Avigilon CEO Alexander Fernandes answers six tough questions

The tough questions began at about six in the morning, eastern time, on May 7th, just a few hours after the announcement.

What does this mean? Why now? Is there more to follow?

The press release was from Vancouver’s Avigilon and the news was that its CFO, Brad Bardua was leaving the company for health reasons. Taken by itself, this would have raised eyebrows, nothing more. But the fact that the news fell on the same day the company was to report its Q1, 2014 results turned Avigilon’s stock upside down. The Financial Post noted that Bardua was the third executive to leave the company in six months.

By the time the dust had settled, about a third of Avigilon’s market cap had been erased and a several analysts had cut their price targets on the stock. The maelstrom also obscured the fact that the company’s first quarter results were, in fact, quite strong.

At Cantech Letter, we fielded numerous calls from the street in the days following the results. We passed the most common of these onto the company’s founder and CEO Alexander Fernandes, who agreed to tackle them head on.

Alex, you posted another quarter that beat the street’s expectations recently, but that was overshadowed by the resignation of CFO Brad Bardua. One analyst lowered his target price on Avigilon because of “uncertainty” around management, even though you beat his target on both the top and bottom line. Is this kind of uncertainty really a reason for your stock to fall by a third?

It’s the nature of stock markets to fluctuate for a variety of reasons but we remain steadfast and unwavering in the execution of our business strategy. We believe that if we continue to demonstrate strong top-line growth and profitability and execute on our plan, the market will reflect that success over the long term. Our strong financial and operational performance combined with the addition of access control and analytics to our portfolio has made us better positioned than ever for future growth.

Some media outlets reported that Bardua was the third executive to leave recently. Are these all individual cases, or is there a running theme here?

All organizations of this size deal with turnover and we are no exception. Any departures that we’ve had have been unique to those individuals. We have great people on our leadership team that have been with the company for many years and have helped us to achieve great success – such as Bryan Schmode, our COO; Pedro Simoes, our SVP of Global Sales and Manny Gill, our VP of Manufacturing and Global Supply Chain. Overall, we believe that we have done an excellent job of finding the right people to move our organization forward and believe that our financial performance is the best indication of our success.

Are there issues with your corporate culture? Is Avigilon a tough place to work?

We have a corporate culture that is driven by an entrepreneurial spirit. Due to the rapid growth of our business, we do have a high-performance culture. This pace may not be for everyone, but I am confident that we have a very skilled team that can take us to that next level of global growth.

Your guidance to the street has been spot on, perhaps even a little conservative. Do you expect that many will brush off the current mood around your stock and resume a longer view of your growth?

We are better positioned than we have ever been before for future growth. I think most people understand that the stock market can often experience periods of volatility. We know that we have what it takes to continue to achieve long-term growth and we will remain focused on delivering on our business strategy.

There’s an idea out there that hardware businesses eventually revert to the mean and become commoditized. You have always maintained that Avigilon is much more than a hardware business. What ongoing advantages do you have to maintain or grow your considerable margins?

We have never been purely a hardware provider because of our unique software capabilities. We have always been a provider of high-definition, end-to-end security solutions. In addition to having a broad range of high-definition megapixel cameras, we have industry-leading HD video management software and more recently we added access control and video analytics to our portfolio. We are the only company in the industry that I know of that can offer such a robust and complete end-to-end-security solution. A number of factors help us preserve and grow margins, including our ongoing R&D efforts to reduce our cost of sales, and efficiencies and economies of scale in manufacturing as we grow the business.

Because Avigilon has done so well, has grown so quickly, that you must be nearing the top of something. What percentage of your market have you actually penetrated, and theoretically how large could the leader grow in this space?

Actually, there continues to be a huge potential for growth in the security industry. When we started Avigilon back in 2004 we were ahead of the curve with the adoption of IP technology in the industry. The worldwide video surveillance systems market was estimated to be $12.6 billion in 2012 and is projected to increase to $23.2 billion by 2016. Based on our current business model and our track record for success, we continue to see ample opportunity for growth.