Weak: Vicon / IQinVision Financials Out

By John Honovich, Published Dec 12, 2014, 12:00am EST

Combined Vicon / IQinVision financials are out for the first time since their combination closed.

And the numbers are weak, both top line and on margins.

Revenue Down

[Background: Vicon's quarterly financial announcement]

Vicon's organic quarterly revenue was down 14% year over year, down to ~$8.7 million from $10.5 million in fiscal Q4 2013 (calendar Q3).

IQinVision contributed $1.8 million in 1 month and 1 day, which putting them at an annual sales run rate of $21 million.

The two combined are at an annual run rate of ~$55 million.

Gross Margins Down

The even bigger problem is that gross margins are down significantly to just 35.4%, even after excluding 'restructuring inventory provisions.' Worse, Vicon admitted that last year was a positive outlier, noting "unusually favorable product sales mix in the fourth quarter of 2013."

~35% gross margins are really bad. That's similar to OEM / re-labeller type companies, like Swann. Real hardware manufacturer generally generate margins in the 50%+ range.

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Low, and declining, gross margins indicate poor competitive positioning and cutting prices. Plus, since this factors in a month of IQinVision's results, this bodes poorly for their gross margins / positioning as well.

Decline Combo

Worse, declining gross margins and declining revenues at the same time is a dangerous combination. Vicon may be able to reduce operating costs as the companies are integrated but they will need to turn around the margin and revenue problem to have any chance at surviving.

Cash Pressure

On the positive side, Vicon did have one big sale - of their headquarters facility, a contract for $3.5 million. Though it is not revenue, once it closes it should deliver needed cash. This is Vicon's second real estate deal in as many years, following up 2013's building sale.

Even with this new real estate sale, total cash is likely to be under $10 million, which is not much for a company with such steep loses and needs for improved products.

We do not believe Vicon has any other buildings to sell.

Strategy

In September, Vicon's new CEO announced that his strategy was running cameras and VMS as two independent business units (which we described as a losing strategy). Now, he ammended that approach:

"Our strategy is to continue to market both Vicon traditional solutions and IQeye stand-alone cameras, while also integrating them into a combined solution."

Now, it appears they are going to sell solutions as well.

Stock Wild Swings

The stock price has dropped 70% in the past few months, and is now at ~$1.50 per share, for an anemic market capitalization of just $13 million, which is less than 1/4th their sales volume. In particular, the stock dropped 15% after earnings were announced.

Vicon's new CEO has a lot of work to do.

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