Avigilon reported financial results for the three and nine months ended September 30, 2016.
Avigilon reported financial results for the three and nine months ended September 30, 2016.
Financial Review
Avigilon reported Q3 2016 record revenue of US$95.8 million, an increase of 32% over revenue of $72.6 million in Q3 2015. Revenue growth continued to outpace that of the industry and reflects increased unit volume as a result of the Pricing Adjustment (as defined below), greater customer adoption in existing markets, further penetration of target regions, new product introductions, greater adoption of video analytics, and increased contributions from the Avigilon Patent License Program. On a constant currency basis, revenue for the third quarter grew 33% over the same period in 2015.
Gross profit increased to $49.2 million in Q3 2016 from $41.3 million in Q3 2015, a growth of $8.0 million or 19%, primarily due to the success of the H4 platform, the Pricing Adjustment, and the Avigilon Patent License Program. In the second quarter of 2016, management reduced prices on the H3 camera line and select Network Video Recorders to drive greater unit volume and revenues, expand addressable market and capture additional market share (the "Pricing Adjustment"). In Q3 2016, the Pricing Adjustment resulted in a strategically-reduced gross margin of 51% of revenue, compared with 57% in the same period of the prior year, delivering greater unit volume, revenue, gross profit, and cash flow from operations.
Sales and marketing expenses in Q3 2016 were $19.5 million, compared with $17.3 million in Q3 2015. Benefiting from previous investments, sales and marketing expenses decreased from 24% of revenue in Q3 2015 to 20% of revenue in Q3 2016. Management believes sales and marketing expenses as a percentage of revenue will continue to decrease year over year as the Company focuses on increasing profitability, benefits from efficiencies arising from the new enterprise resource planning ("ERP") system, and economies of scale from its previous investments in global sales and marketing teams.
Research and development ("R&D") expenses, net of related income tax credits and capitalized development costs, were $3.8 million in Q3 2016, compared with $2.2 million in Q3 2015. Gross R&D expenses were $8.7 million in Q3 2016 (9% of revenue), compared with $5.5 million in Q3 2015 (8% of revenue). R&D expenses are consistent with the Company's strategy to lead the industry with superior technology to maintain its competitive advantage.
General and administrative ("G&A") expenses in Q3 2016 were $14.1 million (or 15% of revenue), compared with $9.4 million in Q3 2015 (or 13% of revenue). This increase was primarily due to additional headcount, share-based payments, and non-recurring costs. Management expects the Company's G&A expenses as a percentage of revenue to decrease year over year as the Company focuses on increasing profitability, and benefits from previous infrastructure investments such as the recently-implemented ERP system.
Amortization and depreciation in Q3 2016 were $5.5 million, compared with $3.8 million in Q3 2015. The increase was primarily due to previous investments in, among other things, global sales offices, research and development, patent portfolio, and the ERP system. As these investments are now completed, the Company plans to focus on increasing profitability.
IFRS net income for Q3 2016 was $3.4 million, compared with $7.0 million in Q3 2015. IFRS earnings per share in Q3 2016 were $0.08 (basic and diluted), compared with Q3 2015 of $0.16 (basic) and $0.15 (diluted). Net income for Q3 2016 was impacted by non-operational items, including a foreign exchange loss compared to a foreign exchange gain in Q3 2015, share-based payments, and non-recurring costs.
Adjusted EBITDA of $16.7 million in Q3 2016 increased 16% compared with Q3 2015 Adjusted EBITDA of $14.4 million, resulting from increased unit volume as a result of the Pricing Adjustment, new product introductions, greater adoption of video analytics, and increased contributions from the Avigilon Patent License Program.
Adjusted Earnings for Q3 2016 were $9.1 million, compared with $9.3 million in Q3 2015. Diluted Adjusted EPS were $0.21 in Q3 2016, compared with $0.20 in Q3 2015.
As at September 30, 2016, Avigilon had net working capital of $108.5 million, including cash and cash equivalents of $34.9 million. Net cash from operating activities for Q3 2016 increased to $16.3 million, compared with $5.0 million in Q3 2015. This was primarily the result of increased unit volume as a result of the Pricing Adjustment and contributions from the Avigilon Patent License Program. As at September 30, 2016, the Company had 43,595,610 common shares issued and outstanding. The weighted average number of common shares issued and outstanding for the quarter was approximately 43.5 million basic and 44.3 million diluted.