Avigilon Corporation Reports First Quarter 2016 Results

OREANDA-NEWS. May 11, 2016. Avigilon Corporation ("Avigilon" or the "Company") (TSX: AVO), provider of trusted security solutions, today reported financial results for the three months ended March 31, 2016. All figures are in United States ("US") dollars unless otherwise stated.

First Quarter 2016 Financial Highlights

• Revenue was \\$69.9 million, an increase of 15% over Q1 2015 revenue of \\$60.6 million
• Gross margin was 57%, down from 59% a year earlier
• Adjusted EBITDA* was \\$8.9 million, in line with Q1 2015 Adjusted EBITDA of \\$8.9 million
• Adjusted Earnings* were \\$3.8 million, a 38% decrease over Q1 2015 Adjusted Earnings of \\$6.2 million
• Diluted Adjusted Earnings Per Share* of \\$0.09, compared with \\$0.13 in Q1 2015
• Comparing the trailing 12 months ending Q1 2016 to the trailing 12 months ending Q1 2015: revenue increased by 16%; gross margin percentage remained unchanged at 57%; and Adjusted EBITDA grew by 8%

"The first quarter of 2016 marked our 33^rd consecutive quarter of year over year profitable growth," said

Alexander Fernandes, Avigilon's Founder, President, Chief Executive Officer and Chairman of the Board. "As part of the successful execution of our growth strategy, we increased our investments across the Company, notably in research and development. These investments strengthen our market-leading security solutions, and pave the way for continued profitable revenue growth."

First Quarter 2016 Business Highlights

• Opened Avigilon's new Analytics and Data Science Center of Excellence in Boston
• Year over year sales growth outpaced that of the security industry
• Launched the H4 and H4 Edge Solution Camera lines
• Major installation of Avigilon 7K Cameras at Colombia'sMedellin Atanasio Girardot Stadium
• Announced the Early Adopter Plan for the Avigilon Patent License Program, successfully increasing the total number of licensees to 25 on April 30, 2016

Summary of First Quarter 2016 Financial Results

Detailed Financial Review

Avigilon reported Q1 2016 revenue of \\$69.9 million, an increase of 15% over revenue of \\$60.6 million in Q1 2015. On a constant currency basis, revenue in Q1 2016 grew by 17% over the same period in 2015. Revenue growth for Q1 2016 reflects increased sales driven by greater customer adoption in existing markets, further penetration of new target regions, and sales of new solutions. In Q1 2016, Avigilon generated year over year sales growth in four of the Company's five target geographic regions, except for Latin America where revenue was lower by \\$0.5 million over the same period in 2015.

Gross profit was \\$39.7 million in Q1 2016 compared with \\$35.9 million in Q1 2015, an increase of \\$3.8 million or 11% over the same period in 2015. As a percentage of revenue, gross margins in Q1 2016 decreased by 2% to 57% compared to the same period in 2015 due to costs related to our US manufacturing facility and changes in foreign exchange rates.

Sales and marketing expenses in Q1 2016 were \\$17.9 million, an increase of 7% compared with \\$16.8 million in Q1 2015. The increase in Q1 2016 reflects investments to expand the Company's global sales and marketing team and initiatives, which management believes will drive continued revenue growth. In Q1 2016, sales and marketing expenses represented 26% of revenue, compared with 28% of revenue in Q1 2015.

Research and development ("R&D") expenses, net of related income tax credits and capitalized development costs, were \\$4.0 million in Q1 2016, compared with \\$1.4 million in Q1 2015. Gross R&D expense was \\$7.1 million in Q1 2016 (10% of revenue), compared with \\$6.1 million in Q1 2015 (10% of revenue), an increase of 17%. The increase in R&D expense is consistent with the Company's ongoing plan to further enhance and expand upon its product offerings and intellectual property portfolio.

General and administrative ("G&A") expenses in Q1 2016 were \\$11.4 million (16% of revenue), compared with \\$10.7 million in Q1 2015 (18% of revenue), an increase of 7%. The increase is primarily due to additional personnel and their related expenses to support business growth. Management expects the Company's G&A expenses to increase in the near term as the Company continues to invest in infrastructure to support planned growth, but believes these expenses will increase at a slower rate than revenue over time.

Amortization and depreciation in Q1 2016 were \\$4.5 million, compared with \\$3.3 million in Q1 2015. The increase is primarily due to the additions of property, plant and equipment to support the Company's growth and additions to capitalized development costs in the current and prior periods.

Total operating expenses for Q1 2016 were \\$37.8 million, an increase of 17% compared with \\$32.2 million in Q1 2015. The increase in operating expenses is driven by: an increase in R&D expenditures; an increase in amortization and depreciation; and increasing full-time personnel to support the Company's global growth.

Adjusted EBITDA of \\$8.9 million in Q1 2016 remained in line with Q1 2015 Adjusted EBITDA of \\$8.9 million.

Net income for Q1 2016 decreased 85% year over year to \\$1.4 million, compared with \\$8.9 million in Q1 2015. Net income for Q1 2016 was impacted by: a smaller foreign exchange gain; an increase in R&D expenditures; an increase in amortization and depreciation; interest expense on long-term debt; and an increase in the effective tax rate. Earnings Per Share in Q1 2016 were \\$0.03 (basic and diluted), compared with \\$0.19 (basic and diluted) a year earlier.

Adjusted Earnings for Q1 2016 decreased 38% year over year to \\$3.8 million, compared with \\$6.2 million in Q1 2015. Diluted Adjusted Earnings Per Share were \\$0.09 in Q1 2016, compared with \\$0.13 in Q1 2015. Adjusted Earnings and Diluted Adjusted Earnings Per Share were impacted by: an increase in R&D expenditures; an increase in amortization and depreciation; interest expense on long-term debt; and an increase in the effective tax rate.

As at March 31, 2016, Avigilon had net working capital of \\$90.0 million, including cash and cash equivalents of \\$11.9 million. As at March 31, 2016, the Company had 43,353,191 common shares issued and outstanding. The weighted average number of common shares issued and outstanding for the quarter was approximately 43.3 million basic and approximately 44.0 million diluted. The Company's primary uses of cash-on-hand in Q1 2016 were for: additions to intangible assets primarily related to additions to capitalized development costs and costs related to implementing a new enterprise resource planning ("ERP") system; and additions to property, plant and equipment, primarily related to worldwide leasehold improvements, and computer equipment related to the ERP system.

Financial Outlook

Avigilon plans to continue profitably delivering strong year over year revenue growth. In line with these plans, the Company expects to achieve its annual run-rate revenue goal of CAD\\$500 million by the end of 2016.

Avigilon reiterates its guidance for fiscal year 2016:

• Revenue between \\$335 million and \\$365 million
• Adjusted EBITDA margin between 15% and 20%
• Adjusted Earnings Per Share between \\$0.66 and \\$0.88
• Effective tax rate between 28% and 30%
• Capital expenditures between \\$30 million and \\$35 million

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, May 10, 2016, beginning at 5:00 p.m. ET (2:00 p.m. PT). To access the live call, dial 1-888-231-8191 or 647-427-7450, or view the webcast at http://ir.avigilon.com  or http://bit.ly/1XlAtxf. A replay will be available for 90 days on the Company's website, and for one week by dialing 1-855-859-2056 or 416-849-0833, reference number 89376851.

This news release is qualified in its entirety by the Company's consolidated financial statements for the three months ended March 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 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, 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 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, 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 reconciliation table that accompanies the financial statements discussed in this news release and which is included in the Company's Management's Discussion & Analysis for Q1 2016.

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 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.

© 2016, Avigilon Corporation. AVIGILON and the AVIGILON logo are trademarks of Avigilon Corporation.

For further information:

Dennis Fong, Vice President, Investor Relations
T: (604) 629-5182, Ext 2515
investors@avigilon.com 
www.avigilon.com

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: mission, strategies, and objectives; projected growth, revenues, expenses, capital expenditures, and earnings; anticipated enhancement and expansion of its product offerings, intellectual property portfolio and associated R&D plans; and expected investment in and expansion of infrastructure and personnel. 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 mission, 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 attract and retain qualified personnel; Avigilon will be able to successfully manage cash flow, operating expenses, capital expenditures, and foreign exchange risk; 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; 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 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's investment in its global sales and marketing team and initiatives will drive revenue growth; 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 favourable terms; and Avigilon will not become involved in unexpected material litigation or otherwise subject to materially adverse claims.

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.