Audinate shares crunched with a transition year forecast as customers seek a move from hardware to software

Despite reporting record revenue, an update from audiovisual equipment company Audinate Group (ASX: AD8) has not been well received by investors having flagged changes to their business model in an attempt to adapt to changing customer needs in the AV industry, away from Audinate’s traditional hardware model. 

Whilst pandemic aftershocks are still shaking ground for many, Audinate’s strategies have stabilised the helm of the boat. Since Covid-19, the world came to a standstill during one of the worst supply-chain crises in history. Businesses acquiring semiconductor chips faced momentous challenges, Sydney-based company, Audinate managed to overcome the acute chip shortage.

Through their Dante brand of AV products, Audinate provides media networking solutions which are widely used in live sound, commercial installation, broadcast, public address, and recording industries. 

The Company’s technology replaces traditional analog cables with Ethernet, transmitting synchronised AV signals over large distances, with over 6 million Dante devices in the field and more than a million added each year.

Audinate reported unaudited revenue of approximately USD$60 million for FY24, marking a 28.4% increase on the previous year. 

Audinate Co-Founder and CEO Aidan Williams commented: “We are pleased to deliver a strong set of unaudited results demonstrating that the business continues to grow profitably – consistent with our FY24 outlook statement.”

The Company also posted gross profit of approximately USD $44.5 million, up 33.2% from the previous year, with a gross margin of 74.3%. The Company expects its EBITDA to range between $19.5 million and $20.5 million, compared to $11 million in FY23. This positive trajectory is attributed to a favourable product mix shift towards software implementations and cost savings in their Brooklyn product line.

Looking ahead, Audinate anticipates a transitional FY25 though, which has been reflected in AD8 shares dropping by 30% in early morning trade with investors wary of Audinate’s forewarning that there will be a decline in revenue over the next 12 months as customers transition away from their hardware products to software solutions.  

The Company is implementing various initiatives to drive future growth that will likely not be reflected until FY26 and beyond. These include event-based pricing for Dante Connect, launching new products, and strengthening ties with integrators. The Company’s plans to generate revenue from the management and monitoring of audio-visual installations, supported by continued investment in innovative products and strategic marketing efforts.

“Whilst we expect FY25 to be a transitional year, the long-term strategic thesis for Audinate remains strong,” added Williams. 

“With the challenges of the last few years behind us, we will redouble our efforts to drive audio & video unit growth, a key building block in our long-term strategy.” 

Within the first 30 minutes of early morning trade after the FY24 results update and future revenue warning, AD8 shares were trading around $8.80, a 34% decrease on their previous $13.32 close price.