Release Date: August 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue increased by 7% to $66.2 million, despite a $4.5 million decline in the legacy services business.
- Gross margin improved to 64%, driven by an 85% gross margin in technology revenue.
- Technology revenue from North America reached $32 million, with 74% being technology sales.
- The company achieved a significant milestone by capturing the Paris Olympics with zero complaints.
- Ai-Media Technologies Ltd is self-funded through operating cash flow, maintaining a clean balance sheet with no debt and $11 million in cash.
Negative Points
- Legacy services business experienced a $4.5 million decline in revenue.
- The company had to make a concerted effort to invest additionally in inventory, particularly for the new LEXI DR product.
- There were significant redundancy costs associated with headcount reductions, amounting to around $300,000.
- The transition from services to technology has led to a 35% reduction in headcount, impacting operational dynamics.
- Despite the positive outlook, there is a concern about the pace of expansion and whether the company is covering enough opportunities.
Q & A Highlights
Q: Can you update us on the progress of unlocking new market opportunities and how you evaluate the success relative to your expectations?
A: We are continuously evaluating how to go faster and cover more opportunities. Hiring additional internal salespeople has been successful, with many achieving two to three times their targets. We are also standing up a dedicated government sales team and leveraging partnerships with AWS and other resellers. Success is tracked through pipeline conversion to sales, and we have seen zero churn from our AI LEXI toolkit customers in the last two years.
Q: Are you considering similar collaborations with other AV equipment providers like the media proxy partnership?
A: Yes, we are open to installing and delivering iCap functionality on third-party equipment. The key factors would be the latent demand within that environment for services delivered across iCap and the commercial deal structure.
Q: Can you expand on the 35% reduction in headcount and its impact on OpEx?
A: The reduction primarily affected the services business, releasing human operators and some overhead costs. We did incur around $300,000 in redundancy costs, but we have also transitioned some roles to sales support. We expect OpEx to stabilize rather than see a significant increase in FY25.
Q: With the move into non-English markets, does the AI software extend to translation, such as English to Spanish?
A: Currently, 98% of demand is for same-language captioning. We are working on LEXI Translate 2.0, slated for release in January 2025, which aims to deliver a product comparable to human translation for multiple language pairs.
Q: Can you give us a sense of the feedback from trade shows and their impact on signing new customers?
A: Trade shows have been highly effective, allowing customers to see and interact with our products. They provide visibility and confidence to our customers and have been the source of major deals. We continue to invest in trade shows as they are crucial for customer engagement and sales.
Q: Out of all the upcoming product launches, which one do you expect to have the greatest commercial impact?
A: In the short term, LEXI DR is expected to have the biggest impact in FY25. Over the next three years, it will be interesting to see whether LEXI Recorded captioning or LEXI Recorded audio description and dubbing takes off more.
Q: Where do you expect the service gross margin to stabilize, and is the 85% tech gross margin sustainable?
A: We expect the service gross margin to stabilize at current levels. The tech gross margin of 85% is sustainable, though there may be slight variations due to discounts for large deals. Overall, the blended margin will improve as we move further towards technology-led revenue.
Q: With the aspirational target of $150 million in sales and $60 million in EBITDA, will growth be weighted towards the end of the period or build gradually?
A: We expect consistent growth, maintaining mid- to high-30s growth rates. The margin targets are conservative, allowing for potential discounts and commissions, but we aim for sustainable growth without a significant back-end weighting.
Q: Do you expect EBITDA margin expansion in FY25?
A: Yes, we do expect EBITDA margin expansion in FY25.
Q: Will the company use its cash for acquisitions, begin paying dividends, or a mixture of both?
A: We expect to produce more cash as the company grows. While we are keeping our options open, including potential acquisitions and buybacks, the decision will depend on the landscape in a couple of years. We are not ruling out M&A but believe we can achieve our targets through organic growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
