Avigilon Financials and 2014 Future PlansBy: John Honovich, Published on Mar 05, 2014
Avigilon's 2013 financial report and investor conference call gave insights into their current performance and future plans including timetable for VideoIQ integration, areas of expansion and why Avigilon's CEO believe Axis sells 'just widgets'.
In this note, we dig into the details.
2013 Financials Overview
Avigilon finished 2013 with $178 million revenue, up 78% from the $100 million in 2012. For Q4 2014, revenue was up 71%, a slower pace than their Q3 revenue doubling, but still dramatically higher than the industry average (and Axis' current pace).
[Reference: Avigilon Q4 2013 report and investor's call audio recording.]
Net income was up significantly to 12% in 2013, bringing it into profitability levels of establish market leaders, countering a historical concern / criticism of Avigilon.
Gross margins were also up to 58% in Q4 2013 though the company noted that currency fluctuations helped drive this.
Revenue increases were fairly even across the world:
Avigilon added 200 employees in 2013:
Avigilon projected that growth would be similar in 2014, targeting a 'rough doubling'. Even at the same rate of 2013, that would imply about 800 total employees at year end.
They also noted a focus on Asia Pacific and Latin America for sales expansion in 2014.
Additionally, more business development people are planned, including the federal government, finance / banking and energy.
Sales / Marketing and R&D Expenses
While selling expense paced revenue growth, marketing expenses rose only modestly.
By contrast, marketing expenses roughly doubled in 2012, so this is a notable deceleration in expansion.
While R&D expenses paced revenue growth, compared to sales and marketing, R&D is dramatically lower:
Contrast to Axis, whose R&D expenses are only slightly less than sales and marketing. On the other hand, given Avigilon's results, perhaps Axis should increase their distribution of expenses.
That noted, under $10 million in R&D spending is incredibly low for company with their revenue level and now range of products (from cameras to recorders to analytics and access control).
No Price Pressure / Low Cost Companies Are Partners
Avigilon CEO answered a question about the potential threats of Chinese companies, emphasizing that they are 'not feeling any price pressure at this time' and that they actually partner with a lot of them for their low cost cameras.
Future of VideoIQ
Avigilon says that it will take 6 to 9 months for VideoIQ to be integrated into their VMS and until 2015 for their analytics to be integrated into Avigilon cameras. Given that, especially the time for VMS integration, this will limit the value of using VideoIQ with Avigilon until it is completed. On the other hand, once Avigilon integrates VideoIQ analytics into their cameras, they will have a very compelling smart camera offering. It will be interesting to see what major competitors like Axis do in the meantime to combat this.
RedCloud Still Losing Money
RedCloud is coming along, available, but not integrated into ACC yet.
In the 7 months since the acquisition, revenue was only $795,000 CAD and the net loss was nearly $2 million. With Avigilon's sales efforts ramping up this year, that will certainly change significantly.
Avigilon suggested major acquisitions in 2014 were unlikely but that they would continue to look for intellectual property or pieces of technology to complement their business, naming independently developed access control or analytics functions as two areas of potential.
Axis 'Just Widgets'
When asked about Axis increased Q4 2013 inventory, Avigilon CEO's emphasized the same points in his 'win lose' presentation - that Axis is more of a commodity and 'just widgets' compared to their 'solutions.'
On the other hand, Axis broad range of cameras, especially their higher end P and Q series, are far more sophisticated 'widgets' than Avigilon cameras, a key driver for enterprise customers that Avigilon targets for expansion.
Besides trumpeting its 'secret sauce' HDSM 'technology', Avigilon's growth strategy emphasized the potential of bringing together Avigilon video, Red Cloud EAC and VideoIQ analytics into one:
"Once we complete our plans for these technologies [VideoIQ / RedCloud], as discussed below, our system will provide end-users with the ability to combine and control both video surveillance and access control from one system, while allowing the system to proactively identify alert conditions through video analytics. We believe that there are no competitive systems in the market that can do all three functions collectively."
While many competitors can integrate 3rd party components from each of these areas, there are few, if any, who have these all in house at a high quality level. To that end, if Avigilon can successfully bring this together, it will provide a strong differentiator for the company.
On the other hand, one of the reasons this is so rare is that it is so hard to do from an engineering perspective, especially for manufacturers serving enterprise customers with niche, complex requirements.
If Avigilon can successfully add 300+ employees, integrate 2 new product categories, and develop new products on all sides, it will be very impressive but there is clear risk of taking on too much.