Avigilon Weakest Quarter Ever (Q1 2016)

By John Honovich, Published May 11, 2016, 09:49am EDT

Just 2 years ago, Avigilon revenue grew an astounding 74%.

Now, that feels like 20 years ago.

Avigilon's growth rate continues to fall, while struggling with profitability. In this note, we examine the results, the CEO's error and what this means for the future of Avigilon.

Financial ******* - ******, ******* ****

********'******** ***** **% **** **** year ** ******** ********. By **********, ******** *********** **% * **** ago*** * ***** *** it *** **%. **** after ********* *** ******** currency ******** ***** ** previous *****, ********'* **** growth ** ******* ****.

********, ********* ****** *** down ~**% **** **** year, ** **** ~*%.

Competitive **********

**** **** ***** ** *** same ******* *** **** ******, up **%** ******** ********, **** far ****** ******* **** Avigilon. **** ** * huge ****** **** **** 2 ***** ***, **** Avigilon *** ******* ~** Axis *** *** ******** average.

***, ***** *** ******** certainly *** ******** *********, major ******* ************* *** still ******* ** *** 10% ***** ***, ** course, ********* *** ***** are ***** * ** 5x ***** ******.

Geographic *********

********** ********* *** *** much ******.

*** ******** ****** *** Asia, **** **% ******, though **** * **** small **** *** **** Avigilon ***'* ************* ******* to ******* ********** ** that ******.

****** / *** ****** East *** ************ **** at **** *%, ********** compared ** **** ****** 20-30% ****** *****. ** suspect ********'* ***** ************** is ****** *** ** strong ***** ** ** is ** ***** *******. Also, *************, ******** ******* reporting ******** ** ** sales, ***** **** **** been ********** ** *** past ****.

Sales ******* ****** ******* ****

***** *** ********* ******** grew ** ***** ****** rate ****, ** **** 7%. ** **** ****, sales *** ********* ******** were ** **%, * tremendous *********. *******, ** saw **** ********* ********** the ******* ** ******** slowed ******, *** *****, eliminated ********* ******** **** the *** **** *****, etc.

**** ** ********** ********* to ******* ** ******** historically *** ******* ** ***** and ********* ***********, ******* that **** **** *** to **** ****** **. With ****** ** ******* new *********, **** ***** put ******* ******** ******** on ********'* ****** ******.

Patent *********

******** **** **** *** have ** ***** ****** licensees ***** ** ***** adopter's *****, ** **** a ********** ******** **. Based ** ******* ** their******* ******** ****, ******** ***** ****, IQrity ***., *** ********, IVS **********, *******, *** Topview, **** ** ***** are **** ***** ** likely **** ******* *********.

********'* *** ***** ******** to ******* ******* *******, only ****** **** ** was '******** ** ******** of *******', ***** ***** ***** ****** ******** acquired them. ** *** *** that *** ******* ***** eventually "**** ***** ************" and **** "**** ******** ** ******** participants **** ********** ******* a ******* **** **."

**** *********** *** *************, Avigilon's *** ********** **** delaying **** *** **** them *****, ** ******** fully ******* ** ******* "***** ** ********" *** historical ************* *** ** higher ***** **** ***** adopters ***** ***.

CEO *****

******** *** ********* **** that *** "******* ** **** ** hardware ** **** ** [their] strategy", ********** **** *** money ** **** ** software *** **** ********* hardware ***** ******** ********* 'more **********.'

**** ***** ** ***** and ** *** *** even **** ** ******** this. ***, ******** ********* **** of ***** ******* ******* hardware *** **** ****** prices ******* ** **** do (*** ********'* **** not *******), ** ***** Avigilon ******* *** ****** to ******* *************. ***, for ******** ** ******* its *** ** *** solution ********, **** **** to **** ********, ** definition. *** ***** *** cost ** *********** ********, the **** ** * premium ***** ******** *********** is.

*********

*** **** **** ******** is **** **** ** the *** ****** -- Avigilon ******* ** ******* to ***** ******* ******** financial *********. ********'* ******** are ***** ******, ****** they, **** ********, *** constrained ** ******* ***** low **** *******.

*******, ***** ** * real **** ** ******* deterioration. ** ** *** 9 ****** ************'*******'**********'. ***** ***** *** an ******* ***** ** relief ****** *** ******** organization, *** *** ******* of ****** ******, ***** going *** ******* **** controls could ******* *********** *** company's ********.

*** *** ****** *** extraordinary ****** ** *** patent ********* *******, ****** that ****** *** *** operational ***** ** ***** / ******** ***********, ** ObjectVideo ***** ***. **** if *** ****** ******* is *********** **********, *** core ******** **** *** have **** *********** *** the ******** ****** ** once *** (*.*., ****** '*************' **** ************).

** ***** ******* **** the **** ****** ****, and ******** *** **** for ********'* ***, ** Avigilon ******* ***. ***** is ***** * **** market *** ***** ************ manufacturers (*.*.,****** ********** *** *******) *** ********, **** new ********** / ****, could ****** * **** term ***** ********* *** a ****** ************.

Comments (16)

Hikvision has about 2 billion left of that 3 Billion better hurry and make a sale for they run out!

A Hikvision / Avigilon deal makes good sense. If it was cash (and Chinese companies are good coming up with all cash bids), I think Avigilon's CEO would got for it. And for Hikvision, they get their high-end play / vehicle for the West.

I hope this does not occur. I suspected that the "poison pill" was setup for just this eventuality.

The poison pill was setup to force a minimum acquisition price far above the current stock price. So any acquirer could still acquire Avigilon if they were willing to pay the price.

That said, I do not believe that Hikvision would attempt a hostile takeover, regardless of price willing to pay, as those are messy and would undermine the rationale of buying a company like that.

On the other hand, I do not believe Avigilon CEO would have any objection to selling to anyone if the money was right. He's always been about maximizing money / 'shareholder value' and I doubt he would object to the source of the money.

How's the run rate looking for 2016?

This quarter was ~70 million, 4th quarter needs to be ~125 million to cover.

You're mixing currencies. This quarter was ~70 million USD. The 125 figure is in CAD, which makes it easier, since 125 CAD is equal to ~97 USD today.

So they need 125 million CAD to cover their revised goal of "$500 million in annual run-rate revenue". They have already implicitly acknowledged they will not meet the original $500 million (CAD) annual target.

If they really want to pull out a $125 million Q4 2016, they may be able to do it but not clear how much that means either way, unless they fundamentally re-energize the business.

You're mixing currencies...

They report in USD, but forecast in CAD?

They just started switching to USD. Back when they made the target / goal, it was all CAD.

Fair enough.

As long as they stick with what they are good at, selling cameras and currency arbitrage, they should be able to make it.

Does anyone know if they have the resources to go private?? It may be in their best interest in the long run.

In terms of going private, they would have to raise more money, but it's possible.

The bigger question, to me, is to what end would Avigilon's CEO want to go private. That tends to make sense if you want to dedicate years to turning things around and then selling off or going back public. I suspect he would find it more attractive to sell, declare victory and then launch a new startup, whether in this market or somewhere else.

Well, they are already moving in that direction by buying back tens of millions of dollars of their own stock and then shredding it.

With the introduction of analytics on the cameras (EOL for Rialtos around the corner), this will help sales of Avigilon hardware (cameras and NVRs) instead of dealers using 3rd party equipment.

"Vast majority of industry participants will eventually require a license from us."

They don't think anyone will come up with anything new?

Their position is that they hold fundamental patents that apply broadly, even if new developments are built on top of them. Whether they are right or whether they can enforce, I do not know.

This is an extension of the OV position that they held positions on any type of calibration (including auto calibration) and any time metadata is used with video analytics (i.e., data is recorded about the video based on analytics of that video). If valid, it would be hard for anyone to get around that.

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