Forward-Looking Statements

This Quarterly Report on Form 10-Q (the "Quarterly Report") 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," "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 Quarterly Report include statements about:

• our pending acquisition by a company owned by the Permira funds and co-investors;

• 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 rate of revenue and expense growth;

• our success with respect to any recent or future acquisitions, and our ability to integrate acquired businesses;

• the pool of our potential subscribers;

• our ability to attract and retain subscribers and their choices of subscription package;

• our ability to manage growth, including adding employees and facilities;

• fluctuations in our business;

• our investments in content, technology and products, and the success of our promotional programs and new products, including our new Ancestry DNA service;

• our competitive position;

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

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

• our ability to enhance the subscribers' experience with added tools and features and to provide value;

• our continued investment in our international operations;

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

• our brand awareness;

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

• our plans to repurchase shares of our common stock, in the event that the acquisition by the Permira funds and co-investors does not occur;

• our ability to protect users' data and privacy concerns and to comply with privacy and security standards and laws, including data related to our new Ancestry DNA service;

• the seasonality of our business;

• changes in our effective tax rate;

• the impact of external market forces, including changes in the macroeconomic environment and foreign currency exchange rates;

• the impact of claims or litigation; and

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

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 Quarterly Report under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Risk Factors" and elsewhere, including information contained in our Annual Report on Form 10-K for the year ended December 31, 2011 (the "2011 Annual Report"). You should read these factors and the other cautionary statements made in this Quarterly Report as being applicable to all related forward-looking statements wherever they appear in this Quarterly Report.

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 Quarterly Report are made only as of the date of this Quarterly Report, and we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

Ancestry.com is the world's largest online family history resource, with approximately 2.0 million paying subscribers around the world at September 30, 2012. We offer access on a subscription basis to an extensive collection of billions of historical records that we have digitized, indexed and made available online over the past 16 years. Our subscribers use our proprietary Web-based services and content collection to research their family histories, build their family trees, collaborate with other subscribers, upload their own records and publish and share their stories. These subscribers are our primary source of revenues. We believe we provide ongoing value to our subscribers by regularly adding new historical content, enhancing our Web-based services and platforms with new tools and features and enabling greater collaboration among our users through the growth of our global community. Our goal is to remain the leading online resource for family history and to grow our worldwide subscriber base by offering a superior value proposition to anyone interested in learning more about their family history.

The following discussion and analysis is based on and should be read in conjunction with the condensed consolidated financial statements included elsewhere in this Quarterly Report, as well as the Consolidated Financial Statements and the related Management's Discussion and Analysis of Financial Condition and Results of Operations and other information in the 2011 Annual Report. For additional information regarding all business acquisitions completed in 2012 and share repurchases, see Note 4 and Note 8, respectively, of the accompanying notes to our condensed consolidated financial statements.

Recent Developments

On October 22, 2012, we announced that a company owned by the Permira funds and co-investors entered into a definitive merger agreement to acquire us for $32.00 per share in cash in a transaction valued at $1.6 billion. The transaction, which is subject to the approval of holders of a majority of the outstanding shares of our common stock and other customary closing conditions, is expected to close in early 2013 and potentially earlier. In certain circumstances, if the transaction were terminated, we would be required to pay a fee of $37.8 million to a company owned by the Permira funds and co-investors.

In August 2012, we acquired Archives.com, a family history Web site for $100.0 million in cash consideration plus assumed liabilities. Archives.com offers access to over 2.3 billion historical records, including birth records, obituaries, immigration and passenger lists, historical newspapers, as well as U.S. and U.K. Censuses and offers subscriptions at $39.95 per year. This transaction will enable us to add a differentiated service targeted to a complementary segment of the growing family history market. At September 30, 2012, Archives.com had approximately 0.5 million paying subscribers. See Note 4 of the accompanying notes to our condensed consolidated financial statements for further financial information regarding the Archives.com acquisition.

Key Business Metrics

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

• Total subscribers. A subscriber is an individual who pays for renewable access or redeems a gift subscription to one of our Ancestry.com Web sites. Total subscribers is defined as the number of subscribers at the end of the quarter.

• Gross subscriber additions. A gross subscriber addition is a new customer who purchases a subscription or redeems a gift subscription to one of our Ancestry.com Web sites.

• Monthly churn. Monthly churn is a measure representing the number of subscribers that cancel in a quarter divided by the sum of beginning subscribers and gross subscriber additions during the quarter. To arrive at monthly churn, the result is divided by three. Management uses this measure to determine the health of our subscriber base.

• Subscriber acquisition cost. Subscriber acquisition cost is external marketing and advertising expense, divided by gross subscriber additions in the quarter. Management uses this metric to determine the efficiency of our marketing and advertising programs in acquiring new subscribers.

• Average monthly revenue per subscriber. Average monthly revenue per subscriber is total subscription revenues earned in the quarter from subscriptions to the Ancestry.com Web sites divided by the average number of subscribers in the quarter, divided by three. The average number of subscribers for the quarter is calculated by taking the average of the beginning and ending number of subscribers for the quarter.

Our key business metrics are presented for the three months ended September 30, 2012, June 30, 2012 and September 30, 2011:

                                                                 Three Months Ended
                                              September 30,           June 30,            September 30,
                                                  2012                  2012                  2011
Total subscribers at end of quarter                2,020,043           2,005,409               1,701,322
Gross subscriber additions                           285,683             360,685                 273,979
Monthly churn                                            3.9 %               3.4 %                   4.2 %
Subscriber acquisition cost                  $         84.14         $     81.49         $         93.64
Average monthly revenue per subscriber       $         18.68         $     18.84         $         18.68

The following table presents the percentage of total subscribers by subscription duration type at September 30, 2012, June 30, 2012 and September 30, 2011:

                            September 30,       June 30,       September 30,
                                2012              2012             2011
             Annual                   48.1 %         49.0 %              57.3 %
             Semi-annual              22.1           19.6                 3.5
             Quarterly                 4.1            4.5                 7.6
             Monthly                  25.7           26.9                31.6

             Total                   100.0 %        100.0 %             100.0 %

Components of Condensed Consolidated Statements of Comprehensive Income

Revenues

Subscription revenues. We derive subscription revenues primarily from providing access to our Ancestry.com Web sites, and we recognize the subscription revenues, net of estimated cancellations, ratably over the subscription period. We currently offer registered users a 14-day free trial, after which, unless they cancel, we charge the full period subscription amount at the beginning of each subscription period. No revenue is recognized or allocated to the 14-day free trial period. The amount of unrecognized revenues from subscriptions is recorded in deferred revenue. We have established a revenue reserve 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. Subscription revenues also include revenues related to subscriptions to our non-Ancestry.com Web sites.

A majority of our subscription revenues is derived from subscribers in the United States. We attribute subscription revenues by country based on the billing address of the subscriber, regardless of the Web site to which the person subscribes. The following table presents subscription revenues by geographic region:

                                      Three Months Ended           Nine Months Ended
                                         September 30,               September 30,
                                       2012          2011         2012          2011
                                                      (In thousands)
      United States                 $   90,504     $ 73,694     $ 252,091     $ 210,665
      United Kingdom                    13,697       12,060        39,887        34,978
      All other countries               14,731       12,339        42,587        34,340

      Total subscription revenues   $  118,932     $ 98,093     $ 334,565     $ 279,983

Product and other revenues. Product and other revenues include sales of our Family Tree Maker desktop software, Ancestry DNA services, ProGenealogists' genealogical research services, iArchives' document digitization services, physical delivery of copies of historical vital records (birth, marriage and death certificates) and other products and services. Revenues related to these products or services are recognized upon shipment of the product or completion of the services, as applicable.

Expenses

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

Costs of Revenues

Cost of subscription revenues. Cost of subscription revenues consists of Web server operating costs, personnel-related costs of Web support and subscriber services employees, credit card processing fees, amortization of our content databases, outside service costs for subscriber services and royalty costs on certain content licensed from others. Web server operating costs include depreciation and software licensing on Web servers and related equipment and Web hosting costs.

Cost of product and other revenues. Cost of product and other revenues consists of Ancestry DNA service costs, direct costs of products sold, personnel-related costs of iArchives' digitization services and ProGenealogists' genealogical research services, shipping costs and credit card processing fees.

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 costs of developing new products and tools and maintaining and testing our Web sites. 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 product development and quality assurance services.

Marketing and advertising. Marketing and advertising expenses consist primarily of direct expenses related to television advertising, paid search, online display advertising, promotions and sponsorships, personnel-related costs and affiliate programs. Marketing and advertising costs are principally incurred in the United States, United Kingdom, Australia and Canada. In February 2012, NBC began airing the third season of "Who Do You Think You Are?," in which we purchased advertising and product integration.

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. Outside services expenses are also incurred in the process of acquiring businesses.

Amortization of acquired intangible assets. Amortization of acquired intangible assets is the amortization expense associated with subscriber relationships and contracts, technologies, trademarks and tradenames resulting from business acquisitions. We expect amortization of acquired intangible assets to increase as a percentage of total revenues for the remainder of 2012 compared to the nine months ended September 30, 2012 primarily due to additional amortization from intangible assets acquired as a part of the Archives.com acquisition.

Other Income (Expense), Net and Income Tax Expense

Other income (expense), net. Other income (expense), net includes foreign currency transaction and remeasurement gains and losses, which vary based on changes in foreign currency exchange rates. Also included are interest expense associated with borrowings, the amortization of the deferred financing costs related to the issuance of our credit facility and interest income earned on cash and cash equivalents. Our interest expense varies based on the level of debt outstanding and changes in interest rates.

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

Results of Operations

The following table sets forth our statements of income, as included in the
condensed consolidated statements of comprehensive income, as a percentage of
total revenues for the three and nine months ended September 30, 2012 and 2011.
The information contained in the table below should be read in conjunction with
our condensed consolidated financial statements and the related notes.



                                                     Three Months Ended             Nine Months Ended
                                                       September 30,                  September 30,
                                                    2012            2011           2012           2011
Revenues:
Subscription revenues                                  92.7 %         95.1 %          94.0 %        94.8 %
Product and other revenues                              7.3            4.9             6.0           5.2

Total revenues                                        100.0          100.0           100.0         100.0
Costs of revenues:
Cost of subscription revenues                          13.1           14.8            13.9          14.6
Cost of product and other revenues                      4.9            1.5             3.6           1.8

Total cost of revenues                                 18.0           16.3            17.5          16.4

Gross profit                                           82.0           83.7            82.5          83.6
Operating expenses:
Technology and development                             15.5           14.3            15.5          14.4
Marketing and advertising                              24.0           29.3            29.6          31.9
General and administrative                             11.0            9.5            10.5           9.9
Amortization of acquired intangible assets              3.6            4.2             2.9           4.4

Total operating expenses                               54.1           57.3            58.5          60.6

Income from operations                                 27.9           26.4            24.0          23.0
Other income (expense), net                             0.1           (0.4 )            -           (0.3 )

Income before income taxes                             28.0           26.0            24.0          22.7
Income tax expense                                     (8.6 )         (7.5 )          (7.6 )        (7.6 )

Net income                                             19.4           18.5            16.4          15.1

Revenues, Costs of Revenues and Gross Profit



                                        Three Months Ended                            Nine Months Ended
                                          September 30,                                 September 30,
                                       2012           2011          % Change         2012           2011          % Change
                                          (In thousands)                                (In thousands)
Revenues:
Subscription revenues                $ 118,932      $  98,093            21.2 %    $ 334,565      $ 279,983            19.5 %
Product and other revenues               9,423          5,008            88.2         21,404         15,454            38.5

Total revenues                         128,355        103,101            24.5        355,969        295,437            20.5
Costs of revenues:
Cost of subscription revenues           16,776         15,292             9.7         49,473         43,290            14.3
Cost of product and other revenues       6,319          1,558           305.6         12,688          5,227           142.7

Total cost of revenues                  23,095         16,850            37.1         62,161         48,517            28.1

Gross profit                         $ 105,260      $  86,251            22.0      $ 293,808      $ 246,920            19.0

Gross profit percentage                   82.0 %         83.7 %                         82.5 %         83.6 %

Subscription revenues

For the three months ended September 30, 2012, our subscription revenues increased $20.8 million compared to the three months ended September 30, 2011. The increase was primarily the result of an 18.7% increase in the number of total subscribers from September 30, 2011 to September 30, 2012. Total subscribers increased primarily due to continued marketing efforts in connection with the third season of "Who Do You Think You Are?", which aired in first half of 2012, and other targeted marketing promotions. Total subscribers also increased for the three months ended September 30, 2012 due to a decrease in monthly churn. Changes to our subscription pricing and duration offerings in late 2011, including offering new subscribers semi-annual subscriptions in place of annual subscriptions, caused the percentage of subscribers in longer-duration packages to increase and contributed to a decrease in monthly churn. In addition, subscription revenues for Archives.com, which we acquired in August 2012, were $2.2 million. For the three months ended September 30, 2012, changes in average foreign currency exchange rates did not have a significant effect on subscription revenues.

For the nine months ended September 30, 2012, our subscription revenues increased $54.6 million compared to the nine months ended September 30, 2011. The increase was driven by the same factors that influenced the three-month results.

Product and other revenues

For the three months ended September 30, 2012, our product and other revenues increased $4.4 million compared to the three months ended September 30, 2011. The increase was primarily due to a $3.4 million increase in revenue from our new Ancestry DNA service, which we launched in the second quarter of 2012.

For the nine months ended September 30, 2012, our product and other revenues increased $6.0 million compared to the nine months ended September 30, 2011. The increase was primarily due to a $3.5 million increase in revenue from our new Ancestry DNA service, which we launched in the second quarter of 2012, and a $1.6 million increase in revenue from ProGenealogists genealogical research services.

Cost of subscription revenues

For the three months ended September 30, 2012, our cost of subscription revenues increased $1.5 million compared to the three months ended September 30, 2011. The increase was primarily due to a $0.7 million increase in outside service costs for subscriber services and a $0.6 million increase in content database amortization due to our continued investment in content databases.

For the nine months ended September 30, 2012, our cost of subscription revenues increased $6.2 million compared to the nine months ended September 30, 2011. The increase was primarily due to a $2.9 million increase in outside service costs for subscriber services, a $1.3 million increase in content database amortization due to our continued investment in content databases and a $1.1 million increase in Web server operating costs partly attributable to greater user traffic volumes.

Cost of product and other revenues

For the three months ended September 30, 2012, our cost of product and other revenues increased $4.8 million compared to the three months ended September 30, 2011. This increase was primarily due to a $4.0 million increase in costs related to our new Ancestry DNA service.

For the nine months ended September 30, 2012, our cost of product and other revenues increased $7.5 million compared to the nine months ended September 30, 2011. This increase was primarily due to a $6.4 million increase in costs related to our new Ancestry DNA service.

Operating Expenses



                                      Three Months Ended                           Nine Months Ended
                                         September 30,                               September 30,
                                       2012          2011        % Change         2012          2011         % Change
                                        (In thousands)                              (In thousands)
Operating expenses:
Technology and development          $   19,887     $ 14,773           34.6 %    $  55,292     $  42,683           29.5 %
Marketing and advertising               30,810       30,266            1.8        105,303        94,324           11.6
General and administrative              14,108        9,753           44.7         37,483        29,221           28.3
Amortization of acquired
intangible assets                        4,577        4,304            6.3         10,362        12,871          (19.5 )

Total operating expenses            $   69,382     $ 59,096           17.4      $ 208,440     $ 179,099           16.4

Technology and development

For the three months ended September 30, 2012, our technology and development expenses increased $5.1 million compared to the three months ended September 30, 2011. The increase was primarily due to an increase in personnel-related expenses. The average number of technology and development personnel increased 35% during the three months ended September 30, 2012 compared to the three months ended September 30, 2011.

For the nine months ended September 30, 2012, our technology and development expenses increased $12.6 million compared to the nine months ended September 30, 2011. The increase was primarily due to an increase in personnel-related expenses. The average number of technology and development personnel increased . . .