Audinate Group Ltd

ASX:AD8

Earnings Call Analysis

Earnings Call Transcript 2024-Q4

[Aidan Williams, executive]

Good morning, everyone. Thank you for joining our call today.

My name is Aidan Williams. I'm Co-Founder and CEO at Audinate. And with me is Rob Goss, our CFO. In the first part of the call today, we will be talking through the investor presentation that accompanying our financial statements, both of which were launched with the ASX earlier today.

You can ask questions at any time by typing them into the Q&A box that you should find in your Zoom client. At the end of the presentation, we'll collate all those questions, and we'll answer as many as we can in the time that we have available.

Before getting into the details of the full year results presentation, I'd like to briefly recap our earlier announcement on Tuesday, August 6, before moving into the substance of our full year release. The trigger for this announcement was the Board approval of our FY '25 budget, after which it was considered appropriate to make an announcement in light of our continuous disclosure obligations. As we said in that release, Audinate expects to generate U.S. dollar gross profit marginally lower than FY '24 in FY '25, and we expect that there will likely be a revenue decline in FY '25 before a return to anticipated growth and more predictable order patterns in FY '26.

FY '25 revenue faces a combination of headwinds. The first we called out is manufacturers' increased preference for software-based data implementations, which is expected to continue during FY '25, driving the business' overall gross margin percentage towards 80%. Software data implementations drive adoption or our hardware cost savings for equipment manufacturers, however, per unit revenue is lower for us. This is a return to a long-term trend that we first flagged in our results announcement back in FY '21. Secondly, with the return of chip supply during FY '24, we were able to fulfill customers' orders. Many of our manufacturing customers have conservatively over-ordered chips and modules and they are holding increased component and finished goods inventory, and that results in soft FY '25 revenue for us. As we discussed at our first half results, lead times are shortening and are now back at pre-COVID levels, lowering future order visibility and reducing our backlog going into FY '25.

Finally, the Viper and MY16 products have been end-of-life. The Viper product is a turnkey white-label product that we acquired from Silex. Going forward, the Dante AV Ultra products that are based on the combination of Silex and Dante technology will be software and/or chip-style solutions with lower per unit revenue rather than the turnkey white label finished products like Viper. The Viper product contributed $2.8 million worth of revenue during FY '24, which will not continue in FY '25.

Notwithstanding the revenue headwinds in FY '25, the long-term strategic thesis for Audinate remains intact. And the last financial year, FY '24 was actually an outstanding year for auto Audinate. During FY '24, we shipped a record 1.4 million units, and we estimate that there are now over 6 million Dante devices in the field. Our manufacturing customers brought 323 new Dante-enabled products to market during FY '24, bringing the total number of Dante-enabled products to 4,176. So the pipeline of new Dante products is healthy with 161 OEM brands currently developing their first product. Long-term, we aim to derive revenue from the monitoring and management of audio-visual installations. A significant milestone towards achieving this was the recent launch of Dante Director, our first cloud-based SaaS product. It represents a new revenue stream for Audinate, building on the installed base of 6 million Dante products shipped to-date.

As usual, we've included Slide 3 to give you a sense of the broad range of applications for Dante technology. I won't talk too much to this slide other than to note the breadth of the applications. We benefit from this diversity. For example, during COVID, corporate conferencing and higher education experienced significant tailwinds. Whilst corporate conferencing remains a significant market for us, it has softened recently, whilst the live sound market has heated up.

Slide 4 shows the TAM information that we have presented previously. It is based on market research we commissioned our own internal estimates. The audio and video market segments represent the total addressable market for manufactured products that could take a Dante audio or video networking solution, and that's essentially the business we are in today. The combination of audio and video networking exceeds $1 billion. The software opportunity that you can see on the pie chart relates to products we already have on the shelf. So for example, PC and Mac application software or the Dante Domain Manager software for managing on-prem Dante systems. The fuzzy circle on the right represents the potential long-term upside for Audinate should we succeed in our vision to provide the dominant platform used to deliver software-based audio-visual products and services globally.

Slide 5 summarizes Audinate's financial results for FY '24. With the recent focus on our FY '25 outlook, it is just worth emphasizing that FY '24 has been an outstanding year for Audinate. We achieved a record $60 million in revenue for the full year, an increase of 28.4% from FY '23. As expected, gross margin percentage continued to improve up to 74.3% off the back of a favorable mix shift toward Dante software implementations and COGS reduction on our Brooklyn module product. Finally, the operating cash flow is consistent with the scalability of the business with increased revenue dropping through to improved EBITDA and operating cash flow. Notably, Audinate generated a record $20.4 million EBITDA for the full year. Rob will speak in more detail to the financials later on in the presentation.

Slide 6 summarizes progress against our FY '24 objectives. Again, I won't cover absolutely everything on this slide, but I would like to hit a few highlights. At the top of the list is faster-than-expected video adoption. Strong second half growth led to substantial over-achievement of our goal to double the number of video units shipped or in field. This is off the back of solid manufacturer interest and design wins for our newer Dante video software implementations called Dante AV-A and Dante AV-H. Additionally, our next-generation Dante AV Ultra product is complete with the first OEM product shown at ISE in February. Dante Connect was released earlier in the year and enables broadcasters and content producers to use Dante in the cloud for audio production.

Several household name broadcasters and content providers, often sports content providers are now using Data Connect with proof-of-concept projects converting into sales and lighthouse use cases. We continue to deliver initiatives to improve the scalability of our cost base, notably adding engineering headcount in the Philippines as a lower cost development location, in-sourcing of our website management and process improvements around product release management.

Slide 7 highlights the ongoing strength in core business metrics. As many of you know, Audinate sales cycle involves an OEM design win followed by a period of 12 to 24 months for product design to be completed, followed by repeat revenue derived from the ongoing purchase of chips or royalties as each new unit is manufactured over the sales lifetime of that particular manufactured products. Design wins and new product introductions are key leading indicators of future revenue. During the period, the number of OEMs in the process of developing their first Dante product increased to 161, up from 138 in the previous corresponding period. Furthermore, the number of OEMs shipping Dante products was up 15% to 460 from the previous corresponding period. The choice to use Dante in an audio-visual installation is influenced by the AV professional who's doing the design and/or installation work.

So Audinate provides system setup tools like Dante Controller, training and professional certification programs as well as software to AV professionals. As you can see on the slide, training, software sales, registration in our marketing databases and website visits have all increased 20% or more during the year.

As you can see on Slide 8, the Dante product ecosystem continues to grow. The number of Dante-enabled OEM products increased to 4,176 and this reflects a net increase of 323 Dante-enabled products on the sale for the year ended 30 June 2024, and that compares to 3,853 net products as of 30 June 2023. A total of 660 manufacturer brands have Dante-enabled products on the market and continued growth in the Dante product ecosystem is crucial for sustaining revenue and driving continued success in future years.

Slide 9 summarizes recent progress in Dante Video. The progress of Dante Video is very encouraging with our objective to double the size of the ship and infield ecosystem during FY '24 substantially overachieved. 54 manufacturers have now licensed Dante Video products, up from 34% at FY '23. 84 Dante Video products have been launched by manufacturers, that's up from 48% in FY '23, and that represents a 75% increase in the number of Dante Video products released by manufacturers over the last 12 months. The legacy Viper board customers will transition to a software-based Dante AV Ultra implementation, albeit with a consequent decline in per unit revenue and GP dollars during FY '25. As I've said on previous occasions, we aim to build-out a complete toolbox of video product offerings that essentially mirrors our capabilities on the audio side. This means an appropriate suite of hardware, software and software products for manufacturers, for integrators and also end users.

Slide 10, this is a build slide. So Slide 10 illustrates the evolution of Dante software for AV professionals. From the start, Audinate has offered a free easy-to-use, plug-and-play setup tool for Dante Networks called Dante Controller. It is shown on the left of the slide. Dante Controller is used to label and configure devices and to define the virtual wires connecting the audio and video devices via the network. The AV professional typically must be on-site and directly connected to the local network in order to use Dante Controller software during system setup or win troubleshooting. As audio-visual installations get larger, more sophisticated tools are needed to manage Dante installations and to secure them. Our first managed Dante product was Dante Domain Manager.

It is an on-prem software offering, providing security, centralized logging and monitoring and enables Dante networks to scale beyond the local LAN to much larger campus networks. For example, Sydney trains use Dante Domain Manager to manage and secure thousands of data devices on the railway platforms across the entire Sydney metropolitan area. Using Dante Domain Manager, Dante devices can be managed from anywhere on the campus network. So the AV professional doesn't need to be directly connected at the railway station in order to manage the Dante devices. Recently, we launched our first SaaS product called Data Director. It provides similar functionality to Dante Domain manager. But because it is a cloud-based service, deployment friction is substantially reduced.

Additionally, secure remote management of Dante installations across the Internet is now possible, which is very attractive to AV professionals. Dante Director enables small Dante networks to benefit from robust security and management tools without requiring an IT-heavy on-prem installation. Dante Director creates a new value stream for Audinate, which is the management and monitoring of Dante installations. It also provides web-friendly APIs, enabling managed service providers and manufacturers to innovate and deliver IoT style managed AV products and services without standing up their own bespoke cloud management platforms.

Slide 11 summarizes the progress or the happenings with Dante Director to-date. The launch of Dante Director at InfoComm 2024 in June was a significant strategic milestone for Audinate, and it generated strong interest from our manufacturing customers, from AV professionals, from large corporates and managed service providers. The potential to remotely manage AV installations across the Internet, coupled with web friendly APIs that can integrate with existing management dashboards were well received. As of July, we have successfully converted nearly 50 customers to paying subscribers and wrapped up our beta program. During FY '25, Dante Director features will be expanded, including additional health monitoring functions, notification and alerting and additional enterprise security features.

And now I'll hand over to Rob to talk to the finance section.

[Robert Goss, executive]

Thanks, Aidan and good morning, everyone.

Over the next few minutes, I will explain the FY '24 financial performance and the information I will cover is set out on Slides 13 to 18.

I will start with Slide 13, which explains some of the key revenue information for the business. In U.S. dollars, revenue was $60 million, up 28.4% from $46.7 million in the prior year. In Australian dollars, revenue was up 31% on the prior year, with the differential growth rate due to currency tailwinds as the Aussie dollar weakened against the U.S. dollar. During FY '24, gross profit dollars grew 33.2% to $44.5 million at a gross margin percentage of 74.3%. The overall GP margin strengthened to 76.8% in the second half, up from the first half of 71.8%. This is due to favorable product mix shift and cost-down initiatives on our Brooklyn product. We expect that the GP margin will continue to improve over-time based on the speed of transition to Dante software implementations. Growth in Dante units amounted to 34% for FY '24. We use the term Dante units as a catch-all expression for the number of unique AV products in computers with Dante inside, whether that be in the form of chip, card module or software.

Units shipped of chips cards and modules collectively called CCM increased by 47% in FY '24. In the mind, this increase was driven by a recovery in the supply of Ultimo chips, which were up 70% year-on-year. From a revenue perspective, CCM was up 26.4%, primarily attributable to Brooklyn, up over 45%, Ultimo chips up over 70% and adapters up over 20%.

Turning now to software, a broad suite of products summarized in the Dante roadmap on Slide 26. In FY '24, software unit shipped increased 42%, due mainly to a second half recovery in reference designs and ongoing strength in the Dante-embedded platform. From a revenue perspective, software grew 32.6% with this growth attributable to IP core, up over 70% Dante-embedded platform, up over 75% and retail software sales up over 40%. The revenue split between first half and second half is expected to revert to a more typical split in FY '25 with the timing of new AVIO adapters potentially weighting in revenue to the second half.

From this point onwards, all numbers quoted will be in Aussie dollars. We've included an EBITDA bridge on Page 14, which shows the main factor side increase in EBITDA from AUD11 million in FY '23 to AUD20.4 million in FY '24. Operating expenses increased by 21% to AUD47.5 million for the year ended 30 June, 2024. The key movement was a AUD4.9 million increase in employee costs as headcount grew from 197 to 225 at 30 June, 2024. Salary increases and the annualization impact of new headcount added over the course of the prior year. Sales and marketing expenses were up AUD1.6 million, excluding currency impacts. The main factors driving this increase were advertising, including a significant AVIO campaign in the second half, rebranding costs, travel and tradeshows. Other operating expenses were AUD1.8 million, up excluding currency impacts, driven by increases in software subscriptions, professional costs and travel.

As we have said in our ASX release on August 6, given the outlook for FY '25 range of actions have been completed in marketing, sales and product development to manage the cost base and allow ongoing investment in new products such as Dante Director and Data Connect. This discipline supports incremental spending in sales and marketing activities to improve business momentum. Overall, this means that cost growth is expected to be in the range of 7% to 9% in FY '25, which compares to historical annual growth of 28.5% over the last 3 years. By doing this, we aim to prudently balance costs with continued investment in the year ahead. In terms of the year ahead, we have budgeted at a U.S. dollar exchange rate of approximately AUD0.68. And at this rate, a AUD0.01 movement impacts EBITDA by roughly AUD700,000, remembering that Audinate is a structurally long U.S. dollar business.

Slide 15 shows that operating leverage in the cost base is again evident as additional revenue drives EBITDA growth. This is also obvious in the dotted yellow line showing both R&D and operating expenses as a percentage of revenue declining in FY '24. From an income statement perspective, it is noteworthy that research costs increased from AUD2.7 million in FY '23 to AUD4.2 million in FY '24, and the development costs, excluding external spend as an overall percentage of R&D declined from 82% in FY '23 to 76% in FY '24.

Slide 16 shows a traditional income statement with detailed explanation of individual line items, most of which I have already covered earlier. Net profit before tax increased from AUD1.4 million in FY '23 to AUD12.1 million in FY '24. However, it is worthy of note that last year, the recognition of tax losses post the income tax benefit of AUD9.3 million, which was one-off in nature, and hence, did not reoccur this year. Accordingly, net profit after tax is relatively flat year-on-year.

On Slide 17, you will find the cash flow statement, which shows operating cash flows of AUD25.4 million compared to operating cash flows of AUD12.4 million in the prior year. Pleasingly, there were some favorable working cap movements in interest income, which resulted in over 100% cash conversion during the year. The business also generated positive free cash flow of AUD6.9 million, representing AUD11.2 million improvement in FY '23.

The statement of financial position is set out on Slide 18. In our perspective, it is a clean balance sheet with no debt and net assets of AUD170 million, including AUD117 million in cash and term deposits on 30 June.

I'll now hand back to Aidan [Technical Difficulty] outlook for FY '25.

[Aidan Williams, executive]

Thanks, Rob.

So if we move to Slide 20. This summarizes our priorities for FY '24 with the expected revenue headwinds in -- sorry, in FY '25 with the expected revenue headwinds in FY '25. Our first priority is to double down on sales and marketing activities and drive revenue. As described in our previous release, a range of activities are underway to drive FY '25 revenue, including event-based pricing for Dante Connect launch of a new AVIO adapter and other activities. With video, we will be again focused on getting our video OEM customers to market with their products, whilst filling out our product portfolio. As with audio, it is the repeat orders for Dante video software or chips, each that occurs each time a new video product is manufactured that will drive revenue growth for Audinate. Building on the successful launch of Dante Director, we aim to deliver a road map of extended features for the monitoring and management of audio-visual installations. We are also building out the organization and processes necessary to operationally deliver and scale our first SaaS product.

Turning to Slide 21 and the M&A side of things. We have been active on several opportunities during FY '24, but we have not closed any transaction since the capital raise earlier in that financial year. We initiated due diligence on 2 opportunities during FY '24, but ultimately did not proceed to a transaction. We're actively pursuing 1 small opportunity with several other opportunities in the early stages of evaluation. We have appointed an experienced Chief Strategy Officer to provide dedicated executive focus on M&A, but also our inorganic growth opportunities to accelerate our long-term strategic vision.

Slide 22 summarizes the FY '25 outlook. I won't repeat all the things I said earlier in the presentation and which we covered in detail during our earlier release. However, I'd like to make a couple of points. I do want to emphasize that FY '24 has been an excellent year and that our long-term strategic thesis remains intact. Firstly, the core metrics around the growing adoption of Dante remain healthy with more than 6 million Dante devices shipped to-date. And secondly, we have launched a milestone product in Dante Director that builds upon that large and growing installed base. Dante Director is our first SaaS product, and it has the potential to generate a new revenue stream for Audinate from the management and monitoring of AV installations. Given the outlook, we need to manage costs through the year and incrementally invest in sales and marketing activities to enhance business momentum. Our goal is to carefully manage costs and balance ongoing investment to capitalize on Audinate's long-term opportunities.

So where are we? FY '24 was an outstanding year in which we shipped a record 1.4 million units. FY '25 will be a transitional year for Audinate, and I want to remind you again of the hardware to software product mix transition that is underway with our core OEM products. During this transition, we expect gross profit dollars to better reflect underlying growth than top line revenue. Over the medium-term, we expect Audinate's underlying growth to exceed that of the wider AV industry, which is currently around 5% to 6% according to the industry body, AVIXA. The last few years have taught me to expect the unexpected. However, 2 times or maybe up to a maximum of 4 times the industry growth rate seems reasonable to expect for Audinate's underlying growth over the medium term.

And with that, I'll hand back to Rob to coordinate questions.

[Robert Goss, executive]

Yeah. Thanks Aidan. We've got [indiscernible] on the screen here, and I'll just direct a few to you to think about while I answer a couple. So if you don't mind dealing with 1, 2, 4 and 5 and I will deal 3 and 6 around the mechanics of the numbers. So a few questions here.

So we've had video licensees increased by 59% and video products grew 75%. So what do you mean when you say we substantially over-achieved our objective to double the ecosystem by '24. Wouldn't this require a 100% increase? So yeah, the reference to 100% increase is absolutely correct. When we talk about the ecosystem, we talk about the number of units that Dante video products, which are in the market. So that's the number of licenses or modules that go inside video products that we have sold at in FY '24 relative to FY '23, it was in the order of an over 100% increase. That is coupled with very strong increases in the video products and the licensees that the person has referenced in the question.

A second question at the bottom with $60 million in revenue last year, 9% of the $330 million audio TAM is it now closer to 18%. So the revenue that we generated last year in U.S. dollars is made up of multiple different elements of the TAM. So there is obviously some video revenue, there is some software revenue and adaptors are actually not included in the TAM calculation at all. Ultimately, it is built inside or the requirement for adapters largely goes away. So the detail of the calculation when you factor in all of those different things means that the penetration of the audio TAM remains in the order of 9%.

[Aidan Williams, executive]

So I've got a question from Ryan. Are you only looking at M&A in video? What's the most attractive product in terms of customer book other. So no, we're not only looking at M&A and video. There was a slide which talked about sort of our M&A framework. Clearly, teams are extremely important. I think if we make an acquisition like historically, we've been interested in acquisitions that have benefit for us from a strategic point of view. So that does mean video, but it also means signal processing, potentially control and management opportunities. And it could be -- team could be channel. It's a broader lens than just the video side of things. So hopefully, that covers that.

There's a question from Wei Sim, how is the sitting in the budget outlook impacted on management targets and incentives? Well, so this is obviously a topic of conversation internally. So I think we need to make sure that we balance our incentives for both executives and staff such that we don't cause them to -- we want them to have positive incentives to actually drive revenue in FY '25. We are, however, aware of that, the FY '25 outlook is not as strong as it has been in past years. So there's a balance between not exasperating our internal employees and also not disappointing shareholders in how we do that. So we have tried to set internal metrics where there is an adequate bonus or rewards should we -- it meets our FY '25 budgets. However, we do understand that revenue is going backwards for Audinate and we want our actual kind of target settings are higher than our budget or budget aspirations.

The other thing we have been doing is it's 3 years since we did our executive remuneration review. So we've been working through that process as well. And so we'll be providing a bit more information about that, I think, around AGM time or in the Annual Report when it comes out. So stay tuned for that, too.

So Graham asked the question, who are Audinate's main competitors, especially software implementations. Good question. So this breaks down really in terms of like the audio side of the business and the video side of the business. There is some overlap, but they're quite different. So on the audio side, the main competitors really are vertically integrated wall garden manufacturers who are building their own solutions. So they're not wanting -- they have a strategic reason to not want interoperability. So there's a few larger manufacturers who are building out their own solutions, networking solutions to lock people into a particular system of sale from those manufacturers. Analog is still a competitor with respect to Dante in the audio side of things. Lots of people still run analog wires around the place. So this strategically for us is about getting lower cost implementations that can get into a wider range of broader products.

So there's a bit of role on your own. There's a bit of a vertically integrated companies trying to create wall gardens and there's analog on the audio side of things. In the video world, it's much, much more fragmented. So the video world is actually fragmented typically around compression codecs, which cause interoperability that cause mismatches or different codecs don't communicate. So you end up with these like islands of interoperability where there's a compatible codec. So there's a stack of chip-based solutions, which you were not that interested in. On the software side, there are various [indiscernible] of various sorts. Some of those are standardized. The MDI software solution is out there, particularly in small-scale life production. Yeah. So I think in the installed video space, probably the biggest sort of competitive wiring solutions are HDMI cables and a technology called SDI as well as a thing called [ HDST ].

So a combination of those technologies and the fragmentation of the video market represents the kind of competitive landscape for Dante video. The biggest advantage we have with respect to Dante video is that we have a very large footprint of Dante audio. So if you imagine, for example, a university, the university might have thousands of Dante devices, Dante audio devices. There are such universities. So when they come to thinking about putting camera systems in, say, electric theaters or other environments, they would like to be able to manage the video devices as well as the audio devices using the one underlying management tools and infrastructure. And so that gives us a big advantage because we have such a large footprint on the audio side of things. So video is fragmented. It's early days for us. The war is not over, but we have some solid advantages because of our audio footprint and because of the management tools that we offer for audio-visual systems that are already in the field.

[Robert Goss, executive]

Aidan, I'll just give you a few moments to sort of think about those top 2, while I deal with some other questions here. I had a question about should we be concerned by the drop-in design wins? No. So the historical numbers do include numbers that were sort of impacted heavily by supply chain impact. So there are very, very large number of Dante embedded platform design win back during the COVID time and then a very large number of customers signing up for Brooklyn 3 when we moved from the legacy Brooklyn 2 product. So the numbers historically are somewhat inflated, One of the things which I thought was most notable in reviewing the numbers ahead of today was that we, in fact, had our best half ever of Ultimo chip design wins. So somewhat, yeah, I guess I can understand people calling out the drop, but I would suggest that the historical numbers are, I guess, somewhat sort of, I guess, artificially boosted by some COVID impacts, chip shortages, in particular, yeah.

We've got a question here about design wins, split of video versus audio. So I think if you're trying to get a gauge on the video design wins, we've quoted the increase in video customers. So that's a way of thinking about the number of video design wins during the year.

Another question around video momentum. Video units shipped in FY '24, split between first half and second half. Yeah, there is a little bit of commercial sensitivity around that. So we don't want to give too much thought or about our success to competitors, but very strong numbers in both halves. And I guess there's a disclosure which would suggest to give you a reference point, we've massively overachieved on our internal targets and fantastic growth in both halves.

A question here about comment on customer concentration. Revenue is represented by our top 5 customers and how much is the over-order represented by the top 5 customers. So there's a lot of detail on customer concentration in Note 4 of the financial statements, which you'll see on Page 42 and 43 of the accounts. The top 10 customers represents 44% in the last financial year and 1 customer at 8%. The over-ordering does relate to the, in particular, 2 customers in that top 10. And I think I have answered a whole bunch. Yeah, its time.

[Aidan Williams, executive]

So Michael asks, how is software unit revenue recognized differently from chips cards and modules? Could the OEM shift to what software products help mitigate future overstocking issues. I think in principle, broadly, yes, it can. So generally speaking, many of our OEMs don't stock software royalties. So there's usually not a huge backlog. We don't have a huge backlog for software royalties or activation keys, that kind of idea. So generally speaking, manufacturers don't need -- with software royalties, they don't preorder in advance with us. And so that does absolutely help potentially mitigate overstocking issues. It helps to the extent that our software component needs to be licensed and activated at manufacturing time. It doesn't necessarily change the game if the manufacturer has actually built finished goods that has them sitting on the shelf. So swings and roundabouts, but yes, it certainly does help with respect to, say, the overshoot of Ultimo chips that we currently experience at the moment.

Nick asks a simple question. What do you believe will drive the turnaround in FY '26? So I think we literally have, like right at the moment, a combination of things that provide us with some substantial revenue headwinds with respect to FY '25. Some of those are very one-off like the end-of-life of the Viper product is very one-off. Some of those are kind of transitions that are happening. We had 1 particular customer that substantially over-ordered Brooklyn modules. So that meant that they're sitting on a lot of inventory and that put a hole in our FY '25 revenue for Brooklyn modules. So what's going on there is that when the chips become available, people over-order chips, cards and modules so you get an overshoot. And we got the benefit of that during FY '24. And now we're in a kind of undershoot.

So my expectation is that as we get through FY '25, we'll work through the inventory that's in the channel, both in terms of chips, cards and modules but also in terms of finished goods. We don't have a 100% visibility of how many units are actually in the channel, but we expect those units to work through the snake over the course of FY '25. And then we'll return in our view to more typical ordering patterns in FY '26. So ultimately, our confidence around FY '26 is that we believe all the underlying measures like the operating measures that we were trying to talk to in this presentation in terms of new products, units shipped, interest in training tools, certification programs, all of that stuff is all tracking very well. And so we expect that to drive future growth in FY '26.

[Robert Goss, executive]

Now I'm conscious of people's time and the number of questions were inundated. So I'll my best to bash-through a couple. There are 2 topics where we've received a number of questions, Aidan, a little bit more color around M&A and an update on the CFO search. So we might sort of round-out with a couple of topics, and I'll do my best to bash through a couple quickly here, but we unfortunately won't get through all of them.

Does expected cost growth, 7% to 9% in FY '25, include higher sales and marketing spend? Absolutely. So we were going to strike that balance to make sure that we were continuing to invest to drive revenue both in FY '25 and beyond.

Do you have a way of telling ownership stock at our customer sites monitor this overall situation in the future? It is tricky, we receive imperfect information from customers, and there are a number of places within the sort of chain that thing that inventory can build up. So it is a sort of constant battle for us. And we have been building-out a data science capability, which does provide us some additional information that we've been trying to rely on.

Does the Dante direct-to-market opportunity probably the spear of the TAM? Yes, it does.

I might throw back to you Aidan, just to close out. So the questions were more color on the 2 M&A opportunities. You pass update on the search for the new CFO. Yeah. And I think there were kind of versions of...

[Aidan Williams, executive]

Yeah. So the 2 M&A opportunities we pass on, we actually did a lot of work on 1 of them over a year. So that was a more technology video-oriented M&A opportunity. The good team, good technology. Ultimately, we could not agree on valuation. And to be honest, I think it was an example of reasonable discipline. And so we walked away from that specific opportunity. Second opportunity was much larger. It was a more hardware-oriented opportunity. Again, the value combination and the expectations didn't align. And so we've done a lot of work, but we haven't actually closed the transaction. So that means I'm in the position of saying, honest, under the water, the ducks really are paddling. So we do think there are quite a few opportunities ahead of us, and that's one of the reasons why we've hired a Chief Strategy Officer because it just needs focus. We have a framework and a solid pipeline of opportunities, which we're working our way through.

So my expectation is that I can't promise that we'll close anything soon, but we do have a list of opportunities that would make a material difference to our long-term strategy. And so we fully intend to execute on some of those.

On the CFO search side of things, so I guess the first thing is that Rob is with us through to October 18. Yeah. So Rob is not sort of leaving any time soon, and he's helping us through the results period, the AGM, getting set up for our AGM. Rob won't be at the AGM, but getting all the materials in place for that. We have engaged a recruiter. I've been speaking with initial candidates. So the search is underway. We have a pipeline of candidates that we're working our way through. But timing-wise, results, all sorts of things going on FY '25 outlook, we've got to just squeeze that in as we go ahead. So I'm optimistic about that. I think we've got the right kind of caliber of candidates, and I feel like Audinate is still a great opportunity for a CFO.

So I think with that, I think we're probably at time. So thank you very much for your time this morning. Thank you for your questions. I hope we've been able to answer enough of those. And if you have further questions, feel free to drop us a line. And hopefully, we'll catch-up with a number of you over the next few days. Thank you very much.