Company Interview / Audinate's record profit

Aidan Williams, CEO of audiovisual technology firm Audinate (ASX:AD8), talks about his company's impressive year, asserting their strength by pointing to the 1.4 million units they shipped in the year, up from one million units in the previous year. Discussing the strategic position of Audinate, Aidan highlights the firm's robust performance in FY 24 and their well-tracking underlying demand-related measures, indicating future growth despite revenue headwinds.

In explanation of Audinate's business model, Aidan unveils that the company's technology is sold to equipment manufacturers such as Yamaha, Bosch, and Bose, among other manufacturers. Their core technology helps distribute audio and video signals at a reduced cost, making it very attractive for the industry. Furthermore, the company increased operating expenses by more than 21% due to employment costs, working towards keeping their operating expenses prudent and invest in developing new technology.

Expecting strong momentum in the new financial year, Aidan articulates the future business possibilities. Strong interest in Audinate's video products and customer demand for new products usher a promising future for the company. A new Software as a Service (SaaS) platform, Dante Director, focusing on the management of audiovisual installations is also expected to be a game-changer in the industry. There would be no expectation of dividends as Audinate would still be investing heavily in the 'land grab' and software-based management products. Finally, Aidan addresses share prices and market corrections confidently, believing in the underlying strength of the business.

Full unedited transcript:

0:11

One of the best performers on the market today is the audiovisual technology firm ordinate. Its posted record for year gross profit of 44.5 million USD, which was a gain of 33.2%. Revenue increased by more than 28% to 60 million USD, and a 31% rise in Aussie dollar revenue to 91.5 million, which is aided by Aussie US dollar. Currency impacts net profit before tax coming in at $12.1 million, which was up 1.4 million from full year 23. And shares, as I mentioned, having a great day up more than 10%. Let's get straight to the co-founder and CEO, Aiden Williams for more. So you must be liking that rebound in your share price. But just talk us through, in your words the highlights of the year.

0:58

Yeah, definitely It's nice to be, uh, it's putting out some good news. Um, so I think, um, the, the key thing about, uh, about this result as opposed to the, the, the forecast information that we put out, um, a couple of weeks ago is, is really, um, highlighting the, the undergoing the underlying strength in our business with respect to the units shipped. So we shipped 1.4 million units in the year, which is up from a million units in the previous year. So the underlying business is absolutely still solid. Uh, and there's the strategic thesis. The long term strategic thesis that we have for ordinate is is intact. So combination of a great revenue result in FY 24. And also underlying metrics like the number of units, but also people trained um certification courses, all those other underlying demand related measures are tracking really well. So we're

1:57

expecting, um, you know, FY 25 to be there are certainly some headwinds for us with respect to revenue, but long term the business is in a really healthy state. And the last financial year, I think shows that you talk about the growth in revenue driven by growth in units. And this is particularly your don't units. Just tell us what they are and how much there is demand for them.

2:21

Yeah. So ordinate is a technology company. We've been around for a while. We make technology that we sell to equipment manufacturers, so our customers make audio and video equipment. There are people like Yamaha, Bosch, Bose, companies you've heard of, but also a long tail of manufacturers that you may not have heard of. So our technology is used for distributing audio and video signals across a standard IT network. So you can think of what we do is essentially turning a lot of audio visual installations that would go into a building, into a kind of networked IoT style solution. So that's very attractive for for people in terms of reducing the cost of managing and running those, installing those installations, but also the operational costs of running those over time. Okay. Let's talk as well in terms of what you're seeing with operating expenses, they were up

3:21

by more than 21%. What was the main reason for that is that employment costs.

3:28

Yeah, largely. So most of our, um,

3:32

operating expenses in FY 25 have been sorry, FY 24. I've been associated with with things like employment. Um, in FY 25, we're absolutely looking to be prudent about our operating expenses in line with our revenue forecast. Um, but historically, ordinate is a technology company. So we we want to make sure we continue to invest in the development of new technology and in the right people in order to deliver, uh, products into the future. Uh, one of the things we have done, um, in FY 25 is we've also we've established, uh, an engineering and development location in the Philippines, and that should help us to, uh, you know, manage our, our costs going forward. So you said you're seeing some strong momentum heading into the new financial year. What are you seeing in terms of, I guess, products and product features and changes here to some of your products as well?

4:25

Yeah. So, um, the, uh, we're seeing strong interest in our video products, which are actually relatively new for ordinates. So, um, we outperformed strongly in the last financial year with respect to the number of customers bringing new products to market, but also the number of units, video units that, uh, customers are buying. So we expect that momentum to continue into FY 25. But we as a new range of products, we've got work to do in order to help our our manufacturing customers to get their video products to market as soon as possible. Uh, one of the other, like, new product introductions that I'm really looking forward to, uh, throughout FY 25 is a new software based platform. So it's a it's a SaaS platform for the management of audio visual installations. From a strategic perspective. Um, coordinate is engaged in what I would call a profitable land grab, trying to get our technology into every possible, uh,

5:25

microphone, loudspeaker, camera, uh, screen that we possibly can. Um, but we think the real opportunity for ordinate is really around, um, the, the software products and service services for managing and deploying and delivering audio visual products and services in our software form. So this new product of ours called Dante Director, is getting us into the game of providing a SaaS platform to allow audio visual installations using our Dante networking technology to be managed remotely across the internet. And we think that's a game changer for people in the industry because we can offer those sorts of management products and services across 600 different manufacturers using our networking technology. Now, we mentioned that your Aussie dollar revenue grew more than the reported revenue because of the Aussie dollar US dollar currency impacts. If we do see that the fed start to cut our market, our

6:25

RBA, I should say stay on hold and the Aussie dollar gains against the US dollar. How are you sort of hedged for full year 25.

6:32

Yeah. Or alternate is actually a sort of naturally it's structurally kind of long US dollar business. Um a lot of our cost of goods are in US dollars. Um, and we, we charge our pricing is in US dollars and we build in US dollars. So there's a sense in which we actually are fairly naturally hedged, uh, from that point of view. So generally speaking, that sort of difference in interest rates or, you know, our budgeted interest rate, sorry, exchange rate, budgeted exchange rate, um, tends to essentially translate to Aussie dollar versus US dollar differences in things like EBITDA and stuff like that. What I would say, though, is, is generally the important currency for ordinate is probably the US dollar at the moment. And we're we don't typically. We look from time to time at uh hedging. But so far we've not, uh, felt that we needed to do that because of the the sort of natural hedge we have with respect to the way we buy and sell. Okay. And in terms of, I guess, what we're

7:32

looking for for the further year ahead, you've got positive free cash flow of almost $7 million. So that's better, I think, than where you were in full year 23. How are you going to deploy some of that?

7:45

Yeah. So the as I said, we are a technology company. We've got lots of, uh, lots of products that we, we are bringing to market. Um, so priorities with respect to uh, FY 25 consists of doubling down on our sales and marketing, um, activities. So we need to invest incrementally in that in order to buttress our FY 25 revenue. Um, the second priority is really around building out the, um, the portfolio or the jigsaw of video based products. So we're very strong in the audio side of things. Video is relatively new, so we need to make sure we continue to build out the necessary toolbox for our customers on the video side of things. And the third piece is really around delivering that that SaaS platform that I was telling you about just previously. So we have launched that, but we need to actually deliver that operationally. It's our first SaaS product. It's going to be globally used. And

8:45

so we need to put in place the organisation and the operational structures in order to be able to deliver that. Uh, through FY 25, what's the likelihood of um, return to shareholders in, in the full year? 25.

8:59

Uh, in, in what respect of dividends.

9:02

Oh, I alternate is uh, well, that would be a board decision. We're probably unlikely to be providing a dividend. Um, so, you know, at the moment, ordinate is still largely investing in the the land grab piece that we're in, uh, in order to deliver on the long term vision for ordinate, which is about establishing those software based, uh, management products. Okay, here's technology company not we haven't been providing dividends so far. Yeah. And as I mentioned, your shares are doing very well today, but they have been hit hard, particularly the last couple of weeks or so. Do you think you were unfairly punished with that big sell off or where do you see further value for the next year? Yeah. Look, um, I think I really don't want to opine on the fairness or unfairness of the market with respect to making decisions on the share price. Um, on on the other hand, I do understand why why that that correction occurred. And that's because, you know, two weeks ago we, the

10:02

board approved our FY 25 budgets, um, gross profit for ordinate will be roughly in line with FY 24, but we are expecting revenue to go backwards. So I think, you know, it's it's to be expected that, um, valuations would decline if you, if you basically, uh, put out a release that is is different from investor expectations of where of where FY 25 revenue will be. So it was not a surprise to us. I think we we expected that there would be such an impact. Um, and we also, you know, having approved that budget, we take our continuous disclosure obligations seriously. So we felt like, uh, it was the right time to put out a release. Uh, on the other hand, I feel like we've taken our medicine with respect to that. And, uh, I'm looking forward to. And the underlying business itself, um, is extremely strong, notwithstanding the, uh, the headwinds we have into FY 25 with respect to revenue.

11:02

So my expectation is that, yeah, through FY 25 and into FY 26, we'll get back to growth and more stable ordering patterns, uh, you know, into the future.