I documented my current thoughts before the 1H25 result next week.

https://www.growthgauge.com.au/p/audinate-asxad81h-fy25-result-preview

Here's Nick Maxwell's take on Audinates results yesterday.

Most of his commentary along the same lines here on SM.

https://arichlife.com.au/audinate-asx-ad8-share-price-recovers-on-fy-2024-results-release/

AD8 Ceo Aidan Williams Interviewed today on Ausbiz.

https://ausbiz.com.au/media/audinates-record-profit?videoId=37361

FWIW UBS's First Read of AD8's results out before this mornings conference call

UBS SnapShot: FY24 Results

ONE LINER: Majority pre-released, with a challenging year ahead. Incremental is good ongoing momentum in video

KEY NUMBERS (post AASB16): Rev. US$60m (+28% y/y) / A$92m (+31% y/y). U/lying EBITDA $20m (+85% y/y) vs UBSe & Cons $20m (in-line). U/lying PBT $12m (vs $0.9m pcp /UBSe $11m/ Cons. $10.6m). DPS 0cps (in line)

RESULT HIGHLIGHTS: 1) G/dance met: GP US$44.5m, +33% y/y vs guided ~26-31% growth (A$68m +35% y/y), but big deceleration in 2H24 (1H +49% / 2H +19%). 2H24 GM 76.8% vs 71.8% 1H24 driven by product mix & cost-down on Brooklyn. 2) CCM revenue +26% y/y driven by Brooklyn & Ultimo, Software +33% (IP Core, DEP, retail software) with 2H indicating deceleration. 3) Video: +18 video products in 2H24 (vs +18 in 1H), +4 OEMs in 2H (vs +16 in 1H). with g/dance met in 1H (>30k - no details on units shipped in FY24/2H24). 4) Continued strong audio ecosystem, 460 OEMs +161 developing shipping products vs 430 + 153 1H24 & 400 + 138 in 2H23, 4,176 products (+168 in 2H / +155 in 1H) 12x the closest comp vs 4k in 1H24. Trained professionals +48k / +22% to 271k in FY24, with acceleration in 2H24. 5) Op. cost control in line $48m vs UBSe $48m, with 2H24 EBITDA $10m vs UBSe $10m. 6) 3rd consecutive period of +FCF ($7m) & OpCF conversion 112%. 7) $48m cash, no debt

VALUATION: $10.90 PT, Blended 2yr fwd EV/Sales to sales CAGR / DCF valuation

GUIDANCE: Unwinding of FY24 revenue tailwinds to result in FY25 Rev decline y/y, marginally lower FY25 US$GP (flat to -9% y/y), with exp. cost growth of 7-9%. UBSe analysis suggests this implies an EBITDA range of $6.8m-$14.2m / -66% to -29% y/y. AD8 is actively exploring potential M&A opportunities

UBS COMMENT: Ongoing positive video momentum in 2H24 the real incremental in this release. Strong FY24E performance, however partially from a pull forward of FY25E sales, which combined with other headwinds creates a challenging year ahead. Based on FY25E g'dance, our analysis suggests LT GP CAGR reduces from prev. 24% to 20- 22% - which would give upside vs UBSe (incorporating +18%) and consensus. LT story looks attractive, ST lack of growth will understandably hold some investors back

DISC: Held in RL & SM

News SummaryDJ Audinate's Headwinds Look Temporary to New Bull -- Market Talk

AD8 $8.75

09 Aug 2024 09:44:042 Views2343 GMT - The savage share-price drop that greeted Audinate's fiscal 2025 guidance helps attract a new bull to the audio-visual tech provider.

Jefferies analyst Wei Sim raises his recommendation on the stock to buy from hold, telling clients in a note that he doesn't think that the current headwinds facing the company are structural.

His conversations with industry experts confirm that Audinate's Dante is still the leading professional audio protocol, and that development in video is on track.

He also adds that Audinate tends to be conservative with its guidance. Jefferies cuts its target price 39% to A$11.00. Shares are at A$8.75 ahead of the open. (stuart.condie@wsj.com)

(END) Dow Jones Newswires

To release a downgrade on the worst trading day / highest volatility since Covid shows the same mgmt. naivety as selling down into a Cap Raise.

This is potentially a downside of having a technical founder CEO rather than a professional / slick management. I would still take the owner operator (missionary) over ‘professional’ (mercenary) approach any day.

Other factors like the large cap raise at $13, still unutilised, CFO resignation, Directors selling above $20, relatively low insider ownership, would have put Audinate on a negative watch.

Broker reports saying that they are effectively a hardware maker (not true) and the vast bulk of their sales are non-recurring (not true) and 1 year price targets are closer to $13 would have helped prime the doors for a stampede.

This downgrade to guidance for FY25 was significant but also given the brevity of the release likely raises concerns about some of these prior actions – especially CFO resignation, director selling, raising at $13, etc.

The jaded trader set and the ‘I told you so’ brigade are negative on this stock and currently sounding smart and wisely cautious. They are playing a much shorter timeframe game to me but will likely be the marginal buyers / sellers / shorters so could push the price around quite a lot in the short term. 2.5% shorted last time I checked.

So I would be surprised if the share price rebounded any time soon in any meaningful way but that’s just my best guess.

Buffett talks about wanting to buy a great business with short term problems – his ideal situation is when they are on the operating table. That’s what this feels like to me but only time will tell.

Sharing my AD8 notes to myself following the recent downgrade, so apologies if some of this is repetitive has been covered elsewhere...

Growth

I think about Audinate’s growth as having 3 sources. All are from selling their Dante protocol in different forms. Note, this is different to the 3 segments they call out in their presentations – more on them below.

The primary revenue source is from sales to existing Original Equipment Manufacturers (OEM’s) who buy Dante enabled Chips, Cards & Modules (CCM’s) from Audinate.

The growth drivers I see are:

1)   Existing Dante enabled pro AV units being shipped in greater quantities over time. Note, this piece can also go in reverse, as is now forecast for FY25, but unlikely to drop for long as new products gain in popularity or are replaced by Dante enabled products that do and the market continues to grow.

2)   Design Wins in one year becoming sales in the next and subsequent years. This is likely the biggest driver of revenue growth and market penetration early on (especially for Video but more on that later).

3)   Software sales (SaaS) to end users, usually sound engineers, their employers or owners of networked installations (eg, Sydney Trains). The greater the ‘installed base’ from 1 & 2 above the higher the value proposition from Dante software to manage them. In time they’ll likely also / instead sell the protocol to OEM’s as software (licence per unit) rather than embedded in chips / hardware.

When an OEM designs a Dante chip into their hardware in Year 0 (aka a Design Win), sales of Dante CCM’s are triggered whenever new hardware is built. For Example, if a Pro audio equipment maker in South Korea makes 1,000 units of a Dante enabled product in Year 1 and ships 950 of these to distributors in US, Europe & Asia, 1,000 Dante enabled chips will be sent from Malaysia to South Korea, along with nuts and bolts from China, circuitry from wherever… to be assembled in South Korea. If these sell well, they might make 1,500 units in Year 2, so 1,500 Dante chips are sold for this product in this next year.

It seems existing sales in FY24 were brought forward to such a large extent by covid supply shocks that OEM’s have over stocked and won’t need to buy as many chips in FY25. Further this decline is unlikely to be made up for in new design wins (from FY24) or expected software sales in FY25.

The over earning in FY24 was a one off, FY25 should see lower Revenue AND Gross Profit, despite rising gross margin, so normalised revenue growth rates are probably something like the 22% average you get when you average the 6 years to FY25, including an estimate of -5% for next year.

3 Segments

Audinate split their market into Audio, Video & Software.

Audio is where they dominate with 12x the units in market of their nearest competitor. So even though they have less than 10% of the addressable market, they have 90% of the penetrated market and an even higher proportion of new units coming to market.

So there is 90% of the market still to be taken from the incumbent which is physical cabling of networked pro-Audio products.

Audinate’s dominance of this market suggests that Dante becoming the default Audio over Internet Protocol format is just a matter of time and management have said as much.

The key questions are how much of this 90% can they take, by when and what margins can they earn?

Video is the newest part of the strategy, the biggest focus for the business, the biggest opportunity, and the biggest risk.

This is off to a good start exceeding management expectations for units shipped and growing fast off a small base.

It probably needs some M&A to step up and compete against some of the larger competitors in this space. The $70m Cap Raise @ $13 in Oct-23 was to be used for this purpose but is still sitting on the balance sheet. More on that later.

Software is already a significant and growing piece of the Revenue mix (20% I think) and should grow well from here – just how far it can go will depend on the success of the Video strategy – at which point they can unify both formats under Dante as the Operating System for the Pro-AV Industry which is their stated longer term strategic aim.

I think of this as Audio being the foundation, funding source and playbook for Video penetration – this will be the battleground for dominance.

Video is the big opportunity as it potentially unites the industry under one format for Networking over IP and opens up the opportunity for high margin sticky software to manage a large installed base.

With thanks to Morningstar

Analyst Note | by Roy Van Keulen Updated Aug 06, 2024

We lower our fair value estimate for narrow-moat Audinate by 20% to AUD 18.50 per share after the disappointing prerelease of fiscal 2024 results. While the fiscal 2024 result is in line with our revenue and profit forecasts, guidance for fiscal 2025 signifies a dramatic, unexpected slowdown. The share price nearly halved at the open, before recovering to trade down around a third. We view Audinate shares as materially undervalued as fiscal 2025 is likely a transition year, after which growth will reaccelerate and margins will expand again.

The deceleration has two main drivers, a resolved backlog of hardware products and a transition of the business from hardware-based sales to software-based sales. Although both drivers were known, the magnitude was much greater than expected. We previously forecast 24% revenue growth for fiscal 2025, marginally above market consensus at the time, but now lower this to negative 9% in line with guidance.

The transition from hardware-based sales to software-based sales is accelerating. Although management expects revenue to decline in fiscal 2025, gross profit is expected to be only marginally lower given higher average gross margins. Gross margins for the second half of fiscal 2024 are expected to be 5% higher than in the first half, based on the preliminary results. The guidance for fiscal 2025 implies another 3% increase in gross profit margins, compared with the second half of fiscal 2024. This exceeds our prior gross margin expectation for the year by 7% and reflects a shift to higher-margin, though lower-priced, software sales.

Excellent contributions @ Valueinvestor0909 , mushroompanda @Rocket6 , @mikebrisy and others.

AD8 as an investment proposition has been very much a question of: “How profitable can this business be if it becomes a monopoly?”  In the medium to long term nothing else matters.

And in the middle of last year, AD8 and just about every analyst was calling it monopoly-game-over in the Audio segment with AD8 having a 90% market share.

What remained a battleground was the Audio-Visual market, and AD8 were reporting as making good progress.   (From the 16/5/24 Investor Day: “Over 50 manufacturers have licensed Dante AV, with 75+ products on the market”).

There are a lot of product categories, names, concepts and words in today’s announcement - and in the end I and I think many others are finding it difficult to get a read on just how they are tracking. 

Today AD8 guided an unaudited FY24 revenue of “approximately US$60.0 million.”

And they also stated in FY25 they expect: “……..a >US$10 million revenue headwind”.

How do you achieve monopoly like market domination when you are openly saying sales will fall 16% plus?   “Hey, where’re all going on vacation for a year but we’re going to kill it!” 

Maybe all will become clear at the conference call on the 19^th.

Audinate FY24 preliminary unaudited results and FY25 outlook

Key FY24 unaudited results

• Unaudited revenue of approximately US$60.0 million (A$91.5million), up 28.4% in US$

• Expected EBITDA A$19.5 – A$20.5 million (compared to A$11 million in FY23)

• Unaudited gross profit (GP) of approximately US$44.5 million, up 33.2%

• Unaudited gross margin of 74.3% (compared to 72.1% in FY23)

https://investorpa.com/announcement-pdf/20240806/20691.pdf

Put down my thoughts about Audinate and how I think about the current situation. No idea if I am right or wrong but there it is.

https://www.growthgauge.com.au/p/audinate-asx-ad8-fy24-result-preview

Chart Update 2nd Aug 24

If you look back at my last update, we were working on the yellow ABC count down which completed this morning. During that yellow ABC however, another one formed inside (Orange ABC). You will notice the ellipse target box just below which has many strong support levels. I can't tell you which one will be the bottom. I will wait to see the first impulsive waves 1/2 up before I consider entering

Note from Macquarie courtesy of FN Arena

Macquarie rates AD8 as Neutral (3) -

Macquarie observes the current Audinate Group share price is reflecting a free cashflow compound average growth rate of around 42%, which the broker states is a "high bar to meet".

The analyst points to the cyclical nature of the company's hardware sales with an estimated 89% of revenues as non-recurring, and the discounting of AVIO adaptors, the second most important revenue generator.

Including the potential cannibalisation of revenues from new products like Dante Director and challenges around cash positions, M&A and recent management changes, the broker revises earnings forecasts for by -23% and -25%, for FY25 and FY26, respectively.

Accordingly, the target price is lowered -20% to $14.40 from $17.90 and the Neutral rating unchanged.

Target price is $14.40 Current Price is $15.20 Difference: minus $0.8 (current price is over target).

If AD8 meets the Macquarie target it will return approximately minus 5% (excluding dividends, fees and charges - negative figures indicate an expected loss).

Current consensus price target is $20.02, suggesting upside of 40.2% (ex-dividends)

The company's fiscal year ends in June.

Forecast for FY24:

Macquarie forecasts a full year FY24 dividend of 0.00 cents and EPS of 10.60 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 143.40.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 9.2, implying annual growth of -33.1%.

Current consensus DPS estimate is N/A, implying a prospective dividend yield of N/A.

Current consensus EPS estimate suggests the PER is 155.2.

Forecast for FY25:

Macquarie forecasts a full year FY25 dividend of 0.00 cents and EPS of 11.40 cents.

At the last closing share price the stock's estimated Price to Earnings Ratio (PER) is 133.33.

How do these forecasts compare to market consensus projections?

Current consensus EPS estimate is 15.7, implying annual growth of 70.7%.

Current consensus DPS estimate is N/A, implying a prospective dividend yield of N/A.

Current consensus EPS estimate suggests the PER is 91.0.

AD8 down about 10% over last 2 days on very low volume. Topped up today at 14.28. Looks like a broker note from Macquarie may be responsible today with a price target of 14.40

Chart Update 25th July 24

Short term down leg on its way

USD Revenue CAGR increase %

The FY22 performance metric for the performance rights is aligned to the Company’s US Dollar revenue compound annual growth rate (‘CAGR’) over the three years from 1 July 2021 to 30 June 2024.

The Company’s Total Shareholder Return performance compared to the relevant index

The FY21 performance metric for the performance rights is aligned to the Company’s Total Shareholder Return (‘TSR’) as compared to the ASX 300 Index over the three years from 1 July 2020 to 30 June 2023. The ASX 300 Index was selected as it represented the market performance of alternative companies that Audinate shareholders may invest in. In the event that the Company achieves a negative TSR that is better than the relevant index TSR the percentage of performance rights to vest is capped at 50%.

This has the potential to go either way at this point. It is setup to make both direction feasible. Its either going up to wave i or down for wave C. Long term it looks up obviously however 10min 30min 1hr chart look like they want to reset dropping it down for a C wave them it will have the strength to run up for wave i more convincingly.

Thurs 27 Jun Chart update

FWIW Morningstar has recently initiated coverage of Audinate at a four star (undervalued) rating with their fair value estimate of $23

Analyst Note | by Roy Van Keulen

We initiate coverage on Audinate with a fair value estimate of AUD 23 per share. We assign Audinate a narrow economic moat based on network effects. We forecast revenue to grow at a 10-year CAGR of 22% and EBIT margins to expand to 36% by fiscal 2033 from 1% in fiscal 2023. We use a weighted cost of capital of 9%. We assign Audinate a Morningstar Uncertainty Rating of High and rate its Capital Allocation as Exemplary. At current prices, Audinate shares screen as materially undervalued and not reflective of our view of Audinate as a well-managed high-quality company with a large and highly winnable market opportunity

Audinate’s Dante protocol has become the world’s most widely used protocol for audio networking. Today, there are over 4,000 products available which are enabled with its protocol, which is more than 10x its nearest competitor. Audio networking protocols allow professionals in the AV industry to connect, control, and manage their audio systems with minimal friction. Network effects arise from strong interoperability within networking protocols, and limited interoperability between them. In other words, products using the same protocol work well together, while products on different protocols experience more friction. AV professionals therefore prefer using products which are on the same protocol and prefer using protocols with a large catalogue of available products and widespread adoption. Given Dante’s extensive lead over its competition, we see AV professionals gravitating towards the Dante protocol. OEMs, in turn, prefer building products which are in demand by AV professionals, thereby creating a network effect. Because of these network effects, we consider the audio networking market as highly winnable

Business Strategy and Outlook

We expect Audinate’s strategy to primarily focus on accelerating the secular transition toward digital audio networking. Secondarily, we expect Audinate to focus on building out its nascent business for digital video networking

Audinate’s Dante protocol has become the world’s most widely used protocol for digital audio networking and boasts a more-than 10 times lead over its nearest competitor, Ravenna, in terms of the number of products enabled with the protocol. Given Dante’s dominant market share, we see little remaining upside for Audinate from gaining incremental market share from direct competitors in digital audio networking. However, we do expect Audinate to use its network effect, its existing customer relationships, and its scale on research and development to accelerate the AV industry’s transition toward digital audio networking. Specifically, we expect Audinate to continue creating new hardware solutions and reference designs that unlock new device use cases and to continue developing new software solutions for AV professionals. We estimate Audinate has around 10% market share in audio devices, which leaves Audinate with a large and highly winnable market opportunity, as the industry digitizes. Additionally, we expect Audinate to gain significant pricing power, especially in its software segment, as its network effects continue to strengthen

We also expect Audinate to continue developing its nascent digital video networking business, although we view this as a more uncertain and likely less profitable opportunity. Video networking has unique challenges compared with audio, primarily due to the larger data intensity inherent in video data delivery. Because of this, digitally networked video uses various compression technologies that are usually not compatible with each other and therefore hinders the establishment of network effects. However, we believe network effects from Dante’s audio solutions will help pull in AV professionals, who are already familiar with the Dante protocol, which in turn pulls in original equipment manufacturers, or OEMs

Economic Moat

We assign Audinate a narrow economic moat based on network effects in its digital audio networking protocol, Dante. We expect Dante to become the standard for digital audio networking, and for digital to continue to take share from analog networking

Dante is the world’s most widely used protocol for digital audio networking. Over 400 OEMs, such as Bosch, Bose, and Yamaha, license the Dante protocol to enable digital delivery and management of audio for over 4,000 products, such as microphones, mixers, and speakers. Dante’s closest competitor, Ravenna, has fewer than 400 products enabled with its own protocol, and works with fewer than 100 OEMs

Network effects arise from strong interoperability within networking protocols, and limited interoperability between them. When audio products are enabled with Dante, these products can be easily discovered by- and connected to the Dante- network and other Dante-enabled products on the network, which is required for their audio delivery to be synchronized. Such automated discovery and connection provides a compelling benefit for AV professionals because it allows them to easily add, move or remove audio equipment to their installations. This benefit may even exceed any perceived brand value toward specific OEMs. Products not enabled with Dante can still be added to the network through AES67, which is an industry standard for audio over IP, but the networking process is more cumbersome. Similarly, competing networks can add Dante-enabled products through a more cumbersome networking process. Given the limited interoperability between the various networking protocols, Dante’s leadership position of more-than 10 times in terms of the number of enabled products results in clear demand pull from AV professionals

OEMs, in turn, need to cater to the preferences of AV professionals and are therefore increasingly choosing to enable their products with Dante, which leads to Dante’s leadership position expanding over time and a positive flywheel between supply and demand. Dante today enjoys a more than 10 times lead over Ravenna, in terms of enabled products, which is a significant improvement from a 6 times lead in 2017. We also expect Dante’s leadership in terms of deployed products to be even larger than its leadership position in available products, due to Dante’s larger network of interoperable products making its products more appealing to AV professionals

We view analog networking as Audinate’s primary competition. In analog networking, AV professionals connect products by drawing physical cables between them. This cabling is usually many times pricier than digital networking because the cables need to be drawn the full distance between devices. By contrast, the Ethernet cables used to connect Dante-enabled devices can typically be drawn to the nearest Ethernet port in a building. Many devices also don’t require separate power cabling after they are connected with an Ethernet cable. This provides material savings in terms of hardware and labor costs. Additionally, over longer distances, analog audio cabling can suffer from reduced audio quality, which digital audio delivery does not suffer from. Unsurprisingly, the industry has been rapidly digitizing. We estimate that digitally enabled audio devices doubled their market share as a share of new sales to around 10% in 2023, from 5% in 2016. Analog networking continues to be the dominant networking technology, primarily due to switching costs from existing installations and digital networking being cost prohibitive for lower-value devices and use cases

We don’t yet see similar network effects in Audinate’s video networking business. Video networking has unique challenges compared with audio, primarily due to the larger data intensity inherent in video delivery. Because of this, digitally networked video uses various compression technologies that balance speed, cost, data, and quality for specific use cases. As a result, products using different technologies are often not compatible, not just in their discovery and connection, but also in their data delivery. The industry is therefore still much earlier in its digital transition

We do believe Audinate enjoys several distinct advantages in pursuing video networking. Audinate has existing relationships with hundreds of OEMs, many of which also make video products. We believe offering bundling deals through these established customer relationships has traces of an intangible moat. A subset of AV products also has networking needs for both audio and video, which makes them an attractive market entry point for Audinate. Also, over the years, Audinate has been training hundreds of thousands of AV professionals on its technology. These professionals already know how to work with Dante-enabled products and are familiar with the brand, which, we believe, makes for an appealing proposition for OEMs. So far, Audinate is demonstrating strong momentum on all relevant metrics for its video networking business. These include growth in the number of OEMs licensing the protocol, the number of products enabled with the protocol, and in the number of products shipped with the protocol. However, this is from a small base, and we consider the market still up for grabs

Fair Value and Profit Drivers

Our fair value estimate for Audinate is AUD 23 per share, implying an enterprise value/sales multiple of 21 on our fiscal 2024 estimates. We use a weighted average cost of capital, or WACC, of 9%, reflecting high revenue cyclicality, medium operating leverage and low credit risk

We assume revenue to grow at an organic CAGR of 22% over the next decade, driven primarily by Audinate expanding the market for digital audio networking. We expect EBIT margins to expand to 36% by fiscal 2033, compared with 1% in 2023. We expect Audinate’s operating margins to expand because of sales and marketing spending, as well as research and development declining as a share of revenue, once its network effects strengthen. We also expect gross margin expansion as strengthening network effects result in increased pricing power

Risk and Uncertainty

We assign Audinate a Morningstar Uncertainty Rating of High

The AV industry is still in the early stages of digitizing, which means there is still high uncertainty regarding the ultimate market opportunity for Audinate’s products. Given that we view competitive risk as low in digital networking for audio, due to Audinate’s economic moat based on network effects, our uncertainty revolves around the market’s ultimate size, rather than Audinate’s share within this market. Within video, we see additional uncertainty around Audinate’s ability to take market share.

We see high risk from economic cyclicality. Audinate’s devices or license designs are used in products which are highly discretionary. Although these products are often part of systems which eventually need to be replaced, customers can choose to defer these purchases in challenging economic times

We see high risk from technological disruption. Audinate’s Dante protocol primarily uses Ethernet cables for data delivery. We cannot rule out other methods of data delivery eventually substituting Ethernet cables, such as wireless internet or other technologies

Capital Allocation

Audinate has an Exemplary Capital Allocation rating, reflecting our assessment of a sound balance sheet, exceptional investment efficacy, and appropriate shareholder distributions

Audinate’s balance sheet is sound. As of the end of December 2023, it held significant cash with no debt

We rate investment efficacy as exceptional. Although Audinate is supported by network effects, when it started, it faced the traditional cold-start problem, whereby no AV professionals wanted to use Dante’s protocol because there were no products supporting it and no OEMs wanted to develop products because no AV professionals wanted to use them

Audinate demonstrated exceptional execution to solve this problem. Audinate found the right entry points into the market, strategically attracted early customers by making them part owners of the business, developed a product portfolio with the right breadth and depth and delivered the right levels of customer service. All of these competing objectives were achieved with limited resources, which demonstrates to us exceptional capital allocation skills

Audinate does not currently return capital to shareholders, which we view as appropriate given the opportunities for investment into the business

DISC: Held in RL & SM

nice little jump today, however I hate to say it still, Im not convinced. Im still seeing potential for the down side. Ill see how this next pull back plays out.

Fri 31.05.24

Still a bit more in the tank to give back. I am suspicious of there still being a little more to drop yet. What I'm really be looking for is the first waves 1&2 up to see how they form. This red bar this morning confirms the sentiment still hasnt turned positive enough yet for it to start its upward swing yet. There is definitely movement around this price point though as you can see by the Volume at this level. Note we are at the 38.2% level at $15.05. 50% retrace level of the stock since inception would be $12.45 ish

Im watching that tiny ABC down marked in Orange for now.

You will note the Pink horizontal support line @ $14.06 though. If it gets there I will probably start a position there.

Possible next price target down is $13.52 - $14.04

Also note this came in this morning on Trading View,

Rob Goss has resigned as CFO, having been with the company for 7 years. The market didn't take this news too well with shares off 4.5% on a day when you might have expected them to be up 1 or 2 percent with the market. But $AD8 is highly valued, so any news likely generates an outsized reaction.

ASX Announcement

However, I dont read this as an area of concern given that he is staying through the next reporting season and will prepare the Annual Report. That's not the kind of departure to get the jitters over. (You do, when they leave the building with a cardboard box)

I've recently re-initiated a position in $AD8 in RL and SM and, when I get around to it, I must write a straw about "Audinate - why I changed my mind". But that's for another day.

Mulling over whether to top up a little more, as I am only at 3.8% in RL, and starting to like the value from here.

Disc: Held in RL and SM

AD8 down around 30% since high of 23.50. How low will it go?

Just had a chance to do my technical analyse of AD8. The chart below shows thoughts. without any extreme positive news. I will re evaluate the chart when it arrives there. The yelow line is the path I believe it will take roughly (may happen quicker or longer)

1d Chart

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.

Audinate CEO on Livewire:

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

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.

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

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 

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

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

Gary Kayye

November 28, 2023 - Featured, ProAV News, rAVe [PUBS], rAVe Europe, rAVe Europe Featured, rAVe Europe News, RTA

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

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)

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

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

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.

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

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

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. 

DISC: Held in RL & SM

Thanks @Valueinvestor0909 for the link to the RHConsulting report - I hadn't read the latest one. It sent me down a rabbit hole of what Network Device Interface (NDI) is all about. Thought I’d share some thoughts here. Also shout out to @Noddy74 for his BirdDog (ASX:BDT) straw, which was also helpful.

NDI is legitimate competition, and a key player in the digital AV protocol space. It’s touted by some as the “Dante for Video” - it’s plug and play, it works, and customers love it.

Even Audinate see them as a very strong competitor having noted the only weaknesses is being expensive (disputable), not codec agnostic, and doesn’t support Dante Audio natively.

BirdDog (ASX:BDT), a heavy NDI focused equipment manufacturer, published the following grid stating Dante AV does not have bi-directional control, is not software defined (now false with the release of Dante AV-H) and has no free access to tools and resources for developers.

NDI has a whole heap of free tools and integration for the end consumer.

NDI was a protocol launched by NewTek in 2015. NewTek was eventually purchased by the Vizrt Group in May 2019 for US$95.25m

Vizrt Group the owner of NDI, NewTek and Vizrt, is a global company headquartered in Norway with around 600 employees. It is privately-owned by Nordic Capital Fund VIII. The group had revenues of €175m in 2021.

Looking back, I think US$100m may have been a steal for Audinate to sure up the digital video market. NDI’s several year head start has given them a sizeable advantage in the range of physical products, and software integration.

There’s probably some nuance on the markets each company is focusing on. NDI is particularly strong in small scale live video broadcast. While Dante has historically been more about live audio in physical spaces rather than content creation.

My understanding is Audinate is attacking the video market using its dominance in digital audio, and also using software rather than physical chips/cards/modules to penetrate the video OEMs faster.

On the software point I’ll use the pan, tilt and zoom (PTZ) camera market to highlight my point. From the Strawman interview with the CFO, it was mentioned that they’ve signed 7 of the top 14 PTZ manufacturers. The top 14 include NewTek (who will never sign with Audinate for obvious reasons) and BirdDog (who’s very NDI focused). I can see they’ve signed Lumens, Aver, PTZ Optics, Minrray, Yamaha, ValueHD - not sure who the 7th is.

Each of these OEMs already have NDI compatible cameras. And it appears they’re all implementing Dante AV-H for the Dante AV. In many cases it might just be a flash of the firmware, a new lick of paint, and different packaging. We might even see the advent of cameras that are both NDI and Dante AV compatible - though Vizrt and Audinate may have clauses in the contracts to prevent this.

Using the ubiquity of Dante Audio to drive video is the bigger play.

There’s a good use case interview that Audinate published on the investor page: https://youtu.be/ZN4FerH-dzc. The use case is Rutgers University, where the Head of AV was previously a touring engineer that worked with Dante extensively. He then introduced it to the university and is now using Dante AV for the video requirements. NDI doesn’t appear to have got a look in, because the university already had extensive Dante Audio build out and Dante AV was the logical addition.

Also highlighting how dominant Dante is in audio, is some of the products BirdDog have or will soon be releasing. One bit of software is called Dante NDI Bridge which helps encode and decode audio between NDI and Dante. A use case would be needing to play a video in a large physical space with multiple speakers - the software can split the audio off the video stream and play it on Dante loudspeakers.

They’re also in the process of making a whole bunch of Dante Audio compatible products. It goes to show that even an NDI diehard OEM needs to play in the Dante Audio space.

No doubt Audinate is hoping system integrators will give up bridging NDI and Dante, save a lot of headache and just go all in on Dante AV.

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:

Audio over IP

Video over IP

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

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

Network effects are a beautiful thing:

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.

The point made by Andrew/Strawman in one of the videos.... lots of capital in.... very little to show for it

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

https://newswire.iguana2.com/af5f4d73c1a54a33/ad8.asx/2A1408226/AD8_AGM_Chair_CEO_Presentations

AGM - Chairs address and CEO Presentation.

Separate to this, while there is ample evidence that supply constraints are easing for the chip manufacturers, to the point of potential oversupply, clearly $AD8 are still seeing constraints in integrated circuits that goes into their systems. This is the next steps along the chain and therefore likely to see a lag in pressures easing. Several references to unmet demand as a result of continuing constraints.

We know that slowing economies are resulting in slow downs for PCs and smartphones, but how will $AD8's market of pro audio-visual be impacted? Will pent up demand due to re-opening and constraints be offset by macro impacts and restraint by customers on spending in the light of inflation and a negative outlook?

Also, $AD8 confirming (as I expected in previous straw) that the big build up in headcout from FY22 is continuing albeit more modestly into FY23, with another 10% to be added.

$AD8 not really giving much guidance to help here, beyond a good start for video sales.

SP was headed back into the buy zone for me, but this isn't as positive a view as I was hoping, so I will continue to watch.

Interested to hear from other StrawPeople if anyone can attend the AGM today. (I can't).

Disc: Not held in RL and SM

Rudi just tweeted:

"UBS found Audinate's $AD8 FY22 result yet again "impressive": "AD8 continues to deepen its competitive moat through strengthening of the Dante enabled ecosystem and expand out higher margin software sales." Buy. Target $9.85"

... which is unchanged based on today's results.

Cranking away on my numbers tonite. In the absence of compelling economics, it appears to be less about "one number" and more about risk/reward and range of assumptions about top and bottom line growths over time. (Isn't it always so, pre-breakeven?)

Interestingly SM average intrinsic value at $9.42. SP close $8.80. @Strawman at $6.76 (quick calc)

Audinate has posted another year of impressive growth.

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

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

AD8 has announced its results for the financial half-year ended 31 December 2021 (1H22). Gross profit increased by 30.2% to US$11.2 million at a gross margin of 75.6% (1H21: 76.9%), primarily due to a 42% growth in sales of chips, cards and modules. Revenue increased by 33.3% to US$14.8 million, compared to US$11.1 million in the previous corresponding period (1H21). AUD revenue grew 31.6% to A$20.2 million as the AUD/USD exchange rate was relatively consistent with 1H21.

Audinate Co-founder and CEO Aidan Williams commented:

“The business performed strongly during the first half in a very challenging operating environment and delivered revenue growth exceeding 30%. Further supply chain tightness is expected in 2H22 but we are pleased to have received indicative additional commitments from chip suppliers. Consequently we now anticipate satisfying demand for our Brooklyn and Broadway products in the second half.” 

Outlook

Having successfully navigated a challenging operating environment over the last 18 months, AD8 continue to take a long-term perspective on running and growing the business to deliver shareholder value. Given the Silex acquisition and the desire to support ongoing growth and drive development of video and cloud services, AD8 are targeting headcount of 185 staff at 30 June 2022 (up from 135 staff at 30 June 2021). Revenue for 2H22 will be driven by chip availability for both Audinate and AD* OEM customers. At this stage AD8 expect US$ revenue growth for FY22 overall, albeit not at historical rates. Priorities for the second half include managing ongoing supply chain challenges and the integration of the Silex video business. There will continue to be an ongoing focus on product innovation with the roll-out of new video and cloud products over the course of CY22.

Audinate Co-founder and CEO Aidan Williams commented:

“The acquisition of the Silex video business is another exciting chapter for Audinate. With the establishment of the Cambridge (UK) video software team, the acquisition completes a significant transformation of our video capabilities over the last twelve months. Whilst supply chain disruption is likely to linger through CY22, we look to fulfilling increasing demand for our products and services. We also look forward to the release of future video and cloud products that complement our existing revenue streams.”

Audinate completes acquisition of Silex Insight video business

Audinate have announced that they have completed their acquisition of Silex Insight - a video business based in Belgium.

The acquisition of the Silex video business is strategically compelling because it complements Audinate’s existing video capabilities in Cambridge UK and aligns with Audinate’s strategic vision for video over IP. In particular, the transaction will increase video hardware engineering capacity, enable acceleration of the video product roadmap, and cement critical mass for video product engineering in Europe.

Full announcement can be found here.

AD8 remains on my watchlist (IRL) with a holding in SM.

Has anyone else noticed that when the share market panics. Audinate holds firm and even goes up in SP? I'm grateful. But why?

Disc: Held in RL

@Laoshi, same thoughts here. Price looks sensible and while its nice to add around 3m to revenue as a base, this is clearly a manpower-focused acquisition; enhancing expertise and capabilities in the video space. They have acquired experience in a very niche industry - bringing on board 8 industry experts with average industry experience of 16 years (you cant just advertise a position on Seek for engineers that operate in video implementation - near on impossible to find suitable applicants for obvious reasons).

The added bonus is acquiring existing tech and IP. While my lack of industry experience prevents me from providing further insights, I have no reason not to back management.

Disc: Held

Quite a significant lift in share price prior to this announcement. Looks like a solid addition at a sensible price to strengthen the video component of the company.

Audinate to acquire Silex Insight video business

Acquisition consideration

The acquisition consideration comprises:

• An up-front cash payment of US$6.5m, representing approximately 2.3 times expected revenue for the financial year ending 31 December 2021.

• Revenue earn-out of up to US$1.5 million may be payable based on the uplift in revenue for the twelve-month period from acquisition date.

If the maximum consideration is payable, the acquired business would achieve improved EBITDA (EBITDA currently nominal) at a lower purchase price revenue multiple. All consideration is payable in cash and will be funded from existing cash reserves.

Audinate Co-founder and CEO Aidan Williams commented:

“We are very excited to acquire a team with widely recognised video hardware expertise and an existing revenue base. The video codecs and deep product expertise in the team, in combination with our Dante networking technology, will enable us to go to market with a variety of full-service video offerings. This acquisition complements the video software skills in the Cambridge (UK) team we established earlier in the year. Together these two deals significantly enhance our video capabilities and know-how – outcomes that have been achieved in only twelve months, notwithstanding the challenges presented by COVID.”

Audinate Group Limited (ASX:AD8), developer of the professional AV-industry leading Dante® media networking solution, is pleased to announce that it has signed an agreement to acquire the video business of Silex Insight SA (“Silex”), based in Belgium. The Silex video business produces video networking products for manufacturers of AV equipment.

The acquisition will include:

• An existing team of 8 engineers with extensive video implementation expertise and average tenure of 16 years;

• An existing revenue base of approximately US$2.5 million from a range of products including video codec IP Cores, Viper Board, Video ASSP and design services;

• Three video compression technologies (“video codecs”): Colibri, together with their own implementations of JPEG 2000 and VC-2 HQ; and,

• The intellectual property related to the video business.

The valuation content below is purely an exercise in looking at the metrics of Audinate as a business and taking a rough stab at a valuation using forecasts for the next 5 and 10 years. Please read this in that context – I am not posting a valuation on Audinate due to current uncertainties but, for full disclosure purposes, I do own shares in my personal portfolio and am neither a buyer nor a seller at current values.

Audinate clearly dominates its market place which the company says has an addressable value of $1bn

FY 21 outlook highlights:

·         Launch of Dante video products in June

·         Strong end to the year means the company should move back to revenue growth in its historic range and FY 22 should be consistent with current market expectations

·         Upfront fees replaced by subscription model

·         Expects to double revenue in the medium term

Potential short-term problems / red flags

Global shortage of chips and electronic components

Company is unable to maintain cash flow breakeven

Any indication towards the latter part of FY 22 that revenue growth is not picking up to previous growth levels c 36%

Costs get out of sync with revenue growth due to requirement to increase headcount

Problems with supply chain and deliveries continue

Compound annual Revenue growth for the 4 years to FY20 was 36% (FY21 is ignored due to the Covid effect on these numbers). On the assumption that the company can eke out 10% growth for FY 22 (given the chip shortages) and growth then returns to the historic 36% level for FY 23 to FY 26 revenue should be around $120m, giving a Gross Profit (at the historical margin of 76%) of $92m. Assuming a 50% increase in costs we come out with EBITDA of $47m. I am ignoring non-cash charges and have assumed that interest ought to be a positive number which I am also ignoring.  Applying a 30% tax charge gives a NPAT number of c$33m. There are just over 76m shares on issue currently so assuming 80m on issue in FY26 = EPS of 41cents. If growth is at the 36% level, we could expect a PE of 35 but this may well be challenging if interest rates increase materially. This would give us a forecast price of $14.35 - discounting at 10% gives a current value of $8.90.

If we take a more cautious approach and use a PE of 30 the FY26 price is $12.30 and current value $7.70.

Going all out and trying to forecast for 10 years: assuming Audinate can capture 40% of its addressable market Revenue would be $400m (28.6% CAGR over 10 years), Gross Profit at a margin of 75%, is $300m and assuming costs at least double from FY26 to around $100m we get EBITDA of $200m. If this number is broadly the same as cash operating profit, we get NPAT of $140m or EPS of $1.40 (assuming 100m shares on issue). Ten years out I would hesitate to go for a PE any higher than 25, so the price comes out at $35 per share. Over this period, I would not settle for a return of less than 15% so the current value would need to be $8.65.

The value range is obviously quite wide the further out you go and the more aggressive or conservative you are in your assumptions. At the end of the day 5 years is more than enough uncertainty for me and, to be honest, for my own investments I seldom look beyond 3 years in forecasting.

News Summary

DJ Audinate Has Balance Sheet to Ride Out Chip Shortages -- Market Talk

AD8$8.825

-$0.125 (-1.4%)$8.82$8.83

19 Oct 2021 15:44:41

1 View

0444 GMT - Audio-visual equipment manufacturer Audinate has the competitive position and balance sheet to ride out problems caused by chip shortages, Morgan Stanley says. The U.S. bank acknowledges that chip headwinds mean a bear scenario is playing out, but it says this will be transitory and remains overweight on the stock. Audinate has enough inventory for 2Q and will experience its sales trough in 3Q, Morgan Stanley says. Accelerating product development and price rises will help offset the overall impact, it says. Morgan Stanley cuts its FY 2022 revenue forecast by 14% but keeps a A$12.00 target price on the stock, which is down 1.0% at A$8.86. (stuart.condie@wsj.com; @StuartLCondie)

(END) Dow Jones Newswires

I hold AD8 as 2% of portfolio in my super.

There's lots to like with their product:

• its basically a monopoly
• pricing power has yet to really work its magic
• the TAM is huge and they have only conquered a small fraction
• the world is re-opening so the live music bit of the business will be back up and rolling soon

However,

as per Rapstar, it is VERY expensive. It has failed to produce any meaningful evidence of exponential increase in revenue (through no fault of its own), and now has a declared that it will likely not do so for a number of quarters to come.

So delay upon delay before it can stand in the spot light, arms aloft, bathing in the rapturous applause of the market.

And yet is still valued as if this is a given.

The rate of innovation is increasing. Who is confident that there will not be some new disruptive technology that will be outt here eating AD8's lunch in a couple of years, when everyone reckons they will regain their rightful crown.

Great companies can be priced at various extremes in relationship to their current and expected earnings. We are all taught that Amazon and Monster suffered huge swings in SP but headede up and up and if only we had held all the way through, our only problem would be deciding how many luxury yachts we needed in the Mediterranean vs the Caribbean. But, I have held  PPH, APX and A2M with the same expectations of greatness, watched with glee as the SP scaled to ridiculous heights and consoled myself with the mantra of "Amazon, amazon". Only to be disappointed. I took the opportunity to sell PME at the ridiculous SP of $67, what was the multiple... 85?

Perhaps AD8 should be treated the same?

I still HOLD for now.

I've held AD8 in RL since Sept 2018 after Matt Joass recommended it. I topped up again in March 2020.

The way stocks get marked down these days after unexpected bad news, who knows where the share price might end up, particularly if it is considered expensive.

AD8 is the undisputed market leader in it's field and daylight is second so if I am presented an attractive opportunity I will certainly consider it. 

My thoughts on AD8.

I always had concerns regarding this issue with silicon chips. AD8 are a small company and given much larger comapnies in the world are having similar issues of sourcing these chips it is of no surprise that Audinate have run in to these issues.

In my opinion I believe this is a short term issue which will impact the share price most likely throughout the next year. If the opportunity arises I will certainly top up (I hold only IRL). I am not overly worried about this concern currently. These are my reasons.

1) AD8 are the best in the field: they barely have a competitor now. Although growth slows in this period it is only for the short term. Pent up demand will increase and eventually orders will be filled. 

2) This issue is somewhat can be put down to demand for your product being high. The pipeline here is massive and unfortantely sourcing parts is the issue. This is an annoying problem but not because the product is poor or there is another quality product available.

3) AD8 have managed difficulties throughout COVID extremely well. I believe there engineers will move fast to develop new products eg next Gen Brooklyn and continue to manouvre well through these issues.

4) Demand for the product is strong. Does this mean Gross margins may improve? They are already very high.

I do agree AD8 sits at an extrmely high valuation. I am not a buyer here. But thats what you get for quality. they are 17x ahead of their nearest rivals and I think orders will be eventually filled once these issues are resolved. I remian bullish on the long term forecasts of AD8 and this one has always been a bottom drawer for me. I have always accepted the lofty valuations of AD8 and will just nip at the SP when I have some cash and the price is reasonble. 

DISC (held IRL only)

The chip shortage has finally caught up with Audinate. 
They forecast significant impact to supplies with the crunch mostly impacting 2nd half of this year. 
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02436733-2A1331522?access_token=83ff96335c2d45a094df02a206a39ff4