Avigilon Corporation Reports Fourth Quarter and Year-End 2016 Results with Record Revenue and Profit

~Strong product and patent licensing revenue contribute towards record quarterly and annual results~

VANCOUVER, CANADA, February 28, 2017 /CNW/ - Avigilon Corporation ("Avigilon" or the "Company") (TSX: AVO), provider of trusted security solutions, today reported financial results for the three and twelve months ended December 31, 2016. All figures are in United States ("US") dollars unless otherwise stated.

Fourth Quarter 2016 Highlights

• Record revenue, gross profit*, Adjusted EBITDA*, Adjusted Earnings*, diluted Adjusted EPS*, and cash flow from operations.
• Record revenue of $102.2 million, compared with $81.4 million in Q4 2015, resulting from record unit volume, success of H4 camera platform, and contributions from the Avigilon Patent License Program ("Patent License Program"). Avigilon's revenue growth continued to outpace that of the industry.
• Record gross profit of $52.1 million, compared with $45.6 million in Q4 2015.
• Gross margin percentage* of 51%, in line with management's plan to increase unit volume to drive greater revenue, gross profit, and cash flow from operations.
• Record Adjusted EBITDA of $20.8 million, compared with $15.5 million in Q4 2015.
• Record Adjusted Earnings of $11.5 million, compared with $9.1 million in Q4 2015.
• Record diluted Adjusted EPS of $0.26, compared with $0.21 in Q4 2015.
• Record cash flow from operations of $18.8 million, compared with cash used in operations of $8.8 million in Q4 2015.
• Recognized by Deloitte as one of North America's Fastest Growing Companies.
• Announced listing of office tower to explore potential sale and leaseback.
• Expanded H4 camera platform with new products featuring video analytics.

Fiscal Year 2016 Financial Highlights

• Record revenue, gross profit, Adjusted EBITDA, and cash flow from operations.
• Record revenue of $353.6 million, compared with $287.6 million in 2015.
• Record gross profit of $184.0 million, compared with $165.1 million in 2015.
• Record Adjusted EBITDA of $54.4 million, compared with $51.3 million in 2015.
• Adjusted Earnings and diluted Adjusted EPS were $27.0 million and $0.61, respectively, compared with $30.4 million and $0.66 in 2015. 2016 results were impacted by increases in non-cash amortization, interest expense and investments to expand the Company's sales and marketing initiatives and product portfolio. In the second half of the year, these items were offset by an increase in gross profit as a result of the Pricing Adjustment and increased contributions from the Patent License Program.
• Record cash flow from operations of $43.0 million, compared with cash used in operations of $1.8 million in 2015.

"Once again, we've set new quarterly and annual records for revenue and gross profit while generating record cash flow from operations," said Alexander Fernandes, Avigilon's Founder, President, Chief Executive Officer and Chairman of the Board. "We have a robust pipeline of groundbreaking new products and video analytics launching this year, and global demand for our solutions is stronger than ever."

Summary of Fourth Quarter and Fiscal Year 2016 Financial Results

	Three Months Ended			Twelve Months Ended
(In thousands of US dollars except margin and per share amounts)	Q4 2016	Q4 2015	% Change	2016	2015	% Change
	(December 31, 2016)	(December 31, 2015)		(December 31, 2016)	(December 31, 2015)
	(Unaudited)	(Unaudited)		(Audited)	(Audited)
Revenue	102,191	81,439	25%	353,622	287,561	23%
Gross profit	52,102	45,620	14%	183,970	165,076	11%
Gross margin percentage	51%	56%	NA	52%	57%	NA
Total operating expenses	39,509	36,968	7%	164,015	138,116	19%
Adjusted EBITDA^(1)	20,812	15,462	35%	54,399	51,254	6%
Adjusted EBITDA Margin* percentage^(1)	20%	19%	NA	15%	18%	NA
Net income (IFRS)	4,368	4,207	4%	7,190	22,031	-67%
Adjusted Earnings^(1)	11,453	9,127	25%	26,961	30,416	-11%
Basic earnings per share (IFRS)	0.10	0.10	0%	0.17	0.49	-65%
Diluted earnings per share (IFRS)	0.10	0.09	11%	0.16	0.48	-67%
Diluted Adjusted EPS^(1)	0.26	0.21	24%	0.61	0.66	-8%

⁽¹⁾Non IFRS measures are unaudited

Detailed Financial Review

Avigilon reported Q4 2016 record revenue of $102.2 million, an increase of 25% over revenue of $81.4 million in Q4 2015. Record revenue for FY 2016 of $353.6 million represents an increase of 23%, or $66.1 million, compared with revenue of $287.6 million for FY 2015. Revenue growth for Q4 2016 and FY 2016 reflects increased unit volume as a result of the Pricing Adjustment (as defined below), greater customer adoption in existing markets, further penetration of target regions, new product introductions, greater adoption of video analytics, and increased contributions from the Patent License Program. On a constant currency basis, revenue grew 27% for the fourth quarter and 24% for the year ended December 31, 2016 compared to the same periods in 2015.

Gross profit increased to $52.1 million in Q4 2016 from $45.6 million in Q4 2015, an increase of $6.5 million or 14%. Gross profit increased to $184.0 million in FY 2016, compared with $165.1 million in FY 2015, a growth of $18.9 million or 11%. Record gross profit was achieved for the quarter and year, primarily from the success of the H4 camera platform, the Pricing Adjustment, and the Patent License Program. In the second quarter of 2016, management reduced prices on the H3 camera line and select Network Video Recorders to drive unit volume and revenue, expand addressable market, and capture additional market share (the "Pricing Adjustment"). As a result of the Pricing Adjustment, gross margin percentage was strategically exchanged for increased unit volume to drive greater revenue, gross profit, and cash flow from operations. Over time, the Company expects gross margin percentage to increase due to growing contributions from the Patent License Program, greater economies of scale from leveraging our previous investments in manufacturing facilities to support larger unit volumes, and increasing adoption of video analytics.

Sales and marketing expenses in Q4 2016 were $18.8 million, consistent with $18.7 million in Q4 2015. Benefiting from operating leverage, sales and marketing expenses decreased from 23% of revenue in Q4 2015 to 18% of revenue in Q4 2016. Sales and marketing expenses in FY 2016 were $76.7 million or 22% of revenue compared with $70.8 million or 25% of revenue in FY 2015. Overall, Management believes sales and marketing expenses as a percentage of revenue will decrease year over year as the Company focuses on increasing profitability, and benefits from efficiencies arising from the enterprise resource planning ("ERP") system and economies of scale from its previous investments in global sales and marketing teams.

Research and development ("R&D") expenses, net of related income tax credits and capitalized development costs, were $4.4 million in Q4 2016, compared with $4.2 million in Q4 2015, and $16.9 million in FY 2016, compared with $10.6 million in FY 2015. Gross R&D expenses were $8.3 million in Q4 2016 (8% of revenue), compared with $7.2 million in Q4 2015 (9% of revenue) and $32.5 million for FY 2016 (9% of revenue), compared with $24.7 million in FY 2015 (9% of revenue). The increase in gross R&D for both the quarter and year ended December 31, 2016 compared to the same periods in 2015 is consistent with the Company's ongoing plan to further enhance and expand upon its product offering and intellectual property portfolio.

General and administrative ("G&A") expenses in Q4 2016 were $10.4 million (10% of revenue), compared with $10.2 million in Q4 2015 (12% of revenue). G&A expenses in FY 2016 were $49.2 million (14% of revenue), compared with $42.3 million in FY 2015 (15% of revenue). The decrease in G&A, as a percentage of revenue for the quarter and year ended December 31, 2016, was primarily due to operating leverage on previous investments in personnel, infrastructure and our ERP system to support business growth. Management expects the Company's G&A expenses to increase at a slower rate over time as the Company focuses on increasing profitability.

Amortization and depreciation in Q4 2016 and FY 2016 were $5.9 million and $21.2 million, respectively, compared with $3.8 million and $14.5 million, respectively, in Q4 2015 and FY 2015. The increase in amortization and depreciation for both the quarter and year ended December 31, 2016 compared to the same periods in 2015 reflected previous investments in, among other things, global sales offices, R&D, patent portfolio and the ERP system. As these investments are now substantially completed, the Company plans to focus on increasing profitability.

IFRS net income for Q4 2016 was $4.4 million, compared with $4.2 million in Q4 2015. IFRS net income for FY 2016 was $7.2 million, compared with $22.0 million in FY 2015. IFRS earnings per share in Q4 2016 were $0.10 (basic and diluted), compared with $0.10 (basic) and $0.09 (diluted) in Q4 2015. IFRS earnings per share in FY 2016 were $0.17 (basic) and $0.16 (diluted), compared with $0.49 (basic) and $0.48 (diluted) in FY 2015. Net income and earnings per share for FY 2016 were impacted by non-operational items, including deferred tax, a foreign exchange loss compared to a foreign exchange gain, non-recurring costs, and share-based payments.

Adjusted EBITDA was $20.8 million in Q4 2016, compared with $15.5 million in Q4 2015. Adjusted EBITDA was $54.4 million in FY 2016, compared with $51.3 million in FY 2015. The increase in Adjusted EBITDA for the quarter and year ended December 31, 2016 was primarily due to increased unit volume as a result of the Pricing Adjustment, new product introductions, greater adoption of video analytics, and increased contributions from the Patent License Program. 

Adjusted Earnings for Q4 2016 increased 25% year over year to $11.5 million, compared with $9.1 million in Q4 2015. Diluted Adjusted EPS were $0.26 in Q4 2016, compared with $0.21 in Q4 2015. The increase in Adjusted Earnings and diluted Adjusted EPS in the fourth quarter ended December 31, 2016 compared to the same periods in 2015 was primarily due to increased operating leverage, a reduction in corporate expenditures, increased unit volume as a result of the Pricing Adjustment, new product introductions, greater adoption of video analytics, and increased contributions from the Patent License Program.

Adjusted Earnings and diluted Adjusted EPS for FY 2016 were $27.0 million and $0.61, respectively, compared with $30.4 million and $0.66, respectively, in FY 2015. FY 2016 results were impacted by increases in non-cash amortization, interest expense and investments to expand the Company's sales and marketing initiatives and product portfolio. In the second half of the year, these items were offset by an increase in gross profit as a result of the Pricing Adjustment and increased contributions from the Patent License Program.

As at December 31, 2016, Avigilon had net working capital of $105.4 million, including cash and cash equivalents of $30.0 million. Net cash from operating activities for 2016 was $43.0 million, an increase of $44.7 million when compared to net cash used in operating activities of $1.8 million in 2015. This increase was the result of the Pricing Adjustment and the resultant record unit volume, and increased contributions from the Patent License Program.

As at December 31, 2016, the Company had 43,597,364 common shares issued and outstanding. The weighted average number of common shares issued and outstanding for the quarter was approximately 43.6 million basic and 44.5 million diluted and for the year was approximately 43.4 million basic and 44.4 million diluted.

Financial Outlook

As of February 28, 2017, Avigilon expects the following for fiscal year 2017:

• Revenue between $390 million and $425 million
• Adjusted EBITDA Margin between 13% and 17%

The foregoing expectations constitute forward-looking information and are qualified in their entirety by the cautionary statement set out below.

Conference Call

Avigilon has scheduled a conference call to discuss these results on Tuesday February 28, 2017, beginning at 5:00 p.m. ET (2:00 p.m. PT). To access the live call, dial 1-888-231-8191 or [phone], or view the webcast at http://ir.avigilon.com or http://bit.ly/2iRm80R. A replay will be available for 90 days on the Company's website, and for one week by dialing 1-855-859-2056 or [phone], reference number 49950613.

This news release is qualified in its entirety by the Company's consolidated financial statements for the years ended December 31, 2016 and 2015 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 and Additional IFRS Financial Measures

Management uses certain non-International Financial Reporting Standards ("IFRS") and additional IFRS measures that it believes are useful to investors in evaluating the performance and results of the Company. The terms "Adjusted EBITDA" and "Adjusted EBITDA Margin" refer to earnings and earnings as a percentage of revenue, respectively, before deducting interest, taxes, depreciation, amortization, foreign exchange gain or loss, business acquisition-related costs, restructuring costs, non-recurring legal costs, non-recurring lease termination costs, revaluation gain on contingent consideration receivable, 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, restructuring costs, non-recurring legal costs, revaluation gain on contingent consideration receivable, non-recurring lease termination 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 terms "Adjusted Earnings" and "Adjusted Earnings Per Share" ("Adjusted EPS") refer to net earnings and earnings per share, respectively, before share-based payments, foreign exchange gain or loss, business acquisition-related costs, financing costs, restructuring costs, non-recurring legal costs, non-recurring lease termination costs, amortization of acquired intangibles, revaluation gain  on contingent consideration receivable and related tax effects. Please refer to the Company's consolidated financial statements for the years ended December 31, 2016 and 2015 and the reconciliation table within the associated Management's Discussion & Analysis respecting the same period.

The terms "gross profit" and "gross margin percentage" refer to revenue less cost of sales and gross profit as a percentage of revenue, respectively. Management considers gross profit and gross margin percentage to be key measures as they demonstrate the Company's profitability and its ability to cover its operating expenses from normal operations.

Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Earnings and Adjusted EPS 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 or Adjusted Earnings, respectively, should not be construed as an alternative to operating income or net income, respectively, 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 provides trusted security solutions to the global market. Avigilon designs, develops, and manufactures video analytics, network video management software and hardware, surveillance cameras, and access control solutions. To learn more about Avigilon, visit avigilon.com.

© 2017, Avigilon Corporation. All rights reserved. AVIGILON, and the AVIGILON logo are trademarks of Avigilon Corporation.

For further information:

Darren Seed
Vice President, Capital Markets & Communications
T: [phone]
[email protected]

Forward-Looking Statements

Certain information and statements in this news release 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, the information under the heading "Financial Outlook" and any statements (express or implied) respecting: Avigilon's future plans, strategies, and objectives; projected growth, revenues, gross margin percentage, Adjusted EBITDA Margin and profitability, expenses, capital expenditures, and earnings; anticipated enhancement and expansion of product offerings and associated R&D plans; expected investment and expansion of infrastructure; the pursuit of the proposed office tower sale and leaseback and resulting effects, when and if completed; the impact and benefits of Avigilon's new ERP system; and the  expected benefits of the Pricing Adjustment. Forward-looking statements, including the Financial Outlook, are provided for the purpose of presenting information about management's current expectations and plans relating to the future and allowing investors and others to get a better understanding of our anticipated financial position, results of operations and operating environment. Readers are cautioned that such information may not be appropriate for other purposes.
Forward-looking statements are not guarantees of future performance, actions, or developments and are based on expectations, assumptions and other factors that management currently believes are relevant, reasonable and appropriate in the circumstances. The material expectations, assumptions and other factors used in developing the forward-looking statements set out herein include or relate to the following, without limitation: Avigilon will be able to successfully execute its plans, strategies and objectives; the business and economic conditions affecting Avigilon's operations will continue substantially in their current state, including with respect to industry conditions, general levels of economic activity, regulations, taxes, interest rates, and foreign exchange rates; there will be no adverse material changes to Avigilon's key personnel, facilities, production capabilities, supply chain, sales channels, reseller network, or contractual arrangements; Avigilon will be able to leverage its past investments to support growth and focus on increasing profitability; Avigilon will be able to successfully manage cash flow, operating expenses, interest expenses, capital expenditures, working capital, and credit, liquidity, and market risks; future financing will be available to Avigilon on favorable terms when and if required; Avigilon will keep pace with or outpace the growth, direction, and technological advancement in its industry; industry data and projections obtained from external sources are accurate and reliable; Avigilon will be able to design, develop, and manufacture new products and enhance its existing product lines; Avigilon will be able to enhance and expand its intellectual property portfolio; Avigilon will continue to generate revenues from patent licensing; Avigilon will be able to successfully integrate businesses, intellectual property, products, and technologies that it may acquire, if any; Avigilon will continue to pursue the proposed office tower sale and leaseback; Avigilon will not face any material unexpected costs related to product liability or warranties; Avigilon's protection of its intellectual property against third party infringement or misappropriation is sufficient and its products and technology do not materially infringe third party intellectual property rights; Avigilon will be able to obtain necessary third party licenses on favorable terms; Avigilon will not become involved in unexpected material litigation or otherwise subject to materially adverse claims; Avigilon's ERP system will operate and function as intended; the lower prices of Avigilon's products under the Pricing Adjustment will continue to drive unit volume and revenues, expand addressable market and capture additional market share; Avigilon's plans respecting the pricing of its products and services, including without limitation under the Pricing Adjustment, will proceed in substantially their present form; and Avigilon will be able to achieve greater economies of scale and cost savings from previous investments in infrastructure and in its global sales and marketing teams.
Although management believes that the forward-looking statements are reasonable, actual results could 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 February 28, 2017, which is available under Avigilon's profile on SEDAR at www.sedar.com. Additional material risks and uncertainties applicable to the forward-looking statements set out herein include, but are not limited to: unexpected changes to accounting policies, accounting standards or internal controls and procedures over financial reporting; and unforeseen events, developments or factors causing any of the aforesaid expectations, assumptions and other factors ultimately being inaccurate or irrelevant. Although Avigilon has attempted to identify important factors that could cause actual actions, events, or results to differ materially from those contained in any forward-looking statement, there may be other factors that cause actions, events or results not to be as anticipated, predicted, estimated, or intended. Many of these 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

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