Avigilon Strong Growth Continues Q2 2013

By: John Honovich, Published on Aug 08, 2013

Continuing to buck the trends of the broader surveillance market, Avigilon's revenue was up 61% year over year for Q2 2013. Here is the full financial report. [Bonus - at the end, we break down the revenue of Avigilon's recent acquisition of RedCloud.]

  • Net profitability rose to 8.6%, which is a significant improvement over last year and approaching the rates of mature surveillance companies (such as Axis and Mobotix), indicating that Avigilon is not just 'buying' market share.
  • Growth in the US was the lowest of all geographic regions at just 41%. At nearly half of Avigilon's total revenue ($18 million for the quarter), this could be an indicator of increasing challenge in expanding in a fairly saturated market. On the other hand, Avigilon grew ~90% outside of the US, which could continue to fuel overall significant growth.
  • Gross margins increased 5 points from 48% to 53%, which puts them in line with more historically profitable and mature surveillance businesses (such as Axis).
  • Sales and marketing expenses were up 55%, lower than their overall growth rate, which indicates efficiency in expansion.
  • Gross R&D expenditures were up over 80%, a good sign compared to historical concerns of underinvesting in R&D.
  • Market stats: Avigilon cites both IMS and ABI for market statistics. Avigilon cites a 49% CAGR for IP camera sales from ABI though the other report they cite from IMS projects a CAGR half that. However, that data point is not mentioned.
  • Market cap is now ~$725 million, an all time high, more than 150% higher than a year before.

Here are a few details gleaned from Avigilon's Q2 call:

  • At Avigilon they call their new micro-dome [link no longer available] “The Analog Killer” because at a around $300 they want to take away any reasons an end user would want analog. Revenue from the mini-dome is not reflected in Q2 results but they expect it to be a hot selling product. That said, there are a lot of existing equal or lower cost minidomes.
  • Avigilon only took on six new employees with the Red Cloud acquisition and says the acquisition was not about getting its customers or its revenue - because it was a relatively small company - but about combing to improve technology.
  • The company expects strong growth in its Russian and Eastern European markets as it expands sales operations.

RedCloud

Buried at the end of Avigilon's financials is a disclosure of RedCloud's revenue and losses. For the first half of 2013, RedCloud's revenue was just under $1 million, putting them on a $2 million annual pace. Given the $17 million price paid, that's an extremely high 8+ times revenue.

That said, RedCloud's low revenue is unsurprising. Avigilon is clearly buying them for potential 'synergies' in targeting end to end security systems, especially with larger customers that highly value this.

Also not surprising, but worth noting, is that RedCloud was losing a fairly significant amount of money. Expenses were roughly double revenue leading to a whopping 50% net loss. Despite being 7 years old, RedCloud was likely unsustainable absent an acquisition or new funding round. Given their position, RedCloud did very well with this deal.

Here's the excerpt from the financial report covering RedCloud:

Note: given the obtuse way this is listed, you need to adjust relative to their actual financials for the year.

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