Avigilon Corporation Announces Record Results in Third Quarter 2014

VANCOUVER, Nov. 4, 2014 - Avigilon Corporation ("Avigilon" or the "Company") (TSX:AVO.TO ), a leading global provider of end-to-end security solutions, today reported financial results for the third quarter ended September 30, 2014. All figures are in Canadian dollars unless otherwise stated.

Third Quarter 2014 Financial Highlights

• Record quarterly revenue, gross margin, net income, Adjusted EBITDA*, Adjusted Earnings* and Fully Diluted Adjusted Earnings Per Share*
• Revenue was $71.0 million, an increase of 39% over Q3 2013 revenue of $51.2 million.
• Gross margin percentage was 57%, up from 53% a year earlier.

• Adjusted EBITDA was $15.7 million, a 27% increase over Q3 2013 Adjusted EBITDA of $12.4 million.
• Net income was $11.6 million, a 35% increase over Q3 2013 net income of $8.6 million.
• Adjusted Earnings were $11.2 million, a 20% increase over Q3 2013 Adjusted Earnings of $9.3 million.
• Fully Diluted Adjusted Earnings Per Share of $0.24, compared with $0.22 in Q3 2013.

"Avigilon delivered another record sales quarter in Q3, underpinned by particularly strong growth in the U.S. and EMEA, as well as robust sales of new products," said Alexander Fernandes, founder, president, CEO and chairman of the Board of Avigilon. "Ongoing innovation remains a key pillar of our strategy to increase market share. In the third quarter we had several important new product introductions, including the low cost HD Video Appliance series, Avigilon Control Center 5.4, and the HD dome and bullet cameras with adaptive video analytics. Avigilon continues to make substantial investments in the business, with an eye on continued profitability, as we grow toward our goal of $500 million in run-rate revenue by the end of 2016."

Financial Review

Avigilon reported record Q3 2014 revenue of $71.0 million, an increase of 39%, or $19.8 million, compared to revenue of $51.2 million in Q3 2013. Revenue growth continues to reflect increased product sales worldwide, driven by greater customer adoption in existing markets, further penetration of new target regions and sales of new products. Revenue for Q3 2014 also benefited from foreign exchange gains.

Gross margin was $40.1 million in Q3 2014 (57% of revenue), compared with $27.2 million (53% of revenue) in Q3 2013. The year-over-year increase in gross margin percentage 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 percentages.

Sales and marketing expenses in Q3 2014 were $14.7 million, an increase of 48% compared to $9.9 million in Q3 2013. The increase reflects planned growth spending to expand the Company's global sales and marketing team, which management believes will drive continued revenue growth. In Q3 2014, sales and marketing expenses represented 21% of revenue, compared with 19% in Q3 2013. As a percentage of revenue, sales and marketing historically fluctuates intra-year.

Research and development ("R&D") expenses, net of related income tax credits and capitalized development costs, were $3.0 million in Q3 2014, compared to $2.3 million in Q3 2013. Gross R&D spend was $6.5 million in Q3 2014, a $3.3 million increase compared with $3.2 million in Q3 2013. The growth in spending is consistent with the Company's ongoing plan to increase and support its R&D team to further enhance and expand upon its product offerings.

General and administrative ("G&A") expenses in Q3 2014 were $9.0 million, compared with $3.8 million in Q3 2013. 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 in Q3 2014 also include $1.1 million in business acquisition-related and non-recurring legal costs. The Company expects its G&A expenses to increase in the near term as it continues to expand infrastructure to support planned growth, but believes these expenses will increase at a slower rate than revenue in the long term.

Amortization and depreciation in Q3 2014 were $1.8 million, compared with $0.3 million in Q3 2013. The increase is almost entirely due to amortization of technology acquired from RedCloud Security, Inc. and from VideoIQ, Inc.

Adjusted EBITDA increased 27% year-over-year to $15.7 million in Q3 2014, compared with $12.4 million in Q3 2013. The year-over-year improvement largely reflects Avigilon's increase in revenue and improved gross margin, as well as the positive impact of foreign exchange gains.

Net income for Q3 2014 increased 35% year-over-year to $11.6 million, compared with $8.6 million in Q3 2013. Net income for Q3 2014 was positively impacted by a foreign exchange gain of $4.1 million and negatively impacted by $1.8 million in acquisition-related and non-recurring legal expenses, including amortization of acquired intangible assets. Earnings Per Share were $0.25 (basic and diluted) for Q3 2014, compared to $0.22 (basic) and $0.21 (diluted) a year earlier.

Adjusted Earnings for Q3 2014 increased 20% year-over-year to $11.2 million, compared with $9.3 million in Q3 2013. Fully Diluted Adjusted Earnings Per Share were $0.24 in Q3 2014, compared with $0.22 in Q3 2013.

Avigilon plans to continue to invest significantly to broaden sales reach, expand its product offerings, accelerate innovation, and strengthen brand awareness, which management believes will contribute to further revenue growth. In the short term, as the necessary investments are incurred in advance of associated revenue, these initiatives are expected to put continued pressure on the Company's Adjusted EBITDA and net income.

As at September 30, 2014, Avigilon had working capital of $219.0 million, including cash and cash equivalents of $167.0 million. The weighted average number of common shares issued and outstanding for the quarter was 46.5 million basic and 47.3 million diluted.

This news release is qualified in its entirety by the Company's condensed consolidated interim financial statements for the three and nine months ended September 30, 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 at http://www.sedar.com/.

Conference Call

Avigilon has scheduled a conference call to discuss these results on Tuesday, November 4, 2014, 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/1uRcPfZ. 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 8207426.

*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 expense, taxes, depreciation, amortization, foreign exchange gain or loss, 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 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 Q3 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.

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.

Forward Looking Statements
Certain statements contained in this news release, including all statements that are not historical facts, contain forward-looking statements and forward-looking information within the meaning of applicable securities laws. Forward-looking statements normally contain words like believe, expect, anticipate, plan, intend, continue, estimate, may, will, should and similar expressions, and include without limitation statements respecting the Company's areas of planned growth and spending. Such 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 these statements on estimates and assumptions that they believed were reasonable when the statements were prepared, including without limitation assumptions respecting the Company's future growth, and that corresponding increases in infrastructure and personnel will accompany, and help drive, such growth. Actual results could be substantially different due to the risks and uncertainties associated with and inherent to the Company's business. Important risks that could cause such differences include, but are not limited to, the length of sales cycles, rapid technological advancement, competition, the availability of critical inputs, foreign exchange rate occurrences and doing business in foreign countries. Additionally, differences could arise due to events that are announced or completed after the date of this news release, including mergers, asset and corporate acquisitions, other business combinations, and divestitures. More information about the risks and uncertainties affecting the Company's business are set out in the "Risk Factors" sections of each of Avigilon's final short form prospectus dated March 31, 2014 and Annual Information Form dated March 28, 2014; the foregoing documents are available under the Company'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 or information, 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 or information. Avigilon undertakes no obligation to reissue or update any forward-looking statements or information as a result of new information or events after the date hereof except as may be required by law. All forward-looking statements and information herein are qualified by this cautionary statement.

SOURCE Avigilon Corporation

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