Avigilon Corporation Reports Record Second Quarter 2015 Results

VANCOUVER, July 29, 2015 /CNW/ - Avigilon Corporation ("Avigilon" or the "Company") (TSX: AVO), a leading global provider of end-to-end security solutions, today reported financial results for the three and six months ended June 30, 2015. All figures are in Canadian dollars unless otherwise stated.

Second Quarter 2015 Financial Highlights

  • Revenue was $89.8 million, a 38% increase over Q2 2014 revenue of $65.2 million.
  • Gross margin was 58%, up from 55% a year earlier.
  • Adjusted EBITDA* was $15.4 million, a 68% increase over Q2 2014 Adjusted EBITDA of $9.2 million.
  • Net income was $2.3 million, a 19% decrease over Q2 2014 net income of $2.8 million.
  • Adjusted Earnings* were $7.2 million, a 26% increase over Q2 2014 Adjusted Earnings of $5.7 million.
  • Fully Diluted Adjusted Earnings Per Share* were $0.15, a 25% increase over Q2 2014 Fully Diluted Adjusted Earnings Per Share of $0.12.
  • Trailing 12 months revenue ending Q2 2015 increased by 38% over the trailing 12 months revenue ending Q2 2014, gross margin was 58%, and Adjusted EBITDA margin was 19%.

"In the second quarter, Avigilon set a new record for revenue as we executed on our proven growth strategy," said Alexander Fernandes, Avigilon's Founder, President, Chief Executive Officer, and Chairman of the Board. "We remain committed to investing in the business to drive ongoing growth and are well on track to achieve our stated goal of $500 million in annual run-rate revenue by the end of 2016."

Summary of Second Quarter 2015 Financial Results





Three Months Ending

Trailing Twelve Months Ending

(In thousands of Canadian dollars except per share
amounts unless otherwise stated)

Q2 2015

Q2 2014

% Change

Q2 2015

Q2 2014

% Change


(June 30, 2015)

(June 30, 2014)


(June 30, 2015)

(June 30, 2014)



(Unaudited)

(Unaudited)


(Unaudited)

(Unaudited)









Revenue

89,794

65,181

38%

315,695

228,031

38%

Gross Margin

52,039

36,044

44%

182,645

127,479

43%

Gross Margin percentage

58%

55%

NA

58%

56%

NA

Total Operating Expenses

44,505

30,257

47%

146,606

93,984

56%

Adjusted EBITDA

15,386

9,163

68%

60,217

44,983

34%

Adjusted EBITDA Margin

17%

14%

NA

19%

20%

NA

Net Income (IFRS)

2,258

2,779

-19%

37,906

25,914

46%

Adjusted Earnings

7,219

5,723

26%

38,169

31,298

22%

Basic Earnings Per Share (IFRS)

0.05

0.06

-17%

0.81

0.62

31%

Diluted Earnings Per Share (IFRS)

0.05

0.06

-17%

0.80

0.60

33%

Fully Diluted Adjusted Earnings Per Share

0.15

0.12

25%

0.80

0.72

11%

Detailed Financial Review

Avigilon reported Q2 2015 revenue of $89.8 million, an increase of 38% over revenue of $65.2 million in Q2 2014. Revenue growth for Q2 2015 reflects increased product sales driven by greater customer adoption in existing markets, further penetration of new target regions and sales of new products. On a constant currency basis, revenue in Q2 increased 26% year-over-year. In Q2 2015 year-over-year revenue in the United States grew 54%, EMEA grew 31%, Latin America grew 23%, and Asia Pacific grew 16%, while revenue in the United Kingdom and Canada declined 4% and 1%, respectively.

Gross margin was $52.0 million in Q2 2015 (58% of revenue), compared with $36.0 million (55% of revenue) in Q2 2014. In Q2 2015 year-over-year gross margin percentage increased due to the ongoing effects of greater purchasing power, economies of scale, product mix, improved manufacturing efficiencies, and favourable impact from foreign exchange. The Company has historically experienced variability in quarter-to-quarter gross margin percentage.

Sales and marketing expenses in Q2 2015 were $22.0 million, an increase of 24% compared with $17.8 million in Q2 2014. The increase in Q2 2015 reflects significant investments to expand the Company's global sales and marketing teams and initiatives, which management believes will drive continued revenue growth. In Q2 2015, sales and marketing expenses represented 25% of revenue, compared with 27% of revenue in Q2 2014.

Research and development ("R&D") expenses, net of related investment tax credits and capitalized development costs, were $3.3 million in Q2 2015, compared with $4.4 million in Q2 2014. Gross R&D spend was $7.2 million in Q2 2015 compared with $6.4 million in Q2 2014, an increase of 13%. The increase in gross R&D spend is consistent with the Company's ongoing growth plan to further enhance and expand upon its product offerings.

General and administrative ("G&A") expenses in Q2 2015 were $14.8 million, compared with $6.6 million in Q2 2014, an increase of 124%. The increase is primarily due to additional personnel and their related expenses, including new headcount in customer support, human resources, information technology, facilities, finance and legal. The Company expects its G&A expenses to increase in the near term as it continues to invest in infrastructure to support planned growth.

Amortization and depreciation in Q2 2015 was $4.3 million, compared with $1.4 million in Q2 2014. The increase is primarily due to the amortization of intangible assets acquired from ObjectVideo, Inc. and four other unrelated vendors.

Total operating expenses for Q2 2015 were $44.5 million, compared with $30.3 million in Q2 2014, an increase of 47%. Operating expenses include $3.4 million in business acquisition-related and non-recurring legal expenses, including amortization of acquired intangible assets, compared with $1.5 million in Q2 2014.

Adjusted EBITDA increased 68% year-over-year to $15.4 million in Q2 2015, compared with $9.2 million in Q2 2014. The year-over-year improvement in Q2 2015 reflects Avigilon's growth in sales volume and improved gross margin, offset by operating expense growth.

Net income for Q2 2015 decreased 19% year-over-year to $2.3 million, compared with $2.8 million in Q2 2014. Net income for Q2 2015 was negatively impacted by a foreign exchange loss of $2.8 million, interest expense of $0.8 million, and $3.4 million in business acquisition-related and non-recurring legal expenses, including amortization of acquired intangible assets. Earnings Per Share in Q2 2015 were $0.05 (basic and diluted), compared with $0.06 (basic and diluted) in Q2 2014.

Adjusted Earnings for Q2 2015 increased 26% year-over-year to $7.2 million, compared with $5.7 million in Q2 2014. Fully Diluted Adjusted Earnings Per Share were $0.15 in Q2 2015, compared with $0.12 in Q2 2014.

As at June 30, 2015, Avigilon had working capital of $154.9 million, including cash and cash equivalents of $94.9 million. Common shares issued and outstanding as at June 30, 2015 were 44,598,369.  The weighted average number of common shares issued and outstanding for the quarter were 46.5 million basic and 47.4 million diluted. The Company's primary use of cash-on-hand in Q2 2015 was $39.5 million repurchasing 2,146,200 common shares and $10.9 million for additions to property, plant and equipment and computer software. This was offset by $93.8 million in net proceeds from long-term debt.

Outlook

Avigilon plans to continue executing on its successful strategy of delivering strong annual year-over-year revenue growth while maintaining growth in profit. The Company believes market share consolidation across the industry will continue. The Company remains on track towards an annual revenue run rate goal of $500 million by the end of 2016. To achieve this growth, Avigilon plans to invest globally in all departments of the Company, and expects operating expenses as a percentage of revenue to increase modestly in 2015, as they did in 2014.

Conference Call

Avigilon has scheduled a conference call to discuss these results on Wednesday, July 29, 2015, beginning at 5:00 p.m. ET (2:00 p.m. PT). To access the live call, dial 1-877-648-7976 or 1-847-852-4079, or view the webcast at http://ir.avigilon.com or http://bit.ly/1H8DzvG. A replay will be available for one year on the Company's website, and for one week by dialing 1-855-859-2056 or international 1-404-537-3406, reference number 81754111.

This news release is qualified in its entirety by the Company's condensed consolidated interim financial statements for the three and six months ended June 30, 2015 and 2014 and the associated Management's Discussion & Analysis respecting the same period, which can be downloaded from the Avigilon website at http://ir.avigilon.com or from the Company's profile on SEDAR at http://www.sedar.com/.

*Non-IFRS Measures

Management uses certain non- International Financial Reporting Standards ("IFRS") measures that it believes are useful to investors in evaluating the performance and results of the Company. The term "Adjusted EBITDA" refers to earnings before deducting interest, taxes, depreciation, amortization, foreign exchange gain or loss, business acquisition-related costs, non-recurring legal costs and share-based payments. Management believes that Adjusted EBITDA is a useful measure as it provides an indication of the operational results of the business prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration asset amortization, foreign exchange gain or loss, business acquisition-related costs, non-recurring legal costs, and share-based payments.

Management also believes that analyzing operating results exclusive of significant non-cash and non-recurring items provides a useful measure of the Company's performance. The term "Adjusted Earnings" and "Adjusted Earnings Per Share" refers to net earnings and earnings per share, respectively, before share-based payments, foreign exchange gain or loss, business acquisition-related costs, non-recurring legal costs, amortization of acquired intangibles and related tax effects. Please refer to the reconciliation table that accompanies the financial statements discussed in this press release and which is included in the Company's Management's Discussion & Analysis for Q2 2015.

Adjusted EBITDA, Adjusted Earnings and Adjusted Earnings Per Share do not have standardized meanings prescribed by IFRS and are not necessarily comparable to similar measures provided by other companies.

Investors are cautioned that Adjusted EBITDA, Adjusted Earnings and Adjusted Earnings Per Share should not be construed as an alternative to operating income or net income determined in accordance with IFRS as an indicator of the Company's financial performance or as a measure of its liquidity and cash flows.

About Avigilon

Avigilon Corporation is defining the future of protection through innovative end-to-end security solutions. Avigilon's industry-leading HD network video management software, megapixel cameras, access control and video analytics products are reinventing the security market. Information about Avigilon can be found at www.avigilon.com.

AVIGILON and the AVIGILON logo are trademarks of Avigilon Corporation.

Forward-Looking Statements

Certain statements contained in this news release, including all statements that are not historical facts, contain and constitute forward-looking information or forward-looking statements as defined under applicable securities laws (collectively, "forward-looking statements"). Forward-looking statements normally contain words like 'believe', 'expect', 'anticipate', 'plan', 'intend', 'continue', 'estimate', 'may', 'will', 'should', 'ongoing' and similar expressions, and within this news release include, without limitation, statements (express or implied) respecting: Avigilon's mission, strategies, and objectives; projected revenues and profit; trends, opportunities, and Avigilon's position within its industry; market share consolidation; Avigilon's product and R&D plans; purchasing power, economies of scale, product mix, manufacturing efficiencies, and Avigilon's patent licensing program; expansion of Avigilon's personnel globally; G&A and other operating expense growth; and expanding infrastructure.

Forward-looking statements are not guarantees of future performance, actions, or developments and are based on management's expectations and assumptions regarding historical trends, current conditions and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Management has based the forward-looking statements on estimates and assumptions that it believed were reasonable at the time, including without limitation, assumptions that: Avigilon will be able to successfully execute its mission, strategies and objectives; Avigilon will be able to successfully manage cash flow, operating and capital expenses, foreign exchange risk, and working capital; existing and future financing will be available to Avigilon on favourable terms when and if required; Avigilon will keep pace with or outpace the growth, direction, and technological advancement in its industry; market share consolidation across Avigilon's industry will continue; industry data and projections obtained from external sources are accurate and reliable; Avigilon will be able to design, manufacture and market new products and enhance its existing product lines; Avigilon will be able to maintain, improve, and grow its reseller network; Avigilon will be able to attract and retain qualified personnel; Avigilon will continue to generate revenues from patent licensing; foreign jurisdictions will not impose unexpected risks; products and parts will be available from suppliers on a timely basis and on favourable terms; Avigilon will be able to successfully integrate businesses, intellectual property, products, and technologies that it may acquire, if any; Avigilon will be able expand, manage, and develop its manufacturing facilities; Avigilon will not face any material unexpected costs related to product liability or warranties; Avigilon's protection of its intellectual property is sufficient and its technology does not materially infringe third party intellectual property rights; Avigilon will be able to obtain necessary third party licenses on favourable terms; and Avigilon will not become involved in unexpected material litigation.

Actual results could, however, be substantially different due to the risks and uncertainties associated with and inherent to Avigilon's business, as more particularly described in the "Risk Factors" section of Avigilon's Annual Information Form dated March 3, 2015, which is available under Avigilon's profile on SEDAR at www.sedar.com. Additional risks and uncertainties applicable to the forward looking statements set out herein include, but are not limited to: fluctuations in Avigilon's quarterly operating results; fluctuations in Avigilon's operating and capital expenses; increased competition from other companies; market share fragmentation in Avigilon's industry; the inaccuracy of industry data and projections relied upon by Avigilon; supply chain interruptions; R&D efforts may not result in the creation of new or enhanced products in a timely or cost-effective fashion or at all; Avigilon's partners' unwillingness to initiate or continue doing business with Avigilon on favourable terms or at all; unknown or unexpected defects with Avigilon's products that are not correctable in a timely or cost-effective fashion or at all; necessary financing may not be available on favourable terms or at all; inability to recruit and retain qualified personnel; the ongoing ability and desirability of licensees to continue paying Avigilon patent licensing royalties on a timely basis or at all; any acquired businesses, intellectual property, products, and technologies may not be successfully integrated in a timely or cost-effective fashion or at all, and the anticipated benefits of such acquisitions may never be realized; legal or regime changes, including changes to import and export requirements of foreign jurisdictions; political risk; war, terrorism, rebellion, revolt, protests, or other civil conflict; unionization, strikes or labour unrest; the global economic climate; general market trends; Avigilon's intellectual property may not be sufficiently protected against third party infringement or misappropriation; licenses to technology, intellectual property and software from third parties may be unavailable on favourable terms or at all; Avigilon's products may materially infringe a third party's intellectual property rights; material litigation may arise; information technology or product security breaches; Avigilon's real property facilities may not be acquired or retained on favourable terms or at all; fire, flood, earthquake, or other natural events; failure to obtain necessary permits, certifications, and authorizations; foreign currency fluctuations; share price volatility; risks as a result of actions of activist shareholders; deficiencies in internal controls and procedures over financial reporting; dilution; insufficiency of insurance; and unexpected tax liabilities. Although Avigilon has attempted to identify factors that may cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, predicted, estimated or intended. Also, many of the factors are beyond the control of Avigilon.

Accordingly, readers should not place undue reliance on forward-looking statements. Avigilon undertakes no obligation to reissue or update any forward-looking statements as a result of new information or events after the date hereof except as may be required by law. All forward-looking statements contained in this news release are qualified by this cautionary statement.

SOURCE Avigilon Corporation

For further information: Investor relations: Dennis Fong, Avigilon Corporation, T: (604) 629-5182, Ext 2515, dennis.fong@avigilon.com; Media relations: Stephanie Von Zuben, Avigilon Corporation, T: (604) 629-5182, Ext 2206, stephanie.vonzuben@avigilon.com

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