Avigilon 2014 Financials Disappoint Investors

JH
John Honovich
•Published Mar 04, 2015 05:00 AM

Hikvision admits their equipment got hacked in a large government deployment - stock down just 7.5%

Avigilon announces revenue up 42% - stock down 15%

If you are an Avigilon investor, you just cannot win over the last year.

In this note, we break down Avigilon's most recent financials including:

  • Their real growth rate
  • Becoming a US manufacturer
  • Their position on the Canon / Axis offer
  • OV patent licensing revenue
  • The long awaited new CFO

Financial ******** 

*******, **** ******* *** $***.* ******* up **% **** **** ****. *******:** **** ******** ********* ******.

*** *** *** *******, ******* *** $79.5 *******, ** **% **** **** year. *** **********, ** **** *** 39%, ** **** *** **%, ** **** was **% *** **** **** **** was ~**%.

Their **** ****** ****

** ******** ~**% **** ****** **** for **, **** **** ****, ***** factoring *** (********) ******** ******** ************ and ************. ****** ****, ******** ******* to ******** ******* ** ***** ******** terms ** ***********, ******** ** ******* their **** ****** ****.

*** *** **** *** *****, *** especially ** ****, ******** ********* ******* from *** *** / *** ******** rate. *** ***** ***** ***** *** steady ********* ********** ********:

** **** ***** **** ********'* ****** shows, **** ********* ****** *** * major **********:

***********, **** *** *** ***** **** including *** ******* ***********, ***** ***** ~$20 ****** ** ******* *************.

** *** **** ****, * **** growth **** ** ** ******** ***** 30% ** ***** ***** **** *** the ***** ************ ********, ********** ***** the ******* ****** ******** ***** ***********. However, ********'* ****** **** ** ***** sharply ****, ** **** ** ****, than **** **** **** ***** **** a **** *****.

Becoming * ** ************

******** ** ******* * **,*** **** US ************* ******** **** **** ****** to ** ***** *********** ** ** or ** ****. **** **** **, in ********, ** ***** **,*** **** facility ** ******. ******** **** ******** these **** ******* $* ******* ************* capacity.

*** ** ******* ********'* ******* ******, by ***, **** $*** ******* **** revenue, ~**% ** *** *******'* *****.

Canon / **** ********

********'* *** *** *** ******** ** Canon's ********* ** ********* *** ***** to ******* ****, ********* ****:

"** ********* ***** *** ******** *** presumably ********** ** **** ** **** an ***-**-*** ********, **’* *** * contrary ******** ** **** ***** ********** were ***** **."

** ******, ***** ****** **** **** but ****, ********* **, ******* ** is **********. ******, ** ********'* *** point, * **** ** * ******** position **** ** *********** ** *******.

***********, ********'* *** **** ****** *********** from ****:

"*** **** ***** ** ********** ******** where *** ********** *** ******** *** key ********** ***** *** * *** windfall *** ****** ******* **** ********* to ******** ******* *** ********."

OV ****** ********* 

***** ** *** ********* ************, ******** issued ***** *********** ****** ** **'* licensing **********, ********* ****** **** ~$** ******* ** *********** *** **** *.** *****, **** 85% ** **** ******* ****** **** 4 (** *****) *************.

** *** ****, ******** ******** ********, noting, "*** ******** ******* ** *** licensing ** -- ** ***** ** this ****** **** ** ******** ** be ********** ******." **** ********** **** they ** *** **** ** "** custom ***** **** ******* ********, *** come ** **** ** * ******** template. *** ** **** **** ****** do **, ** ****** *** ********* over **** *** ******* ** * more ********** ****** ****** *** ********."

*************, ********'* *** **** ** ***** that ******* ********** *** *** *** primary ******* ** ***** *******. *******, he ********:

"*** **** ********* ****** *** *********** of *** ****** ** ** ******** ourselves ** *********** ******** *** ****** video ************ ******."

*******, ** *** *** ******* *** they ***** *** ***** ******* ** dominate. ** ************ **********, *** ******** *** ** ** attempt ** ***** ****** ** ***** deals ** ******** *** ***** **** their *********** ***, ** ** ***** might, ** ********** ** ********'* *******.

The **** ******* *** ***

*** **** ******* *** *** *** still *** **** *****.

********'* ***** ********** ***** ** ****** ago **** ******** ************ **** *** ***** ************** **** ** ** ********. ** that ****, ********'* ***** *** *** Jung **** **** ** '******* ***'. Though ******** *** **** * ** of ******* [**** ** ****** *********] in **** ****, *** ******* *** is ***** ***** ** ****** *****.

******** *********, "** *** **** *** is *** *** ***** *** ** have *** *** ********** * ********* candidate ** ******** **** ********. *** search **** ****** ****."

Stock *****

******** ***** ********* *** ******-******* ****:

Avigilon ******** *** ******

** ****,******** *** * $*** ******* **** goal.

*** ******* ** ******* **** **** half *** *****. **** '****' **** to **** ** * **** ** 36% ** *** *****.

(******, ** ** **** ****** ** you *** ********'* ***** ********** ***** is * $*** ******* ****** *** rate ** ** ****).

****** ***, ********'* ****** *** **** tremendous. **** ***** **** *******, **** are *** ** *** ******* ************ companies ** *** ***** *** ** powerful ********* **** ********* *** **** get ***** ***, ** ******** **** more *********** *** ********.

*** *** ********* **** ** ******* with********'* ******** *****. *** **** *** ** '******** is *******', *** ******* **** ** resolution ** ********** ****, ******** **** have ** **** **** ** *** overall ******** *** **** ************ ** differentiating ** *********.

** ** ***** *** ***** ** tell *** ******** **** ** **** analytics *** ******* ********* *** ******* the **** **** ** ****** **** HD *** ** ***** ***** ******.

Comments (3)
TC
Tim Campbell
•Mar 05, 2015

As an Avigilon investor, I'm not disappointed by the company's financials. They are executing on their strategy set out in earlier years' reports, they are growing well, gaining market share ... even the survey you ran on this site had them rated in the top five for hardware, software and service - the only company to pull off that feat.

It's not the "investors" who are disappointed so much as "speculators" who are looking for short-term bumps. One year ago analysts were touting Avigilon as a good buy even though it was selling above $30 a share. Since then the company's revenues have grown by 52%, and they are on target to nearly double again in the next two years, and yet somehow the company is barely worth the $21 a share it was selling for yesterday?

The only investors this makes sense to are the ones who lose a lot of money in the market.

As an Avigilon investor, I'd be happy to see the company's shares beaten down into the mid-teens once again for a while so I could buy some more :)

It's important not to confuse volatile stock prices with a company's success. They do not always trend together.

(1)
(1)
JH
John Honovich
•Mar 05, 2015
IPVM
In reply to Tim Campbell

Ok, Tim, next time I'll go with BNN's lead: "Avigilon posts biggest one day drop in company's history" :)

In all seriousness, since the stock was down sharply, it does signify the net of investors / marketplace were disappointed. As I alluded to in my opening, I don't agree.

As for the company's success, there is no doubt about it, given both the company's achieved size and its well-regarded products across cameras, VMS and analytics.

However, looking forward, I think (1) things are getting harder for Avigilon and (2) that they are taking some risky steps.

Obviously, the whole video surveillance / security market is tougher now than it was a few years ago and that impacts everyone. Beyond that, with MP / HD maturing, that's a clear negative for Avigilon because just a few years ago it was easy to win on higher resolution, now it's much harder with so many other real options.

The recent moves (the two patent deals and the building) are unnecessarily risky. Maybe they turn out to be brilliant (Vancouver real estate prices double in the next 3 years, they block out their competitors from analytics, etc.) but there's an equally plausible future scenario where they turn out to be duds. As a company, I think they would have been better off buying more complimentary products to feed into their incredible sales machine.

As for the stock price, things are worth what people will pay for them. I don't think Axis is worth $2.8 billion but Canon does and that's what counts. Avigilon is great at selling to security integrators and buyers. They may need to do a better job at selling to investors.

TC
Tim Campbell
•Mar 05, 2015
In reply to John Honovich

Well, I can't honestly say I was pleased about seeing $3.75 per share get knocked off my investment in a few hours :)

The size and suddeness of the drop did surprise me, though. The day before Avigilon announced its Q4, the shares were trading at just under 40 times trailing earnings. After the release of the higher Q4 numbers, the shares were knocked down at one point to almost 25 times the new trailings earnings.

There was nothing unexpected in the annual report. Numbers came in about as expected, and the deals had all been previously announced. Maybe there was an expectation of an extra boost because of the exchange rate, or some such thing. Guess I'd have to ask someone who sold ... maybe they were cashing out after the big run up in price the month before the report.To be honest, the low/mid $20s seems a fair value given slower growth (though an estimated 30+ CAGR over the next two years is not bad).

If the numbers on the new building work out as suggested - approx the same as current rent - then it seems a rational move. Downtown Vancouver property may be a little overpriced, but it has been steady despite declines in oil prices that have hurt Western Canada, or more restrictions by the Chinese government on money leaving the mainland with corrupt officials. Of course the price could dip, but long-term, from a Canadian perspective, it is still prime real estate. And being a former Telus building, it is likely very well hardwired for the Internet - and Telus, a big telecommunications company, will remain a neighbor even after the move. Possibly there is a tie-in there.

Regarding the patent deals - all I can do is repeat what many others have said on this site ... we'll have to wait and see what they do with them. They were definitely expensive, but I'm sure more of their thinking will become clearer soon.

It will be interesting to see how they navigate the shifting marketplace in the next couple of years. It definitely feels like they are repositioning themselves, and management - despite riling up a few guys on this site - does seem quite capable of carrying out its plans.