Post on 20-Aug-2015
transcript
Investor Presentation
January 2014
George Rossolatos, Co-CEO
Avante Logixx Inc. TSXV: XX OTC:ALXXF www.avantelogixx.com
INDEX
Section 1: Introduction
Section 2: History
Section 3: Where We Are Today
Section 4: Where We’re Going: Strategy and Outlook
Appendix A: Trading Comparables
FORWARD LOOKING INFORMATION
This presentation may contain "forward-looking statements" within the meaning of applicable securities legislation.
Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "plans",
"expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or
"does not anticipate", or "believes" or variations of such words and phrases or state that certain actions, events or results
"may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking statements are subject to
known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or
achievements of Avante to be materially different from those expressed or implied by such forward-looking statements.
Although Avante has attempted to identify important factors that could cause actual results to differ materially from those
contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or
intended. There can be no assurance that such statements will prove to be accurate, as actual results and future events could
differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-
looking statements. Avante does not undertake to update any forward-looking statements, except in accordance with
applicable securities laws.
DISCLAIMER
This presentation is for information purposes only and is not intended to, and should not be construed to constitute, an offer
to sell or the solicitation of an offer to buy, Avante’s securities. This presentation and its contents should not be construed,
under any circumstances, as investment, tax or legal advice. Any person viewing or accepting delivery of this presentation
acknowledges the need to conduct their own thorough investigation into Avante’s business and its activities before
considering any investment in Avante’s securities. Among other things, investors should review Avante’s public filings which
are available in Canada at www.sedar.com
INTRODUCTION
• Avante is a leading residential and commercial security
provider with a focus on high net worth families and their
businesses along with high profile corporations.
• Avante is a Toronto based leader in executive protection,
elite rapid alarm response, intelligent perimeter protection
video analytics, enhanced security systems, monitoring and
secured executive transport services
– Profitable technology-focused security business with
scalable future prospects
– Strong organic growth with focus on recurring revenue
– Steadily cash flow positive
– Debt-free and a negative working capital business
– Accretive acquisition opportunities ahead and a
management team with significant prior acquisition
execution experience
INVESTMENT HIGHLIGHTS
HISTORY
• Founded in 1996 by Manny Mounouchos
• Manny’s vision was to build a company that
would develop its own technology to distinguish
itself from its competition to provide best in
class protection and service
• Beginning in the late 90s Manny has pioneered
M2M wireless communicators using mobile
Apps on the Mobitex (Blackberry) network.
Branded today as SmartBoxx, it facilitates the
rapid response model deployed by Avante.
Manny also was one of the first to use web-
based cameras for remote site monitoring.
• Listed on the TSX Venture in April 2008 via a
Reverse Takeover of Matiadeka Ventures
• Began as ultra-premium security only and
expanded its offerings and services to a broader
target market
3
AVANTE’S BUSINESS LINES
v Description
Monitoring
• Multi-channel technology-based video
patrols
• 24/7, 365 Avante Control Centre and
dispatch
• Dual monitoring (wired & wireless)
Patrol & Rapid
Response
• Regular patrols at client sites
• 6-minute in-area response time
Intelligent
Perimeter
Protection
• Intrusion Detection and Video Analytics
• Uses a combination of algorithms to study
the environment the camera is focused on
Secure Transport• Highly trained security focused drivers
• Counter-surveillance / first aid trained
International
Security Travel
Advisory
• For clients travelling to unfamiliar /
medium to high risk countries
• Travel risk and threat reports
• Secured Transport
• Client location tracking
Other Services:
• Bodyguard protection
• Private investigations
• Travel alerts
PAST CHALLENGES
In the years leading up to 2010-2011, Avante’s SmartBoxx was gaining acceptance in the energy
management space as a demand response tool. Its GSM-based engineering made it unique
compared to other internet based solutions.
• Avante undertook a costly innovation development program to create energy management
technology for a new market – the utilities – that in hindsight exceeded its capabilities and its
financial wherewithal at the time
• By 2010-2011, the company was burning cash on account of:
– High capital spending to integrate its SmartBoxx into the utility and energy markets
– Loss of focus on core security business
• Technology development for the energy market was causing the company to exhaust its
financial resources:
– This technology spending consumed the company’s cash reserves with significant
dilution from requisite equity issues.
– The payoff from this technology development was distant and uncertain with the
prospect of a continued technology spend to keep up with the likes of GE, Honeywell
and others
AVANTE STRENGTHENS MANAGEMENT TEAM
• In June 2010, George Rossolatos joined Manny Mounouchos as Co-CEO to focus on corporate and operational
strategy & execution while Manny would focus on strategic sales and business development
• George made a concurrent investment in Avante and has since become the 2nd largest shareholder after Manny
• George’s role was to bring private equity discipline, capital markets expertise and a focus on profit and growth to
complement Manny’s skillset as an entrepreneur and innovator in advanced security solutions and services
• Prior to Avante, George founded Riverdale Capital with the intent of finding a business in which he could take a
senior operational role to drive value creation
• Prior to Riverdale, he co-founded private equity firm TorQuest Partners in 2002 with Brent Belzberg
– At TorQuest from 2002 to 2009, George and his partners raised and invested two funds of $180 million
and $550 million respectively
– TorQuest’s overall IRR from exited investments was in excess of 60%
• Previously, George worked as an investment professional at Harrowston Inc., a publicly traded private equity
fund
• Prior to Harrowston, he worked in a management role with Ernst & Young
• Recognized in 2007 as one of Canada’s Top 40 under 40
• CPA/CA (Ontario) and holds an MBA from the Kellogg School of Management (Marketing) at Northwestern
University
NEW MANAGEMENT STRATEGY
• The company’s strategic plan was reassessed and revamped significantly in the months that
followed.
• An experienced CFO (Raghu Sampath) was brought in to enhance Avante’s financial systems,
reporting and controls.
• Avante scaled back spending on non-core development and downsized the company by 30%
– Slow procurement and decision-making at enterprise customers left Avante to finance
these trials in a manner that was determined not to be cost effective for Avante’s
shareholders and capital requirements were very large
– Avante wrote down its technology development costs which allowed for a fresh start
with a clean balance sheet.
– Avante streamlined its costs and delivery models by seeking efficiencies in each
expense line of the P&L in a systematic and focused program.
• Beginning in 2011, the company refocused management attention and capital on its core
security business and began focusing on growth opportunities in which the company had a
competitive advantage. This ensured that Avante would pursue profitable security related
business with a focus on recurring revenue.
Fiscal Year Ending March 31 F2011 F2012 F2013 LTM
Revenue1 5,328 5,538 6,746 8,816
Growth Rate (%) 3.9% 21.8% 30.6%3
Gross Profit 1,140 1,703 2,342 3,434
Gross Margin (%) 21.4% 30.8% 34.7% 38.9%
Adjusted EBITDA2 -1,602 -454 452 1,411
EBITDA Margin (%) -30.1% -8.2% 6.7% 16.0%
Net Income -3,457 -631 371 1,313
Net Income Margin (%) -64.9% -11.4% 5.5% 14.9%
S/O (Millions) 56.0 56.0 55.9 56.0
1. Excludes $326k of revenue in F2011 from energy management pilot projects
2. Adjusted EBITDA excludes stock-based compensation
3. LTM revenue growth rate is vs F2013; growth was 43.2% compared to prior 12 months
WHERE WE ARE TODAY
3
AVANTE FINANCIAL SUMMARY (C$ 000S)Avante has undertaken a number of initiatives to enhance
profitability:
• Avante has shown revenue growth across both business
lines:
– Recurring monitoring business has grown due to
outreach to new customers and selling new
services to existing customers as well as a focus
on developing the corporate customer base
– Other Security & Transport has grown at an even
faster pace as Avante explores profitable new
niches
• Gross Margin, expressed in percentages, has risen
materially, from the low 20s in F2011 to the high 30s in
the LTM period ended December 31, 2013
– This is due to high-margin recurring monitoring
and response fees associated with the high end
security protection
– As well, only profitable new business in the Other
Security segment is taken on
• EBITDA has risen primarily due to the increase in margin
contribution
– However, cost containment has resulted in
diminished operating expenses
• Following Avante’s development cost write down in 2011,
most EBITDA converts to Net Income
– There is little capital to depreciate
– Avante has only C$ 0.2 million of PP&E at
December 2013
STOCK PRICE PERFORMANCE
AVANTE ANNOTATED PRICE AND VOLUME CHART
A – 06/17/2010George Rossolatos Appointed Co-CEO
B – 04/29/2011Avante Announces Non-Cash Write-down
C – 09/15/2013Avante is Featured on Investorfile.com
• George Rossolatos appointed Co-CEO of Avante
– George concurrently invests in the company; taking
a substantial position with a mandate to reassess
strategic direction
– CEO title to be split with founder Manny
Mounouchos
• Avante writes down capitalized technology development
costs
– Company takes $2.6 million impairment charge
– Strategy shifts to focus to core business organic
growth and radically reduce capex
– Balance sheet is cleansed and primed for profit
• After 5 consecutive quarters of positive, growing net
income, Avante is featured as a Top Idea by Gerry
Wimmer of Investorfile.com
– As more investors become aware of Avante’s stable
recurring profitability, trading volumes increase
A BC
Clo
sin
g P
rice
(C
$)
Bi-
we
ek
ly V
olu
me
(0
00
s)
-
500
1,000
1,500
2,000
2,500
3,000
$-
$0.10
$0.20
$0.30
$0.40
$0.50
Bi-weekly Volume (000s) Close Price
WHERE WE ARE TODAY
• Avante’s balance sheet has been steadily improving over the last 3 years
• As a negative working capital business, Avante’s balance sheet has grown more robust as
the business has grown, without any incremental working capital investment requirement
• Avante is debt-free and does not anticipate the need to borrow other than to potentially
finance acquisitions
• Cash of $1.5 million at 12/31/2013
BALANCE SHEET HIGHLIGHTS
F2012 F2013 F2014 YTDIn C$000s, unless otherwise noted
Basic Shares O/S (Millions) 55.9 55.9 56.0
Total assets 1,712 2,225 3,542
Total liabilities 1,935 2,044 2,286
Total liabilities (excl. deferred revenue) 708 639 797
Deferred revenue 1,227 1,405 1,489
Bank and other debt 0 0 0
Shareholders' equity -223 182 1,256
WHERE WE ARE TODAY
• Avante has shown steady revenue growth for the last 3 years, as well as during the 9-month period YTD in the
current financial year
• Gross Margin and EBITDA Margins have also increased during over the same period:
– Management believes margin improvements will be consistent and sustainable with the current mix
– Avante is now consistently cash flow positive and continues to accumulate cash
REVENUE, GROSS MARGIN, AND EBITDA MARGIN
Note: Excludes $326k of revenue in F2011 from pilot projects
$5.3 $5.5
$6.7
$8.8
21.4%
30.8%34.7%
38.9%
-30.1%
-8.2%
6.7%
16.0%
-40%
-20%
0%
20%
40%
60%
80%
100%
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
F2011 F2012 F2013 LTM
Ma
rgin
(%
)
Re
ve
nu
e (
C$
M)
Period
Revenue (C$ M) Gross Margin (%) Adj. EBITDA Margin (%)
WHERE WE ARE TODAY
• By (1) growing the top line, (2) improving gross margin, (3) controlling op ex, and (4) curbing capital spending
on non-core unprofitable ventures, Avante has created a sustainable cash flow profile:
– Revenue growth, improved gross margins, and reduced operating expenses have improved EBITDA
– A reduction in capital spending has ensured that EBITDA converts to Free Cash Flow
– At the moment, over 90% of EBITDA converts to FCF; Management expects this to remain above 80%
EBITDA-TO-FCF CONVERSION
-1,602
-454
452
1,411
-1,139
-2 -23 -89
0.0% 0.0%
94.9%
93.7%
-100.0%
-75.0%
-50.0%
-25.0%
0.0%
25.0%
50.0%
75.0%
100.0%
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
F2011 F2012 F2013 LTM
% o
f E
BIT
DA
co
nv
ert
ed
to
FC
F
C$
(0
00
)
Adjusted EBITDA Capex EBITDA to FCF Conversion Ratio (%)
WHERE WE ARE TODAY
REVENUE COMPOSITION – LAST 10 QUARTERS
• Both Recurring Monitoring & Response and Other Security & Transport have been trending upward
– Recurring revenue has increased at a CAGR of 7.7% rate during the 2.5 year period
– Other Security & Transport revenue has increased at a CAGR of 38.8% during the same period
– Since becoming profitable in Q2 of F2012, cash has been building on Avante’s balance sheet
666 646 663 676 691 718 746 762 776 801
643 773 824 814 774994
1,3331,571
1,3701,458
269 273208
333441 441
506
1,019
1,4301,525
0
500
1,000
1,500
2,000
2,500
F2012Q2 F2012Q3 F2012Q4 F2013Q1 F2013Q2 F2013Q3 F2013Q4 F2014Q1 F2014Q2 F2014Q3
Re
ve
nu
e (
C$
M)
Period
Recurring Monitoring & Response Other Security & Transport Cash On Hand
• Avante has leveraged its premium service quality to produce a client stable base with low turnover
• Avante’s customer base is diverse along many service lines with modest concentration
• Much of Avante’s revenue is recurring in nature – monitoring, response, analytics
WHERE WE ARE TODAY
CUSTOMER CONCENTRATION
1. Percentage of revenue based on data from Q3 Fiscal 2014
Customer % of Revenue1
10 Largest Customers 38.5%
Customers 11 - 50 17.5%
All Other Customers 44.0%
Total 100.0%
10 Largest Customers
38%
Customers 11 - 50
18%
All Other Customers
44%
WHERE WE’RE GOING: STRATEGY AND OUTLOOK
• An analysis of strategic direction requires consideration of fundamental drivers and financial ecosystem
– At present, Avante has been approved by the Toronto Stock Exchange Venture to conduct a normal-course
issuer bid
– Share buybacks are on the table, although liquidity and trading has been strong recently
Strategy Going Forward
Organic Growth:
Business As Usual
• Offers steady growth in core markets
• Strong and recognized brand in high end security in our markets
• Sector expertise and referral base can accelerate organic growth
Organic Growth:
New Offerings, New Markets
• Avante’s existing proprietary service & technology model offers capacity for
expedient deployment and growth new offerings and new geographic markets
• Intelligent Perimeter Protection, International Travel Service, third party analytics
monitoring are all examples of recently introduced offerings that are contributing
to EBITDA
Acquisition Mandate
• Strong management background in M&A: track record of discipline and expertise
• Cash flow build can be used to minimize dilution
• Credit markets afford easy and inexpensive access to conservative leverage
• Fragmented market in security and ‘trusted monitoring’ space yields opportunities
• Current Avante infrastructure (i.e. 24/7/365 Avante Control Centre) offers
opportunities for significant accretion
Shares Outstanding Shares (M)
Basic Shares Outstanding 55.9
Options Outstanding 3.4
Fully Diluted Shares Outstanding 59.3
Shareholder Shares (M) % of Total
Manny Mounouchos (Co-CEO) 15.2 25.7%
George Rossolatos, (Co-CEO) 8.3 14.0%
Leland Verner (Chairman) 3.2 5.4%
All Other Shareholders 32.6 54.9%
Fully Diluted Shares Outstanding 59.3 100.0%
WHERE WE’RE GOING: STRATEGY AND OUTLOOK
• Small-Caps have not always proven to be
successful acquirers due to, lack of expertise,
discipline and capacity to execute, but Avante is
different
• Avante’s management and board together own
over 45% of the outstanding shares (diluted) with
a deeply vested interest in prudent and accretive
M&A
• Management background in private equity and
CFO’s acquisition integration experience has
produced a disciplined M&A doctrine
• Fragmented industry and diversity of Avante core
competencies in the security space will yield
opportunities
• Avante has just recently began a targeted
acquisition search in earnest
3
AVANTE SHAREHOLDERS
Manny
Mounouchos
(Co-CEO)
26%
George
Rossolatos,
(Co-CEO)
14%
Leland Verner
(Chairman)
5%
All Other
Shareholders
55%
3
THE CASE FOR M&A
WHERE WE’RE GOING: STRATEGY AND OUTLOOK
• Avante has a number of initiatives which are intended to improve shareholder value:
Liquidity
– Avante has obtained a US Listing – OTC:ALXXF. It is believed that this will:
• Enhance liquidity
• Provide a larger universe of investors who can trade the stock
• Ensure that there is more exposure in the event of a financing
M&A
– Avante is proactively searching for accretive M&A opportunities
• Acquisitions will be considered opportunistically but must align with core
competencies
Enhanced Marketing/Branding Focus
– Given Avante’s growth and the dynamics of the company’s fixed costs, incremental
revenue is increasingly converting to cash flow
• This is an opportune time to focus on a enhanced marketing / branding effort to
increase awareness and potentially drive accelerated organic growth
APPENDIX A: TRADING COMPARABLES
• Avante’s peer group trades at higher valuations, regardless of whether Avante is compared to security companies or
surveillance technology companies
AVANTE’S TRADING COMPARABLES
Note: AlarmForce appears on both lists as it amounts both to a traditional security firm and a surveillance company
As at January 17, 2014 Market Cap TEV Share Price S/O LTM
(M, Local Currency) (M, Local Currency) (Local Currency) (M) P / Revenue EV / EBITDA P / E
Security Companies
AlarmForce Industries Inc. 114.2 100.6 C$9.55 12 2.1x 10.6x 32.2x
Command Security Corp. 20.2 27.0 $2.19 9 0.2x 7.1x 33.5x
G4S plc 4,020.2 6,147.2 £2.59 1,552 0.8x 11.2x NMF
The ADT Corporation 7,824.4 11,062.4 $38.78 202 3.3x 8.0x 18.6x
Tyco International Ltd. 19,023.4 19,858.4 $41.34 460 1.9x 14.4x 35.5x
Average 1.7x 10.3x 29.9x
Security Technology & Surveil lance Comparable Companies
AlarmForce Industries Inc. 114.2 100.6 C$9.55 12 2.1x 10.6x 32.2x
Avigilon Corporation 1,419.8 1,385.6 C$33.05 43 8.9x 55.7x 79.5x
Control4 Corporation 632.9 553.7 $27.79 23 4.5x 68.8x 168.0x
FLIR Systems, Inc. 4,736.9 4,636.9 $33.44 142 3.1x 12.6x 21.0x
Verint Systems Inc. 2,549.5 2,855.9 $47.69 53 3.2x 16.1x 48.4x
Average 4.4x 32.8x 69.8x
Avante Logixx Inc. 21.3 19.9 C$0.38 56 2.3x 14.1x 16.2x
AVANTE LOGIXX KEY TAKEAWAYS
• Underfollowed Canadian based (TSX-V XX) security and technology company that’s
recently been turned around and now transitioning from a inward cost reduction
focus to an outward focused growth strategy
• Profitable with strong organic growth story with current and new offerings
• Attractive recurring revenue focused with negative working capital dynamic
• Strong balance sheet with no debt and significant cash accumulating each quarter
• Extremely high cash conversion with little capex requirements
• Fragmented market with acquisition opportunities and expertise to execute
• Favorable valuation comps especially given quarter by quarter trend lines