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MicroCapClub Invitational: Avante Logixx (XX.V / ALXXF)


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Avante Logixx (XX.V / ALXXF) has built its reputation as a preeminent security company by providing premium security services through the use of advanced technology and a focus on client service. Avante’s security business provides a complete suite of security services ranging from system design, sales, installations, and monitoring to services such as alarm response, patrols, personal protection and secure transportation. We were initially attracted to the company because of the significant growth in both revenues and earnings. The company has shown consistent revenue growth over the last three years and was able to grow sales by 43% in the last 12 months from $6.15 million to $8.82 million and earnings from a loss of $57,000 to a profit of just over $1.3 million giving evidence to the leverage within the business. Management and directors are well vested in the company and own approximately 45% of the 59 million shares issued and outstanding. Shares in Avante currently trade at a price earnings ratio of 15.8 times, significantly below the industry average of 29. The company has a solid balance sheet and has accumulated over $1.5 million in cash and has zero debt. We expect growth to continue both organically and now with a healthier balance sheet through accretive acquisitions.

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MicroCapClub Invitational: Avante Logixx (XX.V / ALXXF)

  1. 1. Investor Presentation January 2014 George Rossolatos, Co-CEO Avante Logixx Inc. TSXV: XX OTC:ALXXF
  2. 2. 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
  3. 3. 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 forwardlooking 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
  4. 4. Section 1 INTRODUCTION
  5. 5. 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 INVESTMENT HIGHLIGHTS – 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
  6. 6. Section 2 HISTORY
  7. 7. HISTORY 3 AVANTE’S BUSINESS LINES • 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 webbased 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 v Description • 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 • Highly trained security focused drivers • Counter-surveillance / first aid trained • For clients travelling to unfamiliar / medium to high risk countries • Travel risk and threat reports • Secured Transport • Client location tracking • Bodyguard protection • Private investigations • Travel alerts Monitoring Secure Transport International Security Travel Advisory Other Services:
  8. 8. 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
  9. 9. 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 $550 million respectively – TorQuest’s overall IRR from exited investments was in excess of 60% • Previously, George worked as an investment professional at Harrowston Inc., a publicly traded private equity fund • Prior to Harrowston, he worked in a management role with Ernst & Young • Recognized in 2007 as one of Canada’s Top 40 under 40 • CPA/CA (Ontario) and holds an MBA from the Kellogg School of Management (Marketing) at Northwestern University
  10. 10. NEW MANAGEMENT STRATEGY • The company’s strategic plan was reassessed and revamped significantly in the months that followed. • An experienced CFO (Raghu Sampath) was brought in to enhance Avante’s financial systems, reporting and controls. • Avante scaled back spending on non-core development and downsized the company by 30% – Slow procurement and decision-making at enterprise customers left Avante to finance these trials in a manner that was determined not to be cost effective for Avante’s shareholders and capital requirements were very large – Avante wrote down its technology development costs which allowed for a fresh start with a clean balance sheet. – Avante streamlined its costs and delivery models by seeking efficiencies in each expense line of the P&L in a systematic and focused program. • Beginning in 2011, the company refocused management attention and capital on its core security business and began focusing on growth opportunities in which the company had a competitive advantage. This ensured that Avante would pursue profitable security related business with a focus on recurring revenue.
  11. 11. Section 3 WHERE WE ARE TODAY
  12. 12. WHERE WE ARE TODAY 3 AVANTE FINANCIAL SUMMARY (C$ 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 F2012 5,538 F2013 6,746 LTM 8,816 3.9% 21.8% 30.6%3 1,140 1,703 2,342 3,434 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% -3,457 -631 371 1,313 -64.9% -11.4% 5.5% 14.9% 56.0 56.0 55.9 56.0 Fiscal Year Ending March 31 Revenue1 F2011 5,328 Growth Rate (%) Gross Profit Gross Margin (%) Net Income Net Income Margin (%) S/O (Millions) 1. Excludes $326k of revenue in F2011 from energy management pilot projects 2. Adjusted EBITDA excludes stock-based compensation 3. LTM revenue growth rate is vs F2013; growth was 43.2% compared to prior 12 months • Following Avante’s development cost write down in 2011, most EBITDA converts to Net Income – There is little capital to depreciate – Avante has only C$ 0.2 million of PP&E at December 2013
  13. 13. STOCK PRICE PERFORMANCE AVANTE ANNOTATED PRICE AND VOLUME CHART A C B 3,000 2,500 $0.40 2,000 $0.30 1,500 $0.20 1,000 $0.10 500 $- - Bi-weekly Volume (000s) Close Price A – 06/17/2010 B – 04/29/2011 C – 09/15/2013 George Rossolatos Appointed Co-CEO Avante Announces Non-Cash Write-down Avante is Featured on • 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 $2.6 million impairment charge – Strategy shifts to focus to core business organic growth and radically reduce capex – Balance sheet is cleansed and primed for profit • After 5 consecutive quarters of positive, growing net income, Avante is featured as a Top Idea by Gerry Wimmer of – As more investors become aware of Avante’s stable recurring profitability, trading volumes increase Bi-weekly Volume (000s) Closing Price (C$) $0.50
  14. 14. 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 YTD In C$000s, unless otherwise noted Basic Shares O/S (Millions) Total assets Total liabilities Total liabilities (excl. deferred revenue) Deferred revenue Bank and other debt Shareholders' equity 55.9 55.9 56.0 1,712 1,935 2,225 2,044 3,542 2,286 708 1,227 0 639 1,405 0 797 1,489 0 -223 182 1,256
  15. 15. 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 $10.0 $8.8 $9.0 100% 80% $6.7 $7.0 $6.0 $5.3 $5.0 $5.5 60% 38.9% 34.7% 21.4% 30.8% 40% 16.0% 6.7% $4.0 $3.0 -8.2% 20% 0% $2.0 $1.0 -20% -30.1% $- -40% F2011 F2012 F2013 LTM Period Revenue (C$ M) Gross Margin (%) Adj. EBITDA Margin (%) Note: Excludes $326k of revenue in F2011 from pilot projects Margin (%) Revenue (C$ M) $8.0
  16. 16. WHERE WE ARE TODAY • By (1) growing the top line, (2) improving gross margin, (3) controlling op ex, and (4) curbing capital spending on non-core unprofitable ventures, Avante has created a sustainable cash flow profile: – Revenue growth, improved gross margins, and reduced operating expenses have improved EBITDA – A reduction in capital spending has ensured that EBITDA converts to Free Cash Flow – At the moment, over 90% of EBITDA converts to FCF; Management expects this to remain above 80% EBITDA-TO-FCF CONVERSION 93.7% 94.9% 1,500 1,411 75.0% 50.0% C$ (000) 1,000 500 452 0.0% 25.0% 0.0% 0.0% 0 -2 -500 -23 -89 -454 -1,000 -1,500 -2,000 100.0% -25.0% -50.0% -1,139 -75.0% -1,602 F2011 Adjusted EBITDA -100.0% F2012 Capex F2013 LTM EBITDA to FCF Conversion Ratio (%) % of EBITDA converted to FCF 2,000
  17. 17. WHERE WE ARE TODAY • 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 REVENUE COMPOSITION – LAST 10 QUARTERS 2,500 Revenue (C$ M) 2,000 1,571 1,500 1,333 1,370 1,430 1,458 1,525 994 1,000 643 773 824 814 774 500 666 646 663 676 691 269 273 1,019 746 718 441 441 506 762 776 801 F2014Q1 F2014Q2 F2014Q3 333 208 0 F2012Q2 F2012Q3 F2012Q4 F2013Q1 F2013Q2 F2013Q3 F2013Q4 Period Recurring Monitoring & Response Other Security & Transport Cash On Hand
  18. 18. WHERE WE ARE TODAY • 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 CUSTOMER CONCENTRATION 10 Largest Customers 38% Customer % of Revenue1 10 Largest Customers 38.5% Customers 11 - 50 17.5% All Other Customers 44.0% Total All Other Customers 44% Customers 11 - 50 18% 1. Percentage of revenue based on data from Q3 Fiscal 2014 100.0%
  20. 20. 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: New Offerings, New Markets Acquisition Mandate 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 • 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 Strong management background in M&A: track record of discipline and expertise • Business As Usual • • Organic Growth: 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
  21. 21. WHERE WE’RE GOING: STRATEGY AND OUTLOOK 3 3 THE CASE FOR M&A AVANTE SHAREHOLDERS • 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 Manny Mounouchos (Co-CEO) 26% All Other Shareholders 55% George Rossolatos, (Co-CEO) 14% • 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 Leland Verner (Chairman) 5% Shares Outstanding Basic Shares Outstanding Options Outstanding Fully Diluted Shares Outstanding Shares (M) 55.9 3.4 59.3 Shareholder Manny Mounouchos (Co-CEO) George Rossolatos, (Co-CEO) Leland Verner (Chairman) All Other Shareholders Fully Diluted Shares Outstanding Shares (M) 15.2 8.3 3.2 32.6 59.3 % of Total 25.7% 14.0% 5.4% 54.9% 100.0%
  22. 22. 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
  23. 23. Appendix A TRADING COMPARABLES
  24. 24. 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 Market Cap TEV Share Price S/O P / Revenue LTM EV / EBITDA (M, Local Currency) (M, Local Currency) (Local Currency) (M) P/E 114.2 100.6 C$9.55 12 2.1x 10.6x 32.2x 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. Average 19,023.4 19,858.4 $41.34 460 1.9x 1.7x 14.4x 10.3x 35.5x 29.9x Security Technology & Surveillance 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 As at January 17, 2014 Security Companies AlarmForce Industries Inc. Command Security Corp. FLIR Systems, Inc. 4,736.9 4,636.9 $33.44 142 3.1x 12.6x 21.0x Verint Systems Inc. Average 2,549.5 2,855.9 $47.69 53 3.2x 4.4x 16.1x 32.8x 48.4x 69.8x Avante Logixx Inc. 21.3 19.9 C$0.38 56 2.3x 14.1x 16.2x Note: AlarmForce appears on both lists as it amounts both to a traditional security firm and a surveillance company
  25. 25. 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
  26. 26. Investor Presentation January 2014 George Rossolatos, Co-CEO Avante Logixx Inc. TSXV: XX OTC:ALXXF