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#Dante Rebrand
Last edited 4 months ago

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Audinate Focuses on Dante in Rebrand with Hopes of Being Known as an AV-over-IP Company


Gary Kayye

November 28, 2023 FeaturedProAV NewsrAVe [PUBS]rAVe EuroperAVe Europe FeaturedrAVe Europe NewsRTA

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Audinate made it clear the company wants to be known as an AV-over-IP brand — not just an audio-over-IP brand — with a new logo, tagline, etc. Audinate will emphasize the Dante brand more in the market, given the strong connection and recognition with customers. The Dante AV-over-IP platform tagline, “One Connection. Endless Possibilities” will be used to help strengthen the Dante brand over the Audinate branding. The new Dante logo also captures this concept, taking one connection in multiple directions.

“Long the de facto standard in networked audio with more than 550 manufacturers producing over 3,800 products, adding video, control and management has transformed Dante into a complete AV-over-IP platform,” said Joshua Rush, chief Mmarketing officer at Audinate. “This new positioning crystalizes what Dante offers the ProAV industry.”

As the parent company of Dante, Audinate has always been focused on pioneering the future of AV. The new brand platform for Audinate preserves the company’s respected engineering legacy while creating a more human and approachable brand.

Alongside the new branding that will roll out in the coming months, Audinate will launch new separate websites for Audinate and Dante in early 2024, including an initial microsite launching today at https://getdante.com

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Valuation of $21.00
Added 2 months ago

My old valuation looks laughable (i'll leave the rationale for the $6.76 valuation below)

Assuming gross margins stay the same (71.8%) and taking management's guidance at face value ("growth in US$ gross profit consistent with historical performance"), I will assume a FY24 revenue of $96m -- that'd be 38% top line growth.

Let's be bold and assume they sustain a very strong pace of growth at 25%pa for a FY29 revenue target of ~$300m. And we'll give that a net margin of 20% because I'll assume they continue to scale well and enjoy a good degree of pricing power (current net margin assuming full tax is about 8.5%).

That's $60m in Net profit in five years time.

I'll thumb suck a PE in FY29 of 50 (again, I'll be ambitious because of company quality and growth potential) and assume 85m shares on issue to get a target price of $35.

Discounted back at10%pa that's a current valuation of $21.

This is all pretty rough obviously, and I'm probably guilty of 'curve fitting' here to arrive at a price that helps make sense of how the market is currently pricing Audinate.

When I play around with other assumptions, I can sensibly arrive at anything between $15-$35 (which shows you how a few small tweaks to multiple or growth assumptions can really move the needle), but what's useful here is that you get a sense of what you need to see for AD8 to be considered good value today.

i.e. Roughly speaking, top line growth that sustains at least ~20% growth for many years, with expanding operating margins and no major dilution. And, of course, a market that is prepared to sustain a decent growth multiple.

I think they have a good shot at it, and could easily surprise on the upside.

But they did say that acquisitions were on the table too, so these forecasts could easily be way off for a number of reasons. But it gives me a general line in the sand.


Updated: January 2023

Just a thumb-suck valuation, and a few hypotheticals, to help put a line in the sand.

FY22 sales = $46.3, EBITDA $4.3m

Shares on issue = 77.2m

So a 10x P/S = $6 per share. That's equivalent to a EV/EBITDA of 100.

These aren't timid multiples. But perhaps you can even justify higher ones at present if you expect sustained and significant growth, plus attractive net margins at maturity.

As usual, when you start playing around with a variety of assumptions, you get a wide range of outcomes.

Management say they want to double revenue in the "medium term". Let's call that 3 years, just as an exercise. And let's again apply a P/S of 10 to get a FY25 share price of roughly $12. Which is about $9 when discounted back by 10% per year

Let's say after 10 years, this is a business doing $500m in sales, at a 20% margin. At that point, let's say annual growth is closer to 10%. That could justify a PE of 30 at that point.

With no extra share issuance, that equates to a net present value of $15 when discounting back at 10pa.

As with most growth-oriented valuations, most of the heavy lifting is done quite a number of years out. But what it shows, to me, is that there is indeed value IF the company sustains a high pace of growth and scales well. But in the meantime, it's going to look very expensive and will be at risk of serious pullbacks whenever there is a slight hiccup.

And, of course, if these growth expectations are not realised, investors will likely get burnt. EG the $500m in sales in the scenario above represents something like 27% in compound top-line growth for a decade. Audinate could sustain a very impressive 20%pa for a decade and only be on sales of $290m. It'll need a very chunky market multiple at that point for current investors to do well

So the asymmetry of return outcomes aren't quite where I'd like them to be.

Given the quality of the business, and the network effects it seems to enjoy, I'll go with $90m in FY25 revenue, and $10m in NPAT.

A P/S of 8 or a PE of 72 gives a market value of $720m . I'll assume a bit of share issuance and use 80m SOI, and then discount back by 10% per annum to get a valuation $6.76.

As always, the real valuation could be a good 20-30% either side of this. But i'd certainly be a lot more interested if shares were around $7

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#ASX Announcements
Last edited 2 months ago

Audinate delivers record revenue and EBITDA in 1H24

Key 1H24 financial highlights:

• Revenue increased 47.7% on 1H23 to US$30.4 million (A$46.6 million)

• Gross profit (GP) of US$21.8 million, up 50.1% – gross margin of 71.8%

• EBITDA of A$10.1 million, up 137% on 1H23

• Net profit after tax of A$4.7 million, improved from A$0.4 million loss in 1H23

• Operating cash flow A$11.8 million, improved from A$1.8 million in 1H23

• Strong cash and term deposits balance of A$111.7 million 

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#AGM Presentation & Update
Last edited 5 months ago

Had a chance to digest the AD8 AGM Preso of 24 Oct 2023 and summarised the takeaways below.

Also read the Audinate Strategy AV Magazine link from @Valueinvestor0909 (many thanks for this!) from 2 days ago which helped sumarise and crystallise what a good and exciting position AD8 in in, both now and whats ahead.

SUMMARY FROM AGM PRESO

  • Nothing new in Financials and FY24 outlook/guidance
  • TAM revised upwards from previous AUD$1bn to USD$2bn - appprox 2.5x upward increase
  • Base audio and video products are scaling nicely, challenges of Covid have now passed, back to BAU
  • Well placed to capitalise on external opportunities with the $70m war chest from recent capital raise
  • Clearly on the hunt for bolt-on M&A acquisitions to expand and entrench audio and video foothold
  • M&A Assessment framework makes sense, AD8 has a good track record of merging acquisitions - Silex, Cambridge 
  • The proof will be in the execution pudding ...


Discl: High conviction holding IRL

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Valuation of $25.00
Added 5 months ago

I said AD8 was likely worth $15 > 2 years ago when it was trading at $7.40 (see below for ref) and they've now raised capital at $13m and revised their TAM upwards > 2x.

Since then AD8 has become more entrenched and their prospect brighter. I'm assuming a 10yr Revenue CAGR of 27% (the average of their last 4 years and within mgmt guidance). This means AD8 would have ~30% of their total TAM (vs 2.3% today), it's also predicated on significant success in Video (25% of TAM in that segment), and owning 2/3 of the Audio Segment.

Also in 10 years NPAT Margin = 25%, and PE (Exit multiple) = 30x.

Discounting this at 10% gives an Intrinsic Value Estimate today of $25.

Disc: Held, and not topping up as it's already my largest holding.

2021 Valuation

Audinate is marginally unprofitable after increasing R&D headcount as part of its stated growth strategy. With Gross Margins expanding to 76.9% (2021, H1) and a lot more of its target market to penetrate, this seems like a wise investment. Discounted Cash Flow (DCF) valuations are not straight forward for companies that are marginally burning cash as they invests for future growth. I have assumed continued market dominance in audio can lead to revenue growth of circa 20% p.a. to $200m in 10 years or 50% market penetration (nothing yet for Video or Software). If Gross Margin stabilises at 78% (assuming no further gains from increasing the software mix), Gross Profit reaches $155m in 10 years time. I expect SG&A falls to 50% of Revenue while D&A makes up 6% and Capex just 3% of revenue in year 10 leaving NPAT of $70m at NPAT margin of 35% - very high but not unreasonable given Dante’s market dominance. Using a discount rate of 10% arrives at an intrinsic valuation of $7.40 per share which is now below where the market values Audinate at closer to $10 today. Recall this includes the Capex expected to fund the expansion into Video and Software solutions, but none of the anticipated revenue. If this investment can achieve a quarter of the market share for both Video and Software solutions in 10 years, Audinate is worth more like $15 today. Disc: Held

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#Bear Case
Last edited 5 months ago

Valuation - Statistically Expensive (@ 14x Price to Sales), hard to value and only marginally profitable due to high reinvestment / Spending all their FCF on growth.

Strategy - Video a more fragmented (by protocol and participant) than Audio was.

Niche - Limited market with unlikely / uncertain growth opportunities beyond it.

Cash burning tech - Haven’t monetised it yet, so not sure how it will look when mature - need to guestimate future margins.

Gross Margin falling - This is primarily due to product mix as Viper board (video hardware from Silex acquisition) sales grow. Should be temporary?

License Fee based - more 'reoccurring' than recurring revenue. Will likely stay that way until Software & Services picks up, in the distant future.

Mgmt not buying at recent prices. CEO actually sold into (ahead of) the recent capital raise.

50% Revenue Growth - Great but ... hard to maintain.

M&A brings execution risk – implementations are not easy – especially when tech is at the centre of it.

Key person risk in Aidan CEO.

Something from left field - an Apple or a Google makes a competing protocol via an app to displace Dante?

What have I missed??

Disc: Held (largest position)

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Valuation of $13.65
Added 6 months ago

Purely numbers based analysis, growth of sales has been impressive. Wouldn't be unreasonable to see 10%+ growth in sales going forward for a while. My growth analysis gave a best case of $14.15 and a worse case scenario of $13.15, so took the middle ground. Does not take into account a deep business analysis!

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#ASX200
Added 4 weeks ago

AD8 will be in the ASX200 from start of trade on 18 March. Growth begets growth! Beginning to feel very much like surprises will be to the downside - but this is a long term hold for me.


Held IRL and SM.

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#ISC24 Announcement
Last edited 2 months ago

Audinate announced that Dante AV hit a major milestone with 50 manufacturers

Audinate Group Limited (ASX:AD8), developer of the industry-leading Dante® AV-over-IP solution, announced it now has reached 50 manufacturers licensing Dante AV technology to build networked video devices. Kramer, Blustream, Magewell, Kiloview, Zenwin, Aavara, and Infobit AV are a few of the most recent partners that have joined the Dante AV ecosystem. There are now over 60 products available or soon to launch, including cameras, encoders, and decoders.  

( as compared to the end of FY23 figure as following screenshot of 34 OEM brands)

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#TAM Update
Last edited 3 months ago

A helpful update for November 2023. Only 7:22 long. Basically confirms what @Slomo covered in a previous post.

https://www.youtube.com/watch?v=oGzdDTc3u7w&ab_channel=Dante

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Valuation of $14.40
Added 2 months ago

As long as Audinate can get their revenue growth (and maintain it) back to pre covid levels shares look attractive at the current price. Question is, how likely is that? 2026 Share price:$23 @ 10% discount rate => 2021 Share price: $14 Parameters to get calculation: Assume growth returns to pre-covid levels (of 40% YoY) out to 2026 => 2026 Revenue: $ 177M Assume GP% remains at 76% => 2026 GP: $135M Assume Opex grows 15% YoY => 2026 EBT: $77M Allowing for 6% share growth per year and a P/EBT of 30X (assuming more growth but slowing) => 2026 Price: $23 Updated due to being effected by chip shortage: Assume 2027 Revenue of $177M and all other growth parameters are the same but run for another year so: 2027 EBT: $67M and another year of 6% share dilution => 2027 SP: $19 Discounted at 10% => 2021 SP: $10.60 It's quite a drop from my previous valuation, but I have been deliberately more conservative. Still bullish on the stock

Revisiting:

Assuming $250m Revenue in 2028 (~30% CAGR)

GP% returns to 75%

=> GP: $187m

Opex CAGR of 15%

=> 2028 Opex:100m

=> EBT: $87m

Assuming 94 million shares and a P/EBT of 25 gives

2028 SP: $23

discounted at 10%

2024 SP: $14.40

I think the multiple may be a little conservative - however the expected growth is anything but. Audinate is in a great position to capture value from it's market , however it seems quite a bit of that growth already priced in.

I won't be selling it anytime soon, however don't think I'll be buying it either



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#CEO 2024 Outlook
Added a month ago

Interesting to see what AD8's CEO had to say on ausbiz just after the 1H2024 results were released. It does sound positive indeed. They just need to make sure that they keep on delivering.

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#Broker View
Added 5 months ago

Quick research note updates for AD8 from both Morgan Stanley and Macquarie - basically talking about the TAM expansion ($1B -> $2B) mentioned in Audinate's AGM presentation


Morgan Stanley:

FY24e guidance reiteration of growth in US$ gross profit dollars consistent with historical, which we take to mean c.26-31% revenue growth (VA cons c.28-29%)

TAM materially upgraded to US$2bn, from A$1bn previously

  • Audio valued at US$330m, implying 9% AD8 share
  • Video and Software materially upgraded to US$780m and US$890m
  • respectively (vs. c.$400m each previously)
  • Video TAM upgrade likely driven by higher prices and volume - we note TAM
  • is estimated at the revenue line, but again flag the shift to software implementations for Audio and Video (same GP$ per unit, but lower ARPU and higher GM%). This could imply greater endpoint proliferation and a larger GP$ opportunity.
  • Software - least appreciated in our view. Our questions:
  • 1. How much of TAM is SaaS vs upfront (e.g. DDM historically);
  • 2. What does software product look like at maturity (e.g. modules, functionality);
  • 3. Buy vs build 


Macquarie:

What's new

Audinate's AGM presentation was released. It does not include a trading update. It includes an expansion of the Total Addressable Market (TAM) from ~USD1b to ~USD2b. Post the recent equity raise, additional data was provided on the rationale for M&A to accelerate AD8's growth strategy

Why it matters

TAM expansion is driven by the Video and Software segments. Underpinning this is previously unavailable data, reflecting the larger Dante product set and post-Covid trends. This estimate is based on the existing product set using current prices and excludes adjacent market opportunities. These factors reinforce key focus areas for M&A

to accelerate the existing strategy: Video & Software. The additional opportunity to address Dante software strategy is not included in the TAM expansion

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AD8's outline of opportunities in Video & Software markets highlights desired capabilities for M&A. AD8 outlined the opportunities in Video as cameras, displays, projectors, signal routing and switching products. In Software, the opportunities are in management control software (Dante Domain Manager) and Dante PC/Mac software

Market growth is estimated to be higher than the long-term historical average of ~7-8%

What now

Validation and expansion of the market opportunity provides confidence in longer-term outlook, although execution risk is heightened with an M&A- centric strategy. Silex acquisition and integration provides some evidence of a disciplined approach to M&A. With the recent A$70m equity raise, Audinate has dry powder in a market that is offering more attractive multiples for M&A opportunities. We expect acquisitions in FY24 in line with management commentary 


DISC: Held in RL & SM

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Valuation of $28.50
Added 4 weeks ago

17-May-2020: 12 month price target: $7.77. [Scroll down for latest updates] Very hard to value. There's a kind of blue sky upside to this company based on Dante continuing to be the dominant platform for flexible AV (audio-video) digital networking, so the move from connection via physical cables to a digital network where audio and video can be sent (transported), stored, mixed, broadcast, etc, via ethernet cables with perfect digital fidelity or even wirelessly with no cables at all (once everything has already been converted to digital format). Dante is already available in over 2000 products from more than 400 manufacturers, covering a diverse range of installations and applications across industries, including: Houses of Worship Arenas and Stadiums Recording Studios Conference Centers Universities Broadcaster Studios Corporate Studios Amusement Parks Zoos Theaters These installations all benefit from Dante’s ease-of-use, flawless fidelity, and straightforward deployment. Because Dante can be used with existing networks, many of these applications benefit from infrastructure that is already in place for further savings. I have expanded on this in my "Bull Case" straw. I believe it is useful to try to imagine what Bluetooth would be worth if it was a commercial entity (a private or preferably a listed company) instead of owned by a not-for-profit organisation. That might be a good starting point to try to grasp the opportunity that AD8 presents once they are the dominant platform across their industry and everyone is using them (as has happened with Bluetooth). AD8 have a way to go to reach that point, but they're already very dominant to the point that their competition is essentially meaningless. They're so far ahead in the race that it is very unlikely that an existing or new competitor will catch up and overtake them. All AD8 have to do now is keep on doing what they're already doing, until they have total market dominance. That will be achieved once all (or virtually all) of the device manufacturers in that space have incorporated the Dante platform into their equipment as standard, exactly as has been done with Bluetooth for short range wireless data transfer between mobile phones, computers, computer peripheral devices, IoT devices and a lot of audio gear (such as wireless headphones). I see Dante's complete domination as inevitable, however I don't have a realistic timeframe - I don't know how long it will take to achieve. That's one of the curly factors about trying to value a company like AD8, and it's not the only one either. I am reasonably comfortable that their future value is highly likely to be well above their current value, but how much higher and how long it will take to achieve their full potential are the unknowns for me. And of course, that is all based on some assumptions that may ultimately prove to be incorrect, as with any investment thesis.

15-Nov-2020: Time to update my valuation/price target (PT) for AD8 - as Strawman.com has now flagged my old $7.77 PT as "stale". Interestingly, AD8 has just hit that level again in this past week. I'm going to go with $8.50 as a new 12 month PT. Basically, COVID-19 has simply deferred the growth that has been expected, but it's still coming. The IT (investment thesis) remains intact. I'm not currently holding AD8, but I likely will again at some point.

16-May-2021: Update: All good. Still like them. Still not holding them but. $8.50 still looks like a good target, they keep getting up there and then dropping away. If I held them I'd be tempted to sell out or trim at $8.50 whenever they get there and top-up/buy below $7.50 and just trade that range. If I had more money to invest this is definitely one I would be holding for the long term.

24-July-2021: New PT = $10.77 based on their recovery from COVID-lows and their recent positive market re-rating from circa $8/share to around $10/share. The upside is massive. The timeline is pretty hard to pin down however. Wish I held this one in real life, but I'm unlikely to jump in at $10/share or above, I'd want to see another decent pullback. I think they'll go higher, but if they reach my $10.77 PT, that's only around +7%, and I believe most of my current holdings have more near-term and mid-term upside than +7%.

Longer term it's dart-board stuff, they could go anywhere, but how long that takes I do not know. They're in my Strawman.com virtual portfolio. And I'll likely add them to one of my real-life portfolios if they get back down to $8, although I concede that is by no means guaranteed, so I may NOT ever own them in real life. You can't pat all the fluffy dogs.

29-Feb-2024: Update: I ended up buying AD8 in my SMSF at around $9/share on 13-July-2023, so just over 7 months ago. I thought they were getting close to the inflection point of profitability, and... well, this one worked out real well!! They are now the largest position in my SMSF and trading at over $23/share (closed at $23.18 today). I've raised my price target to $28.50 for no other reason than I think they're going to get there in the next couple of years. Maybe sooner if they keep rising at this rate!

I'm glad I didn't stick to the plan outlined above (in my July 2021 comments) about waiting until they dropped back below $8 before buying them. What was I thinking??! I actually managed to time this one almost to perfection, something that I've historically been horrible at (timing), so I'll take the win, but I'm not selling any yet. They're going higher.

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#Dante AV vs NDI
Added 5 months ago

Inspired by @mushroompanda's DD on NDI, I asked Aidan (CEO) about them as a competitor a the AD8 AGM last week.

He gave a pretty full answer that left me feeling like he had their number and is quite confident of out-competing NDI over the long term – you would hope he thinks this…

Here's some of his comments (paraphrased from my shorthand).

NDI is probably the tech most like AD8 from a technical POV.

NDI is stronger in stronger in broadcast / live production environments. So they are more market specific, but looking to branch out.

AD8 is stronger in commercial installed AV which is a much larger market.

AD8 have advantages over NDI on price, technology, market and people (NDI have lost a lot of staff).

Dr Andrew Cross (https://www.linkedin.com/in/adjc/) no longer works at NDI (he was their founder / CEO / spirit animal).

In summary, NDI is one to watch and will probably remain the biggest competitor for AD8 in Video.

This needs to be seen in a larger context though which I will discuss in a separate straw on Strategy.

Disc: Held (largest position)

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#AGM Presentation & Update
Last edited 5 months ago

Agree with @jcmleng that the standout from the AD8 AGM was the expansion TAM.

I attended the AGM in person (no virtual option) and was surprised to see only a few more people than last year.

A few more analysts (brokers or buy side I presume) than usual but only retail shareholders asked any questions.

I'll add some details in separate straws.

TAM update

My reading of the preso and Aidan's speech is that the TAM has changed in a few ways.

1) More detailed work has been done (via consultants) to arrive at a more granular view of the various markets (although they only shared the 3 high level segments).

2) Fine tuned the definition of each market to only capture revenue pools they can actually capture – i.e. where they have products / solutions in market or planned. For example, this re-cut included removing revenue potential for OEM products that may never be networked.

3) Increased market for each segment but especially in Video ($1.2bn, 39% of total) and Software Services ($1.4bn, 45% of total).

Market Share small but growing nicely

AD8 now has approx. 9% of the Audio Market ($46m of $510m, 17% of total TAM) and approx. 0.5% of Video, leaving approx. 1.5% of Software & Services market by revenue.

The market as a whole is expected to grow at approx. 6% CAGR for next 5 years (grew 8% in FY23).

Given their dominance in Audio (12x their nearest competitor and growing) and their aspirations, with a strong start in Video, I see TAM as a much more relevant for valuing AD8 than for most businesses who discuss it.

Disc: Held (largest position)

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#Business Model/Strategy
Added 5 months ago

Key take always from the AD8 AGM for me (apart from TAM expansion per separate straw) were:

There are 2 main strategies

1) “Winning in video”, this will include M&A ($1.2bn Rev Video Mkt), this is their #1 priority.

2) “Building out the operating system of AV” ($1.4bn Rev Software & Services Mkt), this is the big Long Term prize.

So they have a long runway of reinvestment opportunities at (a high expected ROI).

Technically there's a 3rd strategy which is to dominate Audio, but I'd say this is just a matter of time and the focus of CEO Aidan's discussion is all around video. Software & Service (operating system for AV flows from that).

Execution on the Video strategy is everything, and I would say if they don't manage this, the thesis that supports the current share price is badly damaged.

If they can do in Video what they have done in Audio to dominate the Video market, S&S should be easier as they will be the de facto AV operating system and be able to build a product suite earning high margin SaaS Revenue on top of this.

The recent $70m Cap raise was to expedite their Video investment via M&A and in-house Dev (Capex), so aligned to this Video focus.

Expecting minimal growth in Opex so should start to see Operating Leverage in evidence in the next few years.

This Video strategy is de-risked in a few ways.

1) They are following the same playbook as they did in audio where they have now effectively won. Their Dante protocol has 9% of the available market (but 12x the penetration of their nearest competitor). Trajectory is also positive, as this was 6x a few years ago and will soon be > 12x as more design wins translate into OEM (product) deployments.

2) They have a very good name and relationships in the AV industry from their work in Audio. There are a lot of synergies for AV Engineers and OEM’s to have a single integrated protocol across Audio and Video combined – as they have won in Audio they can be the only integrated protocol across both.

3) The Video market is more fragmented than Audio with no clear competitor and the incumbent is inertia (See separate straw on NDI).

4) They have integrated 2 small acquisitions that have allowed them a rapid entry into the market increasing their products from 7 to 48 in FY23. It took more like 6 or 7 years to grow this part of the Audio build out.

Note: The above is not what they spelled out specifically in their presentation (not sure why - building a monopoly concerns, don't want to spook the competitors?), it's just me pulling a few things together from the AGM preso, FY23 results and ASX material and what Aidan's been saying for a while. So I could be off the mark here and reading into what I want to believe...

Disc: Held (largest position)

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#Broker View
Added 2 months ago

Well "the market" obviously liked the announced results (currently up ~19% so far today) - FWIW what did the brokers say today ...

I'm aware of three Investments Banks which cover AD8:


UBS: Buy, 12m PT $21.05

Strong growth momentum ahead of UBSe and consensus

An impressive 1H24 result, with rev and EBITDA both strongly ahead of UBSe and cons. Momentum in both audio & video is strong, with healthy design wins (+54 norm. post CV), ecosystem build and strong initial uptake from video cust. (hit FY24 target by 1H24). In our view, g/dance appears conservative given 1H mom. (1H24 GP +53% y/y vs g/dance implied 2H24 +7-18%). While mgmt prev commented on a higher portion of 1H rev vs normal 45/55% split given sales backlog, we highlight upside risk given 50/50 split implies +33% y/y growth already. While the sales backlog is normalising, we expect: 1) ongoing strength in audio; 2) video expansion; and 3) penetration of low channel count devices via software delivery, to underpin LT growth, although we recognise macro uncertainty remains a risk near-term. FY25E EV/Sales of 10.8x, looks expensive h/ line, but AD8 offers strong 5yr (FY25-30E) GP CAGR of +22%, maintain Buy

1H24 result highlights

1) Material beat at both rev & EBITDA - Rev US$30m (+48% y/y) / A$47m (+51% y/y) +13% beat vs UBSe / +11% vs Cons; EBITDA $10.1m (+137% y/y) +37% vs UBSe / +20% vs Cons. 2) GM 71.8% (72.8% 2H23 / 71.2% 1H23), impacted by lower mgn pent-up Ultimo demand (3x 1H22 vol). 3) CCM rev +46% y/y driven by Brooklyn & Ultimo, Software +56% (IP Core, DEP, retail software). 4) Very strong growth in audio ecosystem - 430 OEMs +153 developing (total 583) vs 400+138 at 2H23 (538), 4.0k products, 12x the closest comp vs 3.9k at 2H23. 5) Strong video mom., reached FY24 tgt for >30k units in-field/shipped already (6mth earlier), indicates early traction for customer uptake. 6) 2nd consecutive period of FCF +ive ($3.4m), OpCF conv. >100%. 7) Outlook: US$ GP$ growth consistent w/ historical for FY24 (UBSe 26-32%), ongoing +ive OpCF, additional h/count of up to 15%, transition to software by OEMs expected to recommence, sales order backlog reducing to reflect shorter lead times post CV, actively exploring M&A ops ($118m cash & term dep, no debt)

Changes to forecasts

We have increased our ST forecasts for FY24-25E (Net impact FY24/25/26/27E - EBITDA +8/3/3/4%, EPS +82/17/8/7%). We also upgraded MT/LT growth expectations for both audio/video given larger mkt sizing (FY30 EBITDA +20%). Our LT assumptions incorp FY34E penetration of 20% for audio, 14% for software and only 3% for video

Valuation: $21.05 PT (vs prev $13.55) – maintain Buy

We have rolled fwd vals, extended to FY34E (prev FY32E) and increased LT f/casts (FY30 EBITDA +20%). We derive our PT using a $19.03 base (blended 2yr fwd EV/Sales to sales CAGR / DCF) + $2.01 to reflect +2% share of potential digital video networking opp


Macquarie: Neutral, 12m PT $15.80

What's new

  • CCM revenue (+45.6% on pcp). Driven by Brooklyn volumes (+50% on pcp) and Ultimo volumes (>200% on PCP, 3x 1H22 volumes). Ultimo volumes driven by fulfilment of pent-up demand
  • Software revenue (+56.2% on pcp) driven by IP Core (+100% on pcp), Dante Embedded Platform (+60% on pcp) and retail software sales (+75%)
  • Gross Margin (+60bps on pcp to 71.8%) driven by mix. Brooklyn 3 COGS improvements still to come in the 2H FY24.
  • Strong reported EPS beat (+49% to Macquarie and +263% to VA cons)

Why it matters

  • Strong adoption of Dante Video, with 66 products in market. FY24 of 30k units shipped achieved early
  • Dante Pro S1 and Dante Director launches. Next gen low channel count Audio solution and broadcast software solutions

What now

  • No Guidance upgrade despite strong 1H FY24 numbers and assumed AUDUSD of US$0.70. We are looking for more detail here on the call



Morgan Stanley: Overweight, PT $13.30

AD8 1H24 delivered another strong beat across the board today

  • Rev US$30.4m, +4% beat MSe / +10% VA cons
  • GP US$21.8m, +6% beat VA cons
  • 71.8% GM lower than historical c.75%, headwind from backlog release of lower-margin Ultimo chips
  • GM expected to improve in 2H
  • EBITDA A$10.1m vs A$8.4m cons - opex right in line with MSe
  • Self funding - positive A$3.4m 1H24 FCF, improving on A$2.5m 2H23 despite annual bonus payments in 1H


Video adoption provides further conviction on medium-term growth

  • Video OEM adoption at 50, from 34 at FY23
  • Initial objective to double video ecosystem over FY24 achieved 6mths earlier in 1H.


Guidance reiterated

  • 26-31% FY24e US$ GP growth implies US$42m GP at low end or 52/48 1H/2H skew vs historical 2H skew
  • US$42m low end implies c.3% lift to US$40.9m cons
  • While 1H24 GP growth was helped by backlog release, we continue to see elevated 2H growth driven by a stronger video trajectory + new product releases / revenue streams + overall robust 2024 industry outlook


We are OW AD8


DISC: Held in RL & SM

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#Business Model/Strategy
Added a month ago

Audinate CEO on Livewire:

https://www.youtube.com/watch?v=DuSbMF5oO0E

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Valuation of $16.87
Added a month ago

Updated Valuation (17/02/2024)

1H FY24 results were very strong with revenue increasing by 47.7% to $46.6m (AUD).

Using similar assumptions as below except increasing revenue growth by 40% for this year and then 30% for the subsequent 4 years gives FY28 revenue of around $278m.

A 20% net margin would give an NPAT of around $55m.

Using the same terminal PE of 40x and discounting back 10% pa gives a valuation of $16.87.

Disc: Held IRL and on Strawman.


Valuation:

  • FY23 Revenue = $69.699m
  • FY23 NPBT = $1.393m

Assuming 20% CAGR for revenue for the next 5 years, and a net margin of around 20% (I think this is reasonable for a hardware/software company) gives us:

  • FY28 Revenue = $173.43m
  • FY28 NPAT = $34.686m

Assuming a terminal PE of 40x at FY28, and assuming SOI increases to around 90m:

  • FY28 EPS = $0.3854
  • FY28 Price Target = $15.416

Discounting this back 10% pa gives us a valuation of $9.57.

I personally think these assumptions may be on the more conservative side but given that this is already my largest position (outside of some index ETFs I own), I'd prefer to wait for some weakness before adding (probably add around $10). Conversely, future results may show that this was indeed too conservative and thus may need revising in the future.

Disc: Held IRL and on Strawman.

Thesis for owning this company

What does the business do

- Software for the audio-visual sector

- Dante protocol replaces the need for physical analog wires by using a single ethernet and IP to send signals

Why do I own it- Becoming a monopoly in the AV industry with over 80% market share

- Slowly monetising its market dominance

Reasons to potentially sell

- Loss of market share to a potential disruptor

- Inability for management to execute its monetisation strategy

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Valuation of $18.50
Added a month ago

Update of my price target / valuation is based on H1FY24 results and Investor Presentation provided to the market on 12.02.2024.

I've decided that for now, my Investment thesis remains intact.

This is based on:

  • AD8 maintaining their virtual monopoly in the Audio segment with their Dante suite of chips, cards, modules (CCM) and software sales.
  • 50 % Gross profit increases for the half year and sustained gross margins in excess of 70% .The CEO did flag that chip supply constraints had eased allowing the significant backlog of orders to be filled and that this was a significant factor in their impressive half-year result.
  • very strong balance sheet with the recent capital raise and positive operating cash flow for the half-year ending 31st Dec 2023.
  • Dante solutions for their recent entry into the video segment still showing strong momentum. 50 OEM customers now licensing Dante video offerings (up from 30 manufacturers a year ago).Three-fold increase in the number of Dante video products available at 31 December 2022. Achieved their FY24 objective to double the video ecosystem to greater than 30,000 video units in field or shipped six months earlier than planned.


I believe that there are several competitive advantages that Audinate can sustain and enhance with their strategy ,execution and growing product offerings.

  • Genuine network effects on a global scale.
  • Unit costs for video products can still decline as sales volumes increase.
  • If they can acheive market dominance in their targeted Video Segments, then switching to an alternate product would be costly for customers.


Key 1H24 financial highlights:

• Revenue increased 47.7% on 1H23 to US$30.4 million (A$46.6 million)

• Gross profit (GP) of US$21.8 million, up 50.1% – gross margin of 71.8%

• EBITDA of A$10.1 million, up 137% on 1H23

• Net profit after tax of A$4.7 million, improved from A$0.4 million loss in 1H23

• Operating cash flow A$11.8 million, improved from A$1.8 million in 1H23

• Strong cash and term deposits balance of A$111.7 million



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#Post-Pandemic business reorien
Last edited 5 months ago
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#Fundie/Analyst Views
stale
Added 6 months ago

A short piece in Livewire today by Donny Buchanan from Lakehouse Capital includes some commentary on AD8

https://www.livewiremarkets.com/wires/3-small-caps-with-significant-runway-for-growth


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#Audinate chief sold shares bef
stale
Added 7 months ago

Listed AV networking business Audinate is on a tear, and chief executive and co-founder Aidan Williams is cashing out.

He sold 51,702 shares, or 2.6 per cent of his $26 million holding, on August 28, securing $706,249.32 at $13.55 a pop. This cash, he told us, would meet “upcoming tax obligations”.

The most intriguing aspect of Williams’ sale, however, is its timing. It was disclosed on September 6 (two days late in what the company said was an “administrative oversight”). This was the day before Audinate announced a $50 million, fully underwritten capital raise at $13 a share.

Audinate CEO Aidan Williams sold shares to meet upcoming tax obligations.  

As you’d expect, this has suppressed Audinate’s share price, which fell 9.7 per cent on the day the raise was announced and hasn’t reached its pre-capital-raise level since. By selling nine trading days before (rather than after) the capital raise, Williams has, at the margin, maximised his reward, to the tune of nearly $20,000 at Thursday’s $13.20 closing price.

Knowledge of an upcoming capital raise could be considered material non-public information. Williams said he was given permission to trade in accordance with company policy, and that the capital raise was decided upon by the board sometime after his trade.


https://www.afr.com/rear-window/audinate-chief-sold-shares-before-capital-raise-20230914-p5e4ma

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#FY23 Results
stale
Added 7 months ago

My notes on digesting AD8's sterling results. Focused more on the operational aspects of the results rather than the financials.

Only thing that surprised me was the headcount changes. Not saying its a bad thing at all (constraining headcount is often an organisational "own goal" if it ends up constraining growth), but rather the fact that it went against what the CFO Rob Goss told us in Feb 2023 where they saw the current headcount as sufficient to support 30% growth and it caused a $5.1m cost increase. Something I noted to myself to keep an eye on in FY24.

Discl: Held IRL

GOOD

Financials

  • Sharp increase in revenue despite significant challenges with supply chain issues - 40% YoY to US$46.7 million (A$69.7 million) - AUD revenue grew 50.6% to A$69.7 million aided by favourable A$/US$ currency impacts
  • FY23 closes the chapter on a challenging 3-year period in which we delivered US$ revenue growth CAGR over 31% despite COVID induced downturns and chip shortages.
  • EBITDA was $11.0 million in the year ended 30 June 2023 compared to $4.3 million in the prior year ended 30 June 2022.
  • Milestone net profit before tax of A$1.4 million (vs $4.4m loss in FY22) 


Cash Flow, Cash Position

  • Positive free cashflow of $2.5m in 2H23
  • >100% cash conversion in FY23
  • Well capitalised with cash and term deposits of $40.0 million at 30 June 2023, no debt


Operations

  • Covid-Related Supply Chain Impacts are now in the past - Revenue no longer gated by chip supply
  • Successful transition of Chips, per plan (1) Last Brooklyn 2 orders - transition to Brooklyn 3 (2) Broadway chip - now end-of-life
  • Achieved a record 142 design wins with OEMs, up 12.7% from FY22, 26 were from video 
  • Total number of OEM brands shipping and developing Dante-enabled products grew to 538 after accounting for some rationalisation in OEM numbers associated with chip shortages & supply chain challenges - 34 OEM brands now have licensed Dante video products
  • OEM customers released another 261 Dante-enabled products taking the total to 3,853 - including 48 products for Dante Video
  • Strong Progress on Video Products and Integration of Video into the Dante ecosystem
  • Launched Dante AV-H and Dante AV-A - new revenue streams for FY24
  • Video support to Dante Domain Manager
  • >10,000 video endpoints shipped
  • >$3m revenue from video
  • 26 of 142 Design Wins were video - 18.3% of Design Wins
  • 48 Dante Video products launched in FY23 vs 7 products in FY22
  • Video is growing 3x faster than Audio
  • Launched Dante Connect - Cloud based solution to deliver audio directly from location to cloud services that enable seamless online production
  • Launched Dante Professional Services June 2023
  • With the worst of COVID and supply chain pressures receding, the Company anticipates audio OEMs will recommence transitioning products using Dante chips, cards and modules to software Dante implementations. This migration is expected to be relatively neutral for gross profit dollars and result in gradual margin improvement and a slight moderation in headline revenue growth. Irrespective of the pace of this migration, the Company expects % growth in US$ gross profit dollars in FY24 to be consistent with historical performance.
  • Backlog at near-record levels - to be fulfilled in 1HFY24


FY24 Outlook

  • In our FY21 Annual Report Chairman, David Krall, said “We expect that Audinate will double revenue in the medium term”, and Audinate anticipates achieving this ambitious goal in FY24.
  • Growth in USD gross profit consistent with historical performance
  • Targeting >30,000 video endpoints from the current ~10,000 end points
  • Further growth in uptake of video


NOT SO GOOD

GP Margin Reduction

  • GP margin has reduced from 74.7% in FY22 to 72.1% in FY23 as CCM growth outperformed software product and higher priced spot raw material purchases - movement due to product mix (Viper) and temporary Brooklyn III costs
  • Gross margin was 71.2% in the first half affected by supply chain impacts, improvement occurred in 1HFY23


Headcount Increases

  • Headcount increased 10% (178 to 197), further addition of 15% headcount in 2024 vs "current headcount can support 30% growth" when we spoke to the CFO,Rob Goss in Feb 2023 - a $5.6 million increase in employment costs as headcount grew from 178 to 197 at 30 June 2023. 
  • 15% headcount allocated to growth to ensure scalability, mostly to Manilla
  • Not an issue if additional headcount is allocated to growth (it is) and if revenue growth can absorb it (it appears so), but this is a clear change in plan


WATCH 

  • Higher revenue expected in 1HFY24 as backlogs are cleared, still expect 2HFY24 revenue to be higher
  • Cash flow positive 
  • Margin to move back to ~75% given Covid issues have subsided
  • Headcount movement and costs vs revised plan
  • Traction of Dante Connect Cloud Solution
  • Traction of Dante Professional Services and contribution to revenue
  • Design win growth - this is a leading indicator of future Dante products


RISKS

  • M&A opportunities, how they bolt-on to the Dante suite and acquisition cost
  • Macro factors, slow global growth, higher interest rates etc - AD8 considers these to be BAU scenarios that needs to be managed


SUMMARY

  • Very bullish results
  • Continued traction on Audio, good evidence of significant positioning and step uptake of Video from FY22
  • Covid Supply Chain issues are over and successfully transitioned to new chips - revenue no longer gated by chip supply, paves way for “unconstrained” growth
  • Guiding for same level of revenue growth in FY24
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#Capital Raising
stale
Added 7 months ago

Looks like Audinate is taking advantage of the rocketing share price to raise capital. Wonder if there will be an SPP for us mere retail investors.

cb9cf54bc984e48079cdf474aaa23c35e3344a.png

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#Broker View
stale
Added 7 months ago

Following on from @harryd's Analyst View straw...

At least three major Investment Banks cover AD8 and have published updated research reports in the past day so here's some snippets for what it's worth ...

Morgan Stanley: Overweight, Price Target: $13.30 (upgraded from $11 previously)

FY23 beat across the board, positive 2H FCF with strong outlook + FY24e guide. The stock price reflects this, so where's the opportunity + what are the debates? 1. 100% LTI vesting implies FY25e revenue 20% above cons, 2. Superior mature margins, and 3. Winning in video as AD8 has in audio

cb8799d0c1fd372ef358c76468929546b0cd7f.png


UBS: Buy, 12M Price Target: $13.55 (upgraded from $10.35 previously)

Strong result on all fronts, outlook +ive with supply overhang largely resolved

A strong result all round, delivering a 10% rev beat vs consensus and +39% at EBITDA. Supply chain impacts are largely resolved, through a combination of easing chip supply and redesigns - removing a constraint on already high rev growth (FY23 +40% vs +32% FY17-22 CAGR, exc. COVID impacted FY20). The sales backlog remains close to record levels (despite the dissipation of supply constraints), providing good rev visibility in 1H24, although the order window should narrow over time. Video is also gaining good traction, with 48 products launched (vs 20 at 1H23 / 7 in pcp) and we expect product releases to translate to units shipped in FY24E. Margins in FY24E should also be supported by COGs reduction (vol benefits from new B3 model + easing supply) and transition to software (flat GP$ but higher mgn). Design wins are at all-time highs (142 vs 126 FY22) and AD8's total product ecosystem is still much larger than the nearest competitor (12x more). FCF turned +ive in 2H23 and mgmt expects a marginally +ive outcome for FY24E. We remain positive on the structural story and video op. Trading on FY24E EV/Sales of 9.8x, offering 3yr (FY24-27E) GP CAGR of +26%, maintain Buy 


Macquarie: Buy, 12M Price Target: $13.50

Key Points

  • Backlog is at near record levels & supply chains have normalised
  • Guidance for gross profit dollar growth in the historical range. Gross margin is broadly an outcome of mix, but there are tailwinds in FY24
  • FY24 headcount growth (15%) is focused in the Philippines. Coupled with efficiency initiatives, there is strong scope for operating leverage in FY24


We think AD8 is at an inflection point in earnings, driven by delivery on their strategy of growing the Dante-enabled network. The FY23 result is evidence of operating momentum accelerating, which should support strong double-digit FCF growth over the forecast period. We reiterate Outperform. 

94d7f82273a221bc55861c1b7c9fbd031bdc90.png


DISC: Held in RL & SM

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#Broker View
stale
Added 7 months ago

Research Tactical Idea - Morgan Stanley - July 18, 2023

Please note: Morgan Stanley put out a disclaimer that this tactical idea should not be relied on. This is just an archived article.

We believe the share price will rise in absolute terms over the next 60 days.

Our conviction on results upside is driven by; 1. Revenue visibility, where we think US$22.7m 2H23e is highly achievable - implying an incremental US$2.1m HoH, with supply likely continuing to improve, further supported by elevated backlogs and overall robust industry demand, and conservative Video guide. AD8 was also tracking to market expectations May end; 2. Scope for cash flow breakeven in 2H23 or at least that AD8 comes close; and 3. Further Video execution and adoption supports the outlook. Also see "Key Ideas Result #2: AD8".

We estimate that there is about a 70% to 80% (or "very likely") probability for the scenario.

Estimated probabilities are illustrative and assigned subjectively based on our assessment of the likelihood of the scenario.

Why AD8 made the list: 1) Revenue visibility –US$22.7mn 2H23e consensus implies an incremental US$2.1mn HoH, which we think is highly achievable. (a) Supply should continue to improve over 2H (drove a 20% decline in 1H Ultimo sales). (b) Elevated backlogs provide revenue visibility. (c) A\2H23 AV demand is robust. (d) No trading update at May end, but AD8 was tracking to market expectations. (e) Video guidance could be conservative – >US$3mn FY23 guidance implies >US$1mn in 2H23, which we find conservative given 2H23 adoption announcements. 2) Scope for cash flow breakeven in 2H23 –We reiterate our maths from 1H23. Again, we think being "close" to cash breakeven is sufficient evidence of self-funding + balance sheet optionality. 3) Video execution and adoption – across OEMs, products and now revenues. We are now seeing the video story accelerate.

What's not in the price – conviction in fighting the fade at 7.6x FY25e EV/Sales: 1) 26-31% revenue growth sustainable with audio – We walked away from our Summit more confident. AD8 noted that audio penetration (<10% today) can sustain 26-31% growth alone vs. the market's base case of c. 26% growth with accelerating video contribution. 2) Dante AV-A increases serviceability of video TAM – expected to open up c. 50%. We think it's worth recapping AD8's video journey. The company did not get it right initially – it lacked key products (Dante Video in software form) and the right sales/R&D expertise. However, it recognised these gaps, made moves to bolster capabilities (Cambridge + Silex), and that adoption story is now playing out with Dante AV-H. We have similar conviction in AV-A. 3) Margins, cash flow, balance sheet optionality – Our base case is that AD8 becomes self-funding from FY24e with a more obvious earnings profile from FY25e. We think the strategic focus remains audio and video, but incrementally, we see scope for greater clarity and future reinvestment, e.g. into the (user) software opportunity/adjacencies like broadcast.

Key risks: 1. Cyclicality – AD8's end market is cyclical with capex projects, though reopening tailwinds, structural share, and backlogs give confidence in delivery. 2) Gross margins + cash burn – base case is trajectory towards cash breakeven, but continued depressed GM (expected to rebound) could weigh on cash.

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Valuation of $9.00
stale
Added 7 months ago

21/8/23 Results Announcement

Good results today but they were not totally unexpected. Actually, the growth in costs (29% CAGR over 3 years) is higher than ideal and reduces my valuation.

I thought the share price at $10.30 was fully valued based on the expected results. Market reaction has lifted SP 16%+.

Another company priced for perfection and any stumbles will be punished.

Revenue announcement above forecast represents a 3 year CAGR of 32%.

Forecast forward 10 years (15% rev growth at 2033) revenue is $395M.

SOI growing at 5% provides EPS of $0.79. Costs growing at 10% at 2033.

Use a PE of 40. Discount rate of 15%. Fair value around $9.00.


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Valuation of $11.07
stale
Added 7 months ago

Assumptions:

Revenue Growth: 25% for the next 2 years is a good guess based on the below

8fcf725fca3b542e5277bc6c2c60f1fc5fbbff.png

Gross Margin of 74% in FY25 ( current margin 72.1%, Management flagged that it will increase gradually)

allowing employee expenses to $35m to cater for a flagged 15% headcount increase

Share count of 82m in FY25

FY25 Reve of 108m, GM of 80m, and Profit of 32m

PE of 35 in FY25

b74ebe799688c1011de1b653f2a6f898ef7ef0.png

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Valuation of $5.50
stale
Added one year ago

10 year DCF

rev cagr of 22% over that period

peak ebitda margins of 34% vs FY22 of 5%

capex $8m p.a

WACC 11%

Terminal g/rate 3%


I really struggle to reach consensus vals of $11....


on a side note, management LTIs are based on rev growth and share price growth... no real incentive to be profitable

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Valuation of $8.00
stale
Added 2 years ago

Updated DCF for $AD8.

Central case provided here. Hi and low addressed in accompanying straw, to follow.

Revenue (cash receipts) grow at 30% FY23-25,25% FY26-29

Cost base grows at 15% pa. (Costs as a % of receipts fall from 98% today to 56% in 2029)

Investment as % of receipts: declines from 27% in FY23 to 16% in FY29 (determined as growing for 3 years at 25% p.a., then 15% p.a.)

Effective tax rate rises from 0 in 2023 to 23% of FCF (before tax)

Discount Rate 10%

Continuing value: FCF grows as 5% p.a.

No financing

10% discount of to allow for further increase in shares issues.


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Valuation of $9.93
stale
Added 2 years ago

Assumed Revenue 100M in FY26

Share Count 87.5M in FY26

EPS 0.40 in FY26

PE 40 = $16

Discounted 10% giving Valuation $9.93

HRL

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Valuation of $9.50
stale
Added 2 years ago

Moving average down price range:

Buy at $9

Sell at $10

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Valuation of $4.00
stale
Added 2 years ago
Hugely overvalued. Based on a forward 3 year revenue growth rate of 30%, with gross margins of 78%, and adj. free cashflow of 10%, I come up with an EV/S ratio of 9, which in turn equates to a valuation of $5.00. Given the revenue constraints imposed by the global chip shortage, I'll apply a 20% margin of safety.
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Valuation of $11.92
stale
Added 3 years ago
Having been hit hard rather than helped by Covid, audio tech company AD8’s half year results just out (22Feb21) provide hope for a bright post Covid world for the business, along with a market validating 5%+ share price bump. As such I have updated my valuation from $8.47 (not previously on Strawman) to $11.92 take the results and product development updates into account. Reason: Valuation Assumptions: • Good Leadership: Founder lead (Aidan Williams now CEO) & 4.6% skin in game for the board, strong board skills with growth companies, CEO brings technical & innovation ability. • Market Share: Increased from 6x to 8x the number of products available to the nearest competitor – AD8 is the market leader by a country mile and I expect that to remain the case. • Product Evolution: Dante Embedded Platform (DEP) software launched in Apr20 eliminates need for additional separate Dante chips & circuitry, allows for upgrading existing products in the field. Move from Hardware to Software solution - enhancing proliferation of Dante products (growth) & reduces costs to distribute (margin). • New Product Development: Blue tooth enablement and the establishment of a Video Development team (Cambridge) show continued product use expansion and development in line with the CEO’s prolific inventive background. • TAM: Market forecasts have Networked Audio Units growing from 490k in 2020 to 1597k in 2024 (34% CAGR). You can take or leave the market forecast, but the key point I take out of it is that the market is massive compared to AD8’s current size and penetration. Add to this AD8’s dominance in the market and expanding use case with Blue tooth and video development it is clear there is plenty of room to grow. • Risks of competitor pressure I see as low, Dante is becoming the industry standard. So the real risk is from disruptive technology, a decline in the industry Dante serves which is high end audio or events like Covid that impact that industry perpetually. Valuation (DCF): Covid smashed AD8’s sales from a 30-40% growth rates to just 7% FY20 thanks to -12% in H2 FY20. I expect that growth will gradually return to peak at 39% in FY24 then tail down 5% system growth by 2030. As part of this I also expect the segment mix to change from the current 68/30/2% mix of Chips, Cards & Modules/Software/Other to a mix of 0/76/24% as Dante moves to a software rather than hardware product and other business comes from product innovation. The moved from hardware distribution of Dante to software will help margins considerably and I expect these to rise from around 80% gross margin to 87% by 2030. I see this as conservative and also see Opex% dropping from 84.4% (FY20) to about 50% of sales by 2030 as also very conservative to move EBITDA% from 6.7% to 44% by 2030. Capex (PP&E + Intangibles) spend I have at $8m in FY21 and growing at 10% a year. Despite a very reassuring 66m in cash on hand I see the need for more capital raisings to fund acquisitions so have increased share count by 3% a year to reach 102m shares by 2030. This gives cash flows of: 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 -444 1,257 4,824 10,186 16,994 24,459 30,466 35,792 40,313 41,636 Terminal = 1,385,690 (EV/EBITDA = 20) Discount Rate = 9% (lots of cash + market leadership = low risk) IV = $11.92 Other Points of Note: The impressive part of the half year results was probably more around the growth in Dante enabled devices, which reached 3,008, up 27% YOY. To explain why this shows great future prospects it is worth understanding the business model. Below is a part of the CEO’s report in the FY20 annual report that explains it: “The first step in getting another Dante-enabled product to market is convincing an Original Equipment Manufacturer (OEM) to purchase a Dante implementation of some kind – we term this a “design win”. Following a design win it typically takes 12-18 months for a manufacturer to design a new Dante-enabled product and make it available for shipping. Audinate receives orders for Dante implementations in chip, module, or software royalty form each time Dante-enabled products are manufactured.” Add to this the enhanced margin and speed to market effect of the DEP, again the CEO to explain: “Dante Embedded Platform (DEP) software can share a chip with software provided by the manufacturer greatly reducing cost by eliminating additional chips and circuitry needed to add Dante support to a product. Another strategically important aspect of software implementations like DEP is the ability to add Dante to a product already in the field. Furthermore, it is also possible to upgrade products in the field beyond a base level of Dante support included at manufacturing time. We are very excited to see this vision fulfilled by Dante Embedded Platform in a commercially successful product launched by QSC in April 2020.” I hold AD8 personally and anticipate continuing to holding as things stand.
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#FY23 Results Expectations
stale
Added 7 months ago

Audinate (AD8) is another company to release results on Monday.

During the FY22 results presentation it was forecast that revenue would double over the next 3 years. This forecast was confirmed more recently.

To achieve that result requires revenue CAGR of 30% which implies an FY23 target of A$60M. 1H23 revenue was A$30.8M so this is a solid expectation.

Management also reported that costs had increased by 30% mainly to increase salaries and retain talent.

1H23 was borderline EBITDA positive with a A$0.38M loss after tax. This should only deteriorate if costs have continued to blow out.

Things to look for in the FY23 results:

1. Rev > A$60M

2. Staff numbers of 196 to 200.

3. Video revenue of > US$3M

4. Indication of pricing power and price increases on products.

5. Improved staff retention

6. An after-tax profit!!

The current share price of $10.30 is in the fair valuation range only if the revenue continues to grow at the forecast rate and there are no other nasty surprises. I notice the share price has increased 18% over the last 4 weeks so the market is expecting a good result.


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#FY23 Results
stale
Added 7 months ago

AD8 released FY23 result this morning and it is as expected amazing result.

Revenue

907a735c667a304da90f4b4402f2127c85c919.png

Cash Reciept

5aba4cc1b1ea0fbd0d1fdea03ba8d09315b12a.png

Expense

853782bcdcb1a0ac4ba96b2fbd01dbd92d6d91.png

Operating Cash

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#Management Meeting Notes
stale
Added one year ago

Sharing my notes and takeaways from the very insightful conversation with the AD8 CFO earlier this week. Likely to contain translation accuracy errors, please cross-check before relying on any information.

I walked away with much more operational and opportunity context behind the 1HFY23 preso and a much greater understanding and appreciation of the Video opportunity.

Disclosure: Currently hold AD8 IRL

General

  • Digital Audio Network TAM ~A$400m annually - AD8 share is about 7-8%
  • 550 OEM manufacturers use Dante in their products, repeat revenue model, similar to Intel - chips, cards, software
  • Very sticky customers but the downside is that AD8 is beholden to the manufacturers product rollout plans - impacted by the manufacturers supply chain constraints etc
  • Moat is not so much the quality of the technology, but rather the continuous adoption of the Dante technology - 
  • Inter-operability across products which are on the Dante platform - “It Always Just Works”
  • Transport and synching of audio signals and signal speed is the secret sauce
  • IP protection from 50 patents globally, have security measures to detect Dante-clones
  • Defacto standard for Audio equipment
  • Huge base of passionate Dante-trained professionals ~200k
  • A manufacturer will typically make and sell products for a 7-8 year product cycle


Margins

  • Chips, cards, modules - 75% revenue, margin is from 80% to sub 50%. Mostly 60-70% - successful passing through of cost of chips
  • Software and royalties 25% of revenue, margins are ~100%


Video Opportunity

  • At least the same market size as audio
  • Not a binary success or fail - key marker is no of products and end points using the Dante video technology - this is an internal short-term performance incentive marker - Red flag if adoption is not gaining traction
  • The Dante video technology can be added to existing products
  • Video signals are a lot bigger than audio - there is a need to compress the size of video signals to enable transmission through existing audio data pipes - this is achieved by data compression codecs
  • Dante (and the opportunity) goes beyond compression - it is about the management of the end-point devices and the inter-operability between/within video and with audio via the Dante platform that is key - use existing codecs, layer on Dante audio system management capabilities
  • Customers are currently locked into a single platform for video - Dante enables customers to adopt a best-of-breed audio/video solution, using the Dante technology and platform as the integration base
  • Current competitors - NDI Tech/Bird Dog and Crestron, which are single-platform - not a true competitor as the opportunity is to sell Dante Management Control and Audio-related software


Supply Chain Update

  • All products require a chip - either a Dante or OEM chip
  • Have been using Broadway & Brooklyn 2 modules which have been around 7-8 years, it is not where technology is going and there is only a fixed pool of capacity to produce these older chips - headwinds in 1HFY23, expecting 2HFY23 to improve but it will take all of CY23 to clear the backlog
  • Brooklyn 3 module is the de-risking strategy of these constraints
  • Anecdotally, shortage impacts exist, volume will come back gradually, overstocking is at play which should progressively normalise
  • Manufacturing facilities are in Malaysia and Guangdong, chips are manufactured in Taiwan


Scalability and Financials 

  • Well capitalised - $37.9m cash & term deposits, no debt
  • In the 12M horizon - 30% annual growth can be achieved without adding further headcount
  • $1.5m R&D on “External R&D” was for video-related R&D, ongoing spend is expected to be lumpy, not fixed cost
  • Approx 20% of R&D spend is for bug fixes, “sustaining engineering” - rest is mostly on video offering “Dante Studio”


Industry Dynamics/Demand

  • Sporting Facilities is a focus
  • Higher Education - only part-way through rollout across facilities - Covid online learning was a structural change
  • Broadcasting
  • Corporate Environments - Work-From-Home is driving requirement for better in-room experience and is a net positive impact
  • Adoption of video technology is a key tailwind
  • Not focused on the end-user at all


Immediate Focus

  • Technology adoption traction focus
  • Video traction key markers - technology adoption (1) 30 Manufacturers today and how this expands over time (2) Brand names (3) Product numbers (4) Unit Numbers
  • New facilities are driving and adding to demand
  • Chase unfulfilled demand from supply chain issues for network audio equipment
  • Getting technology built into OEM products
  • Grow OEM using the technology


Key Bugbears that Market Does Not Quite Get About AD8

  • Under appreciating the opportunity set ahead, especially video
  • What the technology actually means to/impacts day-to-day operations and user efficiency - the significant passion around the use of the technology
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#FY21 Trading Update
stale
Added 3 years ago

A brief update (attached) from AD8 today and the heading on it says it all: “Audinate recovers from COVID to generate 23% revenue growth in FY21”

This is US$ growth, due to FX the A$ growth was only 10% but the most impressive note was that for Q4 sales were up 74% QoQ in US$.  This is cycling against the depths of Covid for AD8 but goes to show how hard AD8 was hit.

 

Global supply issue for chips and electronic components remain an issue and no specific guidance was given for FY22, other than “Audinate is well placed to return to US$ revenue growth in the historical range and consistent with current market expectations in FY22”

The quarter also heralded the first OEM Dante Video products being launched, it is good to see this new product offering get off the mark.

 

I am impressed with the company and product fortitude, it looks to have finished FY21 close to forecasts in my valuation but I would like to see a break out of revenue by segments and see software growth at very high levels which will help margins grow.  No change to IV of $11.92 at this stage.

View Attachment

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#April 2023 New Info
stale
Added 11 months ago

Audinate released a presentation today and I found this slide very encouraging ( I don't remember seeing this before)

e30ad2ac93ca0bf96368eea8674bc0b9e53184.png


The number of ODMs is a sign of new products coming into the market soon. workflow as per Audinate is:

bae11f9de3cd7929233d172a00c2c5570bc634.png


and they also mention

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#H1FY21 Results 22/2/21
stale
Added 3 years ago

Audinate returns to pre-COVID revenue levels

Key 1H21 highlights:

  •  Revenue of US$11.1 million (1H20: US$11.1 million; 2H20: US$9.3 million)
  •  Gross margin of US$8.6 million (1H20: US$8.5 million; 2H20: US$7.0 million)
  •  EBITDA of A$1.8 million (1H20: A$1.9 million)
  •  Net loss after tax of A$1.2 million (1H20: $0.3 million net profit) • Operating cashflow of A$3.2 million (1H20: A$2.9 million)
  •  Cash including term deposits of A$66.3 million
  •  Dante enabled products up 27% to 3,008 – a key leading indicator of future growth

 

View Attachment

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#Risks
stale
Added 4 years ago

I have a mate that uses this company and rates them highly for quality of sound, visual and customer service. I have a very small holding but am tempted to add. My fear is the price could be too lofty based on expectations? Thoughts please.

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#FY20 unaudited results
stale
Added 4 years ago

Not ideal for a company priced for growth.

Revenue essentially flat at US$20.4m, though the gross margin improved slightly to 77%.

unaudited EBITDA is expected to be around $2m, compared with $2.765m last year.

Sales in the 4th quarter were pretty week due to customer exposure to lock down (venues, theatre, live sound), although Audinate said things had picked up in June -- albeit not to previous levels.

The company may also have to writedown the carrying value of previous tax losses, which would take around $2.5m off the balance sheet.

Shares are presenty priced at approx 12x sales, or on an EV/EBITDA multiple of >150 or so.

Really a question of whether this is a one-off hiccup, or a lasting slowdown in sales growth. I tend towards the former view and note that the value always relied mostly on expected cash flows several years down the line.

Still, i'd like to see it drop further before I bought in.

Read ASX announcement here

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#Bull Case from Ben Clark
stale
Added 4 years ago

On 21-Aug-2020, Livewiremarkets.com recorded a "Buy Hold Sell" segment with Ben Clark of TMS Capital and Victor Gomes of Eiger Capital.  This week they discussed small-cap stocks that are marching to the beat of their own drum.

The stocks discussed include 1) A technology company that trades at a forward PE of 73x and pays a small dividend (Appen), 2) An essential service which is paying a reasonable dividend (CWY), and 3) A company flying under the radar (HUB).  As usual, the guests brought along two stocks that fit the recession-resistant thematic.  Ben's company was AD8.  Here's the link:

https://www.livewiremarkets.com/wires/buy-hold-sell-5-pandemic-proof-small-caps

Ben discusses Audinate (AD8) from around the 4:20 mark, and presents a short but pretty compelling bull case for them.

Interestingly, on the same day, Livewiremarkets.com also published this article:

Audinate: It's not cheap, and it's not growing

There are clearly a few fundies who don't agree with Ben's assesment that AD8 are growing 8 times faster than their nearest competitor.

Personally I like AD8, and I wished I'd bought some in March when they were sub-$3.  I think they look reasonable at around $5 to $5.50, but I don't currently own any.  I think they might get cheaper from here due to COVID.  At least I hope they do.   They are on my Strawman.com Scorecard - added at lower price levels than where they are today.  When I think of Audinate, I always go back to that analogy with Bluetooth - i.e. if Bluetooth was a traded company, or was owned by a traded company, what would it be worth.  Answer: A LOT!!  AD8's Dante platform is very likely to be as dominant as Bluetooth is - in their own respective niche area of digital AV/media networking in a few years time (every major AV - audio visual or audio/video - brand will have incorporated Dante into their own products), so if you look at it that way, they are still cheap at current levels.  If I had unlimited funds, I would certainly hold AD8 personally, but I don't.  I reckon I'll be buying them at some point in the next 18 to 24 months however.

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#ASX Announcement 13/1/21
stale
Added 3 years ago

Audinate Trading Update for first half of FY21

Audinate Group Limited (ASX:AD8), developer of the professional AV-industry leading Dante® media networking solutions, is pleased to provide the following trading update. Audinate has generated unaudited US dollar revenue of US$11.1 million for the six-month period ended 31 December 2020 (H1FY21), up from H2FY20 (US$9.3 million) and in line with H1FY20 (US$11.1 million). The strengthening AUD / USD exchange rate has adversely impacted unaudited revenue in AUD which amounts to approximately A$15.4 million.

View Attachment

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#Trading Update
stale
Added 2 years ago

Audinate slipped an announcement to market last night after close. Just a general trading update where management providing some commentary around current trading conditions, and i guess trying to provide clarity on why revenues are down. Its been 2 consecutive quarters of revenue decline. Q1 $7.6m usd, Q2 $7.2m usd and Q3 $6.5m usd.

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#Management
stale
Added 12 months ago

Director transactions

CEO Aidan sells AUD $1m worth of stock on market. Not going to speculate but understand it could be for many reasons including paying the bills. Still holding millions of stock so maybe nothing.

606212df0c88a0ebd23bdfd992eea52ed98c24.png


Non exec director does a purchase.

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#Financials
stale
Last edited 11 months ago

Little snippet from Capital IQ Pro on sentiment for Audinate as I don't know my restrictions on reposting content from my trial subscription. Probably doesn't mean much in the grand scheme of things although I do wonder the interpretation of being 1% on sentiment.

But transcript and the recording helps understand the product a bit more at a high level.

Thought I'd post as I see the stock price has trended up since the last on market selling by the CEO.

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#Porter’s 5 Forces
stale
Added 3 years ago

Rivalry among Competitors (Extremely Low) - Non-existent from existing players (some OEM’s have internal solutions). Dante (Audinate’s product) has 17 times the adoption of its closest rival (3,008 vs 173 products)

Supplier Power (Med-Low) – 1) Software / Developers: Inhouse expertise built from scratch, close to 3 of the big Sydney Universities, Glassdoor reviews positive. 2) Hardware sourced from China and now Malaysian providing some diversification.

Customer Power (Low) – More Original Equipment Manufacturers (OEM’s) use Dante than any other protocol and this trend is increasing. (Note Yamaha were an early adopter and owns 8.25% of shares, but this doesn’t seem to have hurt)

Threat of Substitutes (Low) – legacy analogue (cabling) which is currently the default but is being slowly digitised / phased out. Some OEM’s have their own proprietary system but this is becoming less tenable as it does not allow for the interoperability between other Pro AV brands which tend to be specialised.

Barriers to entry (High) – Too small a market for big players to attack given how entrenched Dante already is.

Disc: Held

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#competition
stale
Added 12 months ago

RH Consulting creates reports every year for AV networked products. There release their report for 2023: https://rhconsulting.uk/blog/networked-audio-products-2023/

Some of the highlights:

688fe6f5decd40a3df86802b040e4003659bfb.png


Audio over IP

c0d89c22db4ebc3ccc02b84c5ee64fb49f6b7c.png

ce8abcc00b40c187b1d1e710249e259e76e87c.png


Video over IP

473090f2b83d1c9051b72364e6e6af4836983a.png

fc40155acb42ec0aef07982f2edd9d0de5dfcd.png

299ac61d40983a7c1dee3e51c587379ea6cac8.png

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#Inflation
stale
Added 2 years ago

In an article in todays AFR on Inflation hedges

https://www.afr.com/wealth/personal-finance/how-to-stop-inflation-getting-away-with-your-wealth-20220410-p5acdf

Nathan Bell from Intelligent Investor takes a slightly contrarian view on the traditional hedges (large cap commodities & defensives)

"familiar inflationary champions are now mostly priced for low returns, if not losses”. These include companies with pricing power, cyclical stocks and resource shares

“Beating inflation and higher interest rates means buying value, and there’s a lot more value in small caps after recent share-price falls than there is among the big names, which are generally very expensive,” says Bell

He nominates RPMGlobal, a mining-software company, as an example of small-cap value. “RPM trades at a fraction of typical software companies,” says Bell. Another preference is 360 Capital, a listed property group. “It trades on a 6 per cent fully franked yield and at around its net tangible assets, which means you get its funds-management business for free”

Audinate, a digital audio company, is another preferred small-cap. “Audinate should produce very high margins as the business matures over the next decade,” says Bell

DISC: RUL & AD8 held in SM & RL

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#FY21 Results Analysis
stale
Added 3 years ago

AD8 full year results analysis below and some note from the earnings call.  Note it is stock of the day on The Call (Ausbiz) today with Gaurav Sodhi who is a bull on it providing comment.  See announcement from jwrostagno27’s straw earlier today plus a good graph.

 

FY21 Results Analysis

·         Orange Flag: The results were solid given Covid and was driven by growth in software as expected/hopped but margins were flat YoY which concerned me.  Given all the growth YoY was from software which has no COS and it went from 20-27% of sales, you would expect margins to improve.  Margins dropped from 76.9% in H1 to 76.0% in H2, I note that software sales were flat HoH while Chips, Cards & Modules grew 27% so that explains H2 Vs H1 but not the YoY. From listening to the results call it seems that the reason is the switch to a new annual subscription model rather than upfront access fee in H2.  This provides a more attractive entry point for OEM producers but means that software revenue was lighter in H2.  On margins management said that they are expected to grow as software becomes a more dominant part of the business.  I will be watching this, but back management at this point.

·         Sales: Up 10% in A$ to A$33.4m but +22.5% in US$ to US$25.0m, which sales are based.  A solid result given how hard Covid hit the industry.  Software sales were up 61.9% from US$4.2m to US$6.8m or from 20% to 27% of total sales was great to see.

·         Margins: GM% flat at 76.4%, management talked to margin $ growth as the key indicator for growth on the call, rising from 15.6m to 19.2m YoY, suggesting that unit shipped was becoming less meaningful with an increasing software approach.

·         EBITDA: A$3.0m, 50% better than last year but FX headwinds were a big factor, impacting EBITDA by -A$2.4m and the addition of the Cambridge video development team added A$1.1m in costs.  The CEO was keen to point out the video opportunity doubles the TAM for AD8 and they will continue to invest in people to support growth across the business targeting a headcount of 170 up from the current 135. 

·         NPAT: -A$3.4m, better than last years -A$4.1m loss but the improvement was mostly due to having to write off tax losses LY, with tax expense 2.1m better than LY.  Higher depreciation (+2.1m) was a factor and driven by growing amortisation of capitalised development spend.  Of the $10.7m in R&D spend for the year (Vs 9.1m LY), $7.4m was capitalised (Vs 5.9m LY), management said to expect to see this trajectory of spend continue.

·         Cash & FCF: $65.4m cash thanks to a capital raise during the year provides more than enough for funding growth (organic and acquisition), which is good because FCF continues to be negative at -A$1.3m.  Management talked to acquisitions but made it clear that price and fit were very important, and they had said no to several on this basis, nice to hear.

·         Outlook: Supply chain issues around chips are expected to persist and management raised the issue of factory shutdowns due to Covid as a wild card on predicting the next 12 months.  They remain focused on the long-term objectives, improving design, reducing adoption friction and improving accessibility to non-English speakers for scalable growth.  Note also that management has been focusing on the “Design Win” part of the sales cycle where the customer commits to using Dante, it’s then 18-24 months to product release, so increased head count flagged will take time to convert into growth.

 

AD8 is a significant position for me, up 160% and fast approaching my Feb21 valuation, I will have to update my valuation this week.  The sales growth and margin growth were below what I was looking for but it was a tough year with Covid and given the industry lead AD8 has (19x nearest competitor) plus the opportunity in AV, I am in no way concerned that the results indicate any long term issues and that the investment thesis remains intact.

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#FY22 Results Preliminary
stale
Added 2 years ago

https://newswire.iguana2.com/af5f4d73c1a54a33/ad8.asx/2A1387252/AD8_FY22_Preliminary_Unaudited_Results

Key FY22 unaudited results

• Unaudited revenue of US$33.4 million, up 33.4% (A$46.3 million)

• Gross profit margin of 74.7% (compared to 76% in FY21)

• Expected EBITDA A$3.8 – A$4.3 million (compared to A$3.0 million in FY21)

$AD8 report improvements in chip supply and that they are managing inflationary pressures with expectations.

Positive news from the leading audio platform player.

Disc: Held on SM and IRL

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#FY22 Results
stale
Added 2 years ago

Audinate has posted another year of impressive growth.

d05baa54329afaf21dfd6800aa25d4c2ee15fe.png

It really does seem to be on the path to world domination.

With a $1b addressable market, it should be possible to sustain a high pace of growth for many year. And with 14x the market penetration of its nearest rival, network effects should only continue to compound in the company's favour. Management have said they are hoping to double revenue in the medium term, and with the investments they are making, the traction they already have, and the fact the industry itself is expanding, that certainly seems doable.

The business is, however, loss making and free cash flow negative. Added depreciation costs, increased inventory, higher headcount and added investment all contribute here. Although the business has $44 in cash and term deposits, with zero debt.

I think the business is probably right in pressing its advantage, and spending up for growth. Provided, of course, they spend the money wisely.

I really like the company. Just not the price. It may well be justified in the fullness of time, but the current valuation just leaves little room for error.

The current share price of $8.72 gives a market capitalisation of $673m. Which is 14x sales.

The EV/EBITDA is 146.

I think there's a danger in being too value oriented towards high quality, fast growing companies that have attractive economics (at scale) and a long runway for growth. But, for better or worse, it's just a bit too expensive for me at present.

ASX announcement here

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#Capital Raising History
stale
Added one year ago

Capital Raise History - Raised $85m current market cap $600.2m at closing price $7.75

·      July 2020 Raises $40m, $28m Institutional, $12m Retail SPP at $5.12 per share

·      June 2019 Raises $24m, $20m Institutional, $4m Retail SPP at $7.00 per share

·      IPO July 2017 raising $21m at $1.22 per share

Acquisitions

·      December 2021 – Silex Insight video business - US$6.5m upfront cash payment plus revenue earn out of up to US$1.5m may be payable based on the uplift in revenue for the twelve month period from acquisition date. The Silex video business produces video networking products for manufacturers of AV equipment.

Insider Ownership                              Ordinary Shares         Percentage     Net Worth ($7.75)

Yamaha Corporation                                                  6,289,308        8.12%              $48.7m

CEO Aidan Williams (Founder)                                   2,077,305        2.68%              $16.1m

Varuni Witana CTO                                                     913,369           1.18%              $7.1m

David Krall (Chairman Board)                                     500,000           0.64%              $3.87m

John Dyson (Board, Founder Starfish Ventures)        190,289           0.25%              $1.5m

Roger Price (Board)                                                    77,856             0.1%                $0.6m

Alison Ledger  (Board)                                                6,443               0.00%              $0.05m

Tim Finlayson  (Board)                                                130,954           0.16%              $1.01m

Total Inside Ownership minus Yamaha                      3,896,216        5.03%              $30.2m

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#H1 FY23 Results
stale
Added one year ago

Network effects are a beautiful thing:

2ba134339ebb0050a0c344bb476f178f8505b7.png


I thought the result was quite solid -- you can read all the detail here

Pro-rata, Audinate is on almost 10x sales. I mean, it's growing like the clappers, has a lot of market to win, and we're seeing some good operating leverage emerge -- so you don't want to be too clever with valuations.

Looking at consensus analysts estimates (for whatever they are worth) it seems the market is expecting 10c in per share earnings in FY25. So shares are presently on almost 80x that now.

Not too concerned with the cash burn -- they have a rock-solid balance sheet. And they are conservative with capitalising costs.

But, probably a tad expensive for my tastes at this stage. Will be keen to see what CFO Rob Goss says to us next week -- i could well be missing something.

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#Divestment decision
stale
Added 2 years ago

Today, I reluctantly exited my full position in $AD8 (IRL and SM). I sold off one-third ahead of results at $10.08 and the balance today around $8.50, a weighted price of $9. I’ve held this since mid-2018 … another Matt Joass MF Pro recommendation. So, it done OK, although not what I’d hoped for.

Why did I exit today? This Straw is my investment decision diary entry. I make a number of assertions and assumptions about audio, video and software enablement. I’m not an expert in these areas. Having watched the investment thesis unfold over 4 years, in the absence of support from favourable economics, I am uncomfortable holding a sizeable position going forward. That said, should SP fall significantly below my target price, I’d consider buying again.

What was the initial thesis? As shown in the figure below, which is faithfully updated each year, $AD8 has world-leading tech in audio networking. (Note: I’ve written audio and not broader digital media.) Sure enough, ever since following AD8, whenever I am at a conference venue or a lecture theatre (part time day job), you find evidence of “Audinate Inside”. It is truly dominant in digital networking of audio equipment.

6c10291219b927da0d45578e786a3c86a20d56.png

Tracking the evolution of cashflows since 2016, it appeared that operating leverage (dashed grey line) was developing, albeit slowly.

44278a9b78ac311eb865cc75d630262aead38b.png


Then four things happened:

1.      COVID19 – driving a market slow down in the use of venues using networked audio equipment

2.      CVOID19 Part 2 – supply chain constraints, chip constraints, inflation

3.      Acquisition of Video capability (Cambridge, UK and Belgium)

4.      Shift in focus from hardware to hardware and software; audio to media and cloud-enablement

Now 1 & 2 are simply a temporary set-back, 3. is an adjacency with a logic that has been articulated clearly by management and 4. Is logical, being a strategy followed in many other industries.

So as a narrative that’s all good. I’m onboard. But investing needs more than a narrative.

A few things dawned on me during the presentation yesterday. Aidan and Rob explained that the large step up in staff costs/headcount over the last year is driven in part by the acquired workforce and getting the bench in place to double the business over the next three years. However, as part of this discussion, it was clear that more staff would be required albeit a slower rate of growth. However, no indications were provided as to the likely trajectory.

Second, strategically, $AD8 has stepped from a niche where it has clear industry leadership (digital audio networking) to a more contested space: video, video-networking and software enablement via cloud-solutions.

My concern is that this broadening of the development front is going to bring with it increased costs. While Aidan and Rob and the team are experts in audio, I don’t think they can claim to be so in video, and the acquired teams from Cambridge and Belgium – while having unique IP – also don’t have experience in scaling their technology across global markets. (We have seen just in the last year how at $AMS, slight changes in go-to-market approach can quickly have dramatic, adverse impacts on sales growth.)

In short, I am uncomfortable seeing this widening of focus, particularly when we haven't even been able to see if the current business model can scale. That's a big red flag.

So, I did some what-if analysis around cost and investment uncertainty, around reasonable growth scenarios. The base case is set out in today's Valuation Report, and yields a valuation of $8.50, which by coincidence is in the ball park of today's price.

(Note: the broker consensus (yet to be fully updated) is about $10.50.But the more I read, the more I wonder if they are cuaght up in the story, driven off revenue growth and not analysing the economics. We shall see.)

Bear Case:

In this case, revenue growth slows sooner, because the combined audio and video and cloud solutions are playing into a more contested space, and costs scale less favourably. I ended up with a valuation of c. $4.50. But you could get anything from $2.50 upwards. What was instructive, was that it didn’t take much to seriously impair the economics. This kind of scenario would result if, in years 1 to 3, they incur higher development costs, then followed by increased competition in the market due to others contesting the space leading to an earlier maturing. There is, after all, little evidence they can replicate their dominance in networked audio to networked media. I’m not saying the can’t or won’t. They might well be successful. I just don’t have any basis of confidence so that’s my bear case.

Bull Case:

In this case, 30% revenue growth is sustained for a further three years beyond 2025, with favourable economics for operations and investment, with the business maturing but still growing by 2029. This yields a value/share of c. $11.50. Again, you can easily get anything from $11-14 depending on your assumptions.

 

My Conclusion:

Going for video, software and hardware and cloud-enablement on the back of a major industry setback and ongoing headwinds in chip supply and staff costs has muddied the waters around what I had expected would be solid emergent operating economics by this time. There are too many uncertainties and I don’t know enough about the industry or the competition. On balance, I feel scenarios towards the bear case are more likely than the bull.

I am selling. (Have now sold.) I like this company and the management, and I am going to continue to follow them. I am confident that I will be presented with future opportunities to get back onboard well below $8.50, should evidence indicate that we are more towards the Bull Case. At this early stage in its life - absent compelling economics - history tells me that the SP will be volatile.

(Note: This is not investment advice. It is a record of my own decision process.)

Disc: Not held IRL and SM

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#H1 FY23 Results
stale
Added one year ago

Reported H1FY23 EBITDA a mere AUD 70 k short of the EBITDA reported for the Full Year FY2022. 87% up on that achieved in the prior 6 month period H2 FY22. Consider the record backlog of orders and an improving situation on Chip supply and fair to say FY 2024 is going to be a cracker.


Love the reminder of Audinate's position as leader in the market. 12x that of it's nearest competitor. 


Considering the results vs the run-rate established 6 months ago ie H2 FY22, we see that..


- Sales Revenue up 18.3%

- Gross Profit up 13.7% ( impaired by the lower margin Viper inclusion, but they have a plan for this)

- Operating Expenses up 3.8%

- Cash Receipts up 29.9% 

- Receivables up 20.4%


In summary, the Company have weathered a particularly difficult time with the universal chip shortages. Development work has gone a long way to minimise the impact on customers so no reputational damage of any consequence. Healthy discussion on the call re future acquisitions and some clear excitement surrounding the new DanteAVH Software. With Bonuses paid in H1, stage set for a strong set of Financials in the second half and a 'standout' performance likely in FY 2024 (and Beyond).


Remains a STRONG HOLD for me.


RobW

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Valuation of $10.00
stale
Added 5 years ago
Updated guidance 31/7/19 to reflect dominant market position. Again valuation is subjective and assumes management continue to deliver. High Risk High Reward: First, revenue for the half-year increased 51% (in US dollars) over the prior corresponding period to US$10.3 million. That translated into top line growth of 60% to $14.2 million. Operating profit came in at $1.7 million versus $0.1 million a year ago. With operating profit growing faster than revenue you can see operating leverage in the business model. Once scaled expect AD8 to generate significant cash flow.
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