Audinate share price drops 7% as coronavirus hits FY20 earnings

The Audinate share price dropped today after the company released its FY20 results. But here’s why it’s not all doom in a post-pandemic world

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The Audinate Group Ltd (ASX: AD8) share price has fallen sharply after posting an underwhelming FY20 result due to COVID-19. Audinate’s share price was down 6.85% at $5.03 in closing trade today.

FY20 results are in

Audinate reported revenue of $30.3 million for the FY20, up 7.1% on the prior year.

The company saw a strong 30% increase in software revenue, largely driven by royalties from its Dante platform and retail software sales. Furthermore, gross profit margin grew to 76.6%, an increase of 2.2%.

However, a pounding from the pandemic saw Audinate slump to a net loss of $4.1 million after tax. This was a $4.8 million decline on FY19.

Major setbacks emerged in live sound equipment revenue as festivals were cancelled around the globe. This decrease was partially offset, however, by increased demand in higher education and conferencing applications.

Operating costs – primarily marketing expenses and a $3.1 million hike in staff costs – increased 15.8%.

There was also a $0.6 million one-off cost associated with the retirement of former CEO Lee Ellison. The overall impact of these factors led to a decline in EBITDA to approximately A$2.0 million. EBITDA was down by 26% compared to FY19.

However, promisingly for the Audinate share price, the company bounced back from a marked decrease in May to record consistent revenue in June and July.

Looking ahead, the company expects August revenue to maintain consistent. Nevertheless, it will need this to increase markedly if it wants to grow in FY 21.

Audinate’s balance sheet

Audinate aims to maintain its balance sheet strength after raising $40 million in an oversubscribed placement in July. With the $29.3 million already available before the equity raising, Audinate is well-positioned to deliver on its strategy and weather potential COVID-19 impacts.

The company’s cash on hand reflects an increase in operating cash flow of $4.8m and investing cash outflows of $8.8 million primarily related to software development costs. It is expected that the information tech share will continue to use the capital for research and development with potential for mergers and aquisition activities.

What’s next for the Audinate share price?

The Audinate share price may well be primed for acceleration in a post-pandemic world. This is as a result of impressive technology proliferation and huge interest in the product through online webinars.

Furthermore, despite Covid-19 headwinds, the progress of early Dante video licensees has been encouraging, suggesting that the first Dante video products will be available during FY21. This is in line with Audinate’s original expectations.

As mentioned, the company has continued to generate consistent revenue through August. However, the impacts of COVID-19 are difficult to predict with any reasonable degree of certainty. This means a wide variety of potential revenue outcomes for FY21 are possible. Accordingly, Audinate plans to update the market through FY21 in response to changes in the trading environment.

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Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO. The Motley Fool Australia has recommended AUDINATEGL FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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