SECOND QUARTER CONFERENCE CALLhttps://seekingalpha.com/article/4098062-avigilon-corp-s-aiocf-ceo-alexander-fernandes-q2-2017-results-earnings-call-transcript?app=1&auth_param=u9fq1:1corogv:a9e1a19a7796949665504d6a69c5e561&dr=1
Operator
Good afternoon, ladies and gentlemen. Welcome to the Avigilon Corporation Fiscal 2017 Second Quarter Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct the question-and-answer session. [Operator Instructions]. Today's call is being recorded and a replay will be available on the Avigilon website.
I will now turn the call over to Ric Leong, Chief Financial Officer and Senior Vice President. You may begin your conference.
Ric Leong
Thank you, Operator, and good afternoon. Welcome to the Avigilon Corporation fiscal 2017 second quarter conference call. I am joined today by Alexander Fernandes, Avigilon's Founder, President, Chief Executive Officer, and Chairman of the Board; and James Henderson, Chief Operating Officer and Senior Vice President.
Management's presentation today, including any forward-looking statements is qualified in its entirety by Avigilon's consolidated financial statements for the quarter ended June 30, 2017, and 2016, and the associated management's discussion and analysis, which can be downloaded from the Avigilon website.
Listeners are invited to contact our Investor Relations department for any assistance. Unless otherwise stated, please note that all figures discussed are in U.S. dollars and all comparisons are in a year-over-year basis.
Now I'll turn the call over to Alex.
Alexander Fernandes
Good afternoon and thanks for participating on today's call. Today I'll focus on key financial results and I'll pass the call over to James Henderson to provide an update on our business operations. Following that Ric Leong will provide a more detailed review of our financial results.
In Q2, we significantly increased profit, achieved strong revenue growth, and continue to outpace the industry. We successfully executed our strategy, led the industry with innovative new technology and solutions, and gained market share.
In the quarter, we generated record cash flow from operations, reported strong gross margins, and increased operating leverage. In addition to achieving strong quarterly results, we're leading the industry with our award winning video analytics and cutting edge new products.
We're proud that our Chief Technology Officer, Dr. Mahesh Saptharishi, was once again recognized by IFSEC Global for the third consecutive year as one of the security industry's top 50 influencers in 2017.
Financial highlights for the quarter include revenue of $99.4 million, our 38th consecutive quarter of year-over-year revenue growth, gross profit of $51.1 million, adjusted EBITDA of $17.8 million, adjusted EBITDA margin of 18%, diluted adjusted EPS of $0.21, and the record cash flow from operations of $20.2 million.
Around the world the demand for security is increasing. Our second quarter revenue grew 16% significantly outpacing the market's estimated annual growth rate of 6%.
Our revenue remains diversified across many regions and verticals with no single customer accounting for more than 3.5% of our total revenue for the quarter.
We're gaining market share and our technology and solutions are backed by what we believe is the industry's strongest patent portfolio. The demand for video analytics is increasing globally and we believe that all video surveillance systems will eventually feature video analytics. This growing demand is increasing the opportunities for both Avigilon's video surveillance and access control solutions, as well as the Avigilon patent license program.
I'll now pass the call over to James to provide an update on our business operations.
James Henderson
Thanks, Alex, and good afternoon everyone. In Q2, we had several new cutting edge product releases including Avigilon vehicle search, part of our award winning appearance search video analytics technology. Avigilon Presence Detector, an industry first uniquely combining Avigilon's self learning analytics with impulse radar technology designed to detect the presence of a person even if they've stopped moving or hidden.
Avigilon H4 Thermal camera line, designed to detect the movement of people in vehicles even in areas with poor visibility. Several new H4 form factors including the recently introduced H4 Mini Dome camera line, engineered with a small form factor, our latest imaging technologies and an easy to install design.
We integrated the Avigilon Access Control Manager with biometric authentication to offer additional layer of identification to our access control solutions.
In the quarter, we continue driving top-line revenue growth while creating operational efficiencies across the business, leading to increased operating leverage and greater profits. We moved into our new building in Downtown, Vancouver, and entered into an agreement to sell and lease back the building for expected gross proceeds of approximately CAD 107.5 million. This proposed transaction will significantly reduce our debt and enhance shareholder value while providing a state of the art space for our growing business. The proposed transaction is progressing as expected and targeted to close in 2017.
I'll now pass the call over to Ric provide the detailed review of our financial results.
Ric Leong
Thanks, James, and good afternoon everyone. Q2 was another quarter for Avigilon. Revenue increased for the 38th consecutive quarter on a year-over-year basis. Revenue was $99.4 million, an increase of 16% or 17% on a constant currency basis over Q2 2016.
Gross profit in Q2 2017 was $51.1 million, up from $43.0 million in the same period last year.
Revenue and gross profit growth reflected increased unit volume as a result of greater customer adoption in existing markets, further penetration of target regions, the latest release of Avigilon's video management software, the ongoing success of the H4 camera platform, other new product introductions, and a increasing adoption of video analytics.
Gains in operating leverage in the quarter as a percentage of revenues include sales and marketing expenses decreased from 24% in Q2 2016 to 20% in Q2 2017. G&A expenses decreased from 16% in Q2 2016 to 11% in Q2 2017 and operating expenses decreased from 51% in Q2 2016 to 42% in Q2 2017.
Management expects the company's operating expenses as a percentage of revenue will continue decreasing year-over-year as we focus on profitability and benefit from previous investments and further economies of scale.
The second quarter's adjusted EBITDA and adjusted EBITDA margin increased to $17.8 million and 18% respectively compared with $8.0 million and 9% in the same period last year.
Adjusted earnings and diluted adjusted EPS for Q2 2017 were $9.3 million and $0.21 respectively compared to $2.6 million and $0.06 for Q2 2016. The increases are primarily due to increased revenue, gross profit, and gains in operating leverage as previously noted.
Avigilon generated record cash flow from operations of $20.2 million compared with $12.0 million for Q2 2016.
As of June 30, 2017, we had working capital of $113.6 million including $31.7 million of cash and cash equivalents.
Our balance sheet remains strong and we have the necessary capital to support our growing business. As of June 30, 2017, we had total debt of $101.6 million and the amount of undrawn cash remaining on our credit facility was $138.4 million.
I will now pass the call back over to Alex.
Alexander Fernandes
Thanks Ric, thanks James. There are hundreds of millions of surveillance cameras deployed around the world generating billions of hours of recorded video footage every day making surveillance, surveillance video the world's largest generator of digital data. Currently very little of this video is ever viewed or analyzed even though there is valuable metadata contained within it.
As the recognized leader in video analytics, Avigilon's groundbreaking artificial intelligence and machine vision technologies make the real time automated analysis of all this video possible. We've achieved strong results in the first half of 2017. Thanks to all of our employees, partners, and customers. I'd like to thank them for their ongoing dedication and support, thank you.
The call is now open for questions.
Question-and-Answer Session
Operator
[Operator Instructions].
Your first question comes from the line of Pardeep Sangha of Haywood Securities. Your line is open.
Pardeep Sangha
Hi good afternoon. Can you comment to the guidance are we still -- annual guidance still the same expectations if you just comment on that.
Alexander Fernandes
Yes, hi Pardeep, it's Alex here. We basically are maintaining our guidance for the year.
Pardeep Sangha
So your EBITDA numbers came in very strong here this quarter the EBITDA margin was extremely strong. So, you don't want -- you're not looking to bump up EBITDA guidance for the year.
Alexander Fernandes
No, not at this time, there is -- we're making good progress and we're having lots of success. But that said there are lots of challenges ahead as well and so we feel confident with the guidance that we provided at the beginning of the year.
Pardeep Sangha
Okay. In terms of the OpEx side cost structure you've done some cost reductions and you can talk about that and what kind of cost reductions did you do and going forward this should be feel like our steady state as we're looking at here this quarter or if there's a more of cost reductions or decisions that are coming or give us the sense of the mix couple quarters and in terms of operating cost.
Alexander Fernandes
Yes, so thanks for that question. So, as noted as a percentage general I'm generalizing because there's different buckets and categories of OpEx and stuff but as a general statement, we are OpEx as a percentage of revenue is going down and some of that is not actually reductions in OpEx but it's just that the OpEx is not growing as fast as the top-line as the revenue. And in some areas there are some reductions for streamlining and efficiency thing that we've implemented various streamlining and different things we've done but it really stems from last year where for the first roughly 10 years of the company, the primary focus was for maximizing growth with profit.
Whereas last year we sort of adjusted changed our bias so the focus if you like to be to maximize profit with growth. And so a lot of the initiatives so for example a lot of the OpEx and CapEx that we've done over the past couple of years is really now starting to come to fruition. So we're getting the benefits the operating leverage from those investments in both CapEx and OpEx.
And if you like the heavy lifting is really done in the last two or three years and so we're now starting to reap the rewards of that. And we don't really need to invest heavily in OpEx or CapEx going forward in order to continue growing. And we are -- we have various initiatives with the recent promotion of James Henderson to Chief Operating Officer. We're now able to focus more on efficiency and your increasing profit.
So basically what should I expect going forward is just over time it may not be every single quarter but over time we expect that profit will go up as a percentage of revenue and our revenues growing so we feel very positive about the future and the growing profits.
Pardeep Sangha
Okay. And lastly if you can commented all about the IP licensing sort of division and sort of where you guys are at that when we had an update for a couple quarters here any metrics you can provide in terms of number of license fees or anything else like that.
Alexander Fernandes
Yes, I mean the program is moving along, it's really the -- I think the question comes up every quarter but it's really the same thing we don't break out individual business units at this time if they're less than 10% of our revenue. And the licensing program is contributing meaningful, profit and revenue. But it's not our bread and butter. But what I can tell you is we are signing up new -- new licensees every quarter and we're collecting quarterly revenues and coupled with our catch-up payments when those come due, when we sign up new licensees. So the program is a progressing as we wanted and as we want and it is a -- it's still in it's in its early stages. So, it's still early days for the licensing program and that's going along very well. Thanks.
Operator
You next question comes from the line of Thanos Moschopoulos of BMO Capital Markets. Your line is open.
Thanos Moschopoulos
Hi good afternoon. Alex, maybe circling back to the OpEx discussion your revenues are up 16% year-over-year, your headcount is about flat. I have been understand better how you managed to accomplish that which is quite remarkable. I mean it was just a lot of blocking and tackling across the company where there some significant areas that you can point to that helped as far as cost reduction. How do you see this?
Alexander Fernandes
Yes, hi Thanos. Yes, thanks again for the question. So, it's really a combination of things. So let's just start first with CapEx I mean our CapEx is all the heavy lifting has been done so, we're not that doesn't increase our amortization. We've on the OpEx front we've really did a lot of hiring over the last 36 months I don't quote me on the exact number but I think it's on the order of magnitude of a thousand people thereabout, that we on boarded over the last 36 months.
And with that kind of hiring there is an inevitable inherent inefficiency and so now that we've done those investments we've done the sort of the heavy lifting in terms of hiring. We're now better able to focus on training, streamlining, eliminating redundant processes, so just a grab bag of all sorts of things really it's just going through and making things more efficient. And then as the efficiency goes up we don't need to necessarily add a substantial amount of new personnel in order to increase capacity. And our SAP system, our ERP system that we implemented last year that is starting to help us scale up as well as so we're able to process higher volumes of the sales orders. And all the accounting and everything else that goes along with that with essentially a fewer personnel required. So, all of these things are contributing and then James may be you want to add to some of this.
James Henderson
Yes, thanks Alex. I think the short version here is, there's no one specific area that we're looking at really what we're doing is taking a holistic look across the business and looking at how we can continue to create efficiencies and leverage the resources that we have in place to maximize the value of our investment in them. So, it's been a look across the entire business with no one specific area driving the significant gains but mainly all of the areas and all the improvements in efficiencies that we put together as well as Alex has pointed out that we've made significant investments in scaling up our business.
So on top of creating these efficiencies we are now starting to see the fruits of those investments being able to maximize the systems and the infrastructure that we put in place to help generate profit.
Thanos Moschopoulos
That's good to hear. The inventory turns were also very good I think may be better levels we've seen recent quarters is that also kind of along the same theme and would you expect that level of inventory turn to be sustainable.
Alexander Fernandes
Yes, I just want to caution maybe some of the other listeners. There's a common belief and it may be true for other industries and other businesses that more inventory turns is better but in our business we want to target between 2.5 to 4 turns is kind of the range that we target and some businesses run on 7 or 8 turns or even more. But for us that that is not optimal so more turns and smaller inventory does not necessarily equate to better a better business model or even just a better balance sheet from the perspective that we never want to run our inventory to the level where we have inventory shortage. So, it's quite common in our industry and I think some of our -- some of the other industry participants from time-to-time run out of inventory because there may be a shortage of a particular whether it's a certain ICs chips for circuit boards, or camera sensors, lenses, hard drives what have you.
And so that that could be very devastating to a business, it's bad for customers because they may purchase other products from another man -- vendor it's obviously demoralizing for sales personnel who work hard to bring home sales orders if you can't fill them. It's bad for manufacturing because when you're not able to fill orders, you have idle time and then when inventory is due come in, you have to work double time overtime to make up the difference.
And this is so -- there's is whole host of reasons so, so the answer is our inventory levels are pretty much where we want them to be and we view them as optimal. So, I don't know that it’s necessarily better than what it was the last few quarters. I mean it you'll find that in the second half of the year our inventory does tend to grow significantly and the reason is, is that Q3 and Q4 combined represent somewhere in the neighborhood of the line shared like 65% kind of thing of our total business for the year and Q4 being always every single year for 12 years running now, is the biggest quarter, setting new records every year.
And so we want to make sure that we -- by the time you realize your orders are coming in better than expected or strong, at that point it's too late to order parts because a lot of parts have long lead times and so what we do is after the fourth quarter typically Q1 is a little bit -- little bit softer than Q4 typically that's part of the normal seasonality. And so you’ll see that we deplete our inventory and so inventory levels go up and down but it's between 2.5 to 4 turns sort of the optimum.
Thanos Moschopoulos
Appreciate that color. One last one for me. Any comment as far as the competitive environment? Is really the main theme, as you talked about, just the growing prevalence of analytics? Anything else you'd highlight?
Alexander Fernandes
Yes, thanks for that question. So really broadly speaking what we're seeing is a kind of an organic consolidation of the market, there has been a little bit of M&A activity but not what I would call substantial amount. But what is happening quite a bit now as of late is a lot of the small to medium sized players, there are a lot of European, American, Asian based manufacturers that are very sort of regional or local where they sold globally. Or there are other global players large companies I think example Toshiba announced that are exiting the security industry.
I know that Sony and Bosch who are traditionally competitors that sort of emerge which indicates that one or both of them are likely struggling in the industry and they're seeking to gain some kind of accretive type of combination of their business units. And what we're seeing is lot of the small to medium sized players are really just going by the wayside and so they're getting squeezed essentially between the handful of large Asian manufacturers and ourselves.
And actually this bodes well because fewer players is actually better because it just confuses the end customers less, so they have sometimes more options, isn't better it's just more confusion. And what we find is the markets being polarized really between us and certain couple Asian manufacturers and I think it's an equivocal that everyone knows at this stage that the majority if not all of the Asian manufacturers are plagued with these data and cyber security breaches and design weaknesses. And so not everybody cares about the integrity or security of their data or their reliability or quality of their system or the customer service but many people do. And those companies and individuals who do care about quality and customer service and data and cyber security have a tendency to come towards us and so this is working well and video analytics of course we've had many discussions about that but really is we see this as the future of the industry. There's just simply isn't enough manpower resources personnel available to monitor all of these billions of hours of video of that surveillance video that gets generated every day and so video analytics is a cost effective and reliable way to add value by mining all of this data in a proactive way rather than simply as a post-incident in a post-incident kind of application. So basically the market and our businesses, they’re both unfolding as we had expected and hoped for.
Thanos Moschopoulos
Great, thanks. I will pass the line.
Alexander Fernandes
Thanks Thanos.
Operator
Your next question comes from the line of Paul Steep of Scotia Capital. Your line is open.
Paul Steep
Alex or James, maybe you could talk just a little bit about the mid-market and the lower end of the market, as you move down there, what you've seen in terms of progression in the business we're noticing modest improvement on the gross margin line. How should we think about that guys?
James Henderson
It’s a great question, Paul. James Henderson here. As we said on previous calls, we are continuing to expand our product line offering new and lower cost, high margin products into our portfolio and what these products have allowed us to do is garner that marginal increase in our profit but also allow us to increase our addressable market. So it's allowing us to push further into the sort of mid or lower end of the market introducing high quality reliable solutions manufactured in North America into a market that still hasn't made -- has a large appetite for high quality solutions.
So between our steps that we put in with the manufacturing and introducing lower cost product as well as advancing technology which allows that market which is typically unmanned run monitored to be able to utilize video analytics to solve problems and alarm the most things that they need to pay attention to. We are starting to see a larger appetite into that mid to lower tier.
Paul Steep
Okay, great. And I guess the other one that pops to mind here is it was a really strong top-line quarter. What have you seen out of Europe? Like I noticed that sort of jumped off the page at me in terms of top-line growth this year -- or this quarter. Any update there in terms of how the organization's building out there?
James Henderson
Yes, another great question. And I will feel that one, James Henderson here. We continue to make investments across the globe to sustain and continue our growth and as we continue to make those investments we're seeing success and wins right across the globe. Europe has had great success and a great quarter and we can expect that to continue and as we continue to make these investments throughout the globe, what you're going to see is the various regions throughout the globe ebb and flow in terms of scale of growth as we win projects and as the investments that we make in those areas continue to take hold and really expand our market penetration.
Paul Steep
Great. I guess, last one for me, I'm not sure who -- which of you want to take it. But the back end of last year was exceptionally strong; you've come into some reasonably tough comps. How should we think about the cadence and pacing, recognizing that Q4 is your seasonally strong period. And I think that's how people are thinking about it? Is there anything we should just be aware of or think about there or business as usual?
Alexander Fernandes
Thanks for that question, so it’s Alex here. So I guess the way to answer that question I can’t give you some kind of beyond the guidance we've given, any specifics. Our -- the guidance that we provided is we're maintaining that and we feel very confident in the guidance that we did provide. And as you know there is a range there, so obviously there are factors out there that are outside of our control economic factors and whatnot but what we remain very confident. And the other thing, I can tell you is in the past what is it 38 quarters that we've had as a public company and probably another 40, 50 quarters prior to that the seasonality patterns have remained essentially the same and so the third and fourth quarters combined typically make up in the range of about between 60% to 70% of our total revenue and of course are disproportionally profitable quarters because the OpEx and CapEx doesn't really change as a function of the top-line that dramatically and so you'll find that typically profitability, is very, very strong in the last half years.
So the last half typically accounts from historical perspective for the LION's share of our profit, so if the past is a prediction of the future, we expect the seasonality to repeat itself and I'm sure you can extrapolate your own numbers from there but that's basically it really looking forward to the Q3, Q4s here.
Operator
Your next question comes from the line of Todd Coupland of CIBC. Your line is open.
Todd Coupland
Yes good evening everyone. Like to just follow along the lines of those last question on seasonality. I mean if you look at Street expectation which is in your guidance range is expecting about 55% of revenue in the second half of the year. So I guess that would imply based on the statement of 65% or 70% that those expectations are at least 10% too low, am I listening to your answer on this correctly?
Alexander Fernandes
Well I just want to correct something that you said. So we do not provide quarterly guidance and so there is no quarterly guidance consensus or Street wise to compare to Avigilon guidance because everyone builds their model their own way. So we provided annual guidance and so which you could do is look at the first half of H1 Avigilon financial results and then look at our guidance and see what the second half might look like based on that but with respect to what the Street consensus is per quarter that -- that there's a lot of variability, we have eight covering analysts of course and each one of them has their own take on seasonality and their own models. So basically I think the question was around quarterly -- our quarterly guidance versus the Street and we don't provide quarterly guidance so, but we're probably addressing your question.
Todd Coupland
Yes, Alex I guess what I've done is I just sort of back into the -- the back half of the year and taken $404 million which is where the Street is for -- for -- for 2017 which is not exactly at the midpoint of your guidance, certainly in that zone so that's where the question was coming from. But I take your feedback on that. My second question is see did 18% EBIT and how should we think about I think your guide is 15% to 17% for the year, how should we think about operating leverage in the target model little longer-term, little deeper into your next five-year profitable growth phase.
Alexander Fernandes
Well, how should you think about it? I think the first thing I'd just like this is just reiterate is we're maintaining our guidance and so we're not -- we're not moving any of that up or down we're just maintaining it. And so we -- the other things it's to say is starting last year we changed our focus from growth with profit to profit with growth and we've undertaken a series of initiatives to focus on an enhanced profitability. And so we're not doing that so we quite continue doing that for many, many, many quarters and James spearheading a lot of these initiatives maybe you can add to that.
James Henderson
Yes and I think the other thing not to forget here is that although we will continue to look at creating efficiencies and focusing on profit, we are still a growth business and we are still going to be making investments to continue that growth.
Todd Coupland
Okay. Yes, you talked about this point in the past so if it looks so is the takeaway on that this outside EBITDA margin gets reinvested in the top-line so, you'll look to see if you can pick that up as market is consolidating above roughly 15%. If you continue to generate these kinds of outsized operating leverage quarters is that the way think about that.
Alexander Fernandes
Yes, I think when you look to the market we believe that we have a fantastic opportunity given the current market conditions to continue to grow and garner market share. That being said obviously within the market there will be headwind against us in terms of other competitors and everything else. But we feel that we have a great opportunity in the market to grow our business and we're going to invest in making sure that we take advantage of those opportunities for not only long-term profit but also long-term growth as well.
Todd Coupland
Okay, last question if I could so buy American and security cyber questions et cetera, how much of that is -- how much of that is playing into decisions that you're benefiting from now given your -- your operations in the States.
Alexander Fernandes
If you look at the current state of the industry I think it is almost on a weekly basis that this becomes more and more of impressing topic in terms of wanting to ensure that that product that security professionals are investing in are securing themselves and what they're deploying to their customers are not solving one security problem while creating another. So, the demand for locally made product and locally manufactured product is very high and weighing on decisions being made within the marketplace.
And as we see things like cybersecurity threats and hacking and everything else come into play more and more. It only helps perpetuate the desire for investing in a manufacturer that has spent a significant amount of time ensuring that the part that they put in into the marketplace is secure in terms of cybersecurity to the best of its ability.
Todd Coupland
Okay, appreciate your comments everyone. Thank you.
Alexander Fernandes
Oh yes I just put some numbers here. So the 65% really which is a estimate and I was going from memory but that actually may not be exact number so maybe that, that what I was trying to convey at the time whatever the exact percentage is that the majority's of more than 50% for sure. And it changes from year-to-year depending on how Q1 is, how soft it is and how strong Q4 is. But definitely the LION share of our business revenue and profit is typically in the second half but I just got a prompt here that the 65% may not actually be accurate. That's was using from memory anyways. I know one time it was.
Todd Coupland
Thanks, thanks for the clarification Alex.
Alexander Fernandes
You’re welcome. Hopefully that wasn’t confusing.
Operator
Your next question comes from the line of Justin Keywood of GMP Securities. Your line is open.
Justin Keywood
Hi thanks for taking my call. Just on the Avigilon Analytics. We saw some good used cases recently, including the London Thames project and the Fulton County School System. I'm just wondering if you could comment on what verticals you see the greatest opportunity for Avigilon Analytics, and maybe how demand is evolving for those customers.
James Henderson
Yes. This is James Henderson, Justin. Thank you for your question. I think at the highest level what we need to understand about our analytics is they're designed to be applied to solve real world problems across a number of verticals and industries so, there's not one specific vertical that our solutions can apply to because there are varying aspects to the number of analytics and analytics solutions that we're putting together.
The reality is what we're seeing in the marketplace is as stated previously you have a magnitude or an order of magnitude of video surveillance cameras being deployed far greater numbers than ever before yet the magnitude of let's say manpower people able to actually monitor those cameras has not scaled with the amount of cameras which is put a disconnect between the volume of data that needs to be looked at and the people that are able to do that.
And what you're seeing across all industries and as you seen in diversity of the press releases we put out is that across all industries there are recognizing this disconnect and they're seeing that video analytics is a leading solution both now and moving forward to helping resolve this and actually give them a viable solution to modern man this magnitude of data that these cameras are producing.
Justin Keywood
Okay, that's helpful. And maybe another question for you, James. You mentioned some of the new analytic products at the opening, including facial recognition and vehicle recognition. I'm wondering if you could provide any color just on the uptick you're seeing with those products, and just how you see those products going forward.
James Henderson
Okay. And just to be clear I didn't mention face recognition but I did mention vehicle recognition and what that really is, is you're seeing us taking some of the foundational intellectual property and video analytics technology that we developed and continue to expand the use case in applications for those things so, introduce things like vehicle search were now, if a vehicle enters a site let's a critical infrastructure they're able to quickly locate areas where that vehicle may have been to help mitigate any risk or any potential threat. So, it's really building on the investment in video analytics that we've made and continue to diversify the applications and used cases and you'll see more of that in the future.
Justin Keywood
Okay. And then given that there's some increased cash coming in from the building sale, does the capital allocation strategy change at all? And are there any planned uses for that cash flow ahead?
Ric Leong
Yes, so its Ric here. The majority of the proceeds would be used to repay debt, long-term debt that we have on our books currently and our capital allocation elsewhere is to continue growing the business and we do look at opportunities of M&A as M&A comes forward that those would be our capital allocation priority.
Justin Keywood
Okay. And on the M&A front, would it be for product enhancements or would it be to gain market share?
Alexander Fernandes
Yes, it's Alex here. We from a historical perspective have not done a tremendous amount of M&A but we have done some acquisitions but they were primarily strategic in the sense of technology or intellectual property acquisitions. So really our growth has really been almost entirely organic some of the stuff that we acquired came with some revenue but fairly minimal.
So going forward it's really the same program so, we look at from time-to-time. We get unsolicited inbounds. We sometimes approach companies that have maybe some interesting products or technology or into patents whatever. And so, we will remain opportunistic but we -- our business model really is to grow organically and but it's from a little tuck-ins or some new widget or an interesting piece of technology becomes available or desirable, we will certainly look at that and we have done some acquisitions. So that will remain same going forward for the foreseeable future.
Justin Keywood
Okay. Thank you for taking my questions.
Alexander Fernandes
You're more than welcome. Thanks.
Operator
There are no further questions at this time. I will turn the call back over to the presenters.
Alexander Fernandes
Thank you for participating on today's call. We appreciate your questions and ongoing support. I look forward to updating you on our achievements in our upcoming quarters, bye for now.
Operator
This concludes today's conference call. You may now disconnect.