Release Date: August 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Audinate Group Ltd (ASX:AD8, Financial) achieved a record USD60 million in revenue for FY24, marking a 28.4% increase from FY23.
- Gross profit dollars grew by 33.2% to USD44.5 million, with a gross margin percentage of 74.3%.
- The company shipped a record 1.4 million units in FY24, with over 6 million Dante devices now in the field.
- The launch of Dante Director, a cloud-based SaaS product, represents a new revenue stream for Audinate.
- The number of OEMs developing their first Dante product increased to 161, up from 138 in the previous period.
Negative Points
- Audinate expects a revenue decline in FY25 due to manufacturers' increased preference for software-based Dante implementations.
- Many manufacturing customers have over-ordered chips and modules, leading to soft FY25 revenue.
- The end-of-life of the Viper and MY16 products will result in a loss of USD2.8 million in revenue for FY25.
- Lead times are shortening, reducing future order visibility and backlog going into FY25.
- Operating expenses increased by 21% to USD47.5 million for the year ended June 30, 2024, driven by higher employee costs and marketing expenses.
Q & A Highlights
Q: What do you mean when you say you substantially overachieved your objective to double the video ecosystem in FY24? Wouldn't this require a 100% increase?
A: The reference to 100% is correct. When we talk about the ecosystem, we refer to the number of units of Dante video products in the market. The number of licenses or modules inside video products sold in FY24 relative to FY23 was about 100%, coupled with strong increases in products and licensees.
Q: Are you only looking at M&A in video? What's the most attractive product in terms of customer book?
A: No, we are not only looking at M&A in video. Our M&A framework includes strategic interests in signal processing, control and management opportunities, and potentially channel expansion. It’s a broader lens than just video.
Q: How is the budget outlook impacting management targets and incentives?
A: We balance incentives for executives and staff to drive revenue in FY25 while being aware that the FY25 outlook is not as strong as past years. We aim to set internal metrics that provide adequate bonuses or rewards if we meet our FY25 budgets, and we are also reviewing executive remuneration.
Q: Who are Audinate's main competitors, especially in software implementations?
A: In audio, competitors include vertically integrated manufacturers creating walled gardens and analog solutions. In video, the market is fragmented with various compression codecs causing interoperability issues. Competitors include HDMI cables, SDI, and HD base-T technologies. Our large footprint in Dante audio gives us an advantage in video.
Q: Should we be concerned by the drop in design wins?
A: Historical numbers were inflated due to COVID impacts and chip shortages. Despite the drop, we had our best half ever for automotive design wins. The historical numbers were artificially boosted, but the underlying metrics remain strong.
Q: How is software unit revenue recognized differently from chips, cards, and modules? Could the OEM shift towards software products help mitigate future overstocking issues?
A: Generally, OEMs don’t stock software royalties, which helps mitigate overstocking issues. Software components need to be licensed and activated at manufacturing time, reducing the backlog compared to hardware components.
Q: What do you believe will drive the turnaround in FY26?
A: We expect to work through the inventory in the channel during FY25, returning to more typical ordering patterns in FY26. The underlying metrics, such as new product units shipped and interest in training tools, are tracking well and will drive future growth.
Q: Does the expected cost growth of 7% to 9% in FY25 include higher sales and marketing spend?
A: Yes, we are continuing to invest in sales and marketing to drive revenue both in FY25 and beyond.
Q: Can you provide more color on the two M&A opportunities you passed on?
A: One opportunity was technology video-oriented, but we couldn’t agree on valuation. The second was a larger, hardware-oriented opportunity with misaligned value expectations. We have a solid pipeline of opportunities and have hired a Chief Strategy Officer to focus on M&A.
Q: What is the update on the search for the new CFO?
A: Rob Goss will be with us until October 18. We have engaged a recruiter and are speaking with initial candidates. The search is underway, and we have a pipeline of candidates that we are evaluating.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
