Q: Hi Peter & 5i: This just a comment on the recent Avigilon (AVO) events. I owned it. Now I don’t. I don’t view the quarterly report as a definitive answer to everyone’s worries upon the news of the CFO’s sudden departure, at least not all by itself. Management reported a great quarter but quarterly reports are not usually submitted to an external audit process the way that annual financial reports are. It is at least extremely odd that a CFO would have to exit the scene on the eve of the release of a financial report, when the production and accuracy of that report should presumably have been his responsibility. I have no insight into the facts of what has been going on at Avigilon but at this stage I identify that lack of knowledge as a significant barrier to continued investment. It may be tempting to view this as a situation where a healthy and growing company needed to part ways with a CFO, who for one reason or another was not going to be a long term good fit for the company. But it seems to me to be at least equally likely that a CFO’s departure on the eve of a quarterly report release may indicate that the CFO was not willing to stand behind the numbers and representations that management had chosen to go with in the report. If that is the case, then it could call into question the very report that optimistic investors are using as their basis for remaining invested, or possibly for re-investing or increasing investment after the decline from recent highs. It also seems to me that the downward trend preceding this report was fueled at least in part by earnings in the prior financial report missing the Street’s estimates. I would also look back to the last equity financing, which was upsized midstream, and the need for which has yet to be made clear. Not that it is anything like too late for redemption but 5i’s own answer from a March 18 Q&A was as follows:
“With this deal being upsized now to $100 mm we are somewhat surprised. The company, if nothing is bought, will have way too much cash. We will need to watch the company closely. We will be none too impressed if Avigilon does not utilize its cash hoard within a two or three month period. For now, we will give management the benefit of the doubt, based on past performance and their comments.”
So the most recent events may not turn out to have been the first crack in the egg. Whether or not my speculative concerns turn out to be valid, these kinds of issues can prompt short sellers’ attacks, which can play havoc with an investment thesis and chase people out of a stock at lower levels. So all in all, the risks on AVO seem higher to me, and the very positive report that the CFO did not stick around to present is not the perfect answer. Caveat emptor – at least.
“With this deal being upsized now to $100 mm we are somewhat surprised. The company, if nothing is bought, will have way too much cash. We will need to watch the company closely. We will be none too impressed if Avigilon does not utilize its cash hoard within a two or three month period. For now, we will give management the benefit of the doubt, based on past performance and their comments.”
So the most recent events may not turn out to have been the first crack in the egg. Whether or not my speculative concerns turn out to be valid, these kinds of issues can prompt short sellers’ attacks, which can play havoc with an investment thesis and chase people out of a stock at lower levels. So all in all, the risks on AVO seem higher to me, and the very positive report that the CFO did not stick around to present is not the perfect answer. Caveat emptor – at least.
