Avigilon Corporation

 

Avigilon makes security surveillance systems including cameras and system software. Avigilon has established a leading position in analytics to embed analytic capabilities into the cameras to enable smart security systems that can actively identify threats or breaches.  The company has grown rapidly and built a second manufacturing facility in Texas to complement their manufacturing facility in Richmond, BC.  The market is fragmented with Avigilon’s market share being around 2% and they do not have significant customer concentration.  They sell exclusively to system integrators who design the systems into office buildings, stadiums, transportation stations, nuclear facilities, and other large Enterprise facilities which comprise around 20% of their revenues.  Avigilon is valued at around 18X trailing EPS and they should continue to experience solid growth.  They report their results in U.S. dollars and have a solid balance sheet. 

Company reports in $U.S.

 

Ests:    3Q17   4Q17   FY17    FY18

Revs    1.51b   1.52     6.44     6.92

EPS      1.83     1.75     8.34     8.86

 

P=76.92, Div=.48, yield=0.8%, s/o=65.3m, TTM EPS=8.07, P/E=8X, D/C=24% but NWC>debt by 2.05/share

Avigilon was acquired by MSI for C $27 per share.

3Q17   1.76 vs 1.79 ex fx gains/losses, est 1.83

  • Reported EPS 1.62 vs 1.86 but incl fx gains/losses , co says EPS ex fx and one time items +9.4%
  • Revs +6.5% to 1.55bn, GM 14.9% vs 16.1%, reported OpInc -13.5% but -5.5% ex fx g/l on balance sheet items, adj OM 9.8% vs 11.0%, last year margin benefited from a recovery but amount undisclosed, fx on operating items also a drag, mgmt. says those 2 accounted for another 14.5m swing but I’m not excluding fx on operating items.  Also interest expense seems unusually low this quarter. 
  • Powertrain +5.1% to 128.9m, OM 8.4% vs 10.1% but includes f/x g/l
  • Industrial +14.1% to 260.3m, OM 12.9% vs 16.2% but includes f/x g/l
  • Powertrain up despite NA light vehicle volumes -7.7%, unfavourable fx impact on revs, opinc, margin pressures from ramping programs being lower than mature programs, Content/vehicle up across all geos, seeing more outsourcing of components and systems that were exclusively in-house, see substantial opportunity in EVs, YTD 20% of business wins YTD are EV
  • Continued business wins, launch book almost 4.7bn, another hybrid win in Asia, seeing interest in e-axle.  Still expect high-single digit to low-double digit EPS growth in FY17, and expect double digit growth in FY18.  Expect both FY17 and FY18 to have net margins ~8-8.5%
  • Some discussions/concerns around NAFTA, 93% of their purchases are in NA, mostly from US.
  • Messy and disconcerting quarter given the lack of clarity on adjustments but business still intact and growth continues, quote activity is “heavy”.  Stepping back a bit, margins excluding items and fx are similar so the fundamental longer-term profitability is similar, this is just a noisier quarter than usual, hopefully an outlier rather than a trend. 

3Q17   .29 vs .21, est .21

  • Revs +13% to 108.2m, GM 51.4% vs 51.4%, OM 16.9% vs 13.5%, adj EBITDA 22.6m vs 16.7m (20.9% vs 17.4%), adj OpEx 34.5% vs 37.9%
  • Announced Avigilon Blue, subscription-based cloud service platform powered by Microsoft Azure
  • All geos up 19% or higher except US which was +7%, operating cash flow similar to last year but 5.5m invested into WC vs 3.8m from WC last year, reduced debt almost $9m
  • Guidance: Revs 400-410 (+13-20%), vs previous range 390-425, EBITDA margin 17-19% up vs previous guidance 13-17%, YTD margin 17%, implies 4Q Revs 112-122, +9.7-19.5%, est 119 (4Q16 was +25%), 4Q EBITDA 18.1-28.0m, vs 20.8.  4Q17 EPS est is flat y/y which is probably too low.

2Q17   .21 vs .06, est .14

  • Revs +16% to 99.4m, GM 51.4% vs 50.1%, OM 13.8% vs 5.4%, Adj EBITDA 17.8m vs 8.0m
  • Adj OpEx 37.6% vs 44.7%, Still expect OpEx as a % of revs to decline as mgmt. focuses on operating leverage and profitability
  • Revs up solidly in all geos except Latin America which was -6%, Asia Pac rebounded +95% q/q to +32% y/y
  • A number of innovative product introductions including appearance search, thermal camera line, presence detector, new camera variants.
  • Solid results, very good quarter for cash flow, now fully lapped the surprise price cut for the H3 line, HQ sale still pending closing, moved in.  2H comps might not be as easy as 2Q but continued growth with stable GMs and OpEx should still drive EPS growth and 16X trailing EPS is quite attractive.  FY17 Guidance unchanged for Revs +10-20% (YTD +15.5%), EBITDA 13-17% (YTD 15.2%)

1Q17   .07 vs .09

  • Revs +14.9% to 80.3m, GM 50.6% vs 56.7%, OM 6.3% vs 8.9%, OpInc 5.1m vs 6.2m but
  • Adj EBITDA 9.4m vs 8.9m
  • Revs up solidly in all geos except Asia Pac which were -35% on top of a very strong performance last year and lumpiness of large projects. 
  • Introduced a sophisticated deep leaning Artificial Intelligence search engine that can sort through hours of footage to quickly locate a specific person of interest across all cameras on an entire site.
  • Sold Vancouver HQ for 107.5m (purchased for 42m in 2015) and signed a leaseback, expect closing during the year. 

4Q16   .26 vs .21, est was .18, FY16 EPS .61 vs .76

  • Revs +25.5% to 102.2m, GM 51% vs 56%, EBITDA 20.8m vs 15.5m, 20% vs 19%, OpEx 34.7% vs 39.5%, OM 16.3% vs 16.5%, CFO 18.8m vs -8.8m
  • Revs driven by volume due to 2Q price cut on H3, greater adoption and penetration, new products, video analytics, and licensing. 
  • US +13%, EMEA +32%, AP +138%, Canada +20%, LatAm +41%
  • FY Revs +23% to 353.6m, GM 52% vs 57.4%, EBITDA 54.4m vs 51.3m, OM 11.5% vs 15.6%
  • FY17 Guidance: Revs 390-425m, EBITDA 13%-17% vs 15% vs 18%, focus shifting from revenue growth with profit to profit with revenue growth