Avigilon Q2 2015

Avigilon Q215 report (All numbers in Canadian Dollars)

I want to thank Seekingalpha.com for the use of their transcripts and Sec.gov for the financials.

OverView of Quarter:

Revenue increased 38% YoY for the quarter. Net Income was down 19% and adjusted earnings were up 26%. They now have an annual Revenue run rate of over $350,000 along their path to $500,000. Their FCF was negative this quarter but they had more Cash on their balance sheet. They also had more debt on their balance sheet.

For the Quarter:

                                  Three months ended June 30th,        2015         2014     % Change     
United States                                                          54,123       35,038      54% 
EMEA                                                                   19,342       14,783      31% 
Canada                                                                  4,219        4,244      -1%
United Kingdom                                                          4,328        4,514      -4% 
Asia Pacific                                                            5,544        4,777      16% 
Latin America                                                           2,238        1,825      23%     
Total revenues                                                         89,794       65,181      38%

When asked about the weakness in the U.K, Fernandes claimed they were coming off a really big base and that this was nothing to worry about. I am not sure if this is an adequate explanation.

New Innovations:

This quarter Avigilon introduced Centers of Excellence to strengthen Research and Development. Vancouver will serve as their Video and Enterprise security center of excellence, Boston will serve as the Analytics and Data Sciences center of excellence and Dallas will serve as Customer Experience and Ecosystem center of excellence. Avigilon also announced the addition of the Avigilon Control Center (ACC) Edge Solution (ES) High Definition (HD) Recorder to its innovative product portfolio. The ACC ES HD Recorder delivers complete support for HD cameras up to 7K (30 MP) resolution, full performance of the Avigilon Control Center (ACC) software and powerful remote access capabilities in a compact design. Their security solutions are backed by 273 U.S. and international patents issued and 279 patents pending.

At the end of Q2, They had 886 employees, up from 775 at the end of Q1 2015. They are investing in people in all areas of the company.

Net Income Statement:

• Revenue for the quarter were at $89.8 million up 38% from $65.2 million YoY.
• Cost of Sales were up 30% but down 3% as a percentage of Revenue.
• Gross Margins were 58% up 3% YoY
• Sales and Marketing were 24% down 2% as a percentage of Revenue YoY
• R&D were 13% down 2% as a percentage of Revenue YoY
• G&A were 17% up 7% as a percentage of Revenue YoY

Avigilon is growing Revenue, but this growth is coming down. You could say this is because of the Law of large numbers but their Market Cap is only a little bit above $500 million. I am a little surprised because of the size of this market. While all of the costs, except for G&A , are basically staying in the same range, G&A is really ramping up due to the increase in staffing.

Balance Sheet

Their Balance sheet is a mixed bag this quarter. Their cash is now at $94.9 million dollars up 30% from YoY. They now have debt on the Balance sheet of $19.3 million dollars. Their inventory is essentially flat QoQ.

Cash Flow Statement

Avigilon was Free Cash Flow negative again this quarter. They are spending on their Plano Texas plant and their headquarters. When this finally gets up and running it will only impact Gross margins by 2 to 3 basis points over the next 3 to 4 quarters.

Conference Call:

Alexander Fernandes CEO:

Security Solutions are a growing global market at is estimated to grow from U.S.$18 Billion dollars in 2014 to U.S.$28 billion dollars by 2018. No Single customer was larger than 3% of revenue for the quarter. Large enterprise deals of over $250,000, represented 20% of revenue. Headcount increased 111 employees, 48 of these employees were in manufacturing at the Plano, Texas plant. Introduced the new Avigilon Control Center Edge Solution Hd Recorder which is targeted at organizations with a large number of remote sites. It supports our entire camera range up to 7K resolution, and is ideal for remote applications. They have the only 7k camera in the global security industry. They are rolling out a new licensing program which should see traction in 24 to 48 months. The big changes is the ongoing commoditization of hardware. Which doesn’t negatively impact their business. They are still not facing price pressure. They are the only company in the world to feature 4k and 5k camera technology with video management software, capable of video analytics. That’s of particular interest in doing real-time perimeter protection. As competitors try to roll out video analytics, it gives them a greater licensing opportunity, which is very high margin recurring revenue.

Ric Leong CFO:

Capital Expenditures in Q2 were $10.9 million and year to date $14.6 million. For 2015 they expect CapEx to be in the range of $20 million to $25 million, excluding the $45 million to $50 million related to purchase and improvement of their global headquarters in Vancouver, British Columbia. They repurchased approximately $2.1 million common shares at an average price of $18.39 per share. The closed a US$200 million credit facility and drew down US$80 million. Still continuing to add to infrastructure both in G&A, sales and marketing and R&D. Growth will be modest for the remainder of the year.


You can see what Avigilon is doing. They are investing now to grow in the future. It’s interesting to see them ramping up but I want to see more on the Revenue side at this time. By next year I expect to see more money falling to the bottom line. I was surprised that they started the Centers of Excellence. Two red flags for me are the Centers of Excellence and how much they are spending on their global headquarters. They have a Market Cap of $549.3 million and they are spending up to $50 million on their headquarters. I like the size of this market though. An $18 billion dollar market that is growing to $28 billion by 2018 is pretty exciting. Since the market is highly fragmented, Avigilon has a good chance of capturing a good piece of this market. I also like the move from Analog to Digital cameras. The first and third quarters are always weaker quarters but I think by 2016 we should see this company start to take off again.

AIOCF----EPS QoQ .12/.15= 25% EPS YoY .81/.70 16% Price 15.93 P/E 19.67 1YPEG 1.23



Hi Andy,
are you still following Avigilon. what do you think will be the effect of the current problem of low oil prices, china slowing, strong dollar on this company? Any thoughts?

1 Like

Hi Usha,
Yes I am still following Avigilon. I do not expect them to get very hard in a down turn because the market isn’t expecting much earnings growth out of them this year. As you know they are calling this a build out year so they are spending a lot of money on their sales teams, warehouse in Texas, and Corporate office in Canada. All of this should be finished by this year. Next year I am hoping they get back to growing their earnings. If this doesn’t happen then I will probably end my investment in this company.

As Far as the strong dollar goes. Avigilon’s biggest region in Sales is the U.S and that is why they are building a warehouse in Texas. The U.S strong dollar should be a plus for Avigilon because they report in Canadian dollars. The U.S to Canadian exchange rate is .76 to 1.00. China’s slowing shouldn’t hurt Avigilon unless it creates a global slow down that hurts all companies. Avigilon does not sell much product in China yet. The United States and EMEA are their two biggest regions with Asia Pacific broken out as one of the smallest. The fastest growing are U.S, EMEA, Latin America, and finally Asia Pacific. With Latin America and Asia Pacific making up a much smaller part. So I do not think China will create a problem for Avigilon. With Oil prices being low this should be great for most companies that are not in the oil business. Usha I am getting Diesel gas now for $2.54 . That should be great for anyone that is shipping and should be a big plus in the U.S. I feel sorry for the people working in the oil fields but for the rest of the U.S. it is a great benefit.

Usha, I am still invested in AIOCF and in fact I bought a little bit more last week. I do not expect to see a lot of volatility in the price of the stock because they have been beaten down to much already. This has been a very interesting investment for me and one I am learning a lot of lessons on. First, the CEO said that he was going to hit a run of $500 million by the end of 2016 and he is at $300 million right now. Second he said this was going to be a build out year and it has been. Revenue has been growing in the 30% range with earnings growing in the mid Teens. Revenue has been coming down but I expect that to take off again when they get the sales teams up and running. Also the build out should end this year so next year their earning will go up. At least that is what I want to see.

The lesson that I learned from this company is that Saul and Chris were right. When a company claims a year for building out their company, it will hurt the stocks price. It makes sense because the earning will be lower, with declining earnings comes a declining price. In order to grow it is very hard to keep earnings up for most companies. If you can find one that is doing this while growing earnings that is a great investment.

Hoped this helped Usha


thanks Andy ,that certainly was helpful.
just 2questions
If they are building out their business,why is revenue growth slowing?
I just was reading on AMBA board that Comcast is buying some security cameras from them. Does aiocf make their own cameras?

1 Like

Hi Usha,

If they are building out their business,why is revenue growth slowing?

Very good question Usha. I would say it is the law of larger numbers. That is why they are building out their sales team. While Revenue is slowing as a percentage of growth it has continued to increase quarter to quarter. So when their sales team gets up and running they should see Revenue growth pick up as a percentage. They grew Revenue last quarter at 37.76% Yoy.

I just was reading on AMBA board that Comcast is buying some security cameras from them. Does aiocf make their own cameras?

Amba doesn’t sell security camera’s they sell the System on a Chip (SoC) that integrates HD video acquistion from a cmos sensor. Ambarella sells these chips to other companies so that they can make camera’s. Avigilon buys these chips from Ambarella, and they make their own camera’s using these chips. So I am not sure about Comcast buying camera’s from Amba, they might be buying the chip to make their own camera’s but that doesn’t make sense either. I can’t see Amba building their own cameras but maybe they have started doing this. I will have to check that out. But Avigilon isn’t in the security camera business. They believe camera’s are going to become or have become a commodity product. Where Avigilon excels is in the software and products that they make to monitor events. While their security camera’s are a part of the package, they can also integrate other security cameras into their products. Avigilon calls their product an end to end solution.