Milestone 2009/2010 Financial Progress Examined

By John Honovich, Published Dec 22, 2010, 07:00pm EST

In this note, we examine Milestone Systems financial progress across 2009 and 2010, including an examination of XProtect Essential adoption - their recently introduced very low cost VMS version.

Milestone is regularly cited as one of the largest VMS software providers (in terms of revenue, though this excludes comparison to DVR and NVR appliance manufacturers).

Milestone was included in the 2010 ASMAG Security 50, coming in 50th position with a listed revenue of $23.8 Million. This number differs from Milestone's previously cited $30 Million. Milestone clarified that the $30 Million was for 2009 bookings. The much lower $23.8 Million number comes from currency conversion calculated by ASMAG on September 1, 2010. The Danish Kroner to USD exchange rates have fluctuated significantly during 2010. At year end 2009, the exchange rate produced an approximate $28 Million revenue level in USD.

As for 2010, Milestone is self-reporting over 45% revenue growth over 2009.

Essential Growth / Adoption

Perhaps the most interesting dynamic for Milestone's 2010 revenue/growth was the June 2010 announcement of XProtect Essential where Milestone, out of the blue and without provocation, dropped their entry level VMS pricing by more than 50%. Now, Milestone reports that they are selling "more than twice as many units" for Essential than its higher priced predecessor, XProtect Basis+ and that, despite the steep unit price drop, overall revenue for Essential in H2 2010 is higher than Basis+'s H2 2009.

While most VMS vendors declined to respond to Milestone's aggressive moves, these results are in line with basic economics. I think most would agree that VMS software responds to the law of supply and demand and is not a Giffen good. On the other hand, the passive response of most VMS vendors seems to ignore that.

Milestone's growth in this segment is almost certainly coming at the expense of its competitors (i.e., the entry level VMS market is not growing at over 100%). For Milestone, net revenue growth may be a bonus as the main impact may be to weaken their smaller competitors.

In 2011, it will be interesting to see what responses are made and how market dynamics continue to shift.

Comparisons

In general, Milestone's projected growth is in line with the strong results other IP video providers are reporting for 2009 including Exacq and Avigilon. Also, contrast to our note on Genetec's 2009 growth/results.

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