A couple of days ago, AIM released the following PR announcement regarding winning ITV (UK) as a customer: https://www.ai-media.tv/knowledge-hub/insights/ai-media-and-itv-announce-landmark-partnership/

ITV is the UK’s biggest commercial broadcaster – so think a Channel 7 or 9 here in Australia, scaled to the UK population. Even large-ish customer wins are no longer price-sensitive for this company, so there’s no associated ASX announcement. It might be worth following Ai-Media’s LinkedIn or Twitter accounts for those who follow this company.

A couple of points that were of note to me:

• Europe and UK expansion was a big priority this year. Tick.
• The ITV director quoted spent 8 years at Red Bee, which is a competitor to AIM. If this is an indication of Red Bee’s competitive position, given the director knows them so well, then it bodes well for Ai-Media. Red Bee currently holds the captioning contracts for ABC (Australia) and SBS, which I understand are up for renewal in the next year or two.
• This announcement confirms AIM’s competitive strengths – able to be embedded in a customer’s complex workflow and its reputation. I had to ChatGPT what “VANC embedded data” is, and it demonstrates how specialized captioning workflows can be for large broadcasting customers – it’s a headache no new entrants would want to deal with.

There's a lot about AI-Media that is easy to miss, so I wanted to try and elucidate the key aspects of the business, its offering and the competitive advantages it has -- as informed by today's conversation with co-founder and CEO Tony Abrahams.

But, to be honest, i'm not confident i've got things right so please correct me if you think I'm off base.

First, as @mushroompanda has already said, they aren't building AI models themselves. AI-Media’s technology relies on APIs (Application Programming Interfaces) to connect their software with these external AI engines.

AIM's products provide context to AI engines, such as metadata from broadcast streams (e.g., identifying speakers, locations, or specific program segments). This customization improves the accuracy of AI-generated captions by using additional data.

Their competitive edge comes from effectively embedding these AI models into a unique, customer-focused delivery system which integrates into existing workflows. It's more about ingesting audio/video feeds, extracting the relevant information, and sending it back in real-time so it cam be inserted/overlaid into the broadcast.

The acquisition of EEG (a provider of encoding hardware) was really a pivotal moment for AIM, giving it control over the critical hardware needed to feed audio data into AI models, allowing seamless integration with their cloud-based captioning services.

The total addressable market for AI language services is vast, estimated at around $70 billion annually. Tony pointed out that AI-Media’s current focus—live speech-to-text and live captioning—represents just a small fraction of this market, approximately 1%.

At the moment, around 90% of AI-Media’s operations are centered on live captioning and transcription, primarily driven by their LEXI solutions. However, Tony stressed that this is just the tip of the iceberg, indicating that the company is still in the early stages of tapping into the broader market potential.

A significant portion of the market opportunity lies in recorded media, which accounts for about 25% of the total market. This includes transcription and captioning for pre-recorded content like TV shows, movies, and online videos.

There are also considerable opportunities in broader AI language services such as voice dubbing, audio description for visually impaired audiences, and other multilingual services. This segment, which Tony identified as the larger $69 billion part of the market, involves using AI to handle voice processing, translations, and enhancing accessibility through audio descriptions.

The market for AI language services extends beyond broadcasting and includes government, enterprise, education, and entertainment sectors. Each of these industries has unique needs for language services, from live captioning and translations to complex workflows

Tony highlighted that one of the key drivers of market growth is the reduction in costs associated with AI-powered services compared to traditional human-based models. For example, automated audio description, which traditionally required 25 hours of human labor per hour of content, can now be fully automated, significantly reducing costs and making these services accessible to a broader range of content creators.

He also said that regulatory requirements for accessibility, such as mandatory captioning and audio descriptions, are increasingly pushing broadcasters and content providers toward adopting AI solutions. This trend further expands the market opportunity for AI-Media’s products.

As mentioned at the results briefing (or potentially earlier?) Tony outlined ambitious financial targets, including reaching $150 million in revenue and $60 million in EBITDA within five years. 

And he said they wouldn't need to raise capital to pursue this -- all the pieces are in place and growth can be driven by organic cash flow.

He certainly has his money where his mouth is, recently acquiring 5m more shares to lift his stake to almost 17% of the business (he bought at 31c -- not a bad trade so far!).

Anyway, it seems that AI-Media is a genuine market leader in a fast growing market that offers increased service and lower cost for its customers. It's well capitalised, cash flow positive, founder-led and expecting to 15x EBITDA in the next 5 years.

Shares are on ~27x EV/EBITDA

I don't presently hold in real life, but will be adding a watching position here on SM today.

Media Release: https://announcements.asx.com.au/asxpdf/20240829/pdf/0676bss606c3jj.pdf

FY24 Annual Report: https://announcements.asx.com.au/asxpdf/20240829/pdf/0676bnpw5ms0lw.pdf

FY24 Presentation: https://announcements.asx.com.au/asxpdf/20240829/pdf/0676bzwbglkvw6.pdf

FY24 results were released today and once again the top line results were a yawn-fest with revenues growing by 7% to $66.2m. However, the real story lies beneath the surface, where the company’s dynamics are shifting. Ai-Media’s fast-growing Technology division (good co) contrasts with its declining Services division (bad co), leading to significant changes behind the scenes.

The company continues to recomposition itself from Services to Technology leading to increased gross margins

The positive trend in profitability continues

Technology revenue grew by 37% over the year and now run-rating at 52% of the group’s revenue and 68% of its gross profit. Ai-Media is rapidly transforming from a people-driven captioning service company into a caption technology and AI company. Management anticipates that Technology revenue will comprise 80% of the Group’s revenue by December 2025. If anyone needs a reminder of how well the Technology division has grown over the years, just take a look at the revenue chart below.

EEG was acquired by AI-Media in 2H FY21

This is one where I’ll need to go back and review my notes and old transcripts, but as my memory stands right now, there appears to be a distinct shift in management’s optimism during the conference call.

The key talking point was their “aspirational” five-year organic growth target: $150m in revenue and $60m in EBITDA. This translates to CAGR of 17.8% for revenue and 70.9% for EBITDA over five years. This is a significant leap from the single-digit top-line growth rates of recent years. However, it’s also quite attainable, given the rapid expansion of the Technology business, which now accounts for a much larger share of revenue and gross profit. Management believes they can achieve this by expanding beyond their core US broadcasting live caption market, targeting new geographies (with Europe and the UK as key areas), sectors (focusing on Government and Enterprise), and product offerings (including new AI-enabled language services).

The prevailing sentiment is that Ai-Media is positioned at the right time and in the right place. They provide the industry-standard captioning infrastructure used by US live broadcast companies, and there is surging demand for AI technologies to reduce captioning costs and extend reach, especially since the rise of generative AI tools like ChatGPT in recent years. The company has already demonstrated high-profile, high-stakes use cases for fully AI-generated live captions, such as during the recent Paris Olympics for broadcasters in the US (NBC in English and Telemundo in Spanish!) and Australia (Channel 9). Moreover, access to new large language models and machine learning advancements is making it increasingly feasible to develop additional automated services beyond traditional live captioning. Over the next 12 months, the company plans to roll out human-level language translations, voice dubbing, audio descriptions, topic models, and sound effect recognition.

In a recent, and super awesome, episode of Invest Like The Best with Gavin Baker, there’s a segment on “AI First” companies. It’s around the 56min mark: https://overcast.fm/+ABA27uWiTk8/56:00. I immediately thought about Ai-Media. They act as a thin wrapper around AI models (leveraging transcription services from Microsoft, AWS, and Google), delivering what feels like magic to their customers and not only going after software budgets but labour budgets. Gavin also asserts that although AI First companies are experiencing rapid growth, it’s very challenging to build long-term defensibility around their business models.

But this is where the comparison ends. Ai-Media isn’t an AI First business; it’s a labor-based company that has transformed into an AI business. The company dominates the North American live broadcast market, with its hardware and software encoders deeply embedded into their customer’s workflows. Additionally, Ai-Media still offers a labor component for customers who require that extra peace of mind. This integration provides a level of defensibility that the vast majority of pure AI First companies lack.

Despite the bump today, it’s still trading at trailing 1.4x sales and 34x Normalised EBIT. The market is still skeptical that a 30%pa growing Technology division with a 80%+ gross margin will become the vast bulk of the business going forward.

EDIT: I had a EBIT multiple wildly wrong

I covered my AIM thesis in this video with Mark Tobin at Coffee Microcaps:https://youtu.be/RtVN9C4VgEg?si=TeN2Yg31vueUCebx

But I'd be remiss not to call out the brilliant @mushroompandafor bringing AIM to my attention so I recommend reading his Straws. Like most of the market, I was asleep to the transition from a human based Services business to an infrastructure led Technology one until he pointed it out. On top of the transitioning business model, the financials are also muddied by an elevated amortisation bill from previous acquisitions. As @mushroompandapoints out, on a cash basis the business is already profitable and scaling very nicely.

Over the medium to longer term the key for AIM is to capture the growing pie of live captioning, not just convert their existing customers to higher margin Technology solutions. Given the cost of a human stenographer many uses cases were prohibitive and customers were generally those legislated to provide captioning for accessibility purposes. However with automated captioning now overtaking humans in quality at ~10% of the cost, it is opening up use cases away from traditional live television broadcast such as conferences, large events, places of worship, courts/tribunals and large enterprise meetings.

CEO purchased $1.5m worth of stock on market at $0.31 taking his holdings to 16.9%. https://announcements.asx.com.au/asxpdf/20240618/pdf/064nxhfbzh5rd9.pdf

Previous to this, around 1.5 years ago, he purchased $1m worth. https://announcements.asx.com.au/asxpdf/20221129/pdf/45j5m9b1sh00x3.pdf

The size of the purchase is not what you typically see in ASX microcaps.

https://www.ai-media.tv/knowledge-hub/insights/ai-media-revolutionizes-captioning-for-dazn-with-ai-powered-lexi-tool-kit/

Checks a lot of boxes for Ai-Media’s key priorities, so hopefully it becomes a good showcase customer going forward. International expansion (outside of US and Aus), multilingual, expanding languages outside of English and Spanish, Recorded, and translation.

I went back and watched the interview with CEO Tony Abrahams from 2 years ago. It’s amazing how much of it is still relevant today. Back then, it was a captioning services company that had just made an acquisition of a captioning technology business (EEG) and was pivoting hard in that direction. The services business was impacted by free captioning offered by the likes of Zoom and Microsoft Teams and saw a horrendous -25% decline in revenues. The transition from services to tech is now two years on, so what does it look like?

In that period, Tech has gone from 28% to 48% of revenues and now accounts for nearly 2/3 of the group’s gross profits. It’s now not only backfilling, but over-powering the declines in services and is powering revenue growth at the group level as well. Tech has much higher gross margins (80% vs 40% with services) and has improved the overall gross margin from 53% to 63%.

The bottom line has also improved and has now inflected into profitability and FCF positivity. The amortisation of previous acquisitions and the historically higher capex spend is suppressing the statutory numbers. My normalised EBIT number (EBITA minus current capex spend) is my preferred metric for underlying profitability and that’s now well in the green.

It’s currently trading at 1x revenue and 19x EBIT, and the market clearly doesn’t believe this to be growing tech business, with improving margins, inflecting into profitability and who’s largest division by gross profit is growing at 40%pa.

Ai Media shared an interesting announcement today that they’ve signed a 3 year contract with Google for up to $5M TCV. 

Rough math would indicate this might end up being ~$1.5M/Year. For a company on a revenue run rate of $60M, it’s not necessarily material. But the value of the Google logo is a big hit. This appears to cement comments the CEO made when he spoke to us ~6 months ago; that they had the best product for automatic speech recognition.

The business might be an interesting inflection point now; the CEO had mentioned at the time they were in the process of pivoting their business from services (humans were doing the speech writing), to Saas (Lexi software does the speech writing). 

Interesting one to look at in the next few quarters to see if they can maintain this momentum. 

Announcement Link here

Interesting discussion with their CEO Tony Abrahams on Coffee Microcaps 16th July.

This company provides realtime / near real time closed captioning, incuding translation, through a B2B model. 

Their commercial and business model offers differing levels of accuracy to customers based on the level of intensity of human involvement in the closed captioning and customisation of 'libraries' based on analysis of an individual's voice.  They have some cool ideas such as retaining their own speakers who repeat a stream of dicussion into a libarary that is tuned to analysing their voice (as opposed to an unknown's voice broadcasting say... the news)

It's interesting to learn from this founder CEO about their journey from 2003 with Foxtel to where they are today.

A significant pitch around the value proposition is that accuracy is important; that even the most minor of errors is unacceptable to a deaf viewer that needs closed captiononing, or perhaps an employee of a multinational company participating in a teams / zoom meeting with live translation taking place on the fly.

My hesitation with this one is that whilst these guys may be market leading now, and will likely continue to be market leading for some time; with the trajectory of AI I see companies like Google being able to beat these guys in the long term.

Google for example has millions of hours of media content stored.  With the development of AI / ML, and the Google's position in the market, I wouldn't be surprised if they could crush the likes of AIM in the future if they decide they want to get good at Closed Captioning.

Incidentally I watched the presentation on youtube with google's closed captioning turned on.  It wasn't 100% but it was pretty good.

I'd therefore be apprehensive stepping into this one.

Ai-Media delivers strong first-half revenue growth, tracking ahead of full-year prospectus forecasts

Highlights

•  Strong revenue growth, with H1 FY21 Services revenue of $22.7 million, up 26% on the previous corresponding period (pcp) and tracking ahead of FY21 prospectus forecast2; Services revenue on a constant currency basis up 29%
•  60% of revenue now from higher-margin Live Enterprise business, up from 50% in the pcp
•  Revenue growth in all regions, with the key North American market up 38%; offshore markets now contributing 61% of revenue, up from 50% in pcp
•  Total captioned minutes up 37% to 7.1 million, with Live Enterprise minutes up 40%
•  Gross profit of $8.8 million in line with FY21 prospectus forecasts2; gross profit margin of 38%, with an improvement expected in H2 FY21
•  Cash balance at 31 December 2020 of $8.8 million, providing a strong position to pursue additional growth opportunities
•  Normalised EBITDA loss of ($3.8m) excluding IPO and restructuring costs
•  Remote working and regulatory tailwinds continue to drive customer acquisitions
•  Repeating revenue rates of over 99% and success in competitive tenders
•  Reaffirmed FY21 prospectus forecasts, including revenue of $43.8 million, with the contribution from recently completed acquisitions providing further upside