Avigilon Corporation Reports Third Quarter 2016 Results with Record Revenue and Profit

~Avigilon achieves CAD$500 million annual run rate revenue goal in record third quarter~

VANCOUVER, Canada, November 14, 2016 /CNW/ - Avigilon Corporation ("Avigilon" or the "Company") (TSX: AVO), provider of trusted security solutions, today reported financial results for the three and nine months ended September 30, 2016. All figures are in United States ("US") dollars unless otherwise stated.

Third Quarter 2016 Highlights

• Record revenue of $95.8 million, an increase of 32% over Q3 2015 revenue of $72.6 million, resulting from record unit volume and contributions from the Avigilon Patent License Program. Avigilon's revenue growth continued to outpace that of the industry.
• Reached an annual revenue run rate of CAD$500 million, achieving Avigilon's five-year goal set at its initial public offering.
• Record gross profit of $49.2 million, up $8.0 million or 19%, compared to Q3 2015.
• Gross margin percentage of 51%, reflecting the Company's focus on greater unit volume as a result of the Pricing Adjustment (defined below).
• Record Adjusted EBITDA* of $16.7 million, an increase of 16%, compared with Q3 2015 Adjusted EBITDA of $14.4 million.
• Diluted Adjusted EPS* of $0.21, up from $0.20 in Q3 2015.
• Continued the successful rollout of its industry-leading H4 camera platform, introducing the H4 Fisheye and H4 SL camera lines.
• Helped to secure the 2016 Summer Olympic Games held in Rio de Janeiro, Brazil.

"In the strongest quarter in Avigilon's history, we delivered on our five-year revenue goal and generated record revenue and profit," said Alexander Fernandes, Avigilon's Founder, President, Chief Executive Officer and Chairman of the Board. "With our revenue goal met, we plan to continue growing with a stronger focus on increasing profitability."

Summary of Third Quarter 2016 Financial Results

	Three Months Ended			Trailing Twelve Months Ended
(In thousands of US dollars except margin and per share amounts)	Q3 2016	Q3 2015	% Change	Q3 2016	Q3 2015	% Change
	(September 30, 2016)	(September 30, 2015)		(September 30, 2016)	(September 30, 2015)
	(Unaudited)	(Unaudited)		(Unaudited)	(Unaudited)
Revenue	95,817	72,577	32%	332,870	275,881	21%
Gross profit	49,234	41,264	19%	177,488	159,597	11%
Gross margin percentage	51%	57%	NA	53%	58%	NA
Total operating expenses	42,982	32,731	31%	161,474	130,723	24%
Adjusted EBITDA	16,688	14,389	16%	49,049	50,869	-4%
Adjusted EBITDA Margin* percentage	17%	20%	NA	15%	18%	NA
Net income (IFRS)	3,432	7,039	-51%	7,029	29,153	-76%
Adjusted Earnings*	9,121	9,265	-2%	24,635	31,714	-22%
Basic earnings per share (IFRS)	0.08	0.16	-50%	0.16	0.63	-75%
Diluted earnings per share (IFRS)	0.08	0.15	-47%	0.15	0.62	-76%
Diluted Adjusted EPS	0.21	0.20	5%	0.57	0.67	-15%

Detailed Financial Review

Avigilon reported Q3 2016 record revenue of $95.8 million, an increase of 32% over revenue of $72.6 million in Q3 2015. Revenue growth continued to outpace that of the industry and 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 Avigilon Patent License Program. On a constant currency basis, revenue for the third quarter grew 33% over the same period in 2015.

Gross profit increased to $49.2 million in Q3 2016 from $41.3 million in Q3 2015, a growth of $8.0 million or 19%, primarily due to the success of the H4 platform, the Pricing Adjustment, and the Avigilon Patent License Program. In the second quarter of 2016, management reduced prices on the H3 camera line and select Network Video Recorders to drive greater unit volume and revenues, expand addressable market and capture additional market share (the "Pricing Adjustment"). In Q3 2016, the Pricing Adjustment resulted in a strategically-reduced gross margin of 51% of revenue, compared with 57% in the same period of the prior year, delivering greater unit volume, revenue, gross profit, and cash flow from operations.

Sales and marketing expenses in Q3 2016 were $19.5 million, compared with $17.3 million in Q3 2015. Benefiting from previous investments, sales and marketing expenses decreased from 24% of revenue in Q3 2015 to 20% of revenue in Q3 2016. Management believes sales and marketing expenses as a percentage of revenue will continue to decrease year over year as the Company focuses on increasing profitability, benefits from efficiencies arising from the new 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 $3.8 million in Q3 2016, compared with $2.2 million in Q3 2015. Gross R&D expenses were $8.7 million in Q3 2016 (9% of revenue), compared with $5.5 million in Q3 2015 (8% of revenue). R&D expenses are consistent with the Company's strategy to lead the industry with superior technology to maintain its competitive advantage.

General and administrative ("G&A") expenses in Q3 2016 were $14.1 million (or 15% of revenue), compared with $9.4 million in Q3 2015 (or 13% of revenue). This increase was primarily due to additional headcount, share-based payments, and non-recurring costs. Management expects the Company's G&A expenses as a percentage of revenue to decrease year over year as the Company focuses on increasing profitability, and benefits from previous infrastructure investments such as the recently-implemented ERP system.

Amortization and depreciation in Q3 2016 were $5.5 million, compared with $3.8 million in Q3 2015. The increase was primarily due to previous investments in, among other things, global sales offices, research and development, patent portfolio, and the ERP system. As these investments are now completed, the Company plans to focus on increasing profitability.

IFRS net income for Q3 2016 was $3.4 million, compared with $7.0 million in Q3 2015. IFRS earnings per share in Q3 2016 were $0.08 (basic and diluted), compared with Q3 2015 of $0.16 (basic) and $0.15 (diluted). Net income for Q3 2016 was impacted by non-operational items, including a foreign exchange loss compared to a foreign exchange gain in Q3 2015, share-based payments, and non-recurring costs.

Adjusted EBITDA of $16.7 million in Q3 2016 increased 16% compared with Q3 2015 Adjusted EBITDA of $14.4 million, resulting from increased unit volume as a result of the Pricing Adjustment, new product introductions, greater adoption of video analytics, and increased contributions from the Avigilon Patent License Program.

Adjusted Earnings for Q3 2016 were $9.1 million, compared with $9.3 million in Q3 2015. Diluted Adjusted EPS were $0.21 in Q3 2016, compared with $0.20 in Q3 2015.

As at September 30, 2016, Avigilon had net working capital of $108.5 million, including cash and cash equivalents of $34.9 million. Net cash from operating activities for Q3 2016 increased to $16.3 million, compared with $5.0 million in Q3 2015. This was primarily the result of increased unit volume as a result of the Pricing Adjustment and contributions from the Avigilon Patent License Program. As at September 30, 2016, the Company had 43,595,610 common shares issued and outstanding. The weighted average number of common shares issued and outstanding for the quarter was approximately 43.5 million basic and 44.3 million diluted.

Conference Call

Avigilon has scheduled a conference call to discuss these results on Monday, November 14, 2016, 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/2dS8mFC. 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 5509287.

This news release is qualified in its entirety by the Company's consolidated financial statements for the three and nine months ended September 30, 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 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 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, 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, 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 and related tax effects. Please refer to the Company's unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2016 and 2015 and the reconciliation table within the associated Management's Discussion & Analysis respecting the same period.

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.

© 2016, Avigilon Corporation. 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, any statements (express or implied) respecting Avigilon's: future plans, strategies, and objectives, including Avigilon's focus on increasing profitability; projected growth; expected decrease in sales, marketing and G&A expenses as a percentage of revenue; and the expected benefits of the Pricing Adjustment. 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; Avigilon will be able to leverage its past investments to support growth and its focus on increasing profitability; 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; the lower prices of Avigilon's products under the Pricing Adjustment will continue to drive unit volume and revenues; Avigilon will continue to generate revenues from patent licensing; 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 set out herein 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 March 1, 2016, which is available under Avigilon's profile on SEDAR at http://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