Audinate's profits rise to record high

ASX-listed tech company Audinate Group Limited (ASX: AD8) could see its share price ride high on a leap in both revenue and profits to record levels in the first half of FY24.

Analysts believe that Audinate still has considerable room for further growth, given the sizeable market for its audio-visual networking technology.

The company has also indicated that it's mulling merger and acquisition opportunities following a $70 million capital raising towards the end of 2023.

Profits hit record high in H1 FY24

Audinate posted a strong performance for the first half of the 2024 fiscal year, with both revenue and profits rising to record highs on impressive growth.

Revenue grew 51.1% to hit $46.6 million, while earnings before interest, tax, depreciation and amortisation (EBITDA) leapt 136.5% to tap $10.1 million.

Most of the company's revenue came from chips, cards and modules (CCM), which rose 45.6% to $34.8 million, Software revenue posted a 56.2% rise to $11.2 million.

Gross margins logged a 0.6% increase, bringing the compound annual growth of Audinate's gross profit to more than 24% since 2021.

'We are pleased that Audinate continues to create new revenue, EBITDA and operating cash flow milestones,' said Aidan Williams, Audinate co-founder and CEO.

'The operating leverage inherent in the business model is again evident in another positive set of financial results.'

Audinate emerged from state-backed R&D

Audinate has its origins in work on audio-visual network technology conducted by a team based at Sydney's National Information and Communication Technology Australia (NICTA) research institute during the early noughties.

Aidan Williams, the current CEO of Audinate, was responsible for assembling this team after US telecoms giant Motorola shut one of its Australian research facilities in 2003.

The NICTA team's work culminated in the development of Dante – a digital audio networking solution that employs standard Ethernet channels in tandem with a combination of software, hardware and network protocols.

Dante was a major breakthrough in terms of audio-visual (AV) networking technology, due to its ability to use standard ethernet networks for audio transmission with high levels of synchronisation and low latency.

In 2006 Williams established Audinate to market the technology, and in the process created the first company to be successfully spun out from NICTA.

Audinate has since emerged as leading company in the AV sector thanks to the popularity of Dante and related products.

Audinate retains room for growth

Analysts see considerable upside for Audinate in future, given the sizeable market for AV Ethernet technology.

Montgomery Investment estimates that Audinate has a total addrssable market (TAM) of around USD$2 billion. It highlights considerable potential for further growth, given that Audinate's current market share stands at just roughly 9%.

Audinate has also touted efforts to achieve further innovations in the field of AV networking and further improve its flagship technology.

At the end of FY23 Audinate launched Dante Connect, which makes use of cloud computing to deliver in-sync audio from Dante networks directly. The product makes it possible to engage in online production anywhere, removing the need for mobile studios and associated broadcast equipment.

M&A opportunities under consideration

In late 2023, Audinate raised $70 million, via a $50 million placement with institutional and new investors and a $20 million share purchase plan.

Aidan Williams believes the successful capital raising in tandem with Audinate's recent impressive performance puts it in a strong position to pursue merger and acquisition deals.

'We continue to explore several M&A opportunities, buoyed by a stronger balance sheet from the recent capital raise,' Williams said.

'We will continue to maintain focus on improved operating efficiency, profitability and operating cash flow, and we expect growth in US dollar gross profit dollars for full-year fiscal year '24 to be consistent with historical performance.'

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