Avigilon announces Q4/2013 financial results

Avigilon reported a revenue of $178.3 million in 2013, an increase of 78% from 2012

Avigilon Corporation ("Avigilon" or the "Company"), a leader in high-definition ("HD") and megapixel surveillance systems, recently announced its financial results for the three and 12 months ended December 31, 2013. All figures are stated in Canadian dollars unless otherwise noted.

2013 financial highlights

• Revenue was $178.3 million, an increase of 78% over 2012 revenue of $100.3 million
• Gross margin was 54%, up from 49% a year earlier
• EBITDA1 was $34.5 million, a 172% increase over 2012 EBITDA of $12.7 million
• Fully diluted Adjusted Earnings Per Share1 of $0.57, compared with $0.22 in 2012
• Net income rose to $21.6 million from net income of $7.2 million in 2012

Fourth quarter 2013 financial highlights

• Revenue was $55.9 million, an increase of 71% over Q4 2012 revenue of $32.7 million
• Gross margin was 58%, up from 50% a year earlier
• EBITDA was $11.6 million, a 118% increase over Q4 2012 EBITDA of $5.3 million
• Fully diluted Adjusted Earnings Per Share of $0.17, compared with $0.08 in Q4 2012
• Net income rose to $6.7 million, compared with net income of $3.0 million in Q3 2012

"The fourth quarter was our highest revenue quarter to date and contributed to exceptional revenue and earnings growth for 2013," said Alexander Fernandes, founder, president, CEO and chairman of the Board of Avigilon. "These results reflect the impact of the growth investments we made in prior periods to expand our operations, particularly within sales, marketing and product development. The year was also highlighted by two strategic technology acquisitions, which add complementary products and technology to our industry leading, end-to-end HD surveillance solution and allow us to expand our business into other segments of the global security market."

Financial review

Avigilon reported 2013 revenue of $178.3 million, an increase of 78%, or $78 million, compared to revenue of $100.3 million for 2012. Revenue growth continues to reflect increased product sales volumes worldwide, driven by greater customer adoption in existing markets, further penetration of new target regions and sales of new products introduced during the year. Revenue was strong across all regions, with year-over-year sales growth of between 63% and 98% in all six of the Company's target geographic regions.

Gross margin was $96.7 million in 2013 (54% of revenue), compared with $49.4 million (49% of revenue) in 2012. The year-over-year increase in gross margin percentage reflects the ongoing effects of greater purchasing power, economies of scale and improved manufacturing efficiencies. Although the Company's gross margin increased over 2012, management does not expect significant gross margin expansion in the near term due to the Company's focus on market share gain.

Selling and marketing expenses in 2013 were $41.5 million, a $16.5 million increase compared to $25.0 million in 2012. The increase reflects investments to continue to expand the Company's global sales team and brand awareness, which management believes will drive continued revenue growth. The Company anticipates that selling expenses will increase as a percentage of revenue in the short term as management continues to execute on its proven strategy for growth.

Research and development (R&D) expenses, net of related income tax credits, were $9.1 million for 2013, a $4.1 millionincrease compared to $5.0 million in 2012. Gross R&D spend was $11.8 million in 2013, compared to $6.4 million in the prior year. The growth in spending is consistent with the Company's plan to increase its development team to further enhance and expand its product offering. Avigilon expects to continue to increase its R&D investment, in dollars and as a percentage of revenue, to support new product development.

General and administrative expenses (G&A) for 2013 were $18.2 million, compared with $8.9 million in 2012. The increase is primarily due to additional personnel and their related expenses, including new headcount in customer support, human resources, finance and legal. G&A expenses for 2013 also include additional expenses related to the Company's acquisition activities during the year. The Company expects its administrative expenses to increase in the near term as it continues to build the infrastructure necessary to support planned growth, but believes these expenses will not increase in proportion to revenue growth.

EBITDA was $34.5 million in 2013, compared with $12.7 million in 2012. The year-over-year improvement largely reflects the Company's increase in revenue and improved gross margin.

Net income for 2013 was $21.6 million, up by $14.4 million, compared with net income of $7.2 million in 2012. Earnings per share were $0.54 (basic) and $0.53 (diluted) for 2013, compared to $0.22 (basic) and $0.20 (diluted) a year earlier. Fully diluted Adjusted Earnings Per Share were $0.57 in 2013 compared with $0.22 in 2012.

In 2014, Avigilon plans to continue to invest significantly to expand sales reach, accelerate innovation and build brand awareness, which the management believes will contribute to further revenue growth. However, as the necessary investments are incurred in advance of associated revenue, these initiatives are expected to put pressure on the Company's EBITDA and net earnings. As many of these initiatives will be undertaken in the early part of the year, the impact on EBITDA and net earnings will be more pronounced in the first half of the year, with improvements expected in the latter half as the initiatives begin to generate additional revenue.

As at December 31, 2013, Avigilon had cash and cash equivalents of $104.9 million, and 39,625,401 basic and 40,709,249 diluted shares outstanding.