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Avigilon Corporation Reports First Quarter 2015 Results

05/05/2015

VANCOUVER, May 5, 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 months ended March 31, 2015.  All figures are in Canadian dollars unless otherwise stated.

First Quarter 2015 Financial Highlights

  • Revenue was $75.4 million, an increase of 35% over Q1 2014 revenue of $55.8 million.
  • Gross margin was 59%, up from 57% a year earlier.
  • Adjusted EBITDA was $11.2 million, a 2% decrease over Q1 2014 Adjusted EBITDA of $11.5 million.
  • Net income was $11.1 million, a 42% increase over Q1 2014 net income of $7.8 million.
  • Adjusted Earnings were $7.9 million, a 6% decrease over Q1 2014 Adjusted Earnings of $8.4 million.
  • Fully Diluted Adjusted Earnings Per Share of $0.17, compared with $0.19 in Q1 2014.
  • Excluding the impact of seasonal factors on the business, on a trailing 12 months basis revenue ending Q1 2015 has increased by 44%, gross margin was 57%, and Adjusted EBITDA has grown 30%.

 

"Avigilon delivered strong revenue growth and record gross margin in the first quarter, a testament to our competitive differentiation and proven business model" said Alexander Fernandes , Avigilon's Founder, President, Chief Executive Officer, and Chairman of the Board. "We also continued to make substantial investments in the business to drive ongoing growth, as we remain committed to achieving our stated goal of $500 million in annual run-rate revenue by the end of 2016."

Summary of First Quarter 2015 Financial Results





Three Months Ending

Trailing Twelve Months Ending

(In thousands of Canadian dollars except

margin and per share amounts)

Q1 2015

Q1 2014

% Change

Q1 2015

Q1 2014

% Change


(March 31, 2015)

(March 31, 2014)


(March 31, 2015)

(March 31, 2014)



(Unaudited)

(Unaudited)


(Unaudited)

(Unaudited)









Revenue

75,421

55,750

35%

291,082

202,067

44%

Gross Margin

44,739

31,797

41%

166,650

112,179

49%

Gross Margin percentage

59%

57%

NA

57%

56%

NA

Total Operating Expenses

39,999

23,599

69%

132,358

80,190

65%

Adjusted EBITDA

11,233

11,521

-2%

53,994

41,375

30%

Adjusted EBITDA Margin

15%

21%

NA

19%

20%

NA

Net Income (IFRS)

11,061

7,769

42%

38,427

26,527

45%

Adjusted Earnings

7,870

8,375

-6%

36,673

29,425

25%

Basic Earnings Per Share (IFRS)

0.24

0.18

33%

0.83

0.65

28%

Diluted Earnings Per Share (IFRS)

0.23

0.17

35%

0.81

0.63

29%

Fully Diluted Adjusted Earnings Per Share

0.17

0.19

-11%

0.78

0.70

11%

 

Detailed Financial Review

Avigilon reported Q1 2015 revenue of $75.4 million, an increase of 35% over revenue of $55.8 million in Q1 2014. Revenue growth for Q1 2015 reflects increased product sales worldwide, driven by greater customer adoption in existing markets, further penetration of new target regions and sales of new products. In Q1 2015, Avigilon generated year-over-year sales growth between 14% and 47% in five of the Company's target geographic regions, and saw sales for the United Kingdom decrease by 8%.

Gross profit was $44.7 million in Q1 2015 (59% of revenue), compared with $31.8 million (57% of revenue) in Q1 2014. The year-over-year increase in gross profit in Q1 2015 largely reflects the favourable impact of foreign exchange gains as well as the ongoing effects of greater purchasing power, economies of scale, product mix, and improved manufacturing efficiencies. The Company has historically experienced variability in quarter-to-quarter gross margin percentage.

Sales and marketing expenses in Q1 2015 were $20.9 million, an increase of 72% compared with $12.2 million in Q1 2014. The increase in Q1 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 Q1 2015, sales and marketing expenses represented 28% of revenue, compared with 22% of revenue in Q1 2014.

Research and development ("R&D") expenses, net of related income tax credits and capitalized development costs, were $1.7 million in Q1 2015, compared with $2.7 million in Q1 2014. Gross R&D spend was $7.3 million in Q1 2015 compared with $5.0 million in Q1 2014, an increase of 47%. The increase in gross R&D spend is consistent with the Company's ongoing plan to further enhance and expand upon its product offerings.

General and administrative ("G&A") expenses in Q1 2015 were $13.2 million, compared with $7.4 million in Q1 2014, an increase of 80%. 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 Q1 2015 was $4.1 million, compared with $1.4 million in Q1 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 Q1 2015 were $40.0 million, compared with $23.6 million in Q1 2014, an increase of 69%. Operating expenses include $3.0 million in business acquisition-related and non-recurring legal expenses, including amortization of acquired intangible assets, compared with $1.5 million in Q1 2014.

Adjusted EBITDA decreased 2% year-over-year to $11.2 million in Q1 2015, compared with $11.5 million in Q1 2014. The year-over-year decrease in Q1 2015 reflects increased spend for future growth.

Net income for Q1 2015 increased 42% year-over-year to $11.1 million, compared with $7.8 million in Q1 2014. Net income for Q1 2015 was positively impacted by a foreign exchange gain of $8.8 million and negatively impacted by $3.0 million in business acquisition-related and non-recurring legal expenses, including amortization of acquired intangible assets. Earnings Per Share in Q1 2015 were $0.24 (basic) and $0.23 (diluted), compared with $0.18 (basic) and $0.17 (diluted) in Q1 2014.

Adjusted Earnings for Q1 2015 decreased 6% year-over-year to $7.9 million, compared with $8.4 million in Q1 2014. Fully Diluted Adjusted Earnings Per Share were $0.17 in Q1 2015, compared with $0.19 in Q1 2014.

As at March 31, 2015, Avigilon had working capital of $122.6 million, including cash and cash equivalents of $50.1 million. The weighted average number of common shares issued and outstanding for the quarter was 46.6 million basic and 47.6 million diluted. The Company's primary use of cash-on-hand in Q1 2015 was for the acquisition of patents from third parties.

On April 7, 2015, the Company entered into a new multi-tranche USD$200 million senior secured syndicated credit facility (the "Credit Facility"). The Credit Facility has a three year term and includes a USD$100 million multi-currency revolving acquisition facility (the "Acquisition Facility"), a USD$60 million multi-currency revolving line, and a USD$40 million real estate term loan. The Company has drawn USD$80.3 million from the Acquisition Facility in order to retroactively fund the December 17, 2014 acquisition of the entire patent portfolio and the patent licensing program of ObjectVideo, Inc. The initial draw will replenish and increase the cash and cash equivalents balance by approximately $100 million.

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 Tuesday, May 5, 2015, beginning at 5:00 p.m. ET (2:00 p.m. PT). To access the live call, dial 647-427-7450 or 1-888-231-8191, or view the webcast at http://ir.avigilon.com or http://bit.ly/1GTPNef. A replay will be available for one year on the Company's website, and for one week by dialing 416-849-0833 or 1-855-859-2056, reference number 24989020.

This news release is qualified in its entirety by the Company's condensed consolidated interim financial statements for the three months ended March 31, 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.

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 Q1 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 other marks used herein are the registered and/or unregistered trademarks of Avigilon Corporation and/or its subsidiaries in Canada and other jurisdictions worldwide. Other product names mentioned herein may be the registered and/or unregistered trademarks of their respective owners.

Forward-Looking Information

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, and manufacturing efficiencies; 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; 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; 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

Investor relations: Dennis Fong, Avigilon Corporation, T: (604) 629-5182, Ext 2515, dennis.fong@avigilon.com; Media relations: Brett White, Avigilon Corporation, T: (469) 484-5458, Ext 3063, brett.white@avigilon.com