Audinate Faces Execution Risks Amid Rising Costs and Negative Free Cash Flow

A Transitional Year for Audinate

Audinate Group Limited (ASX, AD8) has closed FY25 with a mixed bag of results that reflect both challenges and strategic progress. The company’s revenue fell sharply by 33% to US$40 million, primarily due to an inventory overhang at original equipment manufacturer (OEM) customers and a softening in the broader audio-visual (AV) industry growth. However, this decline was offset by a significant improvement in gross margins, which rose nearly 8 percentage points to 82.1%, underscoring a successful pivot towards higher-margin software offerings.

Software Growth and Market Leadership

Embedded software revenue grew by 15%, reflecting sustained demand for Audinate’s Dante IP Core solutions. This growth is critical as the AV industry increasingly shifts from hardware-centric products to software-driven, IP-based platforms. Audinate’s leadership in audio networking remains robust, with Dante-enabled products outnumbering the nearest competitor by a factor of 14. The company also secured 129 new design wins, a 12% increase year-on-year, which bodes well for future revenue streams.

Strategic Acquisition and Product Innovation

FY25 saw Audinate complete the acquisition of Iris Studio Inc., a US-based leader in AI-powered, cloud-first camera control technology. This move significantly strengthens Audinate’s video and control capabilities, aligning with its vision to provide an integrated audio, video, and control platform. Alongside Iris, Audinate launched several new products, including Dante Director, a cloud-based AV system management platform, and expanded its Dante AVIO adaptor range tailored for professional AV installations. These innovations are designed to deepen customer engagement and broaden the company’s ecosystem.

Financial Health and Outlook

Despite the revenue decline, Audinate maintained a strong cash position with A$110 million in cash and term deposits before the Iris acquisition, and a pro forma balance of approximately A$72.8 million post-acquisition. Operating cash flow remained positive at A$7.5 million, though underlying EBITDA dropped sharply to A$0.7 million from A$20.3 million the previous year, reflecting ongoing strategic investments and the impact of inventory rebalancing.

Looking ahead to FY26, Audinate projects gross profit growth of 13-15%, outpacing industry growth rates by two to three times. The company plans to increase operating expenses by 25% to fund strategic initiatives, including the Iris market launch and further development of Dante Director. While this will result in expected negative free cash flow, Audinate’s robust balance sheet provides a buffer to support these investments aimed at long-term value creation.

Positioning for the Next Phase

Audinate’s FY25 results highlight a company in transition, navigating short-term headwinds while laying the groundwork for future growth through innovation and strategic acquisitions. The integration of Iris and expansion of cloud-based AV management tools signal a shift towards a more comprehensive AV-over-IP platform that could redefine industry standards. Investors will be watching closely to see how these initiatives translate into revenue growth and market share gains in the coming years.