Avigilon IPO Plan Analyzed

By: John Honovich, Published on Sep 20, 2011

Megapixel surveillance manufacturer Avigilon announced plans to IPO [link no longer available]. This is a major and rare move for video surveillance companies, riding on the explosive revenue growth of Avigilon for the past few years. In this note, we examine the details and the potential impact of Avigilon's IP0. Update: We examine potential concerns and strategic issues from reviewing their detailed financial reports.

Let's start with a review of key data points from Avigilon's preliminary IPO prospectus:

  • 2010 revenue was $32 Million CAD
  • 2011 revenue for first 6 months was $26 Million CAD, up 88% year over year and putting them on track for nearly $60 Million CAD revenue for 2011
  • International revenue has been exploding, tripling between 2009 and 2010 from ~$4 Million to ~$12 Million
  • The company has 129 employees total with 49 in manufacturing, 25 in sales, 26 in R&D

With the proceeds of the IPO, the company intends to significantly expand product development (hiring 30-40 people in the next 2 years) and expand sales offices in Brazil, China, India, Eastern Europe and South Africa.

Avigilon has not yet disclosed how much it is looking to raise nor the target valuation.

Below is a graph of revenue growth showing how fast it has been. Note it does not include 2011 where Avigilon's near 100% growth rate has continued:

The continued growth rate, especially in 2011, and the approaching of $60 Million in annual revenue is quite impressive. While still below companies like Mobotix (~$100 Million), they are catching up to Genetec, Milestone, Arecont Vision, IndigoVision who had a huge head start on Avigilon.

Concerns

On the negative side, a number of Avigilon's detailed financial metrics point to potential concerns. These are specifically:

  • Low Gross Margins: Avigilon's gross margins are only in the 42-44% range. This is notably lower than Axis (50-51%)and significantly lower than Mobotix (~70%).
  • Low Net Margins: Avigilon's net margins are in the low single digits. By contrast, most IP camera manufacturers are in the 10%-20% range.
  • Low and Flat R&D Expenditures: Avigilon is spending about $2 - $2.5 Million CAD on R&D with almost no increase year over year. For a company that will generate over $50 Million in revenue this year, only about 5% of revenue will go to R&D. More typically with competitors this is over 10%.

Of these three metrics, the one that raises the greatest concern/interest is the low gross margins. Low gross margins generally mean one of two things: (1) the company has a difficult time selling so it needs to drop price to get buyers or (2) the company has explicitly decided to set agressive price points to gain market share. Avigilon obviously has no problem increasing sales and their prices are very attractive (people regularly talk about how 'cheap' Avigilon's encoders and MP cameras are). Our suspicion is that Avigilon has set low prices and is accepting below market gross margins as a company strategy. [Note: Because of the IPO plan, Avigilon is in a dark period and cannot comment on this topic.]

So long as Avigilon can manage such fast growth, we think this is a promising strategy. As fast overall IP camera market growth is still likely for a number of years to come, giving up short term profits is likely a good tradeoff to establish long term greater dominance.

The second and final concern we have is the relative low spend on R&D. Over the last year, Avigilon's new product announcements have been relatively minor (especially compared to their growth rate). While the 29MP camera announcement generated buzz, it is an incremental update of a 4 year old product line - not a radical new innovation. We suspect, though are not certain, that the extremely fast growth has limited free cash flow. Once the company IPO occurs, we anticipate that the proceeds will be used to ramp up R&D expenditure (as stated in the prospectus) and new product development. This should be watched.

2 reports cite this report:

Mobotix Partner Program Changes Examined on Oct 02, 2011
In September 2011, Mobotix announced a new partner program that shifts the company's channel approach in favor of stronger protection of...
Winners and Losers Fall 2011 on Sep 25, 2011
Now that the dust has settled from the new announcements of the last month, we can better understand the impact on the overall video surveillance...
Comments : Members only. Login. or Join.

Related Reports

Vivint Valuation Falls $1.5 Billion on Dec 19, 2019
Residential market struggles continue. Now, Vivint's valuation has fallen $1.5 billion in its impending merger. Inside this note, we examine...
"Stress in the Residential Market" - Major Lender Exits on Nov 06, 2019
The residential security / 'alarm' market is getting worse, at least for traditional players. Now, one of the biggest lenders in the industry has...
NetPosa Revenue Plunges 90% on Nov 04, 2019
Revenue for China's long-time largest VMS provider NetPosa plunged 90% in the latest quarter, adding to the firm's serious financial...
Resideo Stock Plunges 37%, CFO Ousted on Oct 23, 2019
The horrible year for the ADI / Honeywell Home spinout, Resideo, just got worse, with their stock plunging another 37% today. Not even a year...
Knightscope Sells Just 1 Net New Robot In 6 Months on Oct 04, 2019
For the first half of 2019, US government records show that Knightscope has sold just 1 net new robots ('machines-in-network'), inching up from 52...
Genetec Beats Milestone For IHS #1 on Jun 21, 2019
For years, Milestone has touted that they are the #1 VMS. Now, Genetec has beaten them in IHS rankings. But what is this? Even other manufacturers...
OpenALPR Doubles Prices on Jun 06, 2019
There is no 'race to the bottom' in cloud / AI video surveillance. In May, Verkada increased their prices. Now, OpenALPR is doing the same with a...
Knightscope Adds Just 2 Total Customers In Past Year, Yet Raising Money at $300 Million Valuation on May 02, 2019
This is no longer funny. While Knightscope has laughed it up promoting robot selfies, joking about a 'suicidal robot', the man who attacked a...
Verkada Gets Half Billion Dollar Valuation on Apr 26, 2019
Last week, when we profiled Verkada (The Fastest Growing Video Surveillance Sales Organization Ever - Verkada), we predicted they would raise $40...
Brinks Home Security / ASCMA Risks Bankruptcy on Apr 08, 2019
ASCMA, aka MONI, aka Brinks Home Security has issued a warning in their most recent financials that they risk bankruptcy. In this note, based on...

Most Recent Industry Reports

USA's Feevr Thermal Temperature System Examined on Mar 31, 2020
This US company has burst on to the scene, brashly naming itself 'feevr' and branding itself as a "COVID 19 - AI BASED NON CONTACT THERMAL...
JCI Coronavirus Cuts on Mar 31, 2020
JCI has made coronavirus cuts, the company told employees in an email that IPVM has reviewed. Inside this note, we examine the cuts made, the...
Add Door Operators To Fight Coronavirus on Mar 31, 2020
IPVM recommends that integrators advocate and end-users consider adding door operators to fight the spread of coronavirus. This delivers...
Video Surveillance Business 101 on Mar 30, 2020
This report explains the fundamental elements of the video surveillance business for those new to the industry. This is part of our Video...
FDA Gives Guidance on 'Coronavirus' Thermal Fever Detection Systems on Mar 30, 2020
The US FDA has given IPVM guidance on the use of thermal fever detection systems being marketed for coronavirus, as an explosion of such devices...
Worsen: Integrators Hit Even Harder By Coronavirus on Mar 30, 2020
Integrator's problems have worsened over the past 2 weeks, according to new IPVM survey results. Inside this report, we share statistics and...
Pivot3 Mass Layoffs on Mar 27, 2020
Pivot3 has conducted mass layoffs, the culmination of grand hopes, a quarter of a billion dollars in VC funding, and multiple failures to gain...
Athena CEO Criticizes 'Deplorable' 'Nitpicking', IPVM Refutes on Mar 27, 2020
UPDATE: NBC News Report Cites IPVM On Coronavirus 'Fever Detection' Cameras Athena Security's CEO Lisa Falzone has strongly objected to IPVM's...
Hikvision Admits Sanctions Harming Its Financial Performance on Mar 27, 2020
While Hikvision initially downplayed being sanctioned for human rights abuses, the company is now admitting a significant impact in a new PRC...