The Audinate Group Ltd (ASX: AD8) share price has sunk 35% in response to the company’s FY24 result.
Audinate offers the Dante networking solution, which it calls the “worldwide leader and used extensively in the professional live sound, commercial installation, broadcast, public address and recording industries. Dante replaces traditional analogue cables.
The company released a preliminary, unaudited FY24 result and gave FY25 outlook commentary.
FY24 result
Here are some of the highlights from the report for the 12 months to 30 June 2024:
- Revenue of approximately US$60 million (up 28.4%)
- Expected EBITDA of between A$19.5 million to A$20.5 million, up from A$11 million in FY23
- Unaudited gross profit of US$44.5 million, up 33.2%
- Unaudited gross margin of 74.3%, up from 72.1% in FY23
The company said it experienced a favourable profit mix shift to software implementations and realised cost savings in its Brooklyn product. Audinate is expecting further long-term margin improvement as customers adopt more software-based Dante implementations. It saw a gross profit margin of 76.8% in the second half of FY24.
The company benefited from a few different tailwinds in FY24.
First, there was conservative over-ordering of chips and modules by manufacturing customers, which drove its sales backlog to record levels.
Second, there was a return of chip supply, enabling fulfilment of customer orders.
Third, there has been an unwinding of the sales backlog through the year and shortening lead times.
Fourth, there has been recent AVIO adapter promotions.
However, those drivers of revenue from FY24 are not expected to continue into FY25.
Outlook for FY25 and the Audinate share price
Audinate is expecting software-based Dante implementations to increase during FY25, driving the margin towards 80%. However, the revenue per unit is lower.
The company is expecting shortening order lead times, re-balancing of inventory holdings across the industry. The rate that its manufacturing customers clear raw material inventory will influence the FY25 result.
Audinate is expecting the end-of-life for Viper and MY16 products.
The company expects to generate lower gross profit in FY24 and there will likely be a decline of revenue in FY25, before a return to anticipated growth and more predictable order patterns in FY26.
Management said the long-term outlook “remains strong”. There are more than 6 million Dante devices ‘in the field’, with more than 1 million being added each year. Cost growth is expected to be in the range of 7% to 9% in FY25.
Audinate seems to have a great product offering, but it has suffered massively from the news that FY25 won’t show growth.
It’s possible this could be a long-term opportunity at this lower price if it’s oversold. I’d expect more volatility to come, but a rising gross profit margin would be helpful.
