Milestone Unannounced Funding and Profitability

Author: John Honovich, Published on May 08, 2012

Last year, Milestone boldly proclaimed plans to dominate the global VMS market. To better understand how well they are executing this plan, we obtained a copy of their original Danish Financial report, analyzed it and spoke with Milestone management. In this note, we dig into Milestone's Danish financials, examining details of never announced new funding, the company's profitability and the future challenges the company faces as it is executes on the VMS market's most aggressive expansion plan.

Revenue

While Milestone reported a 22% increase in overall revenue in 2011, the company says that in local currency terms, revenue was up 29%. Local currency terms are typically a better way to judge a company's market growth, as they factor out short term currency impacts (e.g., in 2011, they were negative for Milestone).

Milestone says that their growth rate places them above their market average, citing nonpublic market research numbers. While this is heavily dependent on how one segments the market, a growth rate of 22-29% is likely in line with the overall market, assuming that IP cameras are growing in a similar range.

Profitability

Profitability across the board declined:

  • Gross Margins down from 79.1% to 75.8%
  • EBITDA Margins down from 24.8% to 16.9%
  • EBIT (or Net) Margins down from 9.8% to 3.8%

Milestone says a few factors depressed profitability: negative currency impact, expansion into new markets and parts of Europe underperforming relative to plan.

However, just like last year, measured in more traditional terms, Milestone was not profitable in 2011. Their reported profitability is based on capitalizing a significant amount of their software development expenses. Milestone capitalized ~$3 Million USD in such expenses in 2011, more than their reported total net income ~$1.8 Million USD net income. More commonly in the Americas as well as for most surveillance companies, development costs are expensed in the same year, not capitalized. Doing so, Milestone would have suffered a loss. Moreover, relative to other top companies in the market, Milestone's profitability is significantly lower. [For more see details in our 2011 Milestone profitability review.]

Why is lower profitability / losses an important factor?

  • Positive side: It could mean that Milestone is investing more for future growth, allowing it to outperform the market in future years.
  • Negative side: If could mean that Milestone is inefficient and is effectively 'buying' revenue, which may result in a fall if it stops spending as heavily.

Ultimately though, mature companies, like Milestone, need to eventually generate real profits (i.e., positive operational cash flow). Otherwise, eventually you see cost cuts and price increases as the company seeks profitability. Nonetheless, today, Milestone remains bullish about the future.

Get Video Surveillance News In Your Inbox
Get Video Surveillance News In Your Inbox

Funding

During 2011, Milestone received an ~$8 Million USD investment. While this was not announced, it is evident from reviewing their financial records. Milestone clarified that the investment came from Index Ventures, the same VC firm that led their $27 Million investment in 2008. According to Milestone, the $8 Million is new and is equity.

Having an existing investor make a follow-up investment is a good sign as it typically indicates the investor is happy with the progress the company makes. On the other hand, it increases the expectations and the targets a company must reach to justify the investment.

Cash Position

Milestone's operational cash position was essentially flat to slightly negative. Prior to the investment, Milestone had ~$6 Million USD cash on hand. Now, they have ~$15 Million USD.

Milestone's challenge is that they have essentially never generated operational free cash flow as they have aggressively invested in scaling the business. This certainly has a potential to be a very good thing, especially if Milestone can come close to their world dominating plans. However, it is abnormal for the market, with most peers being cash flow positive.

Future

Milestone says it is aiming for an IPO and a long-term EBITDA average of 35-40%. However, in 2011, EBITDA was less than half of that (16.9%). Reaching their profit and going public goals depends on what growth rate they can achieve and what spending levels they can maintain.

Revenue growth dropped dramatically from 2010 to 2011 (from 55% down to 22%). However, last year, Milestone claimed that they could average 41% growth and reach at least $130 Million USD revenue in a few years. This seems infeasible given that they are not even at $50 Million USD revenue. However, the overall VMS market growth appears to be decelerating, with weakening economies, approaching market saturation and improving substitutes (e.g., decentralized recording). Given all this, Milestone will likely be fighting against the wind to pursue such rapid growth.

While Milestone is growing revenue, a significant driver is the company's aggressive sales and marketing expenditure. In other words, the growth may not be sustainable without an unjustifiable level of continued spending. On the other hand, Milestone could quickly become much more profitable by cutting back spending but it would most likely hurt revenue growth or cause revenue to actually decline.

We see no risk of Milestone failing nor even receding from being a major player. The company has solid cash position, a broad, competitive product lineup and the best known brand of any player in its segment.

However, we do see a major risk of Milestone failing far short of its goals and expectations. When such events, the fallout can be painful. The closest comparable is Dedicated Micros, a leader a decade ago who fell apart as the market moved past the company. Events like the hardware NVR introduction, rolling out paid support and restricting device pack access may be initial signs of a company struggling to meet its unrealistic goals, making errors that cause problems for partners and customers.

UPDATE

Milestone was acquired by Canon in 2014. They continue to have weak profitability as shown in Milestone's 2014 financials.

1 report cite this report:

Milestone 'Free' Takeover of OnSSI Accounts on Oct 02, 2015
It's getting nasty. Last month, we reported how Milestone and OnSSI were breaking up. September 30th was the last day OnSSI sold any Milestone...
Comments : PRO Members only. Login. or Join.

Related Reports

Ascent / MONI Faces Lender Lawsuit and Debt Crisis on Sep 13, 2018
ASCMA, aka Ascent, aka Brinks Home Security, aka MONI, aka Monitronics is being sued by a group of their lenders who allege: As of June 30,...
VMS Export Shootout - Avigilon, Dahua, Exacq, Genetec, Hikvision, Milestone on Sep 13, 2018
When crimes, accidents or problems occur, exporting video from one's video surveillance system is critical to proving incidents. But who does it...
US DARPA Investing $2 Billion In AI on Sep 11, 2018
The US Defense Advanced Research Projects Agency (DARPA) is granting more than $2 Billion to companies developing new AI technologies. The money...
Dahua Low-Cost 4MP Camera Tested (N44CL52) on Sep 10, 2018
4MP use continues to increase, especially in low-cost models, according to integrators in our 2018 Resolution Usage Statistics. We bought Dahua's...
Directory Of 110+ Video Management Software (VMS) Suppliers on Aug 30, 2018
This directory provides a list of Video Management Software providers to help you see and research what options are available. Listing...
Inputs/Outputs For Video Surveillance Guide on Aug 24, 2018
While many cameras have Input/Output (I/O) ports, few are actually used and most designers do not even consider them. However, a good understanding...
Luxriot VMS Profile on Aug 23, 2018
Luxriot is more popular than Hikvision and Milestone products according to ASMAG which was probably even surprising to Luxriot. The company has...
Synology Surveillance Station VMS Tested on Aug 22, 2018
With so many low-cost NVRs and enterprise VMSes, is there any place in the market for NAS-based VMSes? Recently, IPVM bought a Synology NAS for...
SNMP / Network Monitoring For Surveillance 2018 on Aug 21, 2018
Surveillance systems typically rely on the the VMS to report issues, but this most often just means knowing a camera is "down" with no warning or...
Video Analytics Integration Guide on Aug 16, 2018
Video analytics is hot again (at least conceptually) but integrating video analytics with VMSes can be challenging. This is especially significant...

Most Recent Industry Reports

Alexa Guard Expands Amazon's Security Offerings, Boosts ADT's Stock on Sep 21, 2018
Amazon is expanding their security offerings yet again, this time with Alexa Guard that delivers security audio analytics and a virtual "Fake...
UTC, Owner of Lenel, Acquires S2 on Sep 20, 2018
UTC now owns two of the biggest access control providers, one of integrator's most hated access control platforms, Lenel, and one of their...
BluePoint Aims To Bring Life-Safety Mind-Set To Police Pull Stations on Sep 20, 2018
Fire alarm pull stations are commonplace but police ones are not. A self-funded startup, BluePoint Alert Solutions is aiming to make police pull...
SIA Plays Dumb On OEMs And Hikua Ban on Sep 20, 2018
OEMs widely pretend to be 'manufacturers', deceiving their customers and putting them at risk for cybersecurity attacks and, soon, violation of US...
Axis Vs. Hikvision IR PTZ Shootout on Sep 20, 2018
Hikvision has their high-end dual-sensor DarkfighterX. Axis has their high-end concealed IR Q6125-LE. Which is better? We bought both and tested...
Avigilon Announces AI-Powered H5 Camera Development on Sep 19, 2018
Avigilon will be showcasing "next-generation AI" at next week's ASIS GSX. In an atypical move, the company is not actually releasing these...
Favorite Request-to-Exit (RTE) Manufacturers 2018 on Sep 19, 2018
Request To Exit devices like motion sensors and lock releasing push-buttons are a part of almost every access install, but who makes the equipment...
25% China Tariffs Finalized For 2019, 10% Start Now, Includes Select Video Surveillance on Sep 18, 2018
A surprise move: In July, when the most recent tariff round was first announced, the tariffs were only scheduled for 10%. However, now, the US...
Central Stations Face Off Against NFPA On Fire Monitoring on Sep 18, 2018
Central stations are facing off against the NFPA over what they call anti-competitive language in NFPA 72, the standard that covers fire alarms....
Hikvision USA Starts Layoffs on Sep 18, 2018
Hikvision USA has started layoffs, just weeks after the US government ban was passed into law. Inside this note, we examine: The important...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact