Avigilon Corporation Reports Killer Fourth Quarter and Year-End 2014 Results - Revenue Up 57%, Net Income Up 63%Wednesday, March 4, 2015
Vancouver, BC, March 4, 2015--(T-Net)--Avigilon Corporation (TSX: AVO), a leading global provider of end-to-end security solutions, today reported financial results for the three and 12 months ended December 31, 2014. All figures are in Canadian dollars unless otherwise stated.
Fourth Quarter 2014 Financial Highlights
"Avigilon continues to report strong growth as we execute our plan towards being the market leader in end-to-end security solutions," said Alexander Fernandes, Avigilon's founder, president, CEO and chairman of the Board.
"We are pleased to report record revenue, Adjusted EBTIDA, and Adjusted Earnings for both the quarter and year. With our strategic investments in video analytics, we are pushing innovation in our industry to drive ongoing success. We continue to make substantial investments in the business, with an eye on profitability, as we track towards our goal of $500 million in annual run-rate revenue by the end of 2016."
Avigilon reported Q4 2014 revenue of $79.5 million, an increase of 42% over revenue of $55.9 million in Q4 2013. Revenue for 2014 of $271.4 million represents an increase of 52%, or $93.1 million, compared with revenue of $178.3 million in 2013. Revenue growth for both Q4 and the full year 2014 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 2014, revenue was strong across all regions, with year-over-year sales growth between 20% and 77% in all six of the Company's target geographic regions.
Gross profit was $45.7 million in Q4 2014 (58% of revenue), compared with $32.5 million (58% of revenue) in Q4 2013. Gross profit was $153.7 million in 2014 (57% of revenue), compared with $96.7 million (54% of revenue) in 2013. The year-over-year increase in gross profit in 2014 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.
Sales and marketing expenses in Q4 2014 were $17.7 million, an increase of 34% compared with $13.2 million in Q4 2013. Sales and marketing expenses in 2014 were $62.4 million, an increase of 52% compared with $41.0 million in 2013. The increase in Q4 2014 and the full year 2014 reflects investments to expand the Company's global sales and marketing team, which management believes will drive continued revenue growth. In Q4 2014 and the full year 2014, sales and marketing expenses represented 22% and 23% of revenue respectively, compared with 24% and 23% of revenue respectively in Q4 2013 and the full year 2013.
Research and development ("R&D") expenses, net of related income tax credits and capitalized development costs, were$3.9 million in Q4 2014, compared with $2.7 million in Q4 2013. R&D expenses, net of related income tax credits and capitalized development costs, were $13.9 million in 2014, compared with $9.1 million in 2013. Gross R&D spend was$6.8 million in Q4 2014 compared with $3.7 million in Q4 2013. Gross R&D spend was $24.7 million in 2014, a $12.9 million increase compared with $11.8 million in 2013. The increase in 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 Q4 2014 were $10.3 million, compared with $6.7 million in Q4 2013. G&A expenses in 2014 were $33.3 million, compared with $16.6 million in 2013. The increase is primarily due to additional personnel and their related expenses, including new headcount in customer support, human resources, 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 Q4 2014 and the full year 2014 were $1.8 million and $6.4 million respectively, compared with $1.3 million and $2.1 million respectively in 2013. The increase is almost entirely due to amortization of technology acquired from RedCloud Security, Inc. and from VideoIQ, Inc.
Total operating expenses for Q4 2014 was $33.6 million, compared with $23.9 million in Q4 2013. Total operating expenses for 2014 was $116.0 million, compared with $68.8 million in 2013. Operating expenses include $4.6 million and$9.4 million in Q4 2014 and 2014 respectively in business acquisition-related and non-recurring legal expenses, including amortization of acquired intangible assets, compared with $1.5 million and $1.7 million in Q4 2013 and 2013 respectively.
Adjusted EBITDA increased 44% year-over-year to $17.2 million in Q4 2014, compared with $12.0 million in Q4 2013. Adjusted EBITDA increased 56% year-over-year to $54.3 million in 2014, compared with $34.9 million in 2013. The year-over-year improvement in Q4 2014 reflects Avigilon's increase in revenue, and for 2014 reflects revenue growth and improved gross margin, offset by operating expense growth as a percentage of sales.
Net income for Q4 2014 increased 92% year-over-year to $13.0 million, compared with $6.7 million in Q4 2013. Net income for 2014 increased 63% year-over-year to $35.1 million, compared with $21.6 million in 2013. Net income for Q4 2014 and for 2014 were positively impacted by foreign exchange gains of $5.4 million and $9.3 million respectively, and negatively impacted by $4.6 million and $9.4 million respectively in business acquisition-related and non-recurring legal expenses, including amortization of acquired intangible assets. Earnings Per Share in Q4 2014 were $0.28 (basic) and$0.27 (diluted) for Q4 2014, compared with $0.16 (basic and diluted) a year earlier. Earnings Per Share for 2014 were$0.77 (basic) and $0.76 (diluted) for 2014, compared with $0.54 (basic) and $0.53 (diluted) a year earlier.
Adjusted Earnings for Q4 2014 increased 50% year-over-year to $11.9 million, compared with $7.9 million in Q4 2013. Fully Diluted Adjusted Earnings Per Share were $0.25 in Q4 2014, compared with $0.19 in Q4 2013. Adjusted Earnings for 2014 increased 53% year-over-year to $37.2 million, compared with $24.4 million in 2013. Fully Diluted Adjusted Earnings Per Share were $0.80 in 2014, compared with $0.60 in 2013.
As at December 31, 2014, Avigilon had working capital of $132.3 million, including cash and cash equivalents of $73.1 million. The weighted average number of common shares issued and outstanding for the year was 45.6 million basic and 46.4 million diluted. The Company's primary use of cash-on-hand in 2014 was for its acquisition of the entire patent portfolio and the patent licensing program of ObjectVideo, Inc. ("ObjectVideo") for total cash consideration of USD$80.3 million. Avigilon completed the acquisition on December 17, 2014.
Avigilon plans to continue executing on its successful strategy of delivering strong year-over-year revenue growth while maintaining growth in profit. The Company believes market share consolidation across the industry will continue and 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 expense as a percentage of revenue to increase modestly in 2015, as it did in 2014.
This news release is qualified in its entirety by the Company's consolidated financial statements for the years ended December 31, 2014 and 2013 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 athttp://www.sedar.com/.
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 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 2014. 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.
Avigilon Corporation is defining the future of protection through innovative end-to-end security solutions. Avigilon'sindustry-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.
Certain statements contained in this news release, including all statements that are not historical facts, contain forward-looking information and forward-looking statements within the respective meanings of 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 include, without limitation, statements respecting: Avigilon's mission, strategies, and objectives; projected revenues and profit; trends, opportunities, and Avigilon's position within its industry; Avigilon's product and R&D plans; purchasing power, economies of scale, product mix, and manufacturing efficiencies; expansion of Avigilon's sales, marketing, and other departments globally; G&A and other operating expense growth; and expanding infrastructure. Forward-looking statements are not guarantees of future performance 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, foreign exchange risk, and working capital; 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 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 be substantially different due to the risks and uncertainties associated with and inherent to Avigilon's business. Important risks that could cause such differences include, but are not limited to: fluctuations in Avigilon's quarterly operating results; increased competition from other companies; 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 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. More information about the risks and uncertainties affecting Avigilon's business is provided 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.
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.
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