Since the end of February, Avigilon Corp.’s (TSX:AVO) shares have increased 15%, driven by strong fourth-quarter and year-end 2015 results. Let’s first take a look at the results and some interesting tidbits that speak to the state of the company and the future.
Revenue growth is strong but decelerating
The posted revenue-growth rate for the year was 36%, but on a constant-currency basis, the growth rate was a more modest 21%. For the quarter, the posted revenue-growth rate was 37%, while the constant-currency growth rate was 27%. The revenue-growth rate is decelerating, but it compares nicely to last quarter’s 16% growth and to the industry-growth rate of below 10%, which means that the company continues to capture market share.
Margins are lower but are holding up nicely
As expected, sales and marketing as well as general and administrative expenses increased in 2015, but EBITDA margins were still strong at 19.1% in the fourth quarter versus 21.6% in the same period last year.
Increased confidence in the revenue target
Management is getting closer to its goal of a revenue run rate of $500 million by the end of 2016 and have reiterated their confidence that this goal will be achieved.
A switch to U.S. dollars reporting
It’s worth noting as well that management has decided to report in U.S. dollars starting in 2016 as roughly 70% of revenue is, in fact, in U.S. dollars. This is a welcome change as it will minimize foreign exchange gains and losses and stabilize revenue, EBITDA, and margins.
Rights plan
Reflecting management’s opinion that the stock is undervalued and to therefore avoid being the target of a hostile takeover, they entered into a rights plan, or “poison pill.” Shareholders will vote on this at the company’s 2016 annual general meeting.
Licensing revenue opportunity
Avigilon currently has over 600 patents related mostly to its video analytics technology. The company is pursuing licensing these patents and currently has a licensing revenue stream, but it is not significant as of yet.
During the fourth quarter, a patent program was launched called the Early Adopter Plan, whereby first movers entering into a patent licensing agreement with Avigilon will get preferential rates. The royalty agreements are from three to 20 years with more savings for the client the longer the term. Management has said that the response to this program has exceeded their expectations and they are very encouraged by this.
Management believes that licensing revenue will be more meaningful to Avigilon in 2017 and beyond.
In closing, while volatility will probably still be an issue with the stock and the company’s results due to the fast-growing, highly dynamic industry it is in, Avigilon is building momentum and growing at above market rates, and so the current 2% market share should increase if they continue on this trajectory.
