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Key Points
- Audinate Group experienced an 11.7% drop in its share price on 22 October 2024.
- The company reported an unaudited quarterly gross profit of US$7.2 million (AU$10.6 million), falling short of expectations amid various operational challenges.
- Audinate cited shorter order lead times, increased industry inventory, slower clearance of raw material inventories by manufacturing customers, and softer-than-expected demand from end-users.
- The company adjusted its expectations, now anticipating that gross profits for Q2 FY 2025 will remain in line with Q1, and it is unlikely to achieve earlier projections of a "slightly lower" FY 2025 gross profit compared to FY 2024.
Audinate Group Ltd (ASX:AD8) is facing a challenging day in the market as its share price plummeted 11.7% to $8.42 following the release of its unaudited quarterly financial results. The company reported a gross profit of US$7.2 million (AU$10.6 million) for the quarter, which fell short of market expectations and reflects the difficulties Audinate has encountered in the new financial year.
In its update, Audinate attributed the underperformance to several factors, including shorter order lead times, increased inventory levels throughout the industry, and slower clearance of raw materials by its manufacturing clients. Additionally, the company noted softer-than-expected demand from end-users, contributing to a more challenging operational environment.
Looking ahead, Audinate expects that these challenges will persist into the current quarter, with Q2 FY 2025 gross profits projected to align with those of the first quarter. This is a significant pullback from previous expectations that the company would see a "slightly lower" gross profit in FY 2025 (in US dollars) compared to FY 2024. Given the lackluster performance during the first half of the fiscal year, Audinate's management stated that achieving that goal now appears unlikely.
Management indicated that FY 2025 is regarded as a transitional year as its manufacturing customers work through existing inventory and Audinate awaits a recovery in demand from end-users to drive future orders. The company anticipates this transition phase will last about a year, with expectations of returning to growth and more normalized order patterns by FY 2026.
On the cost front, Audinate expects cost growth to fall between 7% and 9% in FY 2025, reflecting the company's confidence in its long-term growth prospects despite current challenges.
In terms of future growth drivers, Audinate highlighted its position with over six million Dante devices already in the field, with more than a million devices being added annually. This growth will be propelled by the increasing adoption of Dante technology across various audio and video products.
The company plans to launch new AVIO adaptor products and a premium version of the Dante Virtual Soundcard in the second half of FY 2025, both of which are expected to positively impact earnings going forward. Audinate management anticipates providing an update on performance and outlook after the conclusion of trading in Q2 FY 2025, with hopes for a moderately stronger second half.
