Avigilon Corporation (TSX: AVO), provider of trusted security solutions, reported financial results for the three months ended March 31, 2017. All figures are in United States (“US”) dollars unless otherwise stated.

First Quarter 2017 Highlights:

• Revenue of $80.3 million, compared with $69.9 million in Q1 2016.
• Revenue growth of 15% continues to outpace that of the industry.
• Strong cash flow from operations of $8.4 million, an increase of $12.5 million over Q1 2016.
• Gross profit* of $40.7 million, compared with $39.7 million in Q1 2016.
• Strong gross margin percentage* of 51%.
• Adjusted EBITDA* of $9.4 million, compared with $8.9 million in Q1 2016.
• Diluted Adjusted EPS* of $0.07, compared with $0.09 in Q1 2016.
• Total operating expenses decreased as a percentage of revenue compared to Q1 2016.
• Launched version 6 of Avigilon Control Center (ACC) video management software.
• Launched Avigilon Appearance Search video analytics technology and announced two upcoming powerful enhancements – Avigilon Face and Vehicle Appearance Search.
• Continued the expansion of the H4 camera line.

“Marking our 37th consecutive quarter of year over year revenue growth, in Q1 we increased cash flow from operations by $12.5 million and reported strong gross margins,” said Alexander Fernandes, Avigilon’s Founder, President, Chief Executive Officer and Chairman of the Board. “In addition to strong revenue and operating results, we launched innovative new products and led the industry with powerful video analytics.”

“Subsequent to quarter end, we promoted James Henderson to Chief Operating Officer and entered into an agreement to sell and lease back our downtown Vancouver office tower for expected gross proceeds of CAD $107.5 million. These actions demonstrate our commitment to unlocking value across the business as we focus on increasing profitability.”

Detailed Financial Review:

Avigilon reported Q1 2017 revenue of $80.3 million, an increase of 15% over revenue of $69.9 million in Q1 2016. On a constant currency basis, revenue in Q1 2017 grew 16% compared to the same period in 2016. Gross profit increased $1.0 million from $39.7 million in Q1 2016 to $40.7 million in Q1 2017. The increases in revenue and gross profit for Q1 2017 compared to Q1 2016 reflect increased unit volume due to greater customer adoption in existing markets, further penetration of target regions, the ongoing success of the H4 camera platform, new product introductions, and broader adoption of video analytics.

Gains in operating leverage, expressed as a percentage of revenue, include:

• Sales and marketing expenses decreased from 26% in Q1 2016 to 23% in Q1 2017;
• General and administrative (“G&A”) expenses decreased from 16% in Q1 2016 to 15% in Q1 2017; and
• Total operating expenses decreased from 54% in Q1 2016 to 51% in Q1 2017.

Management expects the Company’s total operating expenses as a percentage of revenue to continue to decrease year over year as the Company focuses on increasing profitability, and benefits from efficiencies arising from previous investments and economies of scale.

Sales and marketing expenses in Q1 2017 were $18.8 million compared with $17.9 million in Q1 2016. The increase in sales and marketing expenses for Q1 2017 reflects investments to expand the Company’s global sales and marketing team and initiatives, which management believes will drive continued revenue growth.

G&A expenses in Q1 2017 were $11.9 million, compared with $11.4 million in Q1 2016. G&A expenses for Q1 2017 were impacted by non-cash expenses and non-recurring costs.

Research and development (“R&D”) expenses, net of related income tax credits and capitalized development costs, were $4.5 million in Q1 2017, compared with $4.0 million in Q1 2016. Gross R&D expenses were $8.0 million in Q1 2017 (10% of revenue), compared with $7.1 million in Q1 2016 (10% of revenue). The investment in R&D is consistent with the Company’s ongoing plan to enhance and expand upon its product offerings and intellectual property portfolio.

Amortization and depreciation in Q1 2017 were $6.1 million, compared with $4.5 million in Q1 2016. The increase in amortization and depreciation was primarily due to previous investments in, among other things, R&D, our patent portfolio, and our new enterprise resource planning system that was implemented in 2016.

Total operating expenses for Q1 2017 were $41.4 million, an increase of 9% compared with $37.8 million in Q1 2016, primarily due to the respective items noted above.

IFRS net loss for Q1 2017 was $1.0 million, compared with net income of $1.4 million in Q1 2016. IFRS loss per share in Q1 2017 were $0.02 (basic and diluted), compared with earnings per share in Q1 2016 of $0.03 (basic and diluted). Net loss for Q1 2017 was impacted by increases in non-cash expenses and non-recurring costs.

Adjusted EBITDA increased to $9.4 million in Q1 2017, primarily due to increased revenue and gross profit as a result of strong unit volume from the ongoing success of the H4 camera platform, new product introductions, and broader adoption of video analytics.

Adjusted Earnings* and diluted Adjusted EPS for Q1 2017 were $3.2 million and $0.07, respectively, compared with $3.8 million and $0.09, respectively, in Q1 2016. Q1 2017 results were impacted by increases in non-cash amortization and depreciation, investments to expand the Company’s sales and marketing initiatives, and investments in R&D.

As at March 31, 2017, Avigilon had net working capital of $98.6 million, including cash and cash equivalents of $25.2 million. Net cash from operating activities for Q1 2017 was $8.4 million, an increase of $12.5 million compared to Q1 2016.

As at March 31, 2017, the Company had 43,768,494 common shares issued and outstanding. The weighted average number of common shares issued and outstanding for the quarter was approximately 43.7 million basic and approximately 45.0 million diluted. The Company’s primary uses of cash-on-hand in Q1 2017 included, but was not limited to, renovations to the Company’s downtown Vancouver office tower and associated land, additions to sales and demonstration equipment, and additions to capitalized development costs.