Google Finance
Filing
Oct, 8, 2015
2015 Q2 Data
1.Basic Information
(1) History
Alexander Fernandes found Quantitative Image, a scientific digital camera company at 1999. The initial funding is $2m It was sold to Roper Industries at 2002 for $20m( or maybe $12m?). At 2004 he started Avigilon to enter the video surveillance market. The initial funding is $7m. It went IPO at 2011 and raised $25m.
(2) Business-related:
The video camera it sells are all digital, range from 1M pixels to 30M pixels. The backend software system from it seems pretty good.
It sales IP system to the integrators and don't sell to retail user. This makes its product more liked by those installers and this is one of the reasons its revenue grows. Currently, it has 2000 integrators.
Around 20% of its revenue is from $500k+ business project. It seems to do quite well on those big projects.
It manufactures in Canada and recently opened the second factory in the US. CEO explained the labor cost only accounts 3.5% of the product.
Usually, Q1 is the weakest, Q2 and Q2 are better quarters than Q1, Q4 is the best quarter in sales.
(3) Management.
Alexander Fernandes: He is the key person in the company and around 50. The company is been profitable since the second year(2008) of product sales.
Wan Jung: He worked with Fernandes at QImage and co-founded AVO. Retired at 2012 after the IPO. 2014 stepped in as intern CFO for one year and then retired again at 2015.
(4) Debt and Credit Facility.
It has no debt until Q2 2015 it took around $100 debt to support share buyback. Cash is around $90m as well.
(5) Insider holding, options, Insider trading info, share buyback.
Fernandes: 4.9m around 10%
Wan Jung: 3m
(6) Employee numbersWan Jung: 3m
Around 886 at Q2 2015.
(7) Auditor
(8) Industry comparison.
Axis: $500m sales and $80m operating income in 2014, At Feb. 2015 Canon offer to buy it for $2.8B. Not done yet. The company's major market, gross margin, operating margin, net profit margin all are very close to AVO's. However, its revenue growth rate is less than AVO. In 2Q 2015, its revenue actually is flat.
Pelco: US company, belongs to Schneider Electric. $400m revenue at 2014. Long history but seems not doing very well now.
Bosch: $1.5B euro sales at 2013. However, it includes stuff like fire detection etc.
Samsung: Part of non-core business sold to Hanwha at end of 2014. Don't know the size.
Sony, Panasonic:
hikvision: 海康威视: 3B$ sales level in 2014. In Hangzhou, its gross margin is less than 50%. However, net profit margin is above 25% which is way above AVO's 10% range. Around 2/3 of its sales is in China. Hikvision is growing very well in recent years as well. I believe it mainly competes with AVO on the lower end product.
uniview: 宇视科技: In Hangzhou
(9) Major events
2) At 2014, CFO and 4 other executives resigned. The companies stock fall from $30 to a low of $12.
3) 2013, issued 2.8m shares at $24 for $69m. 2014, issued 3.4m at $29 for $100m.
4) Feb. 2015, it purchased a new building in Vancouver for $42m and will use it as new headquarters.
5) It bought-back around 2.1m shares in Q2 2015 at around $18.4/share. Still, 1.6m left to buy.
2. Financial data.
1) Since 2013, the company acquired several companies which are most holding IP on video analysis.
2) At 2014, CFO and 4 other executives resigned. The companies stock fall from $30 to a low of $12.
3) 2013, issued 2.8m shares at $24 for $69m. 2014, issued 3.4m at $29 for $100m.
4) Feb. 2015, it purchased a new building in Vancouver for $42m and will use it as new headquarters.
5) It bought-back around 2.1m shares in Q2 2015 at around $18.4/share. Still, 1.6m left to buy.
3. Valuation
Currently, it is around 16 P/E for TTM. On EBITDA basis, it is around 10-11 times. Not really cheap.
When compared to Axis, AVO is around half of Axis's revenue and operating income. Based on Cannon's paid price for Axis, it should worth around $1.4B which is around $30/share.
Recent Q2 2015 running rate is $360m. It is targeting $500m sales running rate at end of 2016. Assume at 2017 it can achieve $500m revenue. Using 13%, 15%, 17% EBITDA margin, it will generate $65m, $75m, $85m EBITDA, using $10m as maintenance CapX, using 30% tax rate. It will generate $38.5m, $45.5m, $52.5m in real income. Using 15 P/E as the fair price, it worth $580m, $680m, $790m by then.
4. Risk
(1) The executives resigned at 2014 which is actually the main reason for the stock to fall. Especially the CFO quit one day before the quarterly data release. The CEO explained that as the company grows, the management must move up or move out. Which suggested that he forced them out because they don't meet his expectations. As Fernandes is a strong leader and the key person in the company and he is still here, I think this is not that bad as the market reacted. This might be a right move he makes. However, this does indicate he is a pretty tough boss to work with. He seems pretty obsessed with revenue grows. Now he is overseeing 7 departments directly. I am not sure whether he has that energy to do that. There are definitely some concerns here. But I am not overly worried about it.
(2) The company latest R&D and operating expense increased a lot which is also the drive for the stock fall. The SG&A increase mainly from hiring more people. R&D increase is mainly on video analytics. In the first half of 2015, when added back capitalized R&D, its real EBITDA margin is much lower than previous years. I believe in the short term there is some fluctuation, in a longer term, it should be able to back to 15% or 17% EBITDA margin rate. However, it is a real concern that the company might not be as profitable as before.
(3) Competition from cheap Chinese competitor like Hikvision. Usually, Hikvision's hardware price is around 50%-60% of AVO's. However, Hikvison's major market is in China, also its sales model is quite different. Also, its software seems way more valuable than hardware. I think is still quite competitive although its margin might have some pressure.
(4)The company is now heavily invested in Video Analysis and believe it is the future of Video Surveillance. I actually agree with Fernandes's vision. However, it is possible that this won't work.
5. Conclusion
Overall I think is an excellent growth company with a strong management. The CEO has a pretty good tracking record and a good vision. Current price at around 16 P/E is pretty acceptable for such a high growth company even with some concerns remaining.
5.Links
So far there is not much writing from value blogs which is quite surprising to me.
There is a critic from IPVM about its marketing practice at Jan. 2014:
http://ipvm.com/report/avigilon_ad_critique
About executive departure at Sept. 2015:
http://www.bnn.ca/Video/player.aspx?vid=695194
https://www.biv.com/article/2015/9/move-or-move-out-avigilon-founder-alexander-fernan/
About video analytic acquisition explanation:
http://www.securityinfowatch.com/article/12040561/inside-avigilons-video-analytics-patent-acquisition-strategy
Update Nov. 05, 2015
Q3 2015
1) After the Q3 data release, the stock plunged over 10%. In my view, the data is actually pretty good. Both R&D% and SG&A% is lower than previous 2 quarters. Also, real EBITDA margin is back to 16%.
Sept. 22, 2017
Price: $17.4, Shares 43.8m. Market cap $760m
(1) The company reports in USD$ since 2016. For 2017, it is expected to generate over $400m in revenue. For the first 2Q, its adjusted EBITDA is around $27m. It is expected to generate over $70m in adjusted EBITDA since last 2 quarter is their best quarters. EBITDA margin should be over 15%.
(2) The company sold its office for $107m in CAD$ and leased it back. It is supposed to reduce debt to a pretty low level.
(3)After two years since I first wrote about it. It does achieve price close to my high-end estimation ( $760m vs $780m ). The EBITDA should also be close to my estimate ($70m in USD vs $85m in CAD).
(4)Currently, there are $3m/quarter R&D expenses have been capitalized. Those are not included in the adjusted EBITDA calculation.
(5)Last year CapX is $20m, 2017 first 2Q CapX is $20m already. Those mainly due to office renovation. Depreciation expense, however, is only $4m for the first 2Q of 2017. Don't know my $10m maintenance CapX is enough or not. Kind of concerned about whether something is buried inside the numbers.
(6) If subtracting the Maintenance CapX, even at $2/quarter, the real income is much lower. However, currently the company is still focused to improve its profitability, it seems it did quite well for the last several quarters.
(7) The original concern about management departure is no more a big issue. However, on Glassdoor website, there are quite some bad reviews of the company and the CEO.
(8) Assuming by 2020, it can reach $800m USD revenue, using 17% EBITDA margin, using $20m CapX and R&D, 30% tax, it can generate around USD$135m in EBITDA and USD$80m income. Using 20 P/E, it supports around CAD$2B market cap at that time if things go well.
Nov. 08, 2017
Q3 2017 Data, Price: ?? , Shares: $44m, Cap:
(1) The company released earlier that CEO Fernandes will be replaced by COO James Henderson at 2018.
(2) Fernandes sold 600k shares at $19. Reduced from 4.9m shares to 4.3m shares. Now less than 10%.
(3) Q3 did very well with $108m revenue(15% growth). Net income $9m, around 8.3% of revenue. For the full year of 2017, revenue expected to be over $400m which is 15% growth rate.
(4) My Sept estimate seems wrong. If using 15% growth rate, by 2020, it might generate $600m revenue which is around $750m in CAD$. Using 10% net income, 20% P/E, it should support $1.5B Cap.
So far there is not much writing from value blogs which is quite surprising to me.
There is a critic from IPVM about its marketing practice at Jan. 2014:
http://ipvm.com/report/avigilon_ad_critique
About executive departure at Sept. 2015:
http://www.bnn.ca/Video/player.aspx?vid=695194
https://www.biv.com/article/2015/9/move-or-move-out-avigilon-founder-alexander-fernan/
About video analytic acquisition explanation:
http://www.securityinfowatch.com/article/12040561/inside-avigilons-video-analytics-patent-acquisition-strategy
Update Nov. 05, 2015
Q3 2015
1) After the Q3 data release, the stock plunged over 10%. In my view, the data is actually pretty good. Both R&D% and SG&A% is lower than previous 2 quarters. Also, real EBITDA margin is back to 16%.
Sept. 22, 2017
Price: $17.4, Shares 43.8m. Market cap $760m
(1) The company reports in USD$ since 2016. For 2017, it is expected to generate over $400m in revenue. For the first 2Q, its adjusted EBITDA is around $27m. It is expected to generate over $70m in adjusted EBITDA since last 2 quarter is their best quarters. EBITDA margin should be over 15%.
(2) The company sold its office for $107m in CAD$ and leased it back. It is supposed to reduce debt to a pretty low level.
(3)After two years since I first wrote about it. It does achieve price close to my high-end estimation ( $760m vs $780m ). The EBITDA should also be close to my estimate ($70m in USD vs $85m in CAD).
(4)Currently, there are $3m/quarter R&D expenses have been capitalized. Those are not included in the adjusted EBITDA calculation.
(5)Last year CapX is $20m, 2017 first 2Q CapX is $20m already. Those mainly due to office renovation. Depreciation expense, however, is only $4m for the first 2Q of 2017. Don't know my $10m maintenance CapX is enough or not. Kind of concerned about whether something is buried inside the numbers.
(6) If subtracting the Maintenance CapX, even at $2/quarter, the real income is much lower. However, currently the company is still focused to improve its profitability, it seems it did quite well for the last several quarters.
(7) The original concern about management departure is no more a big issue. However, on Glassdoor website, there are quite some bad reviews of the company and the CEO.
(8) Assuming by 2020, it can reach $800m USD revenue, using 17% EBITDA margin, using $20m CapX and R&D, 30% tax, it can generate around USD$135m in EBITDA and USD$80m income. Using 20 P/E, it supports around CAD$2B market cap at that time if things go well.
Nov. 08, 2017
Q3 2017 Data, Price: ?? , Shares: $44m, Cap:
(1) The company released earlier that CEO Fernandes will be replaced by COO James Henderson at 2018.
(2) Fernandes sold 600k shares at $19. Reduced from 4.9m shares to 4.3m shares. Now less than 10%.
(3) Q3 did very well with $108m revenue(15% growth). Net income $9m, around 8.3% of revenue. For the full year of 2017, revenue expected to be over $400m which is 15% growth rate.
(4) My Sept estimate seems wrong. If using 15% growth rate, by 2020, it might generate $600m revenue which is around $750m in CAD$. Using 10% net income, 20% P/E, it should support $1.5B Cap.
