Avigilon Doubles Revenue, Breaks Billion Valuation (Q3 2013)

Utterly unprecedented for a surveillance company Avigilon's size, Avigilon reported doubling revenue in Q3 2012 over the previous year, doing $51.1 million revenue for the quarter, putting them at a $200+ million annual pace, with their market capitalization breaking $1 billion, up 25% alone the day after the announcement. In this note, we break down what is driving their growth and the key details of their performance.

Here is the Q3 2013 financial report.

Given the incredible results, we ask:

Revenue Breakdown

Here is how revenue broke down across geographic regions:

Lowest performance was in Asia. On the call, Avigilon acknowledged that in countries that develop their own surveillance products, the market is 'hypercompetitive' and therefore impacts growth.

Additionally, Avigilon is ahead of their aggressive targets. "Revenue for the nine months ended September 30, 2013 is $122 million, an increase of 81% relative to the same period in the 2012."

Expenses

Marketing expenses were only up 7% this quarter, year over year, a tiny amount, especially compared to recent skyrocketing marketing increase.

By contrast, gross R&D expenses were up 89% year over year.

Access Control Integration Progress

Avigilon commented on their progress integrating their acquisition of Redcloud:

"Order fulfillment, order processing and accounting functions have now been integrated within the  Avigilon administrative platform and the product line is slowly being released out through our existing  distribution network. The second phase of integration will be fully integrating RedCloud access control into ACC, which we expect to be complete by January 1, 2014 and to open up sales to our global network of integrators and resellers."

Avigilon also disclosed that Redcloud did $645,000 in revenue in Q3 2013.

Investor's Deck

Additionally, Avigilon has a new investor's deck, emphasizing over 1,600 integrators, highlighting 5 large ones:

Avigilon also increased employees by more than 30% in just the first part of the year.

Finally, an analyst projects Avigilon doing $250 million revenue next year (2014), up 56% over this year's projected revenue. Given that they did $50 for this just completed quarter, that may not be difficult.

Key Points From the Investor Call

From the recorded investor call (MP3):

• Avigilon told investors that it was mainly impressed and surprised with its growth in U.S. revenue, which was up 115%.
• Despite the upward trend, the company not anticipate much more of a rise in gross margin.
• Expect to see R&D expenses increase in upcoming quarters, but did not discuss technical details or what to expect.
• Richmond facility is expected to reach production capacity soon and so they will expand the area of the facility they are leasing.

SMB Dominates Enterprise

• Avigilon says in the last quarter 95% of customers were small to medium size businesses with 5% enterprise, but now enterprise is up to 10% and they say they are pushing enterprise deals. The largest enterprise deal in Q3 was $1 million.