product or price testing conducted, we may change the price and subscription packages we offer and market. Our pricing and subscription packaging strategy may influence subscribers to choose a certain subscription or duration. If our pricing and subscription packaging strategy fails, we may experience higher cancellation volumes and be unable to attract new subscribers, which may result in decreased immediate and long-term revenues and a loss in the number of total subscribers. In the future, we may continue to perform product and price tests involving our users and to make changes to our products and prices, the results of which could affect our number or mix of subscribers and may have a material adverse impact on our results of operations and key operating metrics, including the number of total subscribers.

In addition, if regulators or third-party businesses imposed new requirements regarding charging our subscribers recurring subscription fees and how we market to our customers, such new regulations or requirements could materially adversely affect our revenues, financial condition and results of operations.

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Our possession and use of personal information presents risks that could harm our business. Unauthorized disclosure or use of such data, whether through breach of our network security or otherwise, could expose us to significant liability and damage our reputation.

Maintaining the security of our information technology and network systems infrastructure, including the cloud computing services that we use, is of critical importance because we handle confidential customer, user, employee and other sensitive data, such as names, addresses, credit card numbers and genetic and other personal information. In addition, our online systems include the content that our users upload onto our websites, such as family records and photos. This content is often personally meaningful, and our users may rely on our online system to store digital copies of such content. If we were to lose such content, if our users’ private content were to become publicly available, if third parties were able to gain unauthorized access to such content or if we were to disclose data about our members in a manner that was objectionable to them, we may face liability and harm to our brand and reputation.

We and our vendors use commercially available encryption technology to transmit personal information when taking orders. We use security and business controls to limit access and use of personal information, including our users’ uploaded content. However, third parties may be able to circumvent these security and business measures, including by developing and deploying viruses, worms and other malicious software programs that are designed to attack or attempt to infiltrate our systems and networks. In addition, employee error, vendor error, malfeasance or other errors in the storage, use or transmission of personal information could result in data loss, theft of subscriber information or a breach of user or employee privacy.

There can be no assurances that we will be able to continue to operate our facilities and customer service and sales operations in accordance with industry practices, such as Payment Card Industry Data Security Standards. Even if we remain compliant with those standards, we may not be able to prevent security breaches involving customer data. If we experience a security breach or other lapse in the handling of confidential information, the incident could give rise to risks including data loss, litigation and liability, and could harm our reputation or disrupt our operations, any of which could materially adversely affect our business. In addition, various states and countries have differing laws regarding protection of customer privacy and confidential information, including notification requirements in the event of certain breaches or losses of information. Privacy laws continue to become more far-reaching, particularly in Europe, and consumer privacy has also become an area of enhanced focus in the United States. The impact of expanded laws and regulatory action is still uncertain, and we may be required to adapt quickly to changes in the regulatory landscape. Efforts to comply with these laws and regulations increase our costs of doing business, and failure to achieve compliance could result in substantial liability to our business and harm our reputation. In the event of a security breach or loss of confidential information, we could be subject to fines, penalties, damages and other remedies under applicable laws, any of which could have a material adverse impact on our reputation, business, operating results and financial condition.

If third parties improperly obtain and use the personal information of our users or employees, we may be required to expend significant resources in efforts to address these problems. A major breach of our network security and systems, including the cloud computing services that we use, could have serious negative consequences for our businesses, including possible fines, penalties and damages, reduced demand for our services, an unwillingness of customers to provide us with their credit card or payment information, an unwillingness of users to upload family records or photos onto our websites, an unwillingness for customers to allow us to analyze their DNA or health information, harm to our reputation and brand and loss of our ability to accept and process customer credit card orders. Similarly, if a well-publicized breach of data security at any other major consumer website were to occur, there could be a general public loss of confidence in the use of the Internet for commercial transactions. Any of these events could have material adverse effects on our business, financial condition and results of operations. In addition, we may have inadequate insurance coverage to compensate for any related losses.

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Privacy concerns could require us to incur significant expense and modify our operations or future plans in a manner that could result in restrictions and prohibitions on our use of certain information, and therefore harm our business, regardless of whether our activities violate any law or regulation.

As part of our business, we make biographical and historical data available through our websites, we use users’ personal data for internal purposes and we host websites and message boards, among other things, that contain content supplied by third parties. In addition, we collect biological information in the form of DNA samples in connection with our AncestryDNA service and other health information in connection with our Ancestryhealth service. The foregoing data and information are also used for research purposes. For privacy or security reasons, privacy groups, governmental agencies and individuals may seek to restrict or prevent our use, sale, license or publication of certain biological or historical information pertaining to individuals, particularly living persons. Even if our use of information does not violate any law or regulation, privacy groups may seek to harm our reputation and customer relationships by questioning our use of personal data. Because all of our genetic testing of DNA samples is outsourced to third-party service providers, we have less control over privacy and security measures. If our third-party DNA testing or research providers fail to comply with privacy and security standards, as required pursuant to the terms of our agreements with such providers, this could have a material adverse effect on our business, financial condition and results of operations.

We also face additional privacy issues as we expand into other international markets, as many nations have privacy protection laws more stringent than those in the United States, particularly in Europe where privacy laws continue to become more expansive. For example, in October 2015, the Court of Justice for the European Union and the Article 29 Working Group recently declared the U.S. Safe Harbor Agreement under the Data Protective Directive from the European Union as invalid. The European Commission and the United States recently announced an agreement on a new framework for transferring personal data from the European Union to the United States, but the language of the “EU-US Privacy Shield” has not been publicly disclosed and thus uncertainty remains around such transfers. The protection of consumer privacy has also increasingly become a focus of U.S. regulators, and the impact of recent and potential future enhanced privacy protections in the United States is uncertain. For example, we recently received an initial inquiry from the Office of the Attorney General of the State of New York requesting information regarding AncestryDNA's privacy policies and procedures. We have incurred, and will continue to incur, expenses to comply with privacy and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. Increased domestic or international regulation of data utilization and distribution practices, including self-regulation, could require us to modify our operations and incur significant expense, which could have a material adverse effect on our business, financial condition and results of operations. If our users’ private content were to become publicly available or, if third parties were able to gain unauthorized access to such content, in particular the DNA testing information, we may face liability and harm to our brand and reputation.

If our reputation or brand were to be harmed, we could lose customers or fail to increase our number of customers, which could have a material adverse effect on our revenues, results of operations and financial condition.

We believe that maintaining and enhancing our Ancestry brand and other brands is critical to our success. We plan to continue to promote our brands, both domestically and internationally, but there is no guarantee that our selected strategies will maintain or increase the favorable recognition of our brands. Some of our existing and potential competitors, including search engines, media companies and government and religious institutions have well-established brands with greater brand recognition than we have.

Additionally, from time to time, our customers express dissatisfaction with our service, including, among other things, dissatisfaction with our auto-renewal and other billing policies, our handling of personal data, even if such handling is compliant with all existing laws and regulations, and the way our services operate. To the extent that dissatisfaction with our service or our handling of personal data is widespread or not adequately addressed, our brand may be adversely impacted. If our efforts to promote and maintain our brand are not successful, our operating results and our ability to attract and retain customers may be adversely affected. Many individuals are passionate about family history research and participate in blogs and social media on this topic both on our websites and elsewhere. If actions we take or changes we make to our services or performance, such as redesigning our website, upset these individuals, their blogging and contributions to social media could negatively affect our brand and reputation, which could have a material adverse effect on our revenues, results of operations and financial condition.

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Challenges in acquiring historical content and making it available online could materially adversely affect our ability to retain and expand our subscriber base, and therefore could materially affect our business, financial condition and results of operations.

In order to retain and expand our subscriber base, both domestically and internationally, we must continue to expend significant resources to acquire significant amounts of additional historical content, digitize it and make it available to our subscribers online. We face legal, logistical, cultural and commercial challenges in acquiring new content. Relevant governmental records may be widely dispersed and held at a national, state or local level. Religious and private records are even more widely dispersed.

These problems often pose particular challenges in acquiring content internationally. Desirable content may not be available to us on favorable terms, or at all, due to competition for a particular collection, privacy concerns relative to information contained in a given collection or our lack of negotiating leverage with a certain content provider. For example, some of our most popular databases include “vital records” content—namely, historical birth, marriage and death records—made available by certain governmental agencies. To help prevent identity theft, or other malicious activities, governments may attempt to restrict the release of or increase the difficulty of accessing all or substantial portions of their vital records content, and particularly birth records, to third parties. If these efforts are successful, it may limit, increase the cost of or altogether prevent us from acquiring these types of vital record content or continuing to make them available online. In some cases, we have had to lobby for legislation to be changed or otherwise work to surmount administrative or other bureaucratic hurdles to enable government or other bodies to grant us access to records.

While we own or license most of the images in our databases, we generally do not own the underlying historical documents. If owners of content have sold or licensed the rights to digitize that content, even on a non-exclusive basis, they may elect not to sell or license it for digitization purposes to any other person. Therefore, if one of our competitors acquires rights to digitize a set of content, even on a non-exclusive basis, we may be unable to acquire rights to digitize that content. Conversely, the owners of historical records may allow more than one party to digitize those records and our competitors may digitize and make available the same content that we offer. In some cases, acquisition of content involves competitive bidding, and we may choose not to bid or may not successfully bid to acquire content rights. In addition, a number of governmental bodies and other organizations are interested in making historical content available for free and owners of historical records may license or sell their records to such governmental bodies and organizations in addition to or instead of licensing or selling their content to us. Our inability to offer certain vital records or other valuable content as part of our family history research databases or the widespread availability of such content elsewhere at lower cost or for free could result in our subscription services becoming less valuable to consumers, which could have a material adverse impact on our number of subscribers, and therefore on our business, financial condition and results of operations.

We depend in part upon third-party licenses for some of our historical content, and a loss of these licenses, or disputes regarding any royalties or other terms under these licenses, could adversely affect our ability to retain and expand our subscriber base, and therefore could materially affect our revenues, financial condition and results of operations.

We acquire a portion of our content pursuant to ongoing license agreements. Some of these agreements have finite terms, and we may not be able to renew the agreements on terms that are advantageous to us or at all. For example, we license content from The National Archives of the United Kingdom and FamilySearch under several license agreements that generally have ten-year terms, with varying automatic extension periods. The agreements are generally terminable by either party for breach by the other party or upon our insolvency or bankruptcy. Some of these agreements also contain change in control provisions that may permit the party to terminate these licenses.

If a current or future license for a significant content collection were to be terminated or there were disputes regarding any royalties or other terms under these licenses, we may not be able to obtain a new license on terms advantageous to us or at all, and we could be required to remove the relevant content from our websites, either immediately or after some period of time. If a content provider were to license or sell us content in violation of that content provider’s agreements with other parties or if we misused any of the licensed content, we could be required to remove that content from our websites and potentially face liability. If we were required to remove a material amount of content from our websites, as a result of the termination of one or more licenses or otherwise, it could adversely affect our business and results of operations. Some of these license agreements restrict the manner in which we use the applicable content, which could limit our ability to leverage that content for new uses as we expand our business.

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Acquiring, digitizing and indexing new content can take a significant amount of time and expense, can expose us to risks associated with the loss or damage of historical documents, and our costs to do so may exceed the realized benefits. Our inability to maintain or acquire content or make new content available online in a timely and cost-effective manner, or liability for loss of historical documents, could have a material adverse effect on our business, financial condition and results of operations.

Digitizing and indexing new historical content can take a significant amount of time and expense, and we generally incur the expenses related to such content significantly in advance of the time we can make it available to our subscribers. We have made significant investments to acquire, digitize and index content, including content acquired through business acquisitions, and we expect to continue to spend significant resources on content. If the costs incurred to acquire, digitize, or index content exceeds the realized benefit, it could harm our financial results.

We do not have long-term contracts with any of our transcription vendors. If we were to transition away from one of our larger transcription vendors for any reason, we may be required to provide extensive training to the other vendors, which could delay our ability to make our new content available to our subscribers, and our relationships with the other transcription vendors may be on financial or other terms less favorable to us than our existing arrangements. Our inability to maintain or acquire content or to make new content available online in a timely and cost-effective manner would have a material adverse effect on our business, financial condition and results of operations.

While we are digitizing content, we may be in possession of valuable and irreplaceable original historical documents. While we maintain insurance with respect to such documents, any loss or damage to such documents, while in our possession, could cause us significant expense and could have a material adverse effect on our reputation and the potential willingness of content owners to license or lend their content to us.

Our failure to attract, integrate and retain highly qualified key personnel could harm our business, and if we are unable to integrate appropriate personnel, we may not be able to successfully implement our business plan.

To execute our business plan, we must attract and retain highly-qualified personnel. Competition for these employees is intense, particularly for skilled engineers, and we may not be successful in attracting and retaining qualified personnel. We have experienced and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. In addition, in making employment decisions, particularly in high-technology industries, job candidates often consider the value of the stock-based awards they may receive in connection with their employment and may be concerned about the value and liquidity of the stock-based awards we offer. When adding staff, we may not make optimal hiring decisions or may not integrate personnel effectively. Additions to personnel may increase our cost base, which could make it more difficult to decrease expenses in the short term. If we fail to attract and effectively integrate new personnel, or fail to retain and motivate our current personnel, our business and future prospects could be materially adversely affected.

We depend on the continued service and performance of our key personnel, including Timothy Sullivan, our President and Chief Executive Officer. We do not maintain key man insurance on any of our officers or key employees. We also do not have long-term employment agreements with our officers or key employees. In addition, much of our key technology and systems are custom-made for our business by our personnel. The loss of key personnel, including key members of our management team, as well as certain of our key marketing, product development or technology personnel could disrupt our operations and have an adverse effect on our ability to operate our business.

We use a single-source laboratory for our DNA testing and a single-source manufacturer for producing our DNA kits, which could materially harm our business by adversely affecting the availability, quality and cost of our DNA services.

We use a single-source laboratory for our DNA testing and a single-source manufacturer for producing our DNA kits. If testing or production is delayed or curtailed by such sources, we may not be able to meet our customers’ expectations with respect to timing, quality and price. In addition, our AncestryDNA business has grown rapidly. If such growth were to continue, our single-source providers may not have the capacity to meet our demands. Even if we were able to locate alternative laboratories or manufacturing facilities, qualification of an alternative supplier, obtaining the appropriate technology and establishment of reliable services could result in delays and a possible loss of sales, which could materially harm our operating results. We may also be unable to locate an alternative supplier that can provide the necessary services and technology at comparable prices, which could result in an increase in the cost of our DNA services.

Reliance on single-source suppliers subjects us to a risk of delays, as well as a risk of increased cost and/or reduced quality of our DNA services. In addition, faulty analyses from our DNA testing provider could harm our reputation and may adversely affect our future DNA revenues and the success of our DNA testing services.

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We currently outsource some of our customer service, development activities and DNA testing services to third parties, which exposes us to significant risks if these parties fail to perform under our agreements with them.

Because we currently outsource some of our customer service, development activities and DNA testing services to third parties, we have less control over the work produced by these providers than over our own employees. If customer service or DNA testing personnel fail to perform in accordance with the terms of our agreements, we may fail to meet customer expectations. If third-party developers fail to adequately protect or transfer our intellectual property rights in our services, our intellectual property portfolio could be damaged. These outcomes could result in negative publicity, damage our reputation and brands and have a material adverse effect on our business and results of operations.

Cyber-attacks, continued service outages or significant disruptions in service on our websites or in our computer systems, which are currently hosted primarily by a single third party, could damage our reputation and result in a loss of customers, which would harm our business and operating results.

Our brand, reputation and ability to attract, retain and serve our customers depend upon the reliable performance of our websites, network infrastructure, content delivery processes and payment systems. We have experienced interruptions in these systems in the past, including server failures and electronic attacks that temporarily slowed down our websites’ performance and users’ access to content, or made our websites inaccessible, and we may experience network security breaches or other interruptions in the future. We have experienced “distributed-denial-of-service” and other attacks in the past that have caused our systems to respond slowly or be inaccessible. Our efforts to fix these disruptions may redirect resources from development or other business initiatives and may not result in lasting benefits. Rapid advances in technology may prevent us from anticipating all potential security threats or promptly identifying all security breaches, and the limits and costs of technology, skills and manpower could prevent us from adequately addressing these threats. Interruptions in these systems, whether due to system failures, computer viruses, worms, malicious software programs or physical or electronic attacks or break-ins, could affect the security or availability of our websites and prevent our subscribers from accessing our data and using our services. Problems with the reliability or security of our systems may cause shutdowns or service disruptions, harm our reputation, result in regulatory penalties or litigation, impair our ability to attract new subscribers and cause subscribers to cancel, and the cost of remedying these problems and improving cyber-defense systems could negatively affect our business, financial condition and results of operations.

Substantially all of our communications, network and computer hardware used to operate our websites are co-located in a third-party facility in Salt Lake City, Utah. We do not own or control the operation of this facility. We also store certain data in a third-party facility in Ireland. We also use third-party off-site cloud-based backup resources, and we have disaster recovery plans in place. Our disaster recovery plans are not fully redundant to our facility in Utah. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and physical break-ins, computer viruses, earthquakes and similar events. The occurrence of any of the foregoing events at one or more facilities could result in reduced functionality or interruption of our websites, damage to our systems and hardware or could cause them to fail completely, and our insurance may not cover such events or may be insufficient to compensate us for losses that may occur. A network or communications failure or interruption of our system could also result in our customers losing access to or experiencing reduced functionality of our websites.

In addition, we utilize third-party Internet-based or “cloud” computing services in connection with our business operations, including with our DNA testing services, our credit card processing and our disaster recovery systems. Cloud computing services are vulnerable to the same disruptions, attacks and break-ins as our co-located systems and facilities, but we may have reduced visibility of the potential vulnerabilities of cloud computing services. Disruptions of the cloud computing services we use may result in customers losing access or in reduced functionality of our websites. Problems faced by our third-party web hosting provider, with telecommunications network providers or with the systems by which these providers allocate capacity among their customers, including us, could adversely affect the experience of our subscribers. Our third-party web hosting providers, including our co-located facilities and the cloud computing services that we use, could decide to stop providing services to us without adequate notice. In addition, any financial difficulties, such as bankruptcy reorganization, faced by our third-party web-hosting providers or any other service providers may have negative effects on our business, the nature and extent of which are difficult to predict. Additionally, if our third-party web-hosting providers are unable to keep up with our growing needs for capacity, this could have a material adverse effect on our business. Any errors, defects, disruptions or other performance problems with our services could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

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We face many risks associated with our plans to continue to expand our international offerings and marketing and advertising efforts, which could have a material adverse effect on our business, financial condition and results of operations.

For the year ended December 31, 2015, approximately 20% of revenues were from customers located outside the United States. We are subject to many of the risks of doing business internationally, including the following:


•	exposure to foreign currency exchange rate fluctuations;


•	compliance with foreign laws and the interpretation of those laws, including tax, employment, and anti-bribery laws and regulations pertaining to the sale and use of genetic information;


•	compliance with changing and conflicting legal and regulatory regimes;


•	compliance with U.S. laws affecting operations outside of the United States, including the Foreign Corrupt Practices Act;


•	compliance with varying and conflicting intellectual property laws;


•	difficulties in staffing and managing international operations;


•	prevention of business or user fraud; and


•	implementation and maintenance of effective internal controls and processes across diverse operations and a dispersed employee base.

We anticipate that our continuing international expansion, including the continued expansion of AncestryDNA internationally, will entail increased marketing and advertising of our services and brands, the development of localized websites and services throughout our geographical markets and increased costs associated with the compliance with the varying regulatory environments in the international markets that we have and may expand into. We may not succeed in these efforts or achieve our customer acquisition or other goals. For some international markets, customer preferences and buying behaviors may be different than those in our current markets, and we may use business models that are different from our traditional subscription models. Our revenues from new foreign markets may not exceed the costs of acquiring, establishing, marketing and maintaining international offerings, and therefore may not be profitable on a sustained basis, if at all. The risks of international expansion include:


•	difficulties in developing and marketing our offerings and brands as a result of distance, language and cultural differences;


•	more stringent consumer, data and privacy protection laws;


•	inability to effectively deal with local socio-economic and political conditions;


•	technical difficulties and costs associated with the localization of our service offerings;


•	strong local competitors; and


•	lack of experience in certain geographical markets.

One or more of these factors could have a material adverse effect on our business, financial condition and results of operations.

Undetected service errors or defects could result in the loss of revenues, delayed market acceptance of our services or claims against us.

We offer a variety of services, many of which are complex and frequently upgraded. Our services may contain undetected errors, defects, failures or viruses, especially when first introduced or when enhancements are released. Despite testing, our services, or third-party products or services that we incorporate into our services, may contain undetected errors, defects or viruses that could, among other things:


•	require us to make extensive changes to our subscription or other services, which would increase our expenses;


•	expose us to claims for damages;


•	require us to incur additional technical support costs;


•	cause a negative user reaction that could reduce future sales;


•	generate negative publicity regarding us and our services; or

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•	result in subscribers delaying their subscription or software purchase or electing not to renew their subscriptions.

Any of these occurrences could have a material adverse effect upon our business, financial condition and results of operations.

Any claims related to activities of our users and the content they upload could result in expenses that could harm our results of operations and financial condition.

Our users often upload their own content onto our websites. The terms of use of such content are set forth in the terms and conditions of our websites and a submission agreement to which users must agree when they upload their content. Disputes or negative publicity about the use of such content could make users more reluctant to upload personal content or harm our reputation. We do not review or monitor content uploaded by our users and could face claims arising from or liability for making any such content available on our websites. In addition, our collaboration tools and other features of many of our sites allow customers to contact each other. While customers can choose to remain anonymous in such communications, customers may choose to engage with one another without anonymity. If any such contact were to lead to fraud or other harm, we may face claims against us and negative publicity. Litigation to defend these claims or efforts to counter any negative publicity could be costly and any other liabilities we incur in connection with any such claims may have a material adverse effect on our business, financial condition and results of operations.

If government regulation of our business changes, we may need to change the way we conduct our current business in a manner that is less profitable or incur greater operating expenses, which could harm our results of operations.

The adoption, modification or interpretation of laws or regulations relating our business could adversely affect the manner in which we conduct our current business. Such laws and regulations may cover automatic subscription renewal, credit card processing procedures, sales and other procedures, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts, consumer protection, net neutrality, broadband residential Internet access and the characteristics and quality of services. In foreign countries, such as countries in Europe and Asia, such laws may be more restrictive than in the United States. It is not clear how existing laws governing issues such as property ownership, sales and other taxes, libel and personal privacy apply to the Internet. For example, the Court of Justice for the European Union and the Article 29 Working Group recently declared the U.S. Safe Harbor Agreement under the Data Protective Directive from the European Union as invalid causing uncertainty around transfers of personal data outside of the European Union. Although other legally-recognized methods to enable data transfers currently remain valid, the reasoning of the Court of Justice for the European Union striking down the safe harbor framework could be used to challenge those methods in future complaints.

Also, as we develop new services, we may become subject to additional laws and regulations. If we are required to comply with new or additional regulations or legislation or new interpretations of existing regulations or legislation, this compliance could cause us to incur additional expenses, make it more difficult to renew subscriptions automatically, make it more difficult to attract new subscribers, make it more difficult to use our current service providers (data processors) or otherwise alter our business model. New laws and regulations, and the interpretation thereof, are often complex and subject to interpretation. We may misinterpret, or not properly comply with all aspects of the regulation or may be unable to implement any changes required by any date proscribed. Any of these outcomes could have a material adverse effect on our business, financial condition or results of operations.

We may develop products or services that may be regulated by the Food and Drug Administration and other state or foreign governmental agencies. Obtaining clearance and maintaining ongoing compliance for such products and services, if applicable, could be time consuming and costly.

Our current AncestryDNA service is not regulated by the Food and Drug Administration (FDA). However, if we invest in health-related DNA testing or other health products or services, those products could be considered a medical device by the FDA or other applicable state or foreign governmental agencies, and those products and services may be subject to regulations imposed by the FDA and various state and foreign governmental and regulatory agencies. Obtaining FDA clearance in such case could take months or years, and generally requires extensive reporting and testing and require extensive financial, managerial and other resources. With respect to foreign markets, approval procedures vary among countries and, in addition to the aforementioned risks, can involve additional product testing and administrative review periods. In addition to the time and expense in attempting to secure clearance, our efforts, if necessary, may fail to result in FDA clearance or result in limited clearance for uses we believe are not commercially attractive or result in clearance that contains requirements for potentially costly post-marketing follow-up studies. Such regulation could impact, restrict or make untenable product development, production, use and marketing.

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Even if we do ultimately receive FDA approval for any of our products, these products will be subject to extensive ongoing regulation, including regulations governing manufacturing, labeling, packaging, testing, record keeping, reporting, handling and shipment. Failure to obtain and maintain required registrations or to comply with any applicable regulations could further delay or preclude development and commercialization of our products and subject us to enforcement action.

The cost of attempting to clear such regulations, and the ongoing cost of complying with such regulations, could adversely impact our business.

Our revenues may be materially adversely affected if we are required to charge sales taxes in additional jurisdictions and/or other taxes for our products and services.

We collect or have imposed upon us sales or other taxes related to the products and services we sell in certain states and other jurisdictions. Additional states or one or more countries or other jurisdictions may seek to impose sales or other tax collection obligations on us in the future or states or jurisdictions in which we already collect tax may increase the amount of taxes we are required to collect. A successful assertion by any country, state or other jurisdiction in which we do business that we should be collecting sales or other taxes on the sale of our products and services could, among other things, result in substantial tax liabilities for past sales, create significant administrative burdens for us, discourage registered users from purchasing from us or otherwise substantially harm our business and results of operations. Further, if additional sales or other taxes were imposed in jurisdictions where we do business, we may be unable to fully pass these costs on to our subscribers, which may also harm our business and results of operations.

Our revolving facility may not be sufficient for our needs, and we may require additional capital for business opportunities, acquisitions or unforeseen circumstances. If such sources are not available to us, or are not available on acceptable terms, we may not be able to expand and our business and/or our operating results and financial condition may be materially harmed.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business opportunities, including developing new features and services or enhancing our existing solutions, improving our operating infrastructure or acquiring complementary businesses and technologies. Our revolving facility, which provides for $80.0 million of borrowings (the “Revolving Facility”), may not be sufficient for our needs. Accordingly, we and/or our parent entities (“the Ancestry Group”) may engage in debt financing to secure additional funds; however, we may not be able to obtain additional financing on terms favorable to us, if at all. For example, our new credit facilities, which consists of a $733.2 million term loan facility and the Revolving Facility (the “New Credit Facilities”), and the indentures governing the 11% senior notes due 2020 (the “Notes”) and the senior unsecured payment-in-kind toggle notes due 2018 (the “PIK Notes”) contain restrictive covenants relating to capital-raising activities by us and our direct parent, Ancestry.com Holdings LLC (“Holdings LLC”), and other financial and operational matters. Any debt financing obtained by us or our parent entities in the Ancestry Group in the future could involve further restrictive covenants, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to grow our business and to respond to business challenges could be significantly impaired, and our business may be materially harmed. Please refer to Item 7, Liquidity and Capital Resources, of Part II for further information.

We face risks associated with currency exchange rate fluctuations or other changes in the global economy, which could adversely affect our revenues and operating results.

For the year ended December 31, 2015, approximately 18% of our total revenues earned and approximately 6% of our total expenses incurred were in currencies other than the United States dollar, such as the British pound sterling, the Australian dollar, the Canadian dollar and the Euro. As a result, we are at risk for exchange rate fluctuations between such foreign currencies and the United States dollar, which could affect our revenues and results of operations. If the U.S. dollar strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in decreased revenues, operating expenses and net income. We may not be able to offset adverse foreign currency impact with increased subscription pricing or volume. We attempt to limit our exposure by paying our operating expenses incurred in foreign jurisdictions with revenues received in the applicable currency, but if we do not have enough local currency to pay all our expenses in that currency, we are exposed to currency exchange rate risk with respect to those expenses. Even if we were to implement hedging strategies to mitigate foreign currency risk, these strategies might not eliminate our exposure to foreign exchange rate fluctuations and would involve costs and risks of their own, such as ongoing management time and expertise, external costs to implement the strategies and potential accounting implications.

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In addition, our business may be affected by changes in the economy generally, including any resulting effect on consumer spending specifically. Our services are discretionary purchases, and consumers may reduce their discretionary spending on our services during an economic downturn. As a result, our business, financial condition and results of operations may be significantly impacted by changes in the global economy generally.

We have made significant estimates and judgments in calculating our income tax provision and other tax assets and liabilities. If these estimates or judgments are incorrect, our operating results and financial condition may be materially affected.

We are subject to regular review and audit by both domestic and foreign tax authorities. Any adverse outcome of such a review or audit could have a negative effect on our operating results and financial condition. In addition, the determination of our provision for income taxes and other tax assets and liabilities requires significant judgment, and there are many transactions and calculations where the ultimate tax determination is uncertain at the present time. Although we believe our estimates and judgments are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and may have a material effect on our operating results and financial condition.

We earn a significant amount of our operating income from outside the United States, and there have been proposals to change U.S. and foreign tax laws that would significantly impact how we are taxed on foreign earnings. Although we cannot predict whether or in what form any proposed legislation may pass, if enacted it could have a material adverse impact on our future tax expense and cash flow.

Expenses or liabilities resulting from litigation could materially adversely affect our results of operations and financial condition.

We have and may become party to various legal proceedings and other claims that arise in the ordinary course of business, or otherwise in the future. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. In addition, any such claims or litigation may be time-consuming and costly, divert management resources, require us to change our services or have other adverse effects on our business. While we cannot assure the ultimate outcome of any legal proceeding or contingency in which we are or may become involved, we do not believe that any pending legal claim or proceeding arising in the ordinary course will be resolved in a manner that would have a material adverse effect on our business. However, if one or more of these legal matters resulted in an adverse monetary judgment against us, such a judgment could have a material adverse effect on our results of operations and financial condition. See also the risk factor “Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our websites, content indexes, and marketing and advertising activities” below. Please refer to Item 3 of Part I for more information about our current legal proceedings.

Acquisitions, if any, may not be completed within the expected timeframe or at all, and could prove difficult to integrate, disrupt our ongoing business or have a material adverse effect on our results of operations.

As part of our business strategy, we have engaged and may in the future engage in acquisitions of businesses to augment our organic or internal growth. While we have engaged in acquisitions in the past, our experience with integrating and managing acquired businesses is still limited. Acquisitions involve challenges and risks in negotiation, execution, valuation and integration. Moreover, we may not be able to find suitable acquisition opportunities on terms that are acceptable to us or if we do, we may be delayed or unsuccessful in completing the transaction. We could assume the economic risks of such failed or unsuccessful acquisitions. Even if successfully negotiated, closed and integrated, certain acquisitions may not advance our business strategy, may fall short of expected return-on-investment targets or may fail. In addition, we may be exposed to unknown or unanticipated costs and liabilities, including litigation, against the companies we acquire. Any future acquisition could involve the aforementioned or numerous other risks and we may not be successful in addressing these risks or any other problems encountered in connection with any attempted acquisitions. Our failure to address these risks or other problems could cause us to fail to realize the anticipated benefits of such acquisitions and could have a material adverse effect on our business, financial condition and results of operations.

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As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. We are an emerging growth company until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated issuer” as defined under the federal securities laws. For so long as we remain an emerging growth company, we will not be required to:


•	have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended; and


•	comply with any requirement that may be adopted by the Public Company Accounting Oversight Board (“PCAOB”) regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and

•

submit certain executive compensation matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and


•	include detailed compensation discussion and analysis in our filings under the Exchange Act, and instead may provide a reduced level of disclosure concerning executive compensation.

Although we intend to rely on the exemptions provided in the JOBS Act, the exact implications of the JOBS Act for us are still subject to interpretations and guidance by the SEC and other regulatory agencies. In addition, as our business grows, we may no longer satisfy the conditions of an emerging growth company. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot assure you that we will be able to take advantage of all of the benefits from the JOBS Act.

In addition, as an “emerging growth company,” we have elected under the JOBS Act to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Therefore, our financial statements may not be comparable to those of companies that comply with standards that are otherwise applicable to public companies.

Risks Related to Our Indebtedness

We have a substantial amount of debt, which exposes us to various risks.

We have substantial debt, totaling approximately $1.0 billion as of December 31, 2015, consisting of approximately $733.2 million under our New Credit Facilities and $300.0 million in Notes and as a result, we have significant debt service obligations. We also have the ability to borrow up to $80.0 million under the Revolving Facility. Our substantial level of debt and debt service obligations as well as our intention to pay distributions to our parent related to the PIK Notes could have important consequences including:


•	making it more difficult for us to satisfy our obligations with respect to our debt, which could result in an event of default under the indenture governing the Notes and the agreements governing our other debt, including the New Credit Facilities;


•	limiting our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, acquisitions, investments, debt service requirements and other general corporate requirements;


•	increasing our vulnerability to general economic downturns and industry conditions, which could place us at a disadvantage compared to our competitors that are less leveraged and can therefore take advantage of opportunities that our leverage prevents us from pursuing;


•	potentially allowing increases in floating interest rates to negatively impact our cash flows;


•	having our financing documents place restrictions on the manner in which we conduct our business, including restrictions on our ability to pay dividends, make investments, incur additional debt and sell assets; and

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•	reducing the amount of our cash flows available to fund working capital requirements, capital expenditures, acquisitions, investments, other debt obligations and other general corporate requirements, because we will be required to use a substantial portion of our cash flows to service debt obligations.

The occurrence of any one of these events could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our obligations under our debt.

Our direct parent, Holdings LLC, has outstanding $390.2 million in senior unsecured PIK Notes. In addition to servicing our debt, we intend to make payments to Holdings LLC related to the PIK Notes, which may exacerbate the risks associated with our debt under the New Credit Facilities and the Notes.

Our direct parent, Holdings LLC, has outstanding a total of $390.2 million of 9.625%/10.375% senior unsecured PIK Notes, which mature on October 15, 2018. Holdings LLC is a holding company with no material operations and limited assets other than its ownership of the membership interests of Ancestry.com LLC. While covenants in our New Credit Facilities and the indenture governing the Notes limit the amount of cash that we are able to distribute to our parent companies, to the extent cash is available, we intend to make payments to Holdings LLC related to the PIK Notes. Paying cash to our parent for the PIK Notes will reduce the amount of cash available to pay our debt obligations and could also compound the consequences and risks of our debt and could have a material adverse effect on our business, financial condition, results of operations, prospects and ability to satisfy our obligations under the New Credit Facilities and the Notes.

Despite current debt levels, we and/or other members of the Ancestry Group may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

We and/or other members of the Ancestry Group may be able to, and may, incur substantial additional debt, including secured debt, in the future. Although our New Credit Facilities and the indentures governing the Notes and the PIK Notes contain restrictions on the incurrence of additional debt and the ability to make payments to related entities to fund their debt obligations, these restrictions are subject to a number of significant qualifications and exceptions, and any debt we incur in compliance with these restrictions could be substantial. If we incur additional debt on top of our current debt levels, this would exacerbate the risks related to our substantial debt levels. Furthermore, as we increase our debt level and/or incur indebtedness that is contractually or structurally subordinated to our other indebtedness, we may be required to pay higher interest rates on additional debt, which would increase our cost of capital and could have a material adverse effect on our financial condition and results of operations.

Our debt agreements include covenants that restrict our ability to operate our business, and this may impede our ability to respond to changes in our business or to take certain important actions.

Our New Credit Facilities and the indentures governing the Notes and PIK Notes each contain, and the terms of any of our future debt would likely contain, a number of restrictive covenants that impose significant operating and financial restrictions, including restrictions on our ability to engage in acts that may be in our best long-term interests. For example, the credit agreement governing our New Credit Facilities and the indentures governing the Notes and PIK Notes restrict our and our subsidiaries’ ability to:


•	incur additional debt;


•	pay dividends on our capital stock and make other restricted payments;


•	make investments and acquisitions;


•	engage in transactions with our affiliates;


•	sell assets;


•	make acquisitions or merge; and


•	create liens.

In addition, our New Credit Facilities require us to comply with a financial covenant prohibiting the total net first lien leverage ratio from being greater than 4.00, which will be tested quarterly when the principal amount of all revolving loans, swingline loans, and letter of credit (in excess of $10.0 million) exceeds 30% of total commitments under the Revolving Facility. These restrictions could limit our ability to obtain future financings, make needed capital expenditures, respond to and withstand future downturns in our business or the economy in general or otherwise conduct corporate activities that may be necessary or desirable. We may also be prevented from taking advantage of business opportunities that arise because of limitations imposed on us by these restrictive covenants. In addition, it may be costly or time-consuming for us to obtain any necessary waiver or amendment of these covenants, or we may not be able to obtain a waiver or amendment on any terms.

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A breach of any of these covenants could result in a default under our New Credit Facilities or the Notes, as the case may be, that would allow lenders or noteholders to declare our outstanding debt immediately due and payable. If we are unable to pay those amounts because we do not have sufficient cash on hand or are unable to obtain alternative financing on acceptable terms, the lenders or noteholders could initiate a bankruptcy proceeding or, in the case of our New Credit Facilities, proceed against any assets that serve as collateral to secure such debt.

We will require a significant amount of cash to service our debt, and our ability to generate cash depends on many factors beyond our control.

Our ability to satisfy our debt obligations will primarily depend upon our future operating performance and decisions we make with regards to operating our business. As a result, prevailing economic conditions and financial, business and other factors, many of which are beyond our control, will affect our ability to make these payments to satisfy our debt obligations.

If we do not generate cash flows from operations sufficient to pay our debt service obligations, we may have to undertake alternative financing plans, such as refinancing or restructuring our debt, selling assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at that time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. For example, as a part of the restructuring of our term loans in August 2015, the interest rates under our New Credit Facilities increased. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives, which in turn could exacerbate the effects of any failure to generate sufficient cash flow to satisfy our debt service obligations. In addition, any failure to make payments of interest and principal on our outstanding debt on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional debt on acceptable terms and may materially adversely affect the price of the Notes. Furthermore, there currently is not a well-established secondary market for our assets. The lack of a secondary market may make the sale of our assets challenging, and the sale of assets should not be viewed as a significant source of funding.

Our inability to generate sufficient cash flow to satisfy our debt service obligations or to refinance our obligations on commercially reasonable terms or at all, would have a material adverse effect on our business, financial condition and results of operations and may restrict our current and future operations, particularly our ability to respond to business changes or to take certain actions, as well as on our ability to satisfy our obligations.

Variable-rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Certain of our borrowings, primarily borrowings under our New Credit Facilities, will be at variable rates of interest and expose us to interest rate risk. As such, our cash flows are sensitive to movements in interest rates. There are many economic factors outside our control that have in the past, and may in the future, impact rates of interest, including publicly announced indices that underlie the interest obligations related to a certain portion of our debt. The condition of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. Factors that impact interest rates include domestic or international governmental monetary policies, inflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets. If interest rates increase, our debt service obligations on the variable-rate indebtedness would increase even though the amount borrowed remained the same, and our cash flows would decrease. Such increases in interest rates could have a material adverse effect on our financial condition and results of operations.

The Notes are not secured by our assets, which means the lenders under any of our secured debt, including our New Credit Facilities, will have priority over holders of the Notes to the extent of the value of the assets securing that debt.

The Notes and the related guarantees are unsecured. This means they are effectively subordinated in right of payment to all of our and the guarantors’ secured debt, including our New Credit Facilities, to the extent of the value of the assets securing that debt. Loans under our New Credit Facilities are secured by substantially all of our and the guarantors’ assets (subject to certain exceptions). As of December 31, 2015, we had approximately $733.2 million outstanding under the New Term Loan and $80.0 million of availability under the Revolving Facility. Furthermore, the indenture governing the Notes allows us to incur additional secured debt. See Note 8 in our Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility” for a further description of the terms of the New Credit Facilities.

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If we become insolvent or are liquidated, or if payment under our New Credit Facilities or any other secured debt is accelerated, the lenders under our New Credit Facilities and holders of other secured debt will be entitled to exercise the remedies available to secured lenders under applicable law (in addition to any remedies that may be available under documents pertaining to our New Credit Facilities or other senior debt). For example, the secured lenders could foreclose upon and sell assets in which they have been granted a security interest to the exclusion of the holders of the Notes, even if an event of default exists under the indenture governing the Notes at that time. Any funds generated by the sale of those assets would be used first to pay amounts owing under secured debt, and any remaining funds, whether from those assets or any unsecured assets, may be insufficient to pay obligations owing under the Notes.

The Notes are structurally subordinated to the debt and other liabilities of our non-guarantor subsidiaries, including certain of our foreign subsidiaries.

Certain of our existing or future foreign subsidiaries do not guarantee the Notes, and only Ancestry.com LLC and all its direct and indirect existing and future restricted subsidiaries (except excluded subsidiaries) that guarantee any indebtedness of Ancestry.com Inc. or any guarantor, or incur indebtedness under a credit facility, in each case, subject to certain exceptions, guarantee the Notes. This means the Notes are structurally subordinated to the debt and other liabilities of these non-guarantor subsidiaries. As of December 31, 2015, our non-guarantor subsidiaries had no debt outstanding (excluding intercompany debt). Our non-guarantor subsidiaries may, in the future, incur substantial additional liabilities, including debt. Furthermore, we may, under certain circumstances described in the indenture governing the Notes, designate subsidiaries to be unrestricted subsidiaries, and any subsidiary that is designated as unrestricted will not guarantee the Notes. In the event of our non-guarantor subsidiaries’ bankruptcy, insolvency, liquidation, dissolution, reorganization or similar proceeding, the assets of those non-guarantor subsidiaries will not be available to pay obligations on the Notes until after all of the liabilities (including trade payables) of those non-guarantor subsidiaries have been paid in full.

We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture governing the Notes.

Upon the occurrence of certain change of control events, we will be required to offer to repurchase all of the Notes. A change of control would also give the holders of the Notes the right to require us to repurchase those Notes. Our New Credit Facilities provides that certain change of control events (including a change of control as defined in the indenture governing the Notes) constitute a default. Any future credit agreement or other debt agreement would likely contain similar provisions. If we experience a change of control that triggers a default under our New Credit Facilities, we could seek a waiver of that default or seek to refinance those facilities. In the event we do not obtain a waiver or complete a refinancing, the default could result in amounts outstanding under those facilities being declared immediately due and payable. In the event we experience a change of control that requires us to repurchase the Notes, we may not have sufficient financial resources to satisfy all of our obligations under our New Credit Facilities and the Notes. A failure to make a required change of control offer or to pay a change of control purchase price when due would result in a default under the indenture governing the Notes.

In addition, the change of control and other covenants in the indenture governing the Notes do not cover all corporate reorganizations, mergers or similar transactions and may not provide holders with protection in a transaction, including one that would substantially increase our leverage.

The ability of holders of the Notes to require us to repurchase the Notes as a result of a disposition of “substantially all” of our assets or a change in the composition of our Operating Committee is uncertain.

The definition of change of control in the indenture governing the Notes includes the sale, assignment, lease, conveyance or other disposition of “substantially all” of our and our subsidiaries’ assets, taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase. Accordingly, the ability of a holder of the Notes to require us to repurchase such Notes as a result of a sale, assignment, lease, conveyance or other disposition of less than all of our and our subsidiaries’ assets, taken as a whole, to another person or group is uncertain. In addition, a recent Delaware Chancery Court decision raised questions about the enforceability of provisions that are similar to those in the indenture governing the Notes, related to the triggering of a change of control as a result of a change in the composition of a board of directors or similar governing body. Accordingly, the ability of a holder of Notes to require us to repurchase Notes as a result of a change in the composition of the members of our Operating Committee is uncertain.

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Federal and state statutes allow courts, under specific circumstances, to void guarantees of the Notes. In such event, holders of Notes would be structurally subordinated to creditors of the issuer of the voided guarantee.

Federal and state statutes allow courts, under specific circumstances, to void guarantees, subordinate claims under the guarantees to the guarantor’s other debt or take other action detrimental to holders of the guarantees of the Notes. Under the federal bankruptcy law and comparable provisions of state fraudulent transfer laws, the guarantees made by the guarantors could be voided or subordinated to other debt if, among other things:


•	any guarantor issued the guarantee to delay, hinder or defraud present or future creditors; or


•	any guarantor received less than reasonably equivalent value or fair consideration for issuing such guarantee and, at the time it issued its guarantee, any guarantor:


•	was insolvent or rendered insolvent by reason of such incurrence;


•	was engaged in a business or transaction for which such guarantor’s remaining unencumbered assets constituted unreasonably small capital;


•	intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature; or


•	was a defendant in an action for money damages, or had a judgment for money damages docketed against it if, in either case, after final judgment, the judgment is unsatisfied.

Among other things, a legal challenge of a guarantee on fraudulent conveyance grounds may focus on the benefits, if any, realized by the guarantor as a result of our issuance of the Notes. The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a guarantor would be considered insolvent if, at the time it incurred the debt,


•	the sum of its debts is greater than the fair value of all of its assets;


•	the present fair saleable value of its assets was less than the amount that would be required in order to pay its probable liability on its existing debts and liabilities, including contingent liabilities, as they become absolute and mature; or


•	it could not pay or is generally not paying its debts as they become due.

There is no way to predict with certainty what standards a court would apply to determine whether a guarantor was solvent at the relevant time. It is possible that a court could view the issuance of guarantees as a fraudulent conveyance. To the extent that a guarantee were to be voided as a fraudulent conveyance or were to be held unenforceable for any other reason, holders of the Notes would cease to have any claim in respect of the guarantor and would be creditors solely of ours and of the guarantors whose guarantees had not been avoided or held unenforceable. In this event, the claims of the holders of the Notes against the issuer of an invalid guarantee would be subject to the prior payment in full of all other liabilities of the guarantor thereunder. After providing for all prior claims, there may not be sufficient assets to satisfy the claims of the holders of the Notes relating to the voided guarantees. Although each guarantee entered into by a guarantor will contain a provision intended to limit that guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer, this provision may not be effective to protect those guarantees from being voided under fraudulent transfer law, or may reduce that guarantor’s obligation to an amount that effectively makes its guarantee worthless. In a Florida bankruptcy case, this kind of provision was found to be unenforceable and, as a result, the subsidiary guarantees in that case were found to be fraudulent conveyances. We do not know if that case will be followed if there is litigation on this point under the indenture for the Notes. However, if it is followed, the risk that the guarantees will be found to be fraudulent conveyances will be significantly increased.

We are owned and controlled by funds advised by Permira, and the funds’ interests as equity holders may conflict with the interests of note holders.

We are indirectly controlled by funds advised by Permira, who have the ability to control our policies and operations. The interests of the funds may not in all cases be aligned with the interests of note holders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our equity holders might conflict with the interests of note holders. In addition, our equity holders may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even when those transactions involve risks to holders of the Notes. Furthermore, funds advised by Permira may in the future own businesses that directly or indirectly compete with us. Funds advised by Permira also may pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us.

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A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may impair our ability to obtain future borrowings at similar costs and reduce our access to capital.

The Notes currently have a non-investment grade rating. In the future, any ratings agency may lower a given rating, if that rating agency judges that our business, the economic environment or other future circumstances so warrant, and a ratings downgrade would likely materially adversely affect the price of the Notes. A ratings agency may also decide to withdraw its rating of the Notes entirely, which would impede their liquidity and materially adversely affect their price.

During any period in which the Notes are rated investment grade, certain covenants contained in the indenture will not be applicable; however, there is no assurance that the Notes will be rated investment grade.

The indenture governing the Notes provides that certain covenants will not apply to us during any period in which the Notes are rated investment grade from each of Standard & Poor’s and Moody’s and no default has otherwise occurred and is continuing under the indenture. The covenants that would be suspended include, among others, limitations on our restricted subsidiaries’ ability to pay dividends, incur indebtedness, sell certain assets and enter into certain other transactions. Any actions that we take while these covenants are not in force will be permitted even if the Notes are subsequently downgraded below investment grade and such covenants are subsequently reinstated. Investors should be aware that the Notes may never become rated investment grade and we do not expect the Notes to become investment grade. If they do become rated investment grade, the Notes may not maintain those ratings.

The Notes are only guaranteed by entities that also guarantee our New Credit Facilities. Therefore, certain current and future subsidiaries of Ancestry.com LLC that are considered controlled foreign corporations and certain other subsidiaries that are not required to guarantee the New Credit Facilities will not provide guarantees of the New Credit Facilities and will not guarantee the Notes.

Certain current and future U.S. and non-U.S. indirect subsidiaries of Ancestry.com LLC are considered to be controlled foreign corporations. These subsidiaries will not provide guarantees of the New Credit Facilities and, therefore, will not provide guarantees of the Notes. Furthermore, certain other of our subsidiaries will not be required to provide guarantees of the New Credit Facilities and, unless they guarantee other indebtedness of ours or the guarantors, will not guarantee the Notes.

A substantial portion of our assets are owned, and a substantial portion of our revenue is generated, by guarantors organized outside the United States. Foreign laws applicable to such guarantors might not be as favorable to note holders as analogous United States federal and state laws.

A substantial portion of our assets are owned by non-U.S. guarantors. As a result of their jurisdiction of organization, laws other than United States federal and state law may apply to such entities in connection with, among other things, their liquidation or dissolution and the validity and enforceability of their guarantees of the Notes. We can give no assurance of which jurisdiction’s insolvency law will be applied in the event of the bankruptcy or insolvency of a foreign guarantor of the Notes. The procedural and substantive provisions of foreign insolvency laws are different from and, in certain jurisdictions, may be less favorable to holders of the Notes than comparable provisions of U.S. insolvency law. Further, pursuant to foreign insolvency law, a foreign guarantor’s liability under its guarantee may rank junior to certain debts entitled to priority under applicable law, which would not be entitled to a similar priority under U.S. insolvency law. Such debts could include, among others, amounts owed to foreign governments, amounts owed to employees such as wages, salary and holiday remuneration, amounts owed in respect of pension scheme contributions, social security contributions or contracts of insurance, and payments pursuant to applicable workers’ compensation laws. As a result, there can be no assurance that, in the event of a liquidation or insolvency of a foreign guarantor of the Notes, note holders will be able to realize upon the guarantee of such foreign guarantor to the same extent as if such foreign guarantor was organized under the laws of a U.S. jurisdiction. The laws of such foreign jurisdictions might also be applied to hold the guarantee of a foreign guarantor void and unenforceable in connection with a liquidation or otherwise. Such foreign laws may also be used to hold a payment made under a guarantee to be void and refundable. Accordingly, the guarantee of a foreign guarantor could be held void and unenforceable under applicable foreign law in a situation in which, if foreign law did not apply, the same guarantee would be enforceable under applicable U.S. federal and state law. The guarantees of the foreign guarantors may also be held void under certain foreign laws if it is determined that the company issuing the guarantee does not receive sufficient commercial benefit for doing so. If there is insufficient commercial benefit, the beneficiary of the guarantee may not be able to rely on the authority of the directors of that company to grant the guarantee, and accordingly a court may set aside the guarantee at the request of, among others, the company’s shareholders or a liquidator. Although we believe that the guarantee of each foreign guarantor is enforceable and that each guarantor has received sufficient commercial benefit from issuing its guarantee, we cannot assure you that a foreign court would agree with our conclusion and not hold such guarantee to be void under applicable foreign law.

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Ancestry.com Inc. (the “Issuer”) is a holding company, and its ability to make any required payment on the Notes is dependent on the operations of, and the distribution of funds from, its and Ancestry.com LLC's (the “Parent”) subsidiaries.

The Issuer’s and Parent’s subsidiaries conduct substantially all of our operations and own all of our operating assets. Therefore, the Issuer depends on dividends and other distributions from its and Parent’s subsidiaries to generate the funds necessary to meet its obligations, including its required obligations under the Notes. Moreover, each of our subsidiaries is a legally distinct entity and, other than those of our subsidiaries that are guarantors of the Notes, have no obligation to pay amounts due pursuant to the Notes or to make any of their funds or other assets available for these payments. Although the indenture governing the Notes limits the ability of the restricted subsidiaries to enter into consensual restrictions on their ability to pay dividends and make other payments, these limitations have a number of significant qualifications and exceptions, including provisions contained in the indenture governing the Notes and the New Credit Facilities that restrict the ability of the restricted subsidiaries to make dividends and distributions or otherwise transfer any of their assets to the Issuer.

The Notes may trade at a discount from par.

The Notes may trade at a discount from their initial offering price due to a number of potential factors, including not only our financial condition, performance and prospects, but also many that are not directly related to us, such as a lack of liquidity in trading of the Notes, prevailing interest rates, the market for similar securities, general economic conditions and prospects for companies in our industry generally. In addition, the liquidity of the trading market in the Notes and the market prices quoted for the Notes may be materially adversely affected by changes in the overall market for high-yield securities.

Risks Related to Intellectual Property

If our intellectual property and technologies are not adequately protected to prevent use or appropriation by our competitors, the value of our brand and other intangible assets may be diminished, and our business may be materially affected.

Our future success and competitive position depend in part on our ability to protect our proprietary technologies and intellectual property. We rely and expect to continue to rely on a combination of confidentiality and license agreements with our employees, consultants and third parties with whom we have relationships, as well as on the protections afforded by trademark, copyright, patent and trade secret law, to protect our proprietary technologies and intellectual property. Because certain of our trademarks contain words or terms that have an arguably common usage, we may have difficulty registering them in certain jurisdictions. Although we possess intellectual property rights in some aspects of our digital content, search technology and digitization and indexing processes, our digital content is not protected by any registered copyrights or other registered intellectual property or statutory rights. Rather, our digital content is protected by user agreements that limit access to and use of our data, as well as by certain proprietary and non-proprietary technology and software. However, compliance with the use restrictions is difficult to monitor, and any technology or software that we deploy to protect our digital content may prove to be inadequate for such purpose. In addition, our proprietary rights in our digital content databases may be more difficult to enforce than other forms of intellectual property rights.

There can be no assurance that the steps we take will be adequate to protect our technologies and intellectual property, that our patent and trademark applications will lead to issued patents and registered trademarks in all instances, that others will not develop or patent similar or superior technologies, products or services, or that our patents, trademarks and other intellectual property will not be challenged, invalidated or circumvented by others. Furthermore, the intellectual property laws of other countries at which our websites are or may in the future be directed, may not protect our products and intellectual property rights to the same extent as the laws of the United States. The legal standards relating to the validity, enforceability and scope of protection of intellectual property rights in Internet-related industries are uncertain and still evolving, both in the United States and in other countries. In addition, third parties may knowingly or unknowingly infringe our patents, trademarks and other intellectual property rights, and litigation may be necessary to protect and enforce our intellectual property rights. Any such litigation could be very costly and could divert management attention and resources. If the protection of our technologies and intellectual property is inadequate to prevent use or appropriation by third parties, the value of our brand and other intangible assets may be diminished and competitors may be able to more effectively mimic our subscription services and methods of operations. Any of these events would have a material adverse effect on our business, financial condition and results of operations.

We also expect that the more successful we are, the more likely it will become that competitors will try to develop services that are similar to ours, which may infringe on our proprietary rights. It may also be more likely that competitors will claim that our products and services infringe on their proprietary rights. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to our or similar technologies, our business, revenues, reputation and competitive position could be harmed.

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Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information. Failure to protect our proprietary information could make it easier for third parties to compete with our services and harm our business.

A substantial amount of our tools and technologies are protected by trade secret laws. In order to protect our proprietary technologies and processes, we rely in part on security measures, as well as confidentiality agreements with our employees, licensees, independent contractors and other advisors. These measures and agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. We could lose future trade secret protection if any unauthorized disclosure of such information occurs. In addition, others may independently discover our trade secrets and proprietary information, and in such cases, we could not assert any trade secret rights against such parties. Laws regarding trade secret rights in certain markets in which we operate may afford little or no protection to our trade secrets. The loss of trade secret protection could make it easier for third parties to compete with our services by copying functionality. In addition, any changes in or unexpected interpretations of the trade secret and other intellectual property laws in any country in which we operate may compromise our ability to enforce our trade secret and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could materially affect our business, revenues, reputation and competitive position.

Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our websites, content indexes, and marketing and advertising activities.

Trademark, copyright, patent and other intellectual property rights are important to us and other companies. Our intellectual property rights extend to our technologies, business processes and the content on our websites. We use intellectual property licensed from third parties in merchandising our services and marketing and advertising our services. From time to time, third parties may allege that we have violated their intellectual property rights. For example, we are currently in litigation with Genotek; refer to Item 3, Legal Proceedings, of Part I for further information. If there is a valid claim against us for infringement, misappropriation, misuse or other violation of third-party intellectual property rights, and we are unable to obtain sufficient rights or develop non-infringing intellectual property or otherwise alter our business practices on a timely basis, our business and competitive position may be adversely affected. Many companies are devoting significant resources to obtaining patents that could affect many aspects of our business. There are numerous patents that broadly claim means and methods of conducting business on the Internet. We have not exhaustively searched patents relevant to our technologies and business. If we are forced to defend ourselves against intellectual property infringement claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, diversion of technical and management personnel, limitations on our ability to use our current websites or inability to market or provide our services. As a result of any such dispute, we may have to develop non-infringing technology, pay damages, enter into royalty or licensing agreements, cease providing certain services, adjust our merchandising or marketing and advertising activities or take other actions to resolve the claims. These actions, if required, may be costly or unavailable on terms acceptable to us. In addition, many of our co-branding, distribution and other partnering agreements require us to indemnify our partners for third-party intellectual property infringement claims, which could increase the cost to us of an adverse ruling in such an action.

In addition, as a publisher of online content, we face potential liability for negligence, copyright, patent or trademark infringement or other claims based on the nature and content of data and materials that we publish or distribute. These claims could arise with respect to both institutional and user-generated content. Litigation to defend these claims could be costly and any other liabilities we incur in connection with the claims may have a material adverse effect on our business, financial condition and results of operations.

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If we are unable to protect our domain names, our reputation and brand could be affected adversely, which may negatively impact our ability to compete.

We have registered domain names for website destinations that we use in our business, such as Ancestry.com, Ancestry.co.uk, Archives.com and Fold3.com. However, if we are unable to maintain our rights in these domain names, our competitors could capitalize on our brand recognition by using these domain names for their own benefit. In addition, our competitors could capitalize on our brand recognition by using domain names similar to ours. Domain names similar to ours have been registered in the United States and elsewhere, and in many countries the top-level domain names “ancestry,” “archives” or “genealogy” are owned by other parties. Although we own the “ancestry.co.uk” domain name in the United Kingdom, we might not be able to, or may choose not to, acquire or maintain other country-specific versions of the “ancestry,” “archives” and “genealogy” domain names. Further, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights varies from jurisdiction to jurisdiction and is unclear in some jurisdictions. We may be unable to prevent third parties from acquiring and using domain names that infringe on, are similar to, or otherwise decrease the value of, our brand or our trademarks or service marks. Protecting and enforcing our rights in our domain names and determining the rights of others may require litigation, which could result in substantial costs and divert management attention. We may not prevail if any such litigation is initiated.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

Our corporate headquarters are located in Provo, Utah, where we lease approximately 120,000 square feet of space. The term of this lease expires in May 2016. In 2012, we began to occupy office space of approximately 57,000 square feet in San Francisco, California under a lease that expires in 2019. We also maintain offices in other U.S. locations and internationally in Ireland, the United Kingdom and in other countries under leases that expire at varying times from 2016 through 2023.

In 2015, we entered into an operating lease agreement for 200,000 square feet for our new corporate headquarters in Lehi, Utah. We expect to occupy the premises beginning in mid-2016. The lease has a ten-year initial term, with the right to extend the lease for up to two additional five-year terms.

Our Ancestry.com websites are hosted on hardware and software co-located at a third-party facility in Salt Lake City, Utah. We believe that our contracted space for our hardware and software at this facility is both suitable and adequate for our current development plans and our anticipated growth. Our Salt Lake City contract is currently on a month-to-month basis; however, a long-term contract is expected to be finalized in 2016.

Item 3. Legal Proceedings

General

On May 4, 2015, DNA Genotek Inc. (“Genotek”) filed a complaint against Ancestry.com DNA, LLC (“Ancestry DNA”) in the United States District Court for the District of Delaware (Case No. 1:15-cv-00355-SLR). Genotek later filed an amended complaint on July 24, 2015 that asserts causes of action for (1) infringement of U.S. Patent No. 8,221,381; (2) breach of contract for allegedly breaching the Terms and Conditions that governed Ancestry DNA’s purchase of Genotek Saliva Collection Products; (3) conversion; (4) trespass to chattel; and (5) action to quiet title. Ancestry DNA filed a motion to dismiss Genotek’s willful infringement, conversion, trespass to chattel, and action to quiet title claims on August 10, 2015. Genotek responded to the motion to dismiss on September 3, 2015, and Ancestry DNA filed its reply brief on September 18, 2015. As of February 19, 2016, the Court has not yet ruled on this motion. On January 22, 2016, Genotek filed a second amended complaint that adds a false advertising and a false designation of origin claim. Ancestry DNA’s response to the second amended complaint is due on February 19, 2016. Genotek seeks preliminary and permanent injunctive relief, unspecified monetary damages, an award of Ancestry’s profits, and an award of Genotek’s costs and attorneys’ fees incurred in connection with this action. On October 20, 2015, AncestryDNA filed an Inter Partes Review Petition (IPR2016-00060) with the United States Patent and Trademark Office, challenging the validity of claims 1-20, 39-41, 43-47, and 49 of U.S. Patent No. 8,221,381. Ancestry DNA intends to defend the litigation vigorously. While no assurances can be given as to outcomes or liability, if any, we do not believe that this litigation will be resolved in a manner that would have a material adverse effect on our financial statements.

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On July 30, 2015 DNA Genotek, Inc. (“Genotek”) filed a complaint in the United States District Court for the District of Delaware against Spectrum DNA, Spectrum Solutions L.L.C., and Spectrum Packaging L.L.C. (collectively “Spectrum”) (Case No. 1:15-cv-00661-SLR). The complaint alleges that Spectrum’s sale of the saliva collection device created by Ancestry DNA.com, LLC constitutes infringement of U.S. Patent No. 8,221,381. On January 22, 2016, Genotek filed a first amended complaint that added causes of action for false advertising and false designation of origin. While Ancestry is not a party to this lawsuit, Ancestry has agreed to indemnify Spectrum against Genotek’s patent infringement claims. On August 24, 2015, Genotek filed a preliminary injunction motion seeking to enjoin Spectrum’s sales of saliva collection devices to parties other than Ancestry DNA.com, LLC. On September 4, 2015, Spectrum filed a motion to dismiss for lack of personal jurisdiction. On February 4, 2016, the Court issued an order denying both motions without prejudice and authorizing Genotek to pursue jurisdictional discovery. Ancestry DNA intends to defend the litigation vigorously. While no assurances can be given as to outcomes or liability, if any, we do not believe that this litigation will be resolved in a manner that would have a material adverse effect on our financial statements. The outcome of either of these Genotek matters is uncertain and cannot be predicted with any certainty.

On November 16, 2015, Ancestry.com Operations Inc. and Ancestry.com DNA, LLC (collectively “Ancestry”) filed a complaint against DNA Diagnostic Center, Inc. (“DDC”) in the United States District Court for the Southern District of Ohio for trademark infringement, unfair competition, false advertising, and breach of contract (Case No. 1:15-cv-00737-SSB-SKB). Ancestry’s claims relate to DDC’s unauthorized use of Ancestry’s registered Ancestry and AncestryDNA trademarks in its advertisements for a competing product and its use of close variations of Ancestry’s registered trademarks, which Ancestry contends has created consumer confusion. Ancestry’s claims are also based upon DDC’s breach of a prior agreement with Ancestry that it would cease the allegedly infringing conduct and false advertising. On January 19, 2016, DDC filed its Answer to Ancestry’s Complaint and filed several Counterclaims, including Counterclaims for trademark infringement, unfair competition, and for cancellation of Ancestry’s registered AncestryDNA trademark. DDC’s Counterclaims are based upon its use and registration of the mark AncestryByDNA, notwithstanding Ancestry’s prior use of the Ancestry trademark since 1983. Ancestry has also filed a motion for a preliminary injunction on its claims, the preliminary injunction hearing was held on January 29, 2016, and DDC has filed an opposition to the motion. On February 16, the Magistrate Judge granted Ancestry’s motion in part, enjoining DDC from using the trademarks “Ancestry,” “Ancestry DNA” and/or “DNA Ancestry.” Both parties have the right to appeal the decision to the District Judge. While we cannot assure the ultimate outcome of this litigation, we do not believe it will be resolved in a manner that would have a material adverse effect on our business.

As part of the acquisition of Archives.com from Inflection LLC, completed in August 2012, a Marketing Agreement between Inflection LLC and Z-CORP dba OneGreatFamily.com (“OGF”) was assigned to Ancestry.com Operations Inc. In 2014, OGF expressed concerns it was owed monies and demanded an accounting, which the Company offered. After refusing the Company’s offer to provide an accounting under the Marketing Agreement, on or about October 10, 2014, OGF initiated a lawsuit in the Fourth Judicial District Court of the State of Utah against Ancestry.com Inc. and Ancestry.com Operations Inc. The suit is captioned Z-CORP et al. v. Ancestry.com Inc. et al. (Civil No. 140401466), claiming alleged breach of contract, breach of implied covenant of good faith and fair dealing, conversion and intentional interference with prospective economic relations. OGF alleged damages totaling over $30 million, plus punitive damages in an unspecified amount. On or about November 13, 2014 Ancestry.com filed a motion to dismiss the complaint in its entirety for failing to state claims upon which relief may be granted. The Court heard oral arguments on the motion to dismiss on March 9, 2015. At the hearing, OGF conceded the law had changed regarding its intentional interference claim and it was dismissed without prejudice by consent of both parties. On April 1, 2015, the court issued a ruling granting the motion to dismiss as to the remaining claims, with prejudice and on the merits. On May 13, 2015, OGF appealed the court’s ruling to the Utah Supreme Court, which subsequently assigned the appeal to the Utah Court of Appeals. OGF submitted their initial brief on September 4, 2015, and we filed our initial brief seeking to affirm the trial court on November 6, 2015. OGF filed a reply brief on January 8, 2016. OGF is appealing only the trial court’s dismissal of OGF’s claims for breach of contract, breach of implied covenant of good faith and fair dealing, and punitive damages. The Utah Court of Appeals has not ruled on the appeal, but oral arguments have been scheduled for May 31, 2016. While we cannot assure the ultimate outcome of this matter, we do not believe that it will be resolved in a manner that would have a material adverse effect on our business

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We have and may become party to various other legal proceedings and other claims that arise in the ordinary course of business or otherwise in the future. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. While we cannot assure the ultimate outcome of any legal proceeding or contingency in which we are or may become involved, we do not believe that any pending legal claim or proceeding arising in the ordinary course will be resolved in a manner that would have a material adverse effect on our business. Although we consider the likelihood of such an outcome to be remote, if one or more of these legal matters resulted in an adverse money judgment against us, such a judgment could have a material adverse effect on our operating results and financial conditions and may result in us being required to pay significant monetary damages. See the risk factors “Expenses or liabilities resulting from litigation could materially adversely affect our results of operations and financial condition” and “Intellectual property claims against us could be costly and result in the loss of significant rights related to, among other things, our websites, content indexes, and marketing and advertising activities,” under the heading “Risk Factors.”

Appraisal Litigation (In re: Appraisal of Ancestry.com Inc.)

On October 21, 2012, the our predecessor entered into a definitive merger agreement with Global Generations Merger Sub Inc. and our parent company, Ancestry US Holdings Inc., to acquire our predecessor entity for $32 per share of common stock (the “Merger”). Following the consummation of the Merger on December 28, 2012, three former shareholders, who, combined, owned approximately 1.4 million shares of the predecessor entity’s common stock, instituted two separate appraisal proceedings against Ancestry.com Inc. in the Court of Chancery of the State of Delaware pursuant to Del. C. § 262: Merion Capital, L.P. v. Ancestry.com, Inc. (C.A. No. 8173) and Merlin Partners LP et al. v. Ancestry.com Inc. (C.A. No. 8175). The two appraisal petitions alleged that the $32 per share price paid to the predecessor entity’s shareholders in the Merger did not represent our fair value on the date the Merger was consummated. On June 24, 2013, the Court consolidated the two pending appraisal proceedings as In re: Appraisal of Ancestry.com Inc. On February 9, 2015, the Court issued an order directing us to pay the fair value of $32 per share plus interest from the closing of the Merger through the date of payment. Therefore, on February 9, 2015, we paid a total of $51.1 million, which included releasing $45.3 million of restricted cash for the fair value of $32 per share plus $5.8 million for accrued interest.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common interests are privately held; as such there is no established public trading market for our common interests.

Holders

As of February 19, 2016, all of the common interests of Ancestry.com LLC were owned by our parent company, Ancestry.com Holdings LLC (“Holdings LLC”). Holdings LLC is a holding company with no material operations and limited assets other than its ownership of the membership interests of Ancestry.com LLC. Holdings LLC has no material liabilities outstanding to third parties other than the senior unsecured payment-in-kind toggle notes (the “PIK Notes”) as discussed further within Note 8 of the Consolidated Financial Statements herein.

Dividends

In 2015, we declared and paid our parent, Holdings LLC, return-of-capital distributions of $254.4 million of which $216.0 million was paid to its indirect parent entity's shareholders and vested stock-based award holders and of which $38.4 million was used to pay accumulated interest on the PIK Notes due October 15, 2018. In 2014, we declared and paid Holdings LLC return-of-capital distributions of $37.6 million to pay accumulated interest on the PIK Notes.

Interest on the PIK Notes is payable semi-annually in arrears on April 15 and October 15 each year through maturity. Subject to cash availability and restricted payment capacity, Holdings LLC will be entitled to pay all or a portion of the interest payment by increasing the principal amount of the notes or issuing new notes in an amount equal to the interest payment for the applicable interest period (“PIK Interest”). Cash interest on the PIK Notes will accrue at the rate of 9.625% per annum; PIK Interest will accrue at the rate of 10.375% per annum.

The PIK Notes are senior unsecured obligations of Holdings LLC and are structurally subordinated to all our existing and future indebtedness. Additionally, we did not guarantee the PIK Notes, nor were any of our assets pledged as collateral for the PIK Notes. As we are not an obligor or a guarantor on the PIK Notes, the debt is recorded only in the financial statements of Holdings LLC and is not reflected in the Consolidated Financial Statements of Ancestry.com LLC. While not required, we intend to make future payments to Holdings LLC in order to fund payments related to the PIK Notes, provided that such payments are permitted under the covenants of our credit facilities and our 11% senior notes due in December 2020 (the “Notes”). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Credit Facility” and Note 8 ,“Debt,” in the Notes to the Consolidated Financial Statements included in this Annual Report.

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Item 6. Selected Financial Data

We operated as Ancestry.com Inc. (the “Predecessor”) until December 28, 2012 when a company controlled by Permira funds and co-investors (the “Sponsors”) acquired the Predecessor (the “Transaction”). As a result, our fiscal year 2012 is divided into a Successor period from December 29, 2012 to December 31, 2012 and a Predecessor period from January 1, 2012 to December 28, 2012. The following tables summarize selected consolidated historical financial and operating data for the periods indicated. The summarized Consolidated Balance Sheet data is presented for the Successor periods as of December 31, 2015, 2014, 2013 and 2012 and the Predecessor period as of December 31, 2011. The summarized Consolidated Statements of Operations data presented below for the Successor years ended December 31, 2015, 2014 and 2013, the Successor period from December 29, 2012 to December 31, 2012, the Predecessor period from January 1, 2012 to December 28, 2012 and the Predecessor year ended December 31, 2011 have been derived from our Consolidated Financial Statements, which have been audited by Ernst & Young LLP, an independent registered public accounting firm. Due to the Transaction, the results of the Successor are not comparable with the results of the Predecessor. You should read the selected consolidated financial data presented on the following pages in conjunction with our Consolidated Financial Statements and related Notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Additionally certain prior period amounts have been reclassified to conform to the current year presentation of the financial statements. See Note 1 in the Consolidated Financial Statements for further description.



	Successor								Predecessor⁽¹⁾
	As of December 31,
	2015		2014		2013		2012		2011
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	128,157	$	108,494	$	86,554	$	35,651	$	48,998
Total assets	1,621,760		1,720,897		1,852,828		2,039,455		489,770
Deferred revenues	171,822		145,010		137,864		116,953		108,654
Long-term obligations⁽²⁾	996,343		845,940		874,816		905,313		10,429
Total liabilities	1,340,842		1,225,170		1,312,131		1,430,109		179,261
Total member’s interests/stockholders’ equity⁽³⁾	280,918		495,727		540,697		609,346		310,509


⁽¹⁾	We operated as the Predecessor until December 28, 2012 when a company controlled by the Sponsors acquired the Predecessor. As a result of the Transaction, the balance sheet data presented is not comparable between the Predecessor and Successor periods.

⁽²⁾

Long-term obligations includes the current and long-term portions of debt outstanding in the years presented, net of unamortized discount and deferred financing costs, and the amounts payable under capital lease obligations as of December 31, 2012 and 2011. Long-term obligations does not include $390.2 million in senior unsecured PIK Notes issued by our parent company, Holdings LLC. While not required, Ancestry.com LLC has made and intends to pay future distributions or loans to its parent related to the PIK Notes.


⁽³⁾	In connection with the Transaction, we were recapitalized. As a result, the capital structure of our Predecessor is not comparable to that of the Successor.

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	Successor											Predecessor⁽¹⁾
	Year Ended December 31,⁽²⁾								Period From Dec. 29, 2012 to Dec. 31, 2012			Period From Jan. 1, 2012 to Dec. 28, 2012		Year Ended December 31,
	2015		2014			2013			Period From Dec. 29, 2012 to Dec. 31, 2012			Period From Jan. 1, 2012 to Dec. 28, 2012		2011
	(in thousands)
Operations Data:
Subscription revenues	$	584,075	$	553,810		$	499,557		$	3,194		$	451,744	$	377,364
Service and other revenues	99,030		65,734			40,834			264			31,883		22,297
Total revenues	683,105		619,544			540,391			3,458			483,627		399,661
Total cost of revenues	163,719		139,553			115,442			823			85,903		66,508
Total operating expenses	431,944		471,409			471,710			105,904			285,235		237,687
Income (loss) from operations	87,442		8,582			(46,761		)	(103,269		)	112,489		95,466
Net income (loss)	29,418		(18,728		)	(79,700		)	(72,675		)	70,789		62,895

⁽¹⁾

We operated as the Predecessor until December 28, 2012 when a company controlled by the Sponsors acquired the Predecessor. As a result, our fiscal year 2012 is divided into a Successor period from December 29, 2012 to December 31, 2012 and a Predecessor period from January 1, 2012 to December 28, 2012. Operational data presented for the Successor and Predecessor periods is not necessarily comparable due to the Transaction.

⁽²⁾

Income (loss) from operations and net income (loss) for the years ended December 31, 2015, 2014 and 2013 include $4.4 million, $10.6 million, and $5.6 million of non-recurring costs, respectively. For the year end December 31, 2015, income from operations and net income include $4.4 million of professional service fees related primarily to litigation, reimbursement for certain legal and accounting costs incurred by one of our Sponsors and costs associated with a return-of-capital distribution declared in August 2015 to our parent company, Ancestry.com Holdings LLC. For the year end December 31, 2014, income from operations and net loss include $10.6 million of accrued interest paid on restricted cash held pending resolution of the shareholder appraisal litigation, professional service fees related to litigation and costs associated with the return-of-capital distribution paid in February 2014 by Holdings LLC. Loss from operations and net loss for the year ended December 31, 2013 include $5.6 million of professional services related to litigation, reorganizing our corporate structure, registering the Notes with the SEC, costs associated with the return-of-capital distribution paid in September 2013 by Holdings LLC, and costs related to the settlement of litigation.

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	Successor								Predecessor⁽¹⁾
	Year Ended December 31,						Period from Dec. 29, 2012 to Dec. 31, 2012		Period from Jan. 1, 2012 to Dec. 28, 2012		Year Ended December 31,
	2015		2014		2013		Period from Dec. 29, 2012 to Dec. 31, 2012		Period from Jan. 1, 2012 to Dec. 28, 2012		2011
	(in thousands)
Other Financial Data:
Non-GAAP revenues⁽²⁾	$	683,105	$	619,544	$	561,506	$	4,008	$	483,627	$	399,661
Adjusted EBITDA⁽³⁾	258,595		214,839		211,583		1,233		177,592		144,807
Free cash flow⁽⁴⁾	124,800		93,668		132,920		1,233		104,754		106,355

⁽¹⁾


⁽²⁾	Non-GAAP revenues. We define non-GAAP revenues as the revenues that would have been recognized, except for the write-down of deferred revenue to fair value as a result of the application of purchase accounting for the Transaction. Non-GAAP revenues is calculated as total revenues plus the effects of non-cash adjustments to revenue from purchase accounting.


⁽³⁾	Adjusted EBITDA. We define adjusted EBITDA as net income (loss) plus non-cash adjustments to revenue from purchase accounting, interest expense, net; other (income) expense, net; income tax expense (benefit); and non-cash charges including depreciation, amortization, and stock-based compensation expense.

⁽⁴⁾

Free cash flow. We define free cash flow as net income (loss) plus non-cash adjustments to revenue from purchase accounting, interest expense, net; other (income) expense, net; income tax expense (benefit); and non-cash charges including depreciation, amortization, and stock-based compensation expense; minus capitalization of content databases, purchases of property and equipment and cash received (paid) for income taxes and interest.

We believe non-GAAP revenues, adjusted EBITDA and free cash flow are useful to investors as supplemental measures to evaluate our overall operating performance. Non-GAAP revenues, adjusted EBITDA and free cash flow are financial data that are not calculated in accordance with accounting standards generally accepted in the United States of America (“GAAP”). The tables below provide a reconciliation of these non-GAAP financial measures to total revenues or net income (loss), the most directly comparable financial measure calculated and presented in accordance with GAAP. We prepare non-GAAP revenues, adjusted EBITDA and free cash flow to eliminate the impact of items that we do not consider indicative of our core operating performance. We encourage you to evaluate these adjustments and the reasons we consider them appropriate, as well as the material limitations of non-GAAP measures.

Our management uses non-GAAP revenues, adjusted EBITDA and free cash flow as measures of operating performance, for planning purposes, including the preparation of our annual operating budget, to allocate resources to enhance the financial performance of our business, to evaluate the effectiveness of our business strategies and in communications with our Operating Committee concerning our financial performance. Adjusted EBITDA together with non-GAAP revenues has also been used as a financial performance objective in determining the bonus pool under our recent performance incentive programs. Management believes that the use of non-GAAP revenues, adjusted EBITDA and free cash flow provides consistency and comparability with our past financial performance, facilitates period-to-period comparisons of operations and also facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. Management believes that it is useful to exclude non-cash charges such as purchase accounting adjustments, depreciation, amortization and stock-based compensation from non-GAAP revenues, adjusted EBITDA and free cash flow because (i) the amount of such non-cash expenses in any specific period may not directly correlate to the underlying performance of our business operations and (ii) such expenses can vary significantly between periods as a result of new acquisitions, full amortization of previously acquired tangible and intangible assets or the timing of stock-based awards, as the case may be.

Although non-GAAP revenues, adjusted EBITDA and free cash flow are frequently used by investors and securities analysts in their evaluations of companies, non-GAAP revenues adjusted EBITDA and free cash flow each have limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of our results of operations as reported under GAAP.

Some of these limitations are:


•	non-GAAP revenues does not include the impact of purchase accounting adjustments, which are intended to reflect the fair value of recognized deferred revenue at the date of the Transaction;


•	adjusted EBITDA and free cash flow do not reflect our future requirements for contractual commitments;

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•	adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures;


•	adjusted EBITDA and free cash flow do not reflect changes in, or cash requirements for, our working capital;


•	adjusted EBITDA does not reflect interest income or interest expense;


•	adjusted EBITDA does not reflect cash requirements for income taxes;


•	adjusted EBITDA and free cash flow do not reflect the non-cash component of employee compensation;


•	although depreciation and amortization are non-cash charges, the assets being depreciated or amortized will often have to be replaced in the future, and adjusted EBITDA does not reflect any cash requirements for these replacements; and


•	other companies in our industry may calculate adjusted EBITDA or free cash flow or similarly titled measures differently than we do, limiting their usefulness as comparative measures.

The following table presents a reconciliation of non-GAAP revenues to total revenues, the most comparable GAAP measure, for each of the periods identified.



	Successor								Predecessor⁽¹⁾
	Year Ended December 31,						Period from Dec. 29, 2012 to Dec. 31, 2012		Period from Jan. 1, 2012 to Dec. 28, 2012		Year Ended December 31,
	2015		2014		2013		Period from Dec. 29, 2012 to Dec. 31, 2012		Period from Jan. 1, 2012 to Dec. 28, 2012		2011
			(in thousands)
Reconciliation of Non-GAAP revenues to total revenues
Total revenues	$	683,105	$	619,544	$	540,391	$	3,458	$	483,627	$	399,661
Non-cash revenue adjustment⁽²⁾	—		—		21,115		550		—		—
Non-GAAP revenues	$	683,105	$	619,544	$	561,506	$	4,008	$	483,627	$	399,661

⁽¹⁾


⁽²⁾	Represents non-cash adjustments to revenue or the revenues that would have been recognized, except for the write-down of deferred revenue to fair value as a result of the application of purchase accounting for the Transaction.

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The following table presents a reconciliation of our adjusted EBITDA and free cash flow to net income (loss), the most comparable GAAP measure, for the periods presented.



	Successor												Predecessor⁽¹⁾
	Year Ended December 31,									Period from Dec. 29, 2012 to Dec. 31, 2012			Period from Jan. 1, 2012 to Dec. 28, 2012			Year Ended December 31,
	2015			2014			2013			Period from Dec. 29, 2012 to Dec. 31, 2012			Period from Jan. 1, 2012 to Dec. 28, 2012			2011
	(in thousands)
Reconciliation of adjusted EBITDA and free cash flow to net income (loss)⁽²⁾:
Net income (loss)	$	29,418		$	(18,728	)	$	(79,700	)	$	(72,675	)	$	70,789		$	62,895
Non-cash revenue adjustment ⁽³⁾	—			—			21,115			550			—			—
Interest expense, net	81,056			69,680			97,837			730			1,065			589
Other expense (income), net	334			368			655			—			(742		)	637
Income tax expense (benefit)	(23,366		)	(42,738		)	(65,553		)	(31,324		)	41,377			31,345
Depreciation	21,823			21,498			16,931			—			14,699			13,450
Amortization	141,647			176,755			211,974			1,688			27,879			25,916
Stock-based compensation expense	7,683			8,004			8,324			—			15,421			9,975
Transaction-related expense ⁽⁴⁾	—			—			—			102,264			7,104			—
Adjusted EBITDA	$	258,595		$	214,839		$	211,583		$	1,233		$	177,592		$	144,807
Capitalization of content databases	(32,514		)	(37,566		)	(22,239		)	—			(23,538		)	(20,408		)
Purchases of property and equipment	(15,117		)	(21,821		)	(26,714		)	—			(20,776		)	(13,895		)
Cash paid for interest ⁽⁵⁾	(62,831		)	(60,450		)	(70,311		)	—			(1,368		)	(466		)
Cash received (paid) for income taxes	(23,333		)	(1,334		)	40,601			—			(27,156		)	(3,683		)
Free cash flow	$	124,800		$	93,668		$	132,920		$	1,233		$	104,754		$	106,355

⁽¹⁾

⁽²⁾

Net income (loss) and therefore adjusted EBITDA and free cash flow for the years ended December 31, 2015, 2014 and 2013 include $4.4 million, $10.6 million, and $5.6 million of non-recurring costs. For the year end December 31, 2015, net income and therefore adjusted EBITDA and free cash flow include $4.4 million of professional service fees related primarily to litigation, reimbursement for certain legal and accounting costs incurred by one of our Sponsors and costs associated with a return-of-capital distribution declared in August 2015 to our parent company, Ancestry.com Holdings LLC. For the year end December 31, 2014, net loss, adjusted EBITDA, and free cash flow include $10.6 million of accrued interest paid on restricted cash held pending resolution of the shareholder appraisal litigation, professional service fees related to litigation and costs associated with the return-of-capital distribution paid in February 2014 by Holdings LLC. Net loss, adjusted EBITDA, and free cash flow for the year ended December 31, 2013 include $5.6 million of professional services related to litigation, reorganizing our corporate structure, registering the Notes with the SEC, costs associated with the return-of-capital distribution paid in September 2013 by Holdings LLC, and costs related to the settlement of litigation.


⁽³⁾	Represents non-cash adjustments to revenue or the revenues that would have been recognized, except for the write-down of deferred revenue to fair value as a result of the application of purchase accounting for the Transaction.


⁽⁴⁾	Transaction-related expenses for the period from December 29, 2012 to December 31, 2012 include $53.1 million of stock-based compensation expense due to the acceleration of vesting for outstanding Predecessor stock-based awards upon closing of the Transaction.


⁽⁵⁾	Cash paid for interest for the years ended December 31, 2015 and 2014 does not include $38.4 million and $37.6 million of payments made to our parent related to the interest obligations on its senior unsecured PIK notes.

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

You should read the following discussion together with Item 6 “Selected Financial Data” and our Consolidated Financial Statements and the related Notes included elsewhere in this Annual Report of Ancestry.com LLC and its consolidated subsidiaries (“Ancestry.com LLC,” “Ancestry.com,” “we,” “us” or“Parent”). This discussion contains forward-looking statements about our business and operations. Our actual results may differ materially from those we currently anticipate as a result of many factors, including those we describe under “Risk Factors” and elsewhere in this Annual Report. See “Forward-Looking Statements.”

Company Overview

Our AncestryDNA service, with approximately 1.4 million DNA samples in its database as of December 31, 2015, enables customers to uncover their ethnic mix, discover distant cousins, and identify shared common ancestors. AncestryDNA leverages its growing DNA database together with proprietary algorithms to help customers identify their unique family history.

Key Business Metrics

Our management regularly reviews a number of financial and operating metrics, including the following key operating metrics to evaluate our business, determine the allocation of resources, make decisions regarding corporate strategies and evaluate forward-looking projections. The following key operating metrics reflect data with respect to our Ancestry.com websites and exclude our other subscription-based websites, such as Archives, Fold3 and Newspapers.com.


•	Total Subscribers. A subscriber is an individual who pays for renewable access or redeems a gift subscription to one of our core Ancestry websites. Total subscribers is defined as the number of subscribers at the end of the period.


•	Net Subscriber Additions. Net subscriber additions is the total number of new customers who purchase a subscription or redeem a gift subscription to our core Ancestry websites less the total number of subscribers who choose not to renew a completed subscription in the period.

Our key business metrics are presented for the years ended December 31, 2015, 2014 and 2013 as follows (in thousands):



	Year Ended December 31,
	2015	2014		2013
Total subscribers	2,264	2,115		2,140
Net subscriber additions	149	(25	)	124

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The following table presents the percentage of total subscribers by subscription duration type:



	December 31, 2015		December 31, 2014		December 31, 2013
Annual	35	%	40	%	42	%
Semi-annual	27		22		23
Quarterly	2		2		3
Monthly	36		36		32
Total	100	%	100	%	100	%

Components of Consolidated Statements of Operations

Revenues

We attribute revenues by country based on the billing address of the customer. The following table presents total revenues by geographic region (in thousands):



	Year Ended December 31,
	2015		2014		2013
United States	$	548,981	$	485,488	$	417,221
United Kingdom	70,008		67,800		59,447
All other countries	64,116		66,256		63,723
Total revenues	$	683,105	$	619,544	$	540,391

Subscription revenues. We derive subscription revenues by providing access to our content and technologies on our various websites. Subscription revenues from our core Ancestry websites accounted for approximately 78%, 83% and 90% of total revenues for the years ended December 31, 2015, 2014 and 2013, respectively. Subscription revenues also includes subscriptions to our other websites, such as Archives, Fold3 and Newspapers.com. We recognize subscription revenues, net of estimated cancellations, ratably over the subscription period. No revenue is recognized or allocated to any free-trial period we may provide. Amounts received from subscribers for which the performance obligations have not been fulfilled are recorded in deferred revenue. We have established an allowance for sales returns based on historical subscription cancellations. Actual customer subscription cancellations are charged against the allowance or deferred revenues to the extent that revenue has not yet been recognized.

Service and other revenues. Service and other revenues include sales of our AncestryDNA services, family history research services and other products and services. We recognize revenue from sales of our AncestryDNA services when the DNA results are delivered to the customer or when the likelihood of the DNA kit being submitted by the customer for testing is remote, as determined based on historical submission patterns of DNA kits by our customers. Revenues from family history research services are recognized upon completion of service.

Expenses

Personnel-related costs for each category of cost of revenues and operating expenses include salaries, bonuses, stock-based compensation, employee benefit costs and employer payroll taxes.

Cost of Revenues

Cost of subscription revenues. Cost of subscription revenues consists primarily of amortization of content databases, web-server operating costs, credit card processing fees, personnel-related costs of web support and customer service employees and outside service costs for customer services. Web-server operating costs include depreciation, software licensing on web servers and related equipment and web-hosting costs.

Cost of service and other revenues. Cost of service and other revenues consists of AncestryDNA direct costs, personnel-related costs of customer service and other fulfillment employees, shipping costs and credit card processing fees.

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Operating Expenses

Technology and development. Technology and development expenses consist primarily of personnel-related costs and outside service costs. Technology and development personnel-related costs include the personnel costs of developing new services and tools and maintaining and testing our websites. Our development personnel are primarily based in the United States and are focused on creating accessibility to content and tools for individuals to do family history research. Outside service costs are primarily incurred for third-party development and quality assurance services.

Marketing and advertising. Marketing and advertising expenses consist primarily of external marketing expenses, such as television, search and display advertising and personnel-related costs. Marketing and advertising costs are principally incurred in the United States, the United Kingdom, Australia and Canada.

General and administrative. General and administrative expenses consist principally of personnel-related and outside service expenses related to our executive, finance, legal, human resources and other administrative functions.

Amortization of acquired intangible assets. Amortization of acquired intangible assets is the amortization expense associated with subscriber relationships and contracts, technologies, trademarks and trade names and other acquired intangible assets.

Interest Expense, Net, Other Expense, Net and Income Tax Benefit

Interest expense, net. Interest expense, net includes interest expense associated with our debt, amortization of deferred financing costs and original issue discount costs associated with the issuance of our debt, including accelerated amortization of costs as a result of any debt restructuring or prepayments, and interest income earned on cash and cash equivalents or related-party notes receivable. Our interest expense varies based on the level of debt outstanding and changes in interest rates.

Other expense, net. Other expense, net primarily includes foreign currency transaction and remeasurement gains and losses, which vary based on changes in foreign currency exchange rates.

Income tax benefit. Income tax benefit consists of federal and state income taxes in the United States and income taxes in certain foreign jurisdictions.

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Results of Operations

The following table sets forth our Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013. The information in the table below and throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” has been derived from our audited Consolidated Financial Statements. You should read this table in conjunction with our Consolidated Financial Statements and the related Notes in this Annual Report.



	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Revenues:
Subscription revenues	$	584,075		$	553,810		$	499,557
Service and other revenues	99,030			65,734			40,834
Total revenues	683,105			619,544			540,391
Costs of revenues:
Cost of subscription revenues	103,051			95,899			86,889
Cost of service and other revenues	60,668			43,654			28,553
Total cost of revenues	163,719			139,553			115,442
Gross profit	519,386			479,991			424,949
Operating expenses:
Technology and development	97,105			94,221			85,723
Marketing and advertising	171,094			168,536			145,103
General and administrative	54,427			60,971			55,691
Amortization of acquired intangible assets	109,318			147,681			185,193
Total operating expenses	431,944			471,409			471,710
Income (loss) from operations	87,442			8,582			(46,761		)
Interest expense, net	(81,056		)	(69,680		)	(97,837		)
Other expense, net	(334		)	(368		)	(655		)
Income (loss) before income taxes	6,052			(61,466		)	(145,253		)
Income tax benefit	23,366			42,738			65,553
Net income (loss)	$	29,418		$	(18,728	)	$	(79,700	)

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The following table sets forth, for the periods presented, our Consolidated Statements of Operations as a percentage of total revenues. You should read this table in conjunction with the Consolidated Financial Statements and the related Notes in this Annual Report.



	Year Ended December 31,
	2015		2014		2013
Revenues:
Subscription revenues	85.5	%	89.4	%	92.4	%
Service and other revenues	14.5		10.6		7.6
Total revenues	100.0		100.0		100.0
Costs of revenues:
Cost of subscription revenues	15.1		15.5		16.1
Cost of service and other revenues	8.9		7.0		5.3
Total cost of revenues	24.0		22.5		21.4
Gross profit	76.0		77.5		78.6
Operating expenses:
Technology and development	14.2		15.2		15.9
Marketing and advertising	25.0		27.2		26.9
General and administrative	8.0		9.9		10.2
Amortization of acquired intangible assets	16.0		23.8		34.3
Total operating expenses	63.2		76.1		87.3
Income (loss) from operations	12.8		1.4		(8.7	)
Interest expense, net	(11.9	)	(11.2	)	(18.1	)
Other expense, net	—		(0.1	)	(0.1	)
Income (loss) before income taxes	0.9		(9.9	)	(26.9	)
Income tax benefit	3.4		6.9		12.2
Net income (loss)	4.3	%	(3.0	)%	(14.7	)%

Discussion of results of operations

Revenues, Costs of Revenues and Gross Profit

The following tables present total revenues, total cost of revenues and gross profit.



	Year Ended December 31,						% Change
	2015		2014		2013		2015 from 2014		2014 from 2013
	(in thousands)
Revenues:
Subscription revenues	$	584,075	$	553,810	$	499,557	5.5	%	10.9	%
Service and other revenues	99,030		65,734		40,834		50.7		61.0
Total revenues	683,105		619,544		540,391		10.3		14.6
Cost of revenues:
Cost of subscription revenues	103,051		95,899		86,889		7.5		10.4
Cost of service and other revenues	60,668		43,654		28,553		39.0		52.9
Total cost of revenues	$	163,719	$	139,553	$	115,442	17.3	%	20.9	%

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	Amount						Gross Profit Percentage
	December 31, 2015		December 31, 2014		December 31, 2013		December 31, 2015		December 31, 2014		December 31, 2013
	(in thousands)
Gross profit
Subscription	$	481,024	$	457,911	$	412,668	82.4	%	82.7	%	82.6	%
Service and other	38,362		22,080		12,281		38.7	%	33.6	%	30.1	%
Total	$	519,386	$	479,991	$	424,949	76.0	%	77.5	%	78.6	%

Subscription revenues, Cost of subscription revenues and Gross profit

2015 compared to 2014. Our subscription revenues increased $30.3 million in 2015 compared to 2014. This increase was primarily due to an increase in the average number of total subscribers and in the average monthly revenue per subscriber for 2015 compared to 2014. The higher average monthly revenue per subscriber was driven, in part, by an increased number of subscribers choosing premium packages, including our all-access subscription to a core Ancestry website, Fold3, Newspapers.com and Ancestry Academy. Premium packages have a higher average monthly revenue per subscriber than standard packages. For 2015, changes in average foreign currency exchange rates had over a one and one-half percentage points negative impact on subscription revenues compared to 2014.

Our cost of subscription revenues increased $7.2 million in 2015 compared to 2014. The increase was primarily due to a $3.3 million increase in content databases amortization due to the continued addition of new records to our content databases and a $1.5 million increase in web-hosting costs. Credit card processing fees also increased in 2015 compared to 2014 due to the overall growth in the number of subscribers.

2014 compared to 2013. Our subscription revenues increased $54.3 million in 2014 compared to 2013. Excluding the $21.1 million non-cash adjustment to write down deferred revenue to fair value as a result of the application of purchase accounting from the purchase of our predecessor company, subscription revenues for 2014 would have increased by $33.2 million compared to 2013. This increase was primarily the result of guiding our new subscribers into monthly subscription durations and premium packages, both of which have a higher average monthly revenue per subscriber than longer term subscription durations and standard packages. Additionally, the average number of total subscribers to our core Ancestry websites was higher during 2014 compared to 2013. While the average number of total subscribers to our core Ancestry websites was higher in 2014, the number of total subscribers at December 31, 2014 decreased compared to December 31, 2013. Subscription revenues were also higher in 2014 compared to 2013 due to an $8.0 million increase in revenues from our other subscription-based websites, Newspapers.com, Fold3 and Archives. During 2014, foreign currency exchange rates had a slight negative impact on subscription revenues compared to the rates in 2013.

Our cost of subscription revenues increased $9.0 million in 2014 compared to 2013. The increase was primarily due to a $6.8 million increase in web hosting costs largely as a result of additional depreciation expense for new web-operations equipment and software-related expenses. Additionally, content databases amortization increased by $2.3 million due to the continued addition of new records to our content databases.

Service and other revenues, Cost of service and other revenues and Gross profit

2015 compared to 2014. Service and other revenues increased $33.3 million in 2015 compared to 2014. The increase was primarily due to a $33.2 million increase in AncestryDNA revenues due to higher sales volume. Additionally, revenues from family history research services increased $3.1 million in 2015 compared to 2014. These increases were partially offset by a decrease in revenue of $4.0 million from Family Tree Maker software and product lines that have been discontinued.

Our cost of service and other revenues increased $17.0 million in 2015 compared to 2014. The increase was primarily due to a $17.7 million increase in costs associated with AncestryDNA due to higher sales volume, partially offset by a reduction in per-unit processing costs. Additionally, costs from family history research services increased $2.1 million for 2015 compared to 2014. These increases were partially offset by a decrease of $2.5 million in costs for Family Tree Maker and discontinued products.

2014 compared to 2013. Our service and other revenues increased $24.9 million in 2014 compared to 2013. The increase was primarily due to higher sales volume for AncestryDNA.

Our cost of service and other revenues increased $15.1 million in 2014 compared to 2013. This increase was primarily due to an increase in costs associated with AncestryDNA due to increased sales volume, partially offset by a reduction in per-unit processing costs.

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Operating Expenses



	Year Ended December 31,						% Change
	2015		2014		2013		2015 from 2014		2014 from 2013
	(In thousands)
Operating expenses:
Technology and development	$	97,105	$	94,221	$	85,723	3.1	%	9.9	%
Marketing and advertising	171,094		168,536		145,103		1.5		16.1
General and administrative	54,427		60,971		55,691		(10.7	)	9.5
Amortization of acquired intangible assets	109,318		147,681		185,193		(26.0	)	(20.3	)
Total operating expenses	$	431,944	$	471,409	$	471,710	(8.4	)%	(0.1	)%

Technology and development

2015 compared to 2014. Our technology and development expenses increased $2.9 million in 2015 compared to 2014. The increase was primarily due to a $3.3 million increase in personnel-related expenses.

2014 compared to 2013. Our technology and development expenses increased $8.5 million in 2014 compared to 2013. The increase was primarily due to a $5.8 million increase in personnel-related expenses as a result of an increase in the average number of technology and development personnel during 2014 compared to 2013. Additionally, depreciation expense and third-party consultant costs increased during 2014 compared to 2013.

Marketing and advertising

2015 compared to 2014. Our marketing and advertising expenses increased $2.6 million in 2015 compared to 2014. The increase was primarily due to a $2.5 million increase in external marketing expenses.

2014 compared to 2013. Our marketing and advertising expenses increased $23.4 million in 2014 compared to 2013. This increase was primarily due to an increase in external marketing and advertising expenses due to incremental marketing spend, including marketing for AncestryDNA and an increase in media rates.

General and administrative

2015 compared to 2014. Our general and administrative expenses decreased $6.5 million in 2015 compared to 2014. This decrease was primarily due to a $6.2 million decrease in one-time expenses. For the year end December 31, 2015, we incurred $4.4 million of professional service fees related primarily to litigation, reimbursement for certain legal and accounting costs incurred by one of our Sponsors and costs associated with a return-of-capital distribution declared in August 2015 to our parent company, Ancestry.com Holdings LLC. In 2014, we incurred $10.6 million of interest to be paid on restricted cash held pending resolution of the shareholder appraisal litigation, professional service fees related to litigation and costs associated with the return-of-capital distribution paid in February 2014 by our parent company.

2014 compared to 2013. Our general and administrative expenses increased $5.3 million in 2014 compared to 2013. This change was primarily due to an increase of $5.0 million in one-time expenses. In 2014, we incurred $10.6 million of interest paid on restricted cash held pending resolution of the shareholder appraisal litigation, professional service fees related to litigation, and costs associated with the return-of-capital distribution paid in February 2014 by our parent company, Holdings LLC. In 2013, we incurred $5.6 million for professional services related to litigation, reorganizing our corporate structure, registering our existing senior notes with the SEC, costs associated with the return-of-capital distribution paid in September 2013 and costs related to the settlement of litigation.

Amortization of acquired intangible assets

2015 compared to 2014. Our amortization of acquired intangible assets decreased $38.4 million in 2015 compared to 2014. These decreases were primarily due to certain intangible assets being amortized on an accelerated basis over the estimated useful life of the asset.

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2014 compared to 2013. Our amortization of acquired intangible assets decreased $37.5 million in 2014 compared to 2013. This decrease was primarily due to certain intangible assets being amortized on an accelerated basis over the useful lives of the assets.

Interest Expense, Net, Other Expense, Net and Income Tax Benefit



	Year Ended December 31,									% Change
	2015			2014			2013			2015 from 2014		2014 from 2013
	(In thousands)
Interest expense, net	$	(81,056	)	$	(69,680	)	$	(97,837	)	16.3	%	(28.8	)%
Other expense, net	(334		)	(368		)	(655		)	(9.2	)	(43.8	)
Income tax benefit	23,366			42,738			65,553			(45.3	)	(34.8	)
Other data:
Effective tax rate	(386.1		)%	69.5		%	45.1		%

Interest expense, net

2015 compared to 2014. Interest expense, net increased $11.4 million in 2015 compared to 2014. In August 2015, we repaid all amounts outstanding under our then existing senior secured credit facilities and on that same date entered into a new credit facilities. Due to this transaction, we recorded $10.5 million of additional interest expense during 2015 compared to 2014. The additional interest expense incurred included the acceleration of $3.7 million of original issue discount and deferred financing costs associated with our prior credit facilities and $6.8 million of costs incurred as a part of this transaction.

2014 compared to 2013. Interest expense, net decreased $28.2 million in 2014 compared to 2013. In 2013, interest expense, net also included $17.2 million of interest expense primarily related to the acceleration of original issue discount and deferred financing costs incurred as a result of the repricings of our term loans in May and December 2013. In addition, due to the repricing of the term loans in 2013, the effective interest rate on our term loans was approximately 5.9% in 2014, compared to approximately 7.5% for 2013. Also, the average term loan balance outstanding for 2014 was lower than the average term loan balance outstanding for 2013.

Other expense, net

2015 compared to 2014. Other expense, net changed primarily due to changes in foreign currency exchange rates.

2014 compared to 2013. Other expense, net changed primarily due to changes in foreign currency exchange rates.

Income tax benefit

Our effective tax rate is subject to significant variation due to several factors, primarily variability in our pre-tax income (loss) and the mix of jurisdictions to which they relate. Additionally, our effective tax rate can vary due to changes in tax laws or settlement of income tax audits.

2015 compared to 2014. In 2015, we recorded an income tax benefit of $23.4 million compared with an income tax benefit of $42.7 million for 2014. The decrease in the income tax benefit is primarily due to a change from a $61.5 million pre-tax loss in 2014 to $6.1 million in pre-tax income in 2015. This decrease was partially offset by a $2.0 million tax benefit from a domestic manufacturing deduction in 2015.

Our effective tax rate in 2015 and 2014 differs from the U.S. statutory rate primarily due to the impact of operations in countries with tax rates lower than the U.S. We generate income in lower tax jurisdictions primarily related to our international operations, which are headquartered in Ireland. Our ability to obtain an income tax benefit from these lower tax rates is dependent on our relative levels of income in these jurisdictions and on the statutory tax rates and tax laws in these countries.

2014 compared to 2013. In 2014, we recorded an income tax benefit of $42.7 million compared with an income tax benefit of $65.6 million for 2013. The decrease in the income tax benefit is primarily due to an $83.8 million decrease in pre-tax loss from 2014 to 2013. Additionally, in 2014, the income tax benefit decreased due to the incurrence of non-deductible costs related to the settlement of litigation related to the Transaction. These decreases were partially offset by a $13.4 million increase in the tax benefit primarily related our foreign operations.

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Our effective tax rate in 2014 and 2013 differs from the U.S. statutory rate primarily due to the impact of operations in jurisdictions with tax rates lower than the U.S. Additionally, in 2013, we recognized a benefit for 2012 R&D credits as a result of the American Taxpayer Relief Act of 2012, enacted into law on January 2, 2013. We generate income in lower tax jurisdictions primarily related to our international operations, which are headquartered in Ireland. Our ability to obtain an income tax benefit from these lower tax rates is dependent on its relative levels of income in these jurisdictions and on the statutory tax rates and tax laws in these countries.

Unaudited Quarterly Results of Operations

The following table presents our unaudited quarterly consolidated results of operations for the eight quarters ended December 31, 2015. This unaudited quarterly consolidated information has been prepared on the same basis as our audited Consolidated Financial Statements, and, in the opinion of management, includes all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods. You should read this table in conjunction with our Consolidated Financial Statements and the related Notes located elsewhere in this Annual Report. The results of operations for any period are not necessarily indicative of the results of operations for any future periods.



	Three Months Ended
	Dec. 31, 2015			Sept. 30, 2015			June 30, 2015			Mar. 31, 2015			Dec. 31, 2014			Sept. 30, 2014			June 30, 2014			Mar. 31, 2014
	(in thousands)
Revenues:
Subscription revenues	$	149,396		$	147,554		$	145,408		$	141,717		$	139,693		$	138,962		$	137,961		$	137,194
Service and other revenues	28,214			23,920			24,016			22,880			15,469			15,722			18,091			16,452
Total revenues	177,610			171,474			169,424			164,597			155,162			154,684			156,052			153,646
Costs of revenues:
Cost of subscription revenues	26,419			25,353			25,584			25,695			24,556			24,080			23,895			23,368
Cost of service and other revenues	17,255			15,265			13,882			14,266			10,730			10,996			10,615			11,313
Total cost of revenues	43,674			40,618			39,466			39,961			35,286			35,076			34,510			34,681
Gross Profit	133,936			130,856			129,958			124,636			119,876			119,608			121,542			118,965
Operating expenses:
Technology and development	24,971			24,409			24,282			23,443			21,677			23,743			24,236			24,565
Marketing and advertising	46,461			40,253			41,203			43,177			40,195			42,150			40,986			45,205
General and administrative	16,365			14,180			12,427			11,455			18,489			12,927			15,341			14,214
Amortization of acquired intangible assets	27,017			27,374			27,464			27,463			36,636			36,993			37,001			37,051
Total operating expenses	114,814			106,216			105,376			105,538			116,997			115,813			117,564			121,035
Income (loss) from operations	19,122			24,640			24,582			19,098			2,879			3,795			3,978			(2,070		)
Interest expense, net	(18,874		)	(28,352		)	(16,622		)	(17,208		)	(17,298		)	(17,232		)	(17,759		)	(17,391		)
Other income (expense), net	(105		)	(156		)	190			(263		)	(512		)	(181		)	306			19
Income (loss) before income taxes	143			(3,868		)	8,150			1,627			(14,931		)	(13,618		)	(13,475		)	(19,442		)
Income tax benefit	13,369			3,318			5,512			1,167			7,416			12,391			5,866			17,065
Net income (loss)	$	13,512		$	(550	)	$	13,662		$	2,794		$	(7,515	)	$	(1,227	)	$	(7,609	)	$	(2,377	)

Table of Contents

The following table presents our unaudited quarterly consolidated results of operations for the eight quarters ended December 31, 2015, as a percentage of revenues. You should read this table in conjunction with our Consolidated Financial Statements and the related Notes located elsewhere in this Annual Report.



	Three Months Ended
	Dec. 31, 2015		Sept. 30, 2015		June 30, 2015		Mar. 31, 2015		Dec. 31, 2014		Sept. 30, 2014		June 30, 2014		Mar. 31, 2014
	(in thousands)
Revenues:
Subscription revenues	84.1	%	86.1	%	85.8	%	86.1	%	90.0	%	89.8	%	88.4	%	89.3	%
Service and other revenues	15.9		13.9		14.2		13.9		10.0		10.2		11.6		10.7
Total revenues	100.0		100.0		100.0		100.0		100.0		100.0		100.0		100.0
Costs of revenues:
Cost of subscription revenues	14.9		14.8		15.1		15.6		15.8		15.6		15.3		15.2
Cost of service and other revenues	9.7		8.9		8.2		8.7		6.9		7.1		6.8		7.4
Total cost of revenues	24.6		23.7		23.3		24.3		22.7		22.7		22.1		22.6
Gross Profit	75.4		76.3		76.7		75.7		77.3		77.3		77.9		77.4
Operating expenses:
Technology and development	14.1		14.2		14.3		14.2		14.0		15.3		15.5		16.0
Marketing and advertising	26.2		23.5		24.3		26.2		25.9		27.2		26.3		29.4
General and administrative	9.2		8.2		7.4		7.0		11.9		8.5		9.9		9.2
Amortization of acquired intangible assets	15.2		16.0		16.2		16.7		23.6		23.9		23.7		24.1
Total operating expenses	64.7		61.9		62.2		64.1		75.4		74.9		75.4		78.7
Income (loss) from operations	10.7		14.4		14.5		11.6		1.9		2.4		2.5		(1.3	)
Interest expense, net	(10.6	)	(16.6	)	(9.8	)	(10.5	)	(11.1	)	(11.1	)	(11.4	)	(11.3	)
Other income (expense), net	(0.1	)	(0.1	)	0.1		(0.1	)	(0.4	)	(0.1	)	0.2		—
Income (loss) before income taxes	—		(2.3	)	4.8		1.0		(9.6	)	(8.8	)	(8.7	)	(12.6	)
Income tax benefit	7.5		2.0		3.3		0.7		4.8		8.0		3.8		11.1
Net income (loss)	7.5	%	(0.3	)%	8.1	%	1.7	%	(4.8	)%	(0.8	)%	(4.9	)%	(1.5	)%

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The following table presents a reconciliation of adjusted EBITDA and free cash flows to net income (loss), the most comparable GAAP measure and other financial data, for the eight quarters ended December 31, 2015. For additional information, refer to the discussion of adjusted EBITDA and free cash flow in “Selected Consolidated Financial Data.”



	Three Months Ended
	Dec. 31, 2015			Sept. 30, 2015			June 30, 2015			Mar. 31, 2015			Dec. 31, 2014			Sept. 30, 2014			June 30, 2014			Mar. 31, 2014
	(in thousands)
Net income (loss):	$	13,512		$	(550	)	$	13,662		$	2,794		$	(7,515	)	$	(1,227	)	$	(7,609	)	$	(2,377	)
Interest expense, net	18,874			28,352			16,622			17,208			17,298			17,232			17,759			17,391
Other (income) expense, net	105			156			(190		)	263			512			181			(306		)	(19		)
Income tax benefit	(13,369		)	(3,318		)	(5,512		)	(1,167		)	(7,416		)	(12,391		)	(5,866		)	(17,065		)
Depreciation	5,306			5,411			5,544			5,562			5,636			5,564			5,199			5,099
Amortization	35,816			35,427			35,298			35,106			44,095			44,322			44,201			44,137
Stock-based compensation expense	1,968			1,914			1,876			1,925			2,008			2,172			2,018			1,806
Adjusted EBITDA	$	62,212		$	67,392		$	67,300		$	61,691		$	54,618		$	55,853		$	55,396		$	48,972
Capitalization of content databases	(7,899		)	(8,075		)	(9,140		)	(7,400		)	(8,358		)	(9,689		)	(11,533		)	(7,986		)
Purchases of property and equipment	(5,169		)	(3,504		)	(2,292		)	(4,152		)	(2,712		)	(6,131		)	(8,483		)	(4,495		)
Cash paid for interest ⁽¹⁾	(26,028		)	(7,550		)	(22,824		)	(6,429		)	(23,227		)	(6,877		)	(23,424		)	(6,922		)
Cash received (paid) for income taxes	(6,462		)	(4,066		)	(12,600		)	(205		)	(107		)	(2,113		)	(1,711		)	2,597
Free cash flow	$	16,654		$	44,197		$	20,444		$	43,505		$	20,214		$	31,043		$	10,245		$	32,166


⁽¹⁾	Free cash flow for the year ended December 31, 2015 and 2014 does not include $38.4 million and $37.6 million, respectively of payments made to our parent related to the interest obligations on its senior unsecured PIK notes.

The following table presents our key business metrics for the eight quarters ended December 31, 2015 (in thousands):



	Three months ended
	Dec. 31, 2015	Sept. 30, 2015	June 30, 2015	Mar. 31, 2015	Dec. 31, 2014		Sept. 30, 2014	June 30, 2014		Mar. 31, 2014
Total subscribers	2,264	2,243	2,220	2,219	2,115		2,125	2,109		2,161
Net subscriber additions	21	23	1	104	(10	)	16	(52	)	21

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Liquidity and Capital Resources

Credit Facility

In August 2015, Ancestry.com Inc. (the “Issuer”), a subsidiary of the Parent, entered into a new credit facilities (the “New Credit Facilities”), which consists of a $735.0 million senior secured term loan facility (the “New Term Loan”) that matures August 2022 and an $80.0 million senior secured revolving credit facility (the “Revolving Facility”) that matures August 2020. The New Term Loan was issued at 99.0% of par or an original issue discount of $7.4 million. In addition, we incurred $9.2 million in customary fees and expenses as a part of this transaction. On that same date, the Issuer repaid $554.5 million and all outstanding interest under its then existing senior secured credit facilities (the “Prior Credit Facilities”), which as of the date of repayment had outstanding $449.0 million under a Term B-1 Loan (the “Term B-1 Loan”) and $105.5 million outstanding under the Term B-2 Loan (the “Term B-2 Loan”). Our indirect parent entity used the net proceeds from the debt transaction and cash-on-hand to pay a return-of-capital distribution of $215.0 million to its shareholders and vested stock-based award holders in September 2015. See Notes 8 and 9 in Consolidated Financial Statements herein for additional information about these transactions.

Amounts borrowed under the New Term Loan are required to be paid in equal quarterly installments of 0.25% of the original principal amount with the balance payable upon maturity. If the Issuer's 11% senior notes due in December 2020 (the “Notes”) are outstanding 91 days prior to the Notes' maturity date (the “Springing Maturity Date”), the New Credit Facilities will mature on the Springing Maturity Date rather than August 2022. Additionally, subject to certain conditions, a mandatory repayment may be required to be made annually beginning with the fiscal year ended December 31, 2016. The mandatory repayment may be up to 50% of excess cash flow, based on our first lien leverage ratio (the “First Lien Leverage Ratio”) as defined in the credit agreement and net cash proceeds of certain other transactions as calculated at the end of each fiscal year. The Parent and certain of its subsidiaries guarantee the New Credit Facilities. All obligations under the New Credit Facilities are secured by a perfected first priority lien in substantially all of our tangible and intangible assets.

The New Term Loan and Revolving Facility bear interest on the outstanding unpaid principal amount at a rate equal to an applicable margin plus, at the Issuer’s option, either: (a) a base rate determined by reference to the highest of (i) the administrative agent's prime rate at such time, (ii) 0.50% in excess of the overnight federal funds rate at such time and (iii) the LIBOR rate that is in effect for a LIBOR loan with an interest period of one month plus 1.00%, provided that the base rate for the New Term Loan is not less than 2.00% per annum; or (b) a LIBOR rate, provided that the LIBOR rate for the New Term Loan is not less than 1.00% per annum. The applicable margin shall mean either: (i) in the case of initial term loans maintained as (a) base-rate loan, 3.00%, or (b) LIBOR loans, 4.00%, (ii) in the case of initial revolving loans maintained as (a) base-rate loans or swingline loans, 2.75% and (b) fixed-rate loans, 3.75%. The applicable margin for the Revolving Facility is subject to step-ups and step-downs based on our First Lien Leverage Ratio. The Issuer is also required to pay a commitment fee of 0.50% per annum on the unutilized commitments under the Revolving Facility, which fee decreases to 0.375% if the First Lien Leverage Ratio is less than or equal to 1.70 to 1.00. As of December 31, 2015, the interest rate on the New Term Loan was equal to a LIBOR floor of 1.00% plus the applicable margin of 4.00%. The effective interest rate of the New Term Loan is approximately 5.7%.

As of December 31, 2015, no funds had been drawn against the Revolving Facility. Borrowings under the Revolving Facility may be used for the purpose of general working capital, capital expenditures and other general corporate purposes. The New Credit Facilities also provide for a swingline subfacility of $25.0 million, a letter of credit subfacility of $50.0 million

and an uncommitted incremental facility in an amount not to exceed the sum of (i) an unlimited amount if, on the date of issuance the total net secured leverage ratio would be less than or equal to 3.00 to 1.00, (ii) to the extent not funded with the proceeds of long-term indebtedness, all prior voluntary prepayments, and (iii) $100.0 million, subject to certain conditions.

The New Credit Facilities permits restricted payments, including dividends, out of available amounts, as defined in the credit agreement. The available amount formulation includes a starter amount of $75.0 million and is adjusted quarterly based on consolidated net income, as defined in the credit agreement, beginning June 30, 2015, plus other additions as listed in the credit agreement. Separately, the New Credit Facilities have a general basket for restricted payments of the greater of $50 million per annum and 20.5% of the last twelve months of EBITDA as defined by the credit agreement. The New Credit Facilities contain customary affirmative and negative covenants and events of default. The Revolving Facility contains a financial covenant prohibiting the First Lien Leverage Ratio from being greater than 4.00, which is tested quarterly when utilization of the Revolving Facility (excluding letters of credit less than or equal to $10.0 million) is greater than 30% of total commitments under the Revolving Facility. Without the written consent of the required lenders, the Issuer is not permitted to incur loans under the Revolving Facility unless it is in compliance with the Financial Covenant as of the last day of the most recently completed test period. As of December 31, 2015, we were in compliance with all covenants of the New Credit Facilities.

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The Issuer, at its discretion, has also entered into interest rate cap agreements with the following terms as of December 31, 2015: (i) $190.0 million total notional amount that currently caps the three-month LIBOR rate at 1.50% expiring March 31, 2016 (ii) $200.0 million total notional amount that caps the three-month LIBOR rate at 2.00% commencing March 31, 2016 and expiring December 30, 2016 and (iii) $300.0 million total notional amount that caps the three-month LIBOR rate at 2.00% commencing December 30, 2016 and expiring June 29, 2018. Subsequent to December 31, 2015, the Issuer also entered into an additional interest rate cap agreement with a $500.0 million notional amount that caps the three-month LIBOR rate at 2.00% commencing June 29, 2018 and expiring June 30, 2019.

Senior Notes

The Issuer has outstanding $300.0 million of fixed-rate 11.0% Notes due in December 2020. Interest on the Notes is payable semi-annually in arrears on June 15 and December 15 of each year. The Issuer may redeem all or any portion of the Notes at any time prior to December 15, 2016 at a price equal to 100% of the aggregate principal plus an applicable premium, as defined in the indenture governing the Notes, and accrued interest. The Issuer may redeem any portion or all of the Notes on or after December 15, 2016 at redemption prices as set forth in the indenture, plus accrued and unpaid interest. Upon a change of control, the Issuer is required to make an offer to redeem all of the Notes from the holders at 101% of the principal amount thereof plus accrued interest. The effective interest rate of the Notes is approximately 12.0%.

The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Ancestry.com LLC and each of its direct and indirect restricted subsidiaries that guarantee indebtedness under the New Credit Facilities. Not all of Ancestry.com LLC’s subsidiaries guarantee the Notes, and restricted subsidiaries guarantee the notes only to the extent provided for in the indenture. In the event of a bankruptcy, liquidation or reorganization of any of the non-guarantor subsidiaries, the non-guarantor subsidiaries will pay the holders of their debt and their trade creditors before they will be able to distribute any of their assets to the Issuer.

The Notes contain customary covenants, including limitations on indebtedness; limitations on liens; limitations on mergers, consolidations and liquidations; limitations on asset sales; limitations on dividends, other payments in respect of capital stock and other restricted payments; limitations on transactions with affiliates; and other payment restrictions affecting restricted subsidiaries. Events of default under the Notes include, among others, nonpayment of interest, principal, fees or other amounts; cross-defaults; covenant defaults; bankruptcy events with respect to us, or any of our material restricted subsidiaries; material unsatisfied or unstayed final judgments; or actual or asserted invalidity of any material guarantee.

The indenture governing the Notes generally permits restricted payments, as defined in the indenture, including dividends, out of a cumulative basket, which grows quarterly based on 50% of our cumulative consolidated net income, since October 1, 2012, as defined in the indenture. In addition, as a condition to making such payments, we must be in compliance with a pro-forma fixed charge coverage ratio greater than or equal to 2.0 to 1.0.

Ancestry.com Holdings LLC Senior Unsecured PIK Notes

Our parent, Holdings LLC, previously issued $400.0 million of senior unsecured PIK Notes due October 15, 2018. In March 2015, Holdings LLC repurchased $9.8 million of the PIK Notes plus accumulated interest. To fund this repurchase, we issued a $10.0 million note receivable to our parent at 5% interest payable annually with a maturity date of December 31, 2017, which is subordinated to the PIK Notes. This note is recorded as a related-party note receivable in Other assets in the Consolidated Balance Sheet.

Interest on the PIK Notes is payable semi-annually in arrears on April 15 and October 15 each year through maturity. The first and last interest payments on the PIK Notes are required to be payable entirely in cash. All other interest payments are required to be paid in cash, subject to cash availability and restricted payment capacity, as defined in the indenture. If interest payments are not required to be paid in cash, Holdings LLC will be entitled to pay all or a portion of the interest payment by increasing the principal amount of the PIK Notes or issuing new PIK Notes in an amount equal to the interest payment for the applicable interest period (“PIK Interest”). Cash interest on the PIK Notes will accrue at the rate of 9.625% per annum; PIK Interest will accrue at the rate of 10.375% per annum. Holdings LLC may redeem all or any portion of the PIK Notes at any time prior to October 15, 2016 at a price equal to 102% of the aggregate principal plus accrued interest; subsequent to October 15, 2016 but before October 15, 2017, the PIK Notes may be redeemed at a price equal to 101% of the aggregate principal plus accrued interest. The PIK Notes may be redeemed at par plus accrued interest subsequent to October 15, 2017.

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The PIK Notes are senior unsecured obligations of Holdings LLC and are structurally subordinated to all our existing and future indebtedness. Additionally, we did not guarantee the PIK Notes, nor were any of our assets pledged as collateral for the PIK Notes. As we are not an obligor or a guarantor on the PIK Notes, the debt is recorded only in the financial statements of Holdings LLC and is not reflected in the Consolidated Financial Statements of Ancestry.com LLC. While not required, we have made and intend to make future payments to Holdings LLC related to the PIK Notes, provided that such payments are permitted under the covenants of the New Credit Facilities and Notes. If interest on the PIK Notes is paid in cash, annual interest payments will total approximately $37.6 million.

Liquidity

Our primary sources of liquidity are our cash and cash equivalents, our cash flows from operations and amounts available under our Revolving Facility. As of December 31, 2015, we had $128.2 million in cash and cash equivalents and $80.0 million of availability on our Revolving Facility.

Operating costs include costs such as marketing and advertising, personnel-related expenses, capital expenditures related to content databases and equipment, investments in new service offerings and technologies and web-hosting costs and business acquisitions. Expenditures have increased as operations and the number of personnel have grown, and our expenditures may continue to increase in the future. Our future cash expenditures may vary significantly from those now planned and will depend on many factors including:


•	amounts we must pay to service our debt;


•	payments we intend to make to our parent, including those related to the PIK Notes;


•	our marketing and advertising expenditures;


•	the development of new services and enhancement of functionality in our technology and tools;


•	our ability to attract and retain customers;


•	market acceptance of our services;


•	the launch of additional services and expansion into new markets;


•	the level of new content acquisition required to retain and acquire subscribers;


•	amounts we must invest in our infrastructure to support our operations;


•	the resources for our development, marketing and administrative organizations;


•	our relationships with subscribers and vendors;


•	our engaging in additional business acquisitions; and


•	amounts we must spend to integrate and operate acquired businesses.

We expect cash and cash equivalents on hand, cash flows from operations and amounts available under our Revolving Facility will provide adequate funds for our currently anticipated operating and recurring cash needs (e.g., debt service, working capital and capital expenditures) for at least the next twelve months; however, our substantial level of debt and debt service obligations as well as our intention to make further payments to our parent related to the PIK Notes could have important consequences including:


•	making it more difficult for us to satisfy our obligations with respect to our debt, which could result in an event of default under the indenture governing the Notes and the agreements governing our other debt, including the New Credit Facilities;


•	limiting our ability to obtain additional financing on satisfactory terms to fund our working capital requirements, capital expenditures, acquisitions, investments, debt service requirements and other general corporate requirements;


•	increasing our vulnerability to general economic downturns and industry conditions, which could place us at a disadvantage compared to our competitors that are less leveraged and can therefore take advantage of opportunities that our leverage prevents us from pursuing;


•	allowing increases in floating interest rates to negatively impact our cash flows;

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•	having our financing documents place restrictions on the manner in which we conduct our business, including restrictions on our ability to pay dividends, make investments, incur additional debt and sell assets; and


•	reducing the amount of our cash flows available to fund working capital requirements, capital expenditures, acquisitions, investments, other debt obligations and other general corporate requirements, because we will be required to use a substantial portion of our cash flows to service debt obligations.

In the future, any credit ratings agency may lower a given credit rating, if that rating agency judges that our business, the economic environment, or other future circumstances so warrant. A ratings downgrade could impair our ability to access the capital markets and increase the cost of obtaining capital.

We and/or our parent entities (the “Ancestry Group”) may also seek, depending on market conditions, to refinance certain categories of our debt, or may also, from time to time, seek to repurchase the Notes or PIK Notes in the open market or otherwise, or repay portions of our New Credit Facilities. The Ancestry Group may also seek to incur additional debt for which we would need to fund the interest and principal payments, which may impact our ability to satisfy our cash requirements. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at that time. Any such transaction would be subject to market conditions, compliance with the New Credit Facilities and the indenture governing the Notes and various other factors.

Cash Flow Analysis

Summary cash flow information for cash and cash equivalents for the twelve months ended December 31, 2015, 2014 and 2013 is set forth below. We consider cash and cash equivalents in evaluating our overall cash position.



	Year Ended December 31,
	2015			2014			2013			% Change		% Change
	(in thousands)
Net cash and cash equivalents provided by (used in):
Operating activities	$	199,617		$	155,320		$	162,979		28.5	%	(4.7	)%
Investing activities	(57,631		)	(59,387		)	(57,953		)	(3.0	)	2.5
Financing activities	(122,323		)	(73,993		)	(54,123		)	65.3		36.7
Net increase in cash and cash equivalents	$	19,663		$	21,940		$	50,903		(10.4	)%	(56.9	)%

Net cash provided by operating activities

In 2015, net cash provided by operating activities was $199.6 million, an increase of $44.3 million compared to 2014, due to a $48.1 million increase in net income (loss) and a $13.2 million increase in the changes in operating assets and liabilities, partially offset by a $17.0 million decrease in non-cash adjustments. The increase in the changes in operating assets and liabilities was primarily due to the timing of cash receipts and payments in the ordinary course of business, including tax payments, partially offset by a payment of $5.8 million for accrued interest related to the shareholder litigation settled in February 2015. The decrease in adjustments for non-cash items primarily consisted of a $38.4 million decrease in amortization of intangible assets due to certain intangible assets being amortized on an accelerated basis, partially offset by a decrease of $4.0 million in excess tax benefits from stock-based compensation and by a $6.9 million increase in other non-cash items such as depreciation and amortization of content databases and the change in deferred income taxes. Additionally, due to the restructuring of our credit facilities in third quarter of 2015, we recorded $10.5 million of additional non-cash interest expense.

In 2014, net cash provided by operating activities was $155.3 million, a decrease of $7.7 million compared to 2013, due to a $61.0 million decrease in net loss, a $57.8 million decrease in non-cash adjustments and a $10.9 million decrease in the changes in operating assets and liabilities over 2013. The decrease in adjustments for non-cash items primarily consisted of a $37.5 million decrease in amortization of intangible assets due to certain intangible assets being amortized on an accelerated basis, a $21.1 million decrease for non-cash fair value adjustments to deferred revenue as a result of the application of purchase accounting for the Transaction in the prior year and a $17.5 million decrease in amortization of debt-related costs primarily due to the acceleration of original issue discount and deferred financing costs incurred as a result of the repricings of our term loans in 2013. These decreases in adjustments for non-cash items were partially offset by an increase of $15.6 million in deferred income taxes and by a $6.9 million increase in other non-cash items such as depreciation and amortization of content databases. The decrease in the changes in operating assets and liabilities was primarily due to a $35.1 million decrease of net cash received from tax refunds offset in part by an increase of $24.3 million in cash due to the timing of cash receipts and payments.

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In 2013, net cash provided by operating activities was $163.0 million, an increase of $9.5 million compared to the 2012 Predecessor period. Net cash provided by operating activities consisted of a net loss of $79.7 million, adjustments for non-cash items of $214.6 million and changes in operating assets and liabilities of $28.0 million. In 2013, this represented a $150.5 million decrease in net income (loss), a $157.1 million increase in non-cash adjustments and a $2.9 million increase in the changes in operating assets and liabilities over the 2012 Predecessor period. The increase in adjustments for non-cash items primarily consisted of a $205.2 million increase in amortization of intangible assets and content databases and a non-cash adjustment to deferred revenue, which were due to the changes in fair value of the related assets and liabilities as a result of the Transaction. The increase also included a $26.4 million increase in amortization of debt-related costs due to the issuance of the Credit Facility and the effects of the repricings of the Credit Facility and First Amended Credit Facility, as well as an increase in depreciation expense of $2.2 million. These increases were partially offset by a decrease in deferred income taxes of $69.7 million and a decrease in stock-based compensation expense of $7.1 million. The decrease in the changes in operating assets and liabilities was due to an $18.8 million decrease in deferred revenue as a result of a change in the mix of customer subscription durations, as well as the timing of cash receipts and payments. These overall decreases were offset in part by net cash received of $40.6 million due to non-recurring income tax refunds received in 2013.

Net cash used in investing activities

In 2015, net cash used in investing activities totaled $57.6 million, a decrease of $1.8 million compared to 2014. This change was primarily due to an $11.8 million decrease in purchase of property and equipment and investment in content databases in 2015 compared to 2014. This decrease was partially offset by a $10.0 million note receivable issued to our parent, Holdings LLC, in March 2015 to repurchase a portion of the PIK Notes plus accumulated interest.

In 2014, net cash used in investing activities totaled $59.4 million, an increase of $1.4 million compared to 2013. The increase was primarily due to a $15.3 million increased investment in content databases, partially offset by a $4.9 million decrease in purchases of property and equipment. Additionally, in the prior year cash of $9.0 million was used to acquire a business.

In 2013, net cash used in investing activities totaled $58.0 million, a decrease of $100.9 million compared to the 2012 Predecessor period. This decrease primarily relates to a decrease of $105.5 million in cash used to acquire businesses. In addition, investments in content databases decreased by $1.3 million in 2013 compared to the 2012 Predecessor period. These decreases were partially offset by a $5.9 million increase in purchases of property and equipment in 2013 compared to the 2012 Predecessor period.

Net cash used in financing activities

In 2015, net cash used in financing activities totaled $122.3 million, an increase of $48.3 million compared to 2014. In August 2015, we repaid the outstanding principal of $554.5 million of our Prior Credit Facilities and on that date entered into the New Credit Facilities, which we received proceeds of $727.7 million, net of the original issue discount cost. As a part of this transaction, we also paid $9.2 million of debt-offering costs. The net proceeds of this transaction plus cash on-hand were used to pay our indirect parent entity's shareholders and vested stock-based award holders return-of-capital distributions of $216.0 million. Also, the debt principal payments decreased $5.7 million during the year ended 2015 compared to the year ended 2014. These changes were partially offset by $2.9 million of contingent consideration payments in 2014 related to a prior year acquisition.

In 2014, net cash used in financing activities totaled $74.0 million, an increase of $19.9 million compared to 2013. The increase in net cash used in financing activities was primarily due to return-of-capital distributions of $37.6 million paid to our parent, Holdings LLC, to pay accumulated interest on its PIK Notes. Additionally, we paid $2.9 million in contingent consideration payments related to a prior acquisition in 2014 and contributions from members decreased $2.5 million during 2014. These changes were offset in part by a decrease in principal payments on our debt of $10.3 million due to changes in our debt terms as a result of the repricing of the Term Loans in May and December 2013. In addition, in 2013, we paid $8.9 million in deferred financing costs as part of the repricings.

In 2013, net cash used in financing activities totaled $54.1 million, an increase of $50.5 million compared to the 2012 Predecessor period. The change was primarily due to a decrease of $70.0 million in proceeds from debt, $8.9 million in cash paid for debt repricing fees, as well as a $19.1 million decrease in net cash inflows for stock-based award activity during 2013. These changes were partially offset by a $32.1 million decrease in principal payments made on our debt, a $12.8 million decrease in repurchases of common stock as well as proceeds from member’s capital contributions of $2.6 million during 2013.

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Contractual Obligations

The following table summarizes our principal contractual obligations as of December 31, 2015:



			Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
	(in thousands)
Debt⁽¹⁾	$	1,033,163	$	7,350	$	14,700	$	314,700	$	696,413
Interest payments⁽¹⁾⁽²⁾	404,781		70,128		138,935		137,544		58,174
Operating leases	15,947		4,475		7,374		2,632		1,466
Build-to-suit lease obligation ⁽³⁾	37,585		—		6,792		7,138		23,655
Contractual royalty payments	20,040		790		2,750		4,500		12,000
Total contractual cash obligations⁽⁴⁾	$	1,511,516	$	82,743	$	170,551	$	466,514	$	791,708


⁽¹⁾	Amounts do not include $390.2 million of Ancestry.com Holdings LLC senior unsecured PIK Notes or related interest expense. If interest on the PIK Notes is paid in cash, annual interest payments will total approximately $37.6 million.


⁽²⁾	Amounts are based on the estimated interest rates in effect as of December 31, 2015 on the variable portion of our debt.

⁽³⁾

Amounts represent actual cash payments to be incurred under a build-to suit lease. Upon completion of the build-to-suit lease in mid-2016, we will evaluate whether or not the arrangement meets the criteria for sale-leaseback accounting. If the lease does not meet sale-leaseback criteria, we will treat the lease as a financing obligation and lease payments will be attributed to (1) a reduction of the principal financing obligation; (2) imputed interest expense; and (3) land lease expense (which is considered an operating lease) representing an imputed cost to lease the underlying land of the facility. In addition, the underlying building asset will be depreciated over the initial term of the lease.


⁽⁴⁾	Amounts exclude uncertain tax position liability of $21.8 million, for which timing of payments are not determinable.

Outstanding purchase orders, which represent authorizations to purchase goods and services that are not legally binding, are not included in contractual obligations. We believe current cash balances, cash generated by future operating activities and cash available under our New Credit Facilities will be sufficient to meet our contractual cash obligations, debt obligations and other operating cash requirements in 2016 .

Off-Balance Sheet Arrangements

We do not engage in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, as part of our ongoing business. Accordingly, our operating results, financial condition and cash flows are not subject to off-balance sheet risks.

Indemnifications

In the ordinary course of business, we enter into contractual arrangements under which we agree to provide indemnification of varying scope and terms to business partners and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements and out of intellectual property infringement claims made by third parties. In these circumstances, payment may be conditional on the other party making a claim pursuant to the procedures specified in the particular contract. The terms of such obligations may vary. Further, our obligations under these agreements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments. In addition, we have indemnification agreements with certain directors and executive officers that require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers.

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Critical Accounting Policies and Estimates

Our Consolidated Financial Statements are prepared in conformity with GAAP. The preparation of these Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs, expenses and related disclosures. These estimates and assumptions are often based on historical experience and judgments that we believe to be reasonable under the circumstances at the time made. However, all such estimates and assumptions are inherently uncertain and unpredictable and actual results may differ. It is possible that other professionals, applying their own judgment to the same facts and circumstances, could develop and support alternative estimates and assumptions that could result in material changes to our operating results and financial condition. We evaluate our estimates and assumptions on an ongoing basis.

We consider the assumptions and estimates associated with the testing goodwill for impairment, recoverability of long-lived assets, income taxes, timing for recognition of AncestryDNA revenues, determination of the fair value of stock options included in stock-based compensation expense and construction costs incurred under build-to-suit leases to be our critical accounting estimates. For further information on our significant accounting policies, see Note 1 to our Consolidated Financial Statements contained herein.

Goodwill Impairment

We review goodwill for impairment at least annually or more frequently if indicators of impairment exist. We perform our annual goodwill impairment test as of November 30th based on a single reporting unit. Our goodwill impairment test may require the use of qualitative judgments and fair-value techniques, which are inherently subjective. Impairment loss, if any, is recorded when the fair value of goodwill is less than its carrying value.

In assessing goodwill for impairment, we initially evaluate qualitative factors, such as macroeconomic conditions, industry and market conditions, key financial metrics, third-party valuations of our indirect parent entity and our overall financial performance, to determine if it is more likely than not that the fair value of our reporting unit is less than its carrying amount. If indicators of impairment exist, we then utilize a two-step process to test goodwill for impairment. First, a comparison of the fair value of the reporting unit with the aggregate carrying value, including goodwill, is performed. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform the second step of the goodwill impairment test to determine the amount of impairment loss. The second step includes comparing the implied fair value of the reporting unit’s goodwill with the carrying value of that goodwill.

Based on the qualitative results of our annual goodwill impairment testing for the years ended December 31, 2015, 2014 and 2013, we concluded that it was not more likely than not that the fair value of our reporting unit was less than its carrying amount and no impairment losses were recorded.

Recoverability of Long-Lived Assets

We review content databases, property and equipment and intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset or asset group to future undiscounted cash flows that the asset or asset group is expected to generate. If assets are determined to be impaired, the impairment loss to be recognized equals the amount by which the carrying value of the asset or group of assets exceeds its fair value. Significant estimates include but are not limited to future expected cash flows, replacement cost of technology assets, and discount rates. Impairment losses recognized for the years ended December 31, 2015, 2014 and 2013 were immaterial.

Income Taxes

We are subject to income taxes primarily in the United States, Ireland and several other foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. We evaluate each tax position for recognition in accordance with GAAP by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit. This includes consideration of any resolutions of related appeals or litigation processes. The tax benefit is then measured as the largest amount that is more likely than not of being realized upon settlement.

Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or changes in tax laws. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest and penalties.

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In evaluating our ability to recover our deferred tax assets, in full or in part, we consider all available positive and negative evidence, including our past operating results, our forecast of future market growth, forecasted earnings, future taxable income and prudent and feasible tax planning strategies. The assumptions utilized in determining future taxable income require significant judgment and are consistent with the plans and estimates we use to manage the underlying businesses. We believe it is more likely than not that our deferred tax assets, net of our existing valuation allowance, will ultimately be realized. In the event we were to determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to earnings in the period in which we make such determination.

Revenue Recognition

We recognize revenue from sales of our AncestryDNA testing services when (i) the DNA results are delivered to the customer or (ii) the likelihood of the DNA kit being submitted by the customer for testing is remote (“breakage”). We estimate the amount of breakage revenue based on the historical submission patterns of DNA kits by our customers and the number of DNA kits which have been sold but not submitted. Revenues from breakage are recorded in Service and other revenues in our Consolidated Statement of Operations. Any future revisions to our estimates or change in customer submission pattern may result in a change in the amount of breakage revenue recognized in future periods.

Stock-Based Compensation Expense

Our stock-based compensation plan allows for the issuance of stock-based awards, including stock options and restricted share units (“RSUs”) to employees, officers and directors. As of December 31, 2015, outstanding stock-based awards are in an indirect parent entity of Ancestry.com LLC. Each award represents a contingent right to receive an equivalent investor interest upon exercise of the option or vesting of an RSU.

Stock-based compensation expense is recorded by amortizing the fair value of each stock-based award expected to vest over the requisite service or performance period. The fair value of each stock option award is calculated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model requires various assumptions, including fair value of the underlying investor’s interest, volatility, expected option life, risk-free interest rate and expected dividends. The fair value of the underlying investor interest is based on the fair value on the grant date. The expected term is based on the remaining contractual term of the options and the expected exercise behavior of employees. Expected volatility is calculated based on the volatilities of a peer group of companies. The risk-free interest rate of the option is based on the U.S. Treasury rate for the expected term of the option. The fair value of RSUs is based on the value of the investor’s interest.

In addition, assumptions are made regarding the rate of forfeiture of stock-based awards prior to vesting. We estimate forfeiture rates based on historical forfeitures of stock options and RSUs. To the extent the actual forfeiture rate is different from the estimate, stock-based compensation expense is adjusted accordingly. If any of the assumptions used in estimating the fair value of awards change significantly or the actual forfeiture rate is different than the estimate, stock-based compensation expense may differ materially in the future from that recorded in the current period.

Because our indirect parent entity is privately held and there is no public market for its equity, the fair value of an investor interest is determined by our Operating Committee, which considered numerous objective and subjective factors to determine the fair value of our investor interests at each meeting at which awards were approved. The factors included, but were not limited to: (i) estimates of fair value completed by third-party valuation firms; (ii) our actual operating and financial results; (iii) current business conditions and projections; and (iv) the lack of marketability.

Construction Costs for a Build-to-Suit Lease

In January 2015, we entered into a build-to-suit lease agreement for a new corporate headquarters, which is currently being constructed in Lehi, Utah. For accounting purposes only, we are the deemed owner of the building during the construction period. Accordingly, we estimate the construction-in-progress asset and the corresponding construction financing obligation on at least a quarterly basis. Estimates for the total cost of the construction and percentage of completion are based on project plans and progress reports. We anticipate that construction will be completed in mid-2016.

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Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-17, Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes. Deferred tax assets and deferred tax liabilities have historically been separated between current and non-current; however, this amendment, in connection with the FASB’s Simplification Initiative, requires these items now be classified as non-current in the balance sheet. For public business entities, this becomes effective December 15, 2016 and all interim periods within those annual periods. For all other entities this is effective December 15, 2017 and interim periods beginning after December 15, 2018. Early adoption is permitted, and the application of this amendment may be applied prospectively or retrospectively. We early adopted this standard as of December 31, 2015 and applied the guidance retrospectively. The effect of the adoption of ASU 2015-17 on our Consolidated Balance Sheet at December 31, 2014 is shown in the Basis of Presentation section in Note 1 to the Consolidated Financial Statements herein.

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The update requires debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability instead of being presented as an asset. This guidance is effective for public companies for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those years. For all other entities, this guidance is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted for financial statements that have not been previously issued. The new guidance is to be applied on a retrospective basis, wherein the balance sheet of each individual period presented is adjusted to reflect the period-specific effects of applying the new guidance and represents a change in accounting principle. We early adopted this standard as of March 31, 2015. The effect of the adoption of ASU 2015-03 on our Consolidated Balance Sheets at December 31, 2014 is shown in the Basis of Presentation section in Note 1 to the Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This update provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. This guidance is effective for public companies for fiscal years and interim periods beginning after December 15, 2015. For all other entities, this guidance is effective for annual periods beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption is permitted for all entities. The new guidance is to be applied either prospectively to new cloud computing arrangements or retrospectively. We early adopted this standard as of March 31, 2015 and applied the guidance prospectively. It did not have a material impact on our Consolidated Financial Statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), that will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. Further, the guidance requires improved disclosures to help users of financial statements better understand the nature, amount, timing and uncertainty of revenue that is recognized. In August 2015, the FASB issued ASU 2015-14, which defers by one year the effective dates of its new revenue recognition standard for public and nonpublic entities. As a result, this guidance will be effective for public companies for interim and annual periods beginning on or after December 15, 2017. For non-public companies, this guidance is effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Public and nonpublic entities would be permitted to adopt the standard as early as the original public entity effective date; early adoption prior to that date would not be permitted. As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), we have elected to delay adoption of new or revised accounting standards applicable to public companies until such pronouncements are made applicable to private companies. Once effective, entities can choose to apply the standard using either a full retrospective approach or a modified retrospective approach. We have not yet selected a transition method and are currently assessing the potential impact that this standard will have on our Consolidated Financial Statements.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business, which currently are comprised primarily of interest rate risks and foreign currency exchange risks.

Our New Credit Facilities bears interest at variable rates and exposes us to interest rate risk. As such, our net income (loss) and debt service payments are sensitive to movements in interest rates. There are many economic factors outside our control that have in the past, and may in the future, impact rates of interest, including publicly announced indices that underlie the interest obligations related to a certain portion of our debt. The condition of the financial markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. Factors that impact interest rates include domestic or international governmental monetary policies, inflation, recession, changes in unemployment, the money supply, international disorder and instability in domestic and foreign financial markets. If interest rates increase, our debt service obligations on the variable-rate indebtedness would increase even though the amount borrowed remained the same, and our net income (loss) would decrease (increase). Such increases in interest rates could have a material adverse effect on our financial condition and results of operations.

The New Term Loan and Revolving Facility bear interest on the outstanding unpaid principal amount at a rate equal to an applicable margin plus, at the Issuer’s option, either: (a) a base rate determined by reference to the highest of (i) the administrative agent's prime rate at such time, (ii) 0.50% in excess of the overnight federal funds rate at such time and (iii) the LIBOR rate that is in effect for a LIBOR loan with an interest period of one month plus 1.00%, provided that the base rate for the New Term Loan is not less than 2.00% per annum; or (b) a LIBOR rate, provided that the LIBOR rate for the New Term Loan is not less than 1.00% per annum. The applicable margin shall mean either: (i) in the case of initial term loans maintained as (a) base-rate loan, 3.00%, or (b) LIBOR loans, 4.00%, (ii) in the case of initial revolving loans maintained as (a) base-rate loans or swingline loans, 2.75% and (b) fixed-rate loans, 3.75%. The applicable margin for the Revolving Facility is subject to step-ups and step-downs based on our first lien leverage ratio. As of December 31, 2015, the interest rate on the New Term Loan was equal to a LIBOR floor of 1.00% plus the applicable margin of 4.00%.

We have experienced and will continue to experience remeasurement gains and losses as well as transaction gains and losses due to foreign currency exchange rate risks related to our revenues, operating expenses and cash and other account balances denominated in currencies other than the United States dollar. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. As a result, we pay the majority of our foreign currency expenses with cash generated from revenues earned in the relevant currency. For the year ended December 31, 2015, approximately 18% of our total revenues earned and approximately 6% of our total expenses incurred were in currencies other than the United States dollar, such as the British pound sterling, the Australian dollar, the Canadian dollar and the Euro.

Changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenues and results of operations as stated in U.S. dollars. For 2015, changes in average foreign currency exchange rates had over a one and one-half percentage points negative impact on total revenues compared to 2014. In the event our foreign sales, expenses and cash and other account balances increase, our operating results and balance sheet may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business.

At this time we have not, but we may in the future, enter into derivatives or other financial instruments in an attempt to hedge our foreign currency exchange risk relating to our results of operations and account balances denominated in foreign currencies. However, it is difficult to predict the impact hedging activities would have on our results of operations.

Item 8. Financial Statements and Supplementary Data

The Consolidated Financial Statements required by Item 8 are submitted as a separate section of this Annual Report beginning on page F-1. See Item 15, “Exhibits and Financial Statement Schedules” and the supplementary information under the caption “Quarterly Results of Operations” in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Annual Report our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in this Annual Report include controls and procedures designed to ensure that the information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent or detect all error and all fraud. While our disclosure controls and procedures are designed to provide reasonable assurance of their effectiveness, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Ancestry.com have been detected.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting as of the end of the period covered by this report based on the framework in “Internal Control—Integrated Framework” (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting is effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of the financial statements for external purposes in accordance with GAAP, as of December 31, 2015.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit emerging growth companies to only provide management’s report in this Annual Report.

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

None

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

Executive Officers and Operating Committee Members

The following table sets forth the names, ages (as of February 19, 2016) and positions of each person who is an executive officer or member of the Operating Committee of Ancestry.com LLC (and the biographies following the table reflect the positions held by each of the named individuals at Ancestry.com LLC):



Name	Age	Position
Timothy Sullivan	52	President, Chief Executive Officer and Operating Committee Member
Howard Hochhauser	45	Chief Financial Officer and Chief Operating Officer
William Stern	52	Chief Legal Officer and Chief Risk Officer
Scott Sorensen	50	Chief Technology Officer
Rob Singer	45	Chief Marketing Officer
Bruce Chizen	60	Chairman of the Operating Committee
Janice Chaffin	61	Operating Committee Member
Brad Garlinghouse	45	Operating Committee Member
Victor Parker	46	Operating Committee Member
Dipan Patel	33	Operating Committee Member
Brian Ruder	43	Operating Committee Member

Timothy Sullivan has served as our President and Chief Executive Officer and as a director of our predecessor entity, Ancestry.com Inc. (the “Predecessor”) since September 2005 and has been a member of the Operating Committee since January 2013. Prior to joining us, Mr. Sullivan was Chief Operating Officer and then President and CEO of Match.com from January 2001 to September 2004. From May 1999 to January 2001, Mr. Sullivan served as Vice President of E-commerce for Ticketmaster Online-Citysearch, Inc. From June 1991 to May 1999, Mr. Sullivan held multiple positions at The Walt Disney Company, including Vice President and Managing Director of Buena Vista Home Entertainment Asia Pacific from July 1997 to May 1999. From December 2005 to February 2008, Mr. Sullivan served as a director of Live Nation Entertainment, Inc. Mr. Sullivan holds an M.B.A. from Harvard Business School and was a Morehead Scholar at the University of North Carolina at Chapel Hill. The Operating Committee believes that Mr. Sullivan’s qualifications to serve on the Operating Committee include extensive executive management experience, including experience as our own Chief Executive Officer as well as the former chief executive officer of a subscription-based Internet company.

Howard Hochhauser joined Ancestry.com in 2009 as our Chief Financial Officer. In February 2012, he added the position of Chief Operating Officer. During his tenure, Mr. Hochhauser helped lead the Company's initial 2009 public offering, its go-private transaction in 2012, nine acquisitions and all of its public equity and debt financings. He oversees areas including finance and human resources as well as the Company's content and international operations. Prior to joining Ancestry.com, Mr. Hochhauser served as the Chief Financial Officer of Martha Stewart Living Omnimedia and earlier in his career as Vice President of Equity Research at Bear Stearns & Co and a Staff Accountant at KPMG Peat Marwick. Mr. Hochhauser was voted #1 Internet industry CFO of 2012 by investment community professionals surveyed by Institutional Investor magazine. He is a Certified Public Accountant and holds an M.B.A. from Columbia University and a B.S. from Boston University. He also serves as a member of the board of directors of OpenX Software Ltd.

William Stern has served as our Chief Legal Officer and Chief Risk Officer since December 2014. He previously served as our General Counsel and Corporate Secretary from July 2009 to December 2014. From October 2005 to July 2009, Mr. Stern held multiple positions at Martha Stewart Living Omnimedia, Inc., most recently serving as the General Counsel and Secretary from September 2008 to July 2009. From October 2002 to September 2005, Mr. Stern was a Principal at Fish & Richardson, PC. Prior to joining Fish & Richardson, PC, he was a Partner at Morrison & Foerster, LLP. Mr. Stern holds an M.B.A. and a J.D. from the University of Chicago and an A.B. from Brown University.

Scott Sorensen has served as our Chief Technology Officer since April 2013. Mr. Sorensen has been with us since June 2002 and has held multiple positions including Senior Vice President of Engineering, Vice President of Search and Vice President of Commerce. Prior to joining us, Mr. Sorensen was co-founder and Vice President of Engineering and then President at Coresoft Technologies. Mr. Sorensen was an engineering manager at WordPerfect / Novell and a software engineer at IBM. He holds a B.S in Computer Science from Brigham Young University.

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Rob Singer has served as our Chief Marketing Officer since March 2014. Mr. Singer joined the Company in November 2010 as Global Vice President of Customer Relationship Management and most recently served as Senior Vice President of U.S. Marketing. Prior to joining Ancestry, Mr. Singer was the Senior Vice President of Customer Relationship Management at Bank of the West from February 2009 to November 2010. From July 2005 to February 2009, he was the head of Customer Intelligence and Relationship Marketing at StubHub, an eBay Company. Prior to joining StubHub, he held senior-level database marketing and business intelligence positions at Yates Advertising, YellowBrick Solutions, Charles Schwab & Co., Inc., and KnowledgeBase Marketing. Mr. Singer also serves as a member of the board of directors of LegalZoom, Inc. Mr. Singer has a B.S. in Mathematics with a minor in Statistics from James Madison University. As previously disclosed, Mr. Singer has informed the Company that he intends to leave the Company on or before July 1, 2016 and will no longer be an officer of the Company effective February 28, 2016.

Bruce Chizen has been a member of the Operating Committee since January 2013. Mr. Chizen is currently an independent consultant and has served as senior adviser to Permira Adviser LLP since 2008 and as a venture partner at Voyager Capital since 2009. Mr. Chizen served as a strategic adviser to Adobe Systems Incorporated, a provider of design, imaging and publishing software for print, internet and dynamic media production from 2007 through 2008. From 2000 to 2007, Mr. Chizen served as CEO of Adobe and as its president from 2000 to 2005. He also served as Adobe’s acting CFO from 2006 to 2007. From 1998 to 2000, he was Adobe’s executive vice president, Products and Marketing. Mr. Chizen joined Adobe Systems in 1994 and held various positions in its Consumer Products and Graphics Products divisions. He served as a director of Adobe from 2000 to 2008. Mr. Chizen also currently serves as a director of Chargepoint, Inc., Oracle Corp., Synopsys, Inc., KQED and Informatica Holdco Inc. The Operating Committee believes that Mr. Chizen’s qualifications to serve on the Operating Committee include extensive executive management experience along with Mr. Chizen’s financial expertise and significant audit and financial reporting knowledge.

Janice Chaffin has been a member of the Operating Committee since June 2013. Ms. Chaffin served as the Group President, Consumer Business Unit for Symantec Corporation from April 2008 until March 2013, when she retired from that position. From May 2006 to April 2008, Ms. Chaffin served as Symantec’s Executive Vice President and Chief Marketing Officer. Ms. Chaffin joined Symantec in May 2003 as Senior Vice President and Chief Marketing Officer. Prior to Symantec, Ms. Chaffin spent 21 years at Hewlett-Packard Company, where she held a variety of marketing and business management positions and most recently served as Vice President of Enterprise Marketing and Solutions. Ms. Chaffin is a member of the board of directors and the audit committees of PTC, Inc. and Synopsys, Inc. She also serves as a member of the Nominating and Governance and Corporate Development Committees of PTC, Inc. Ms. Chaffin also serves on the board of visitors at the UCLA Anderson School of Management and the board of trustees of the Montalvo Arts Center and is a member of the advisory council of Illuminate Ventures. Ms. Chaffin previously served on the board of directors of International Game Technology (IGT), where she served on the Audit Committee. She also previously served on the board of directors of Informatica Corporation (2001-2008), the duration of which she served on either the audit committee or the compensation committee. Ms. Chaffin graduated summa cum laude from the University of California, San Diego with a B.A. and earned an M.B.A. in business from the University of California, Los Angeles, where she was a Henry Ford Scholar. The Operating Committee believes that Ms. Chaffin’s qualifications to serve on the Operating Committee include her extensive experience advising technology companies along with her audit committee experience.

Brad Garlinghouse has been a member of the Operating Committee since July 2013. Mr. Garlinghouse is currently the Chief Operating Officer and President of Ripple. Mr. Garlinghouse previously served as the Chief Executive Officer and Chairman of the board of directors of Hightail a file collaboration service for both consumers and enterprises, from May 2012 to September 2014. Prior to joining Hightail, Mr. Garlinghouse was President of Consumer Applications at AOL from September 2009 through January 2012. Prior to AOL, Mr. Garlinghouse held various positions at Yahoo! from January 2003 to January 2009, culminating in the position of Senior Vice-President. Mr. Garlinghouse has also been CEO of Dialpad Communications, held management positions at SBC Communications and @Home Network and was an advisor to Silverlake Partners, a private equity fund, from January to September 2009. Mr. Garlinghouse also serves on the board of directors of Animoto, Tonic for Health and MC Industries. Mr. Garlinghouse holds a B.A. in economics from the University of Kansas and an M.B.A. from Harvard. The Operating Committee believes that Mr. Garlinghouse’s qualifications to serve on the Operating Committee include his extensive experience advising technology companies.

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Victor Parker has been a member of the Operating Committee since January 2013. Mr. Parker served as an observer on the board of directors of Ancestry.com Inc. since 2003 and served as one the Predecessor’s directors from 2006 until December 2012. Mr. Parker is a Managing Director of Spectrum Equity Investors, a private equity firm, and joined the firm in September 1998. He was previously at ONYX Software and was an associate at Summit Partners from October 1992 to June 1996. Mr. Parker serves on the board of directors of Demand Media, Inc., ExamSoft Worldwide, Inc., Prezi and Teachers Pay Teachers. He also is a board observer at iSelect Limited. Mr. Parker previously served on the board of directors of SurveyMonkey.com LLC from April 2009 to December 2012, lynda.com from January 2013 to May 2015, NetQuote, Inc. from September 2005 to July 2010 and on the board of Interbank FX, LLC from July 2007 to November 2011, both privately held entities. He holds an M.B.A. from Stanford Graduate School of Business and a B.A. from Dartmouth College. The Operating Committee believes Mr. Parker’s qualifications to serve on the Operating Committee include his financial experience, his experience advising technology companies and a long history and familiarity with Ancestry.com.

Dipan Patel has been a member of the Operating Committee since January 2015. Mr. Patel became a Partner of Permira Advisers Ltd (“Permira”) in 2016. Mr. Patel joined Permira in 2009 and focuses on the technology, media, and telecommunications sectors. Prior to this, Mr. Patel was an Associate of The Gores Group LLC and was an Associate in the Communications & Media practice at Lehman Brothers Investment Bank. He has also had prior experience at Arthur Andersen and NM Rothschild Investment Bank. He serves as a director of LegalZoom.com, Inc. and Informatica Holdco Inc. Mr. Patel has a B.A. Honors degree in Economics from Cambridge University, during which he also attended Massachusetts Institute of Technology. The Operating Committee believes Mr. Patel’s qualifications to serve on the Operating Committee include his extensive financial experience and his experience advising technology companies.

Brian Ruder has been a member of the Operating Committee since December 2012. Mr. Ruder joined Permira as a Partner in 2008 and became Head of the Menlo Park office in 2010. He is Co-Head of the team that focuses on investments in the technology, media and telecommunications sector. From 2000-2008, Mr. Ruder was Partner at Francisco Partners where he covered investments in the software and services sector. He has also worked with Hellman & Friedman and in Corporate Finance for Morgan Stanley. Mr. Ruder is also a member of the operating committees of Genesys Telecommunications and Metamorph (Metalogix) and a member of the board of directors of LegalZoom, Inc., Informatica Holdco Inc. and Foundation 9 Entertainment. Mr. Ruder has a degree in Mathematics and Philosophy from Harvard College and an MBA from Harvard Business School. The Operating Committee believes Mr. Ruder’s qualifications to serve on the Operating Committee include his extensive financial experience and his experience advising technology companies.

We have adopted a Code of Business Conduct and Ethics that applies to all of our executive officers and members of our Operating Committee.

Committees of the Operating Committee

We have established an Audit Committee and a Compensation Committee. Each of these committees operates under a written charter that establishes its roles and responsibilities.

Audit Committee

The Audit Committee provides assistance to the Operating Committee in fulfilling its oversight responsibilities regarding the integrity of financial statements, our compliance with applicable legal and regulatory requirements, the integrity of our financial reporting processes, including our systems of internal accounting and financial controls, the performance of our internal audit function and independent auditor and our financial policy matters by approving the services performed by our independent accountants and reviewing their reports regarding our accounting practices and systems of internal accounting controls. The Audit Committee also oversees the audit efforts of our independent accountants and takes those actions it deems necessary to satisfy itself that the accountants are independent of management.

The members of this committee are Mr. Parker and Mr. Ruder, neither of whom is independent as defined under the rules of the Nasdaq Stock Market nor meets the additional independence requirements for audit committee members under Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We believe that each member of our Audit Committee meets the financial statement literacy requirements of the Nasdaq listing standards and are audit committee financial experts, as defined under applicable SEC rules.

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Compensation Committee

The Compensation Committee oversees our overall compensation structure, policies and programs, and assesses whether our compensation structure establishes appropriate incentives for officers and employees. The Compensation Committee reviews and recommends to the Operating Committee corporate goals and objectives relevant to compensation of our Chief Executive Officer and reviews and approves corporate goals and objectives relevant to compensation of our other executive officers. The Compensation Committee evaluates the performance of these officers in light of those goals and objectives, recommends to the Operating Committee the compensation of the Chief Executive Officer and approves the compensation of our other executive officers, including those individuals named with Mr. Sullivan in the Summary Compensation Table (with Mr. Sullivan, the “named executive officers”). Finally, the Compensation Committee recommends to the Operating Committee any employment-related agreements, any proposed severance arrangements or change of control or similar agreements with respect to our Chief Executive Officer and approves any employment-related agreements, any proposed severance arrangements or change of control or similar agreements with respect to our other executive officers. The Compensation Committee also administers the issuance of stock options and other awards for Ancelux Topco S.C.A., a Luxembourg société en commandite par actions (“Topco”), under the Ancelux Topco S.C.A. Equity Incentive Plan (the “Topco Plan”). The Compensation Committee will review and evaluate, at least annually, the performance of the Compensation Committee and its members and the adequacy of the charter of the Compensation Committee. The Compensation Committee will also review and approve a report on executive compensation.

Mr. Sullivan, our President and Chief Executive Officer, reviews the performance of each executive officer other than himself and makes recommendations regarding their compensation.

The members of our Compensation Committee are Mr. Chizen and Mr. Ruder, neither of whom is independent under the Nasdaq listing standards.

Risk Management

The Operating Committee is involved in the oversight of risks that could affect the company. The Audit Committee is charged with overseeing our overall enterprise risks and our mitigation efforts in respect of these risks. The Audit Committee is responsible for discussing with management the Company’s principal risk exposures and the steps management has taken to monitor and control risk exposures, including risk assessment and risk management policies. The Audit Committee oversees risks associated with overall financial reporting and disclosure issues, as well as those associated with any related-party transaction. The Compensation Committee also plays a role, in that it is charged in overseeing the Company’s overall compensation structure, with assessing whether that compensation structure creates risks that are reasonably likely to have a material adverse effect on us. The Compensation Committee has reviewed our compensation philosophy and practices and concluded that the current philosophy and practices do not give rise to risks that are reasonably likely to have a material adverse effect on the Company. The Compensation Committee determined that the compensation practices generally balance near-term incentives (annual cash bonuses) with long-term incentives (equity-based awards), resulting in an environment that does not encourage excessive risk taking. The annual cash bonuses are discretionary and tied to Company performance, as well as individual and business unit goals, rewarding near-term performance without incentivizing inappropriate risk.

Item 11. Executive Compensation

Compensation Committee Interlocks and Insider Participation

In 2015, our Compensation Committee was composed of Mr. Chizen and Mr. Ruder, neither of whom is, or was in 2015, an officer or employee of the company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our Operating Committee or Compensation Committee.

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Summary Compensation Table

The following table sets forth the portion of compensation paid to named executive officers that is attributable to services performed during fiscal years 2015 and 2014.

Name and Principal Position

Year

Salary ($)

Large accelerated filer

Accelerated filer

Non-accelerated filer

ý (Do not check if a smaller reporting company)

Smaller reporting company

Ancestry.com LLC 10-K