Interesting article from SA…

Overall, AIOCF is a company that is currently significantly undervalued due to a market overreaction and strong long-term prospects. Despite being volatile, the risks are mitigated through experienced management and a strong strategy guiding the company. Valuation models indicate that AIOCF is undervalued by at least 50%, and is well deserving of a second look for almost any investor.

But of particular interest is the user comment which I post below.

A report apparently came out a few weeks ago, which I haven’t read, from an independent research firm named Veritas hinting at the possibility of some accounting improprieties, one of which was channel stuffing. Whoever wrote that report obviously didn’t bother to do much fact checking since they made that allegation without any apparent understanding of Avigilon’s distribution model.

This was later addressed by the CEO on the company’s Q2 conference call, of which a transcript was posted here on Seeking Alpha, in answer to a question from Doug Taylor, the analyst who follows Avigilon for TD Securities:

Here’s the excerpt from the Q&A portion of the call specifically addressing this, from page 4 of that transcript:

Doug Taylor – TD Securities

Okay and I thought to give you an opportunity to address the question recently about a channel, I mean and do you track how much inventory there is in the channel and has it changed appreciably in recent quarters?

Alexander Fernandes

Yes, so the way I mean to answer that perhaps in a slightly different way. So one of our competitive advantages among many is the fact that we delivery not only very quickly but very predictably and that’s part of the thinking behind keeping relatively comparatively to other company high inventory level so that we can fill orders very, very rapidly and predictably and the reason for that is most customer big and small and when I customer I mean integrators, it’s they want to minimize cash out flows and minimize their inventory.

And so many of our integrators if not most don’t stock Avigilon product. And that’s one of our competitive advantages, so that they don’t have the outlay of cash and so the answer is there is not need to track that because there effectively is no stocking of Avigilon inventory in the channel, essentially we get order as they need to be filled. We typically fill ordered within 72-hours and we typically ship overnight and then product gets installed typically within days of delivery.

If you listen to the playback of the call, you’ll also notice they both had a bit of a chuckle over this: