Avigilon Corporation Reports Second Quarter 2017 Results

~ Q2 delivers strong revenue growth, increased earnings, and record cash flow ~

VANCOUVER, CANADA, August 9, 2017 /CNW/ - Avigilon Corporation ("Avigilon" or the "Company") (TSX: AVO), provider of trusted security solutions, today reported financial results for the three and six months ended June 30, 2017. All figures are in United States ("US") dollars unless otherwise stated.

Second Quarter 2017 Highlights

• Revenue of $99.4 million, compared with $85.7 million in Q2 2016.
• Revenue growth of 16% outpaced the industry's estimated growth rate of 6% per annum.
• Gross profit* of $51.1 million, compared with $43.0 million in Q2 2016.
• Strong gross margin percentage* of 51%.
• Adjusted EBITDA* of $17.8 million, compared with $8.0 million in Q2 2016.
• Adjusted EBITDA Margin* of 18%, compared with 9% in Q2 2016.
• Adjusted Earnings* of $9.3 million, compared with $2.6 million in Q2 2016.
• Diluted Adjusted EPS* of $0.21, compared with $0.06 in Q2 2016.
• Operating expenses as a percentage of revenue of 42%, compared with 51% in Q2 2016.
• Record cash flow from operations of $20.2 million, compared with $12.0 million in Q2 2016.
• Introduced several new products including:
• Avigilon Presence Detector, a sensor that combines Avigilon self-learning analytics with impulse radar technology to help detect people even if they have stopped moving or are hidden.
• H4 Thermal camera line, a new camera line that includes thermal technology designed to detect people and vehicles in areas with poor visibility.
• Continued the expansion of the H4 camera line, including the introduction of the H4 Mini Dome camera line and other models for a variety of environments.
• Avigilon Access Control Manager with biometric integration which offers an additional layer of identification to our access control solutions.

"In Q2, we significantly increased profit, achieved strong revenue growth, and continued to outpace the industry," said Alexander Fernandes, Avigilon's Founder, President, Chief Executive Officer and Chairman of the Board. "We successfully executed our strategy, led the industry with innovative new technology and solutions, and gained market share."

Detailed Financial Review

Avigilon reported Q2 2017 revenue of $99.4 million, an increase of 16% over revenue of $85.7 million in Q2 2016. On a constant currency basis, revenue in Q2 2017 grew 17% compared to the same period in 2016. Revenue growth continued to outpace the industry's estimated growth rate of 6% per annum. Gross profit increased $8.1 million from $43.0 million in Q2 2016 to $51.1 million in Q2 2017. Revenue and gross profit growth reflect increased unit volume as a result of greater customer adoption in existing markets, further penetration of target regions, the ongoing success of the H4 camera platform and Avigilon Control Center ("ACC") 6, new product introductions, and broader adoption of video analytics.

Increased operating leverage, expressed as a percentage of revenue, include:

• Sales and marketing expenses decreased as a percentage of revenue from 24% in Q2 2016 to 20% in Q2 2017;
• General and administrative ("G&A") expenses decreased as a percentage of revenue from 16% in Q2 2016 to 11% in Q2 2017; and
• Operating expenses decreased as a percentage of revenue from 51% in Q2 2016 to 42% in Q2 2017.

Management expects the Company's operating expenses as a percentage of revenue to continue to decrease year over year as the Company focuses on profitability and benefits from efficiencies arising from previous investments and economies of scale.

Sales and marketing expenses in Q2 2017 were roughly the same as sales and marketing expenses in Q2 2016. Correspondingly, strong revenue growth has been achieved without a commensurate increase in sales and marketing expenses as the Company benefited from new efficiencies arising from previous investments. Going forward, management expects sales and marketing expenses to increase year over year as the Company continues investing in its global sales and marketing team and initiatives.

Sales and marketing expenses as a percentage of revenue may fluctuate from quarter to quarter due to the timing of new hires, trade shows, and other marketing initiatives.

Research and development ("R&D") expenses, net of related income tax credits and capitalized development costs, were $4.4 million in Q2 2017, compared with $4.6 million in Q2 2016. Gross R&D expenditures were $8.1 million in Q2 2017 (8% of revenue), compared with $8.4 million in Q2 2016 (10% of revenue). The investment in gross R&D expenditures is consistent with the Company's ongoing strategy to lead the industry with superior product offerings.

Gross R&D expenditures as a percentage of revenue may fluctuate from quarter to quarter depending on the timing of the Company's product development projects.

G&A expenses in Q2 2017 were $11.0 million compared with $13.3 million in Q2 2016. The decrease in G&A expenses for Q2 2017 was primarily due to the Company's focus on creating operational efficiencies and benefits realized from previous investments.

Amortization and depreciation in Q2 2017 were $6.0 million, compared with $5.2 million in Q2 2016. The increase in amortization and depreciation was primarily due to previous investments in, among other things, R&D, and our patent portfolio.

Operating expenses for Q2 2017 were $41.7 million, a decrease of 5% compared with $43.7 million in Q2 2016, primarily due to the respective items noted above.

IFRS net income for Q2 2017 was $6.7 million, compared with net loss of $2.0 million in Q2 2016. IFRS earnings per share in Q2 2017 were $0.15 (basic and diluted), compared with loss per share of $0.05 (basic and diluted) in Q2 2016.

Adjusted Earnings and diluted Adjusted EPS for Q2 2017 were $9.3 million and $0.21, respectively, compared with $2.6 million and $0.06, respectively, in Q2 2016.

Adjusted EBITDA was $17.8 million in Q2 2017 compared with $8.0 million in Q2 2016. Adjusted EBITDA Margin was 18% in Q2 2017 compared with 9% in Q2 2016.

Net income, earnings per share, Adjusted Earnings, diluted Adjusted EPS, Adjusted EBITDA, and Adjusted EBITDA Margin for Q2 2017 all increased over the same period in 2016, primarily due to the combination of increased operating leverage and gains in revenue and gross profit. In particular, the Company focused on creating operational efficiencies and benefited from previous investments, while growing revenues and gross profits through increased unit volume as a result of greater customer adoption in existing and target regions, the ongoing success of the H4 camera platform and ACC 6, and broader adoption of video analytics.

As at June 30, 2017, Avigilon had net working capital of $113.6 million, including cash and cash equivalents of $31.7 million. Net cash from operating activities for Q2 2017 was $20.2 million, compared with $12.0 million in Q2 2016.

As at June 30, 2017, the Company had 43,782,749 common shares issued and outstanding. The weighted average number of common shares issued and outstanding for Q2 2017 was approximately 43.8 million basic and approximately 45.1 million diluted. The Company's primary uses of cash-on-hand in Q2 2017 included, but were not limited to, upgrades to the Company's downtown Vancouver office tower, additions to sales and demonstration equipment, and additions to capitalized development costs.

Conference Call

Avigilon has scheduled a conference call to discuss these results on Wednesday, August 9, 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 listen to the webcast at http://ir.avigilon.com or http://bit.ly/2tYkK2H. 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 51897296.

This news release is qualified in its entirety by the Company's consolidated financial statements for the three and six months ended June 30, 2017 and 2016 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

In addition to results reported in accordance with International Financial Reporting Standards ("IFRS"), Management uses certain non-IFRS and additional IFRS financial measures as supplemental indicators of its financial and operating performance. Non-IFRS financial measures include "Adjusted EBITDA", "Adjusted EBITDA Margin", "Adjusted Earnings", and "Adjusted Earnings per Share" ("Adjusted EPS"). Additional IFRS financial measures include "gross profit" and "gross margin percentage". Management believes that these supplementary financial measures reflect the Company's ongoing business in a manner that allows for meaningful period-to-period comparisons and analysis of business trends.

The Company defines Adjusted EBITDA and Adjusted EBITDA Margin as earnings and earnings as a percentage of revenue, respectively, before deducting share-based payments, foreign exchange gain or loss, business acquisition-related costs, restructuring costs, non-recurring legal costs, non-recurring lease termination costs, amortization, depreciation, revaluation gain on contingent consideration receivable, interest, and taxes. Management believes that Adjusted EBITDA and Adjusted EBITDA Margin to be useful measures, as they provide an indication of the operational results of our business.

The Company defines Adjusted Earnings as earnings 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. Adjusted EPS is calculated as Adjusted Earnings divided by the basic or diluted weighted average common shares issued and outstanding and does not represent actual earnings per share attributable to shareholders. Management believes that the disclosure of Adjusted Earnings and Adjusted EPS allows investors to evaluate the operational and financial performance of the Company's ongoing business using the same evaluation measures that management uses, and is therefore a useful indicator of the Company's performance or expected performance of recurring operations. Please refer to the Company's consolidated financial statements for the three and six months ended June 30, 2017 and 2016 and the reconciliation table within the associated Management's Discussion & Analysis respecting the same period.

The Company defines gross profit as revenue less cost of sales, and gross margin percentage as gross profit divided by revenue. 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.

Non-IFRS and additional IFRS financial measures do not have standardized meanings prescribed by IFRS, and other companies may calculate these measures differently. The presentation of non-IFRS and additional IFRS financial measures is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

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, the AVIGILON logo, AVIGILON CONTROL CENTER, ACC, ACCESS CONTROL MANAGER, AVIGILON PRESENCE DETECTOR, and TRUSTED SECURITY SOLUTIONS are trademarks of Avigilon Corporation.

For further information:

Avigilon Investor Relations
T: [phone]
[email protected]

The industry's growth rate content in this news release includes information based on IHS Markit, Technology Group, Video Surveillance Intelligence Database, June 2017 and Access Control Intelligence Service, June 2017.  Information is not an endorsement of Avigilon. Any reliance on these results is at the third party's own risk. Visit https://technology.ihs.com for more details.

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, and any statements (express or implied) respecting: Avigilon's future plans, strategies, and objectives; projected growth, revenues, gross margin percentage, profitability, expenses, capital expenditures, and earnings; anticipated enhancement and expansion of product offerings, intellectual property portfolio, and associated R&D plans; and expected investment and expansion of infrastructure. Forward-looking statements 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 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 plans respecting the pricing of its products and services 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 to be 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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