Results are out:
http://finance.yahoo.com/news/avigilon-corporation-reports-r…
5 Likes
“Avigilon plans to continue executing on its successful strategy of delivering strong year-over-year revenue growth while maintaining growth in profit. The Company believes market share consolidation across the industry will continue and the Company remains on track towards an annual revenue run rate goal of $500 million by the end of 2016. To achieve this growth, Avigilon plans to invest globally in all departments of the Company, and expects operating expense as a percentage of revenue to increase modestly in 2015, as it did in 2014.”
I haven’t looked at the details but I was concerned that the CEO was so concerned about achieving the revenue goal that he would sacrifice earnings. In 2014 he went on a spending spree and doubled the employee number. He said that spending increases would stop this year. I don’t like that he is now backing away from this.
I need to look at the following before deciding whether I was to cut back on my shares or not:
-
how much of the EPS growth was due to forex changes
-
what does the spending plan for 2015 look like.
Chris
4 Likes
Chris,
I appreciate your analytic view on the company and its progress/status. I would appreciate it if you would keep us posted here with your results. Would ya?
KLVanLiew
1 Like
Hi all,
Here’s a quick clip on today’s drop:
http://www.bnn.ca/Video/player.aspx?vid=563423
Anyone adding today at this value point (25.5x earnings)?
Travis Baum
(Long AVO, full position)
1 Like
This company is in growth mode; they are going after the $500M p.a. run rate by end of 2016. We have to be patient, to reap the benefits. In essence for this quarter, revenue was up but not as much as the street was expecting. And, because they are growing rapidly, they have to spend to earn that growth, so EPS is not moving as quickly analysts would like. The good news is, they are achieving all of this growth and still growing EPS profitably.
My position is 8% and I will remain long.
Here are some notes from the Conference Call:
On 500M$ run rate:
At our current annual revenue run rate of over $300 million we are well on track to achieve our target run rate of $500 million by the end of 2016.
The Addressable Market:
Our security solutions address a very large global market for video and surveillance and electronic access control, estimated at over U.S. $18 billion in 2014 and growing to over U.S. $28 billion annually by the end of 2018. We see tremendous opportunity ahead and to that end we are focused on topline growth and gaining market share.
Sales in US is strong and we are growing here too:
In the U.S., our largest target region, sales increased 60% over last year. Sales in EMEA were up by 48% and the U.K. was up 51%. In Asia Pacific, a newer market for Avigilon, sales grew 77%.
In 2015 we will be opening a 40,000 square foot manufacturing facility near our U.S. office. Once fully operational it will have a 500 million revenue capacity, similar to our Canadian facility, and will support our business at it grows for years to come.
Having a manufacturing facility in our largest end market makes good business sense. It allows for quicker delivery times, lower cost and opens opportunities where made in the U.S. products are given preference.
We can probably make do what the factory at Richmond, but I think there is a lot of advantage that we have outlined for having a clone factory in Texas.
That’s right. Exactly. The third-party logistics hub that we have presently is located in Kentucky. And we will be sort of winding that operation down and ramping distribution out of the Plano, Texas manufacturing facility.
Why Texas:
So we are not. It’s lease property and not to get too deep into Texas real estate. But one of the attractive aspects of doing business in Texas other than a friendly business environment, cost of real estate is quite low. And so the rents are correspondingly attractive. And so there is really no need to purchase property there. The rents are very competitive.
Customers:
No single customer was larger than 4% of revenue for the quarter or for the year.
And so when we make reference to customer concentration or diversification, we’re talking about at the system integrator level. So we have thousands of integrators now globally so one of them is more than 4%. So if you go at the end user level, its diversified even more, because obviously most of them have more than one customer and so they would have anywhere from a dozen to 20, 30 customers. So at the end user level we are really extremely diversified.
Their Moat and Strategic Advantage:
Video analytics transforms surveillance from a reactive forensic analysis tool to a proactive prevention tool, and can also be a source of business intelligence
We now have 251 U.S. and international patents issued and 254 patents pending and in our opinion the strongest video analytics intellectual property portfolio in the industry.
To be clear our primary objective as an end-to-end security solutions provider is to sell more systems by offering the best video analytics products backed by the strongest intellectual property portfolio, we are ideally positioned to continue leading our industry.
Office Purchase costs about the same as current rent:
We have agreed to purchase a 135,000 square foot office building in Downtown Vancouver.
And as we stated earlier we see the future of the industry being ceded in video analytics. So the real objective is to gain a dominant share of that roughly $30 billion market by 2018, and that’s where the real impact is going to be.
And so the idea then is – it’s a potential a $30 billion market in the next three years. There is lots of opportunity for growth and we want to capture the lion share of that market. And that’s really what it’s all about. So we are very much in growth mode still.
On FX and the balancing act:
As you know the majority of our revenue comes from outside of Canada – it has sort of a self hedging effect. And so the FX over time is just having a less and less impact. And so really – we don’t really see FX is being a big part of our business or having a massive impact.
And so as we invest, for example, in further development – we are expanding our development center, you know, we are expanding here in Canada, but we are also expanding in Boston. So we have an advance group there working primarily on video analytics, but other projects. We are also investing in Texas. So just outside of our U.S. headquarters, we are building U.S. manufacturing plant. And so that creates a natural hedge for us.
Approach and Competition:
We took an approach that we felt was really a game changing approach and so everybody was really in the business of selling widgets and for the most part the industry and the competitive landscape is built around that.
And so we’ve taken a different view of the market, a different approach which as to be a solution provider. And so I think that still sets us apart, especially now that we’ve added access control and video analytics, we’re able to provide very unique, very different – high differentiated solutions that brings value to the end user and the system integrators beyond what other product offerings can offer. And that’s really a – from a strategic standpoint why we’re not getting the price pressure.
Cash Availability:
Well, we don’t give guidance, of course, I’m not going to tell you what our cash flow forecast is. But just to kind of recap, I mean we have over 70 million of cash, cash equivalents. We have working capital in excess of $130 million. And I’d also like to highlight the fact that Avigilon today is a 100% debt free and we are profitable and growing. And so we – in terms of cash we are well cashed up. We have the capital we need to do what we need today. And if the need for more cash comes up, I mean, we really have all sorts of – everything from debt, hypothecation, another capital raise and I’m not suggesting that we are contemplating a capital raise at this time.
But we have basically just a plethora of financing options. We could margin receivables, I mean, there is really sorts of options. But for the time being we are cash flow positive, we are self-sustaining, we are profitable and we have strong positive working capital and a strong balance sheet. So, basically, we’re good. Good for cash.
The Future Growth:
So, we plan to go from a 2% market share where we are today to becoming the dominant and soon to be $30 billion market.
Patents:
What I can highlight to you is that we today have 251 patents, U.S. and international and we have an additional 254 pending patents or patent applications that will be, for the most part, coming to fruition in the coming years here. And so we potentially have nearly 500 patents today and that’s excluding any new patent applications we make and we’re constantly filing new patents on the products and technologies that we develop.
Source: Seeking Alpha – Conference Call Transcript
http://seekingalpha.com/article/2970966-avigilons-aiocf-ceo-…
9 Likes
I’m tempted even though I have a full position and am still up on my original entry position after this drop. These results looked pretty strong to me.
It is also a good hedge in many way vs AMBA if you hold that. It doesn’t have a single dominant customer e.g. GoPro, it is now the other side of the dollar strengthening so going forwards sequential comparisons should be better but if the US dollar weakens it is protected.
I like it a lot.
A
It is also a good hedge in many way vs AMBA if you hold that.
Could you please explain that statement. If I’m not mistaken they are a customer of Ambarella.
Thanks,
Brian
Someone asked if anyone had bought any AIOCF with the large (probably unwarranted) drop-off. I had sold some last week at $19.26, $19.32, $19.53, and $19.78. Here’s what I wrote in my end of February summary:
AIOCF was up 30% this month and I trimmed some of it off, mostly at 19.25 to 19.75, this week. It had been quite undervalued. I currently plan on keeping the rest. They haven’t yet reported Dec quarter results.
I bought some of that back today at $16.44 and $16.77.
Saul
Saul, I’m going to follow you into a little bit more of AIOCF. It seemed like a fair earnings report.
I really like the industry. I love how big stadiums (football, baseball, soccer etc.) can use this type of product to view every single seat and parking lots. Their have been horror stories of people getting nearly beaten to death in parking lots (I remember opening day 2011 at LA Dodger Stadium 2 Dodger fans beat a Giants fan nearly to death…it took a long time to find the criminals who did it). With a product like Avigilon it would have helped catch the criminals much faster.
Of course, the risks are that their product can either be copied or losses market share. But, they are debt-free and growing very fast with cash on hand.
As always, time will tell
Dave
1 Like
Thanks for the reply Saul. My limit order to start a trading position was executed today at $20.30CAD. If it continues down to ~20x TTM earnings I’ll be buying significantly more.
Agree with you that this large correction is unwarranted. I do think video analytics is going to be huge in the relatively near future as marketers realize the value-added and it becomes a commonly used tool (especially in retail). Avigilon will be near/at the head of the pack (with its experience, product offerings and IP portfolio).
Short term pain for long term gain 
Travis
1 Like
AMBA has 2 risks - they are over exposed to GoPro as 1 single customer and as a result they are over-exposed to the personal sports wearable market. AIOCF customer of AMBA or not are fully diversified away from any one major customer and are strong in multiple sectors particularly IP security, professional and industrial usage away from personal sports wearable.
I intend to buy more after the drop over the last 2 days
A
1 Like
Nice trades Saul!
Just kidding. Congrats, I bought another portion today, couldn’t see anything in the earnings report that sounded bad so I am in a little deeper. Still a smaller position in my portfolio.
Randy
Nice trades Saul!
Hi Randy,
It was amazing! I was just lightening my position a little, after a big run up that made the position larger than I wanted. Never in my wildest dreams did I think I’d be able to buy back a part of it the very next week at $3.00 cheaper (after a quite nice earnings report).
Saul
Well I added some AIOCF today as well as some Sierra Wireless. Both averaging up for me but the asymmetry of the current price post earnings reports make for a really nice addition.
Ant