AUDGF (AUDGF) Q4 2026 Earnings Report, Transcript and Summary

Good morning, everyone. Thank you for joining our call today. My name is Aidan Williams. I'm Co-Founder and CEO at Audinate. With me is Chris Rollinson, our Chief Financial Officer; and Nick Peace, our Chief Strategy Officer. So today -- in the first part of the call today, we'll be talking through the investor presentation that accompanied our financial results, and both of those were lodged with the ASX earlier today. You can ask questions as usual, at any time by typing them into the Q&A box. At the end of the presentation, we will collate those questions and answer as many as we can in the time that we have available. So before getting into the meat of the results part of the presentation, I would like to recognize that this year is the 20th anniversary of Audinate as a company. It's been a year to look back and to reflect on how far we've come and to remember the many people who have contributed to Audinate's success over the years. There are so many to thank, but I would like to particularly recognize the 2 prior CEOs, Lee Ellison and David Myers. They took on responsibility for the company in those very early and challenging years. It's a hard thing to start something from scratch and to build something self-sustaining, and there were certainly many challenges on the way. I am, and I think we should all be proud of how far we have come. The Dante networking technology itself has been successful, perhaps more successful than we had dared to hope when we started. There are now over 8 million devices in the field using and over 5,000 products that support it. Around the world, hundreds of thousands of AV professionals depend on Dante to deliver experience at the highest profile events, but Dante also underpins a wide range of bread and butter day-to-day behind-the-scenes AV systems that do their thing without people being aware. In another way, our vision to pioneer the future of AV, and that's beyond just the Dante technology itself, is gaining traction in the industry and our role in carrying that vision forward is becoming clearer. For me, personally, I'm energized by the talent we have at Audinate and the platform investments that we are making. The vision has stayed remarkably consistent throughout the last 20 years, and now is the time to capitalize on the success of the Dante ecosystem and deliver something new in the AV industry. We've built a strong foundation and the opportunity ahead of us is the largest it has ever been. And now on to our FY '26 results. Turning to Slide 4. You can see the FY '26 highlights. On the revenue side, FY '26 saw a return to growth coming in at the upper end of our guidance range and with improved momentum across the whole product portfolio. Second half revenue was strong and underpinned delivery of the FY '26 outlook. Revenue growth from AVIO Adapters was supported by the introduction of a new range of AVIO products targeted specifically for the AV installation and integration channel. Overall, the Dante ecosystem is healthy and continues to expand. Over the full year, a record number of 555 new Dante-enabled products came to market. Each new Dante product hitting the market generates revenue in FY '27 and beyond in the form of chips, modules or royalties each time an equipment manufacturer builds a new batch of those products for sale. The product design pipeline is also healthy with 137 design wins during FY '26, pointing to future revenue expansion as those products hit the market. 229 OEM brands are currently developing new Dante-enabled products. During FY '26, our Dante certification and training programs were refreshed and relaunched. Training, as we continue to say, is key to supporting AV professionals as they design and deliver AV systems using Dante. Over 375,000 AV professionals have completed certification or training around the world. On the product side, the portfolio has expanded. We have expanded the AVIO product range with models specifically targeted at the AV installation market. The idea there is to have a form factor that enables simplified installation under tables and inside cabinets. Dante Director was enhanced with features required for enterprise usage and for additional control functions and Iris was integrated following acquisition. Iris extends our product offerings with deep camera controls and into video production workflows. Strategically, it has been a big year for Audinate. To briefly summarize, our long-term strategy remains to capitalize on the growing installed base of networked audiovisual devices and to provide the software platform used by the industry to deliver projects globally. AV installations are generally understood to require 3 kinds of functions: audio, video and control. And today, including Iris, there are more than 8 million audio and video devices available in our product system. The time has come for us to invest further into the third leg of the stool, the control function. During the year, Audinate has made organizational changes to better align our cost base and R&D investment with our strategic objectives for the Dante platform. These changes reflect the natural progression of the product investment cycle with several major initiatives now complete. The full benefit of cost base realignment will be realized in FY '27 and beyond and supports disciplined profitable growth as revenue scales. We retain a robust balance sheet with $65 million in cash and term deposits and improved cash flow trajectory heading into FY '27 ensures we retain a strong financial and strategic position, enabling prudent investment to unlock future growth. Organizationally, we have realigned resources around 3 core categories of business during the year. Those 3 categories are embedded components, so that's things sold to manufacturers like our Dante chips or software. Installed products, these are things that go into AV installations like AVIO Adapters. And the third category is software and services, so audiovisual software and services. These are platform products like Iris and Dante Director. You will see this structure reflected throughout this presentation in how we are reporting product revenue, in how we are generating future value and future growth at Audinate and also in how we think about our strategic priorities. New leadership roles have been established to ensure that each category has the appropriate focus and accountability to drive growth in FY '27 and beyond. The new structure recognizes the channel and go-to-market differences between products sold to manufacturers of audiovisual equipment and products that get sold into the installation itself like AVIO Adapters or platform software and services. Turning to Slide 6. You can see the key financial metrics for the full year. 15% revenue and gross profit growth was at the upper end of guidance, reflecting a return to growth as anticipated. Revenue for the full year was USD 46 million, and we retained a strong gross margin percentage of 82%. Audinate continues to grow at a multiple of the underlying growth rate of the AV industry, which has slowed with the abatement of COVID and return to office tailwinds and things like tariff uncertainty. The Australian dollar numbers reflect FX headwinds experienced during the year. Keep in mind that Audinate's products are largely priced and sold in U.S. dollars. Our COGS are largely in U.S. dollars, and we have also got employment costs in U.S. dollars, too, and that gives us a natural hedge against adverse exchange rate movements. Overall, the full year results is extremely pleasing. Slide 7 breaks down our product portfolio into the 3 categories described earlier: embedded components, installed products and then AV systems software and services. Revenue growth in FY '27 was spread broadly across all 3 product categories, led by new product launches. Embedded components include what we historically have reported as chips, cards and modules and also includes embedded software products like Dante Embedded Platform, our Linux implementation and Dante IP Core. The CCM component delivered or the Embedded Components business delivered a strong second half as first half bookings translated into revenue. Installed products is our AVIO product range. Growth in this category was driven by new product introductions, specifically targeting AV installations like meeting rooms, boardrooms and higher education applications. Software and services includes new products like DVS Pro, the early uptake of Iris as well as other PC/Mac software and management software like Dante Director and Dante Domain Manager. These products are typically used in audiovisual installations and get attached to those installations as AV professionals design and install projects. Slide 8 shows continued strength in the key operating metrics associated with our -- the Dante ecosystem and the growth of the Dante ecosystem. Each of these metrics are leading indicators of future revenue. Audinate sales cycle to manufacturers involves an initial 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 the payment of royalties as each new unit is manufactured over the sales lifetime of that AV product. Design wins are the earliest indicator and represent manufacturers signing up to use Dante technology in their products. 137 design wins is an excellent full year result and highlights the ongoing take-up of Dante technology by AV manufacturers. In the middle column, the number of manufacturer brands with Dante products in the market, and importantly, the number of manufacturers developing their first Dante products continues to grow. There are now 771 AV equipment manufacturers signed up to use some form of Dante technology in their products with 542 manufacturers shipping one or more Dante-enabled products today. 229 manufacturers are currently developing new Dante-enabled products, the largest it has ever been. The right-hand column contains a key indicator that is the number of Dante-enabled products available on the market. You can think of this as effectively the catalog of products that an audiovisual professional can choose from when they are designing and installing an AV system. Over the year, a record number of 555 new products came to market, making a total of 5,158 Dante-enabled products on the market. Since the Dante networking technology provides interoperability between competitive brands, the growing product ecosystem continues to strengthen the economic network effect associated with the Dante technology and its competitive moat. Ultimately, these charts illustrate the continued health of Audinate's core Dante technology business. Design wins, product development activity and product launches are all leading indicators of future revenue for our Embedded Component business in FY '27 and beyond. And I'll now hand over to Chris to talk through the financials.

Thank you very much, Aidan. So just turning to Page 10 and the income statement. So this is presented in Australian dollars. So starting with revenue, FY '26 revenue grew 9% to AUD 68 million. Now this growth was lower than the increase we reported in U.S. dollars, reflecting the Australian dollar to U.S. dollar exchange rate movements during the year with the Australian dollar strengthening around 6% over the year compared to the U.S. dollar. So while revenue is 100% U.S. dollar denominated, the group has U.S. dollar-denominated expenses covering approximately half of this revenue and provides a partial natural hedge against these exchange rate movements. Our gross margin was 81.9%, down slightly from 82.3% in FY '25. And this was driven by the strong performance of chips, cards and modules revenue, in particular, in the second half of the year. We continue to maintain high margins overall and expect a similar margin result as we look forward in FY '27. Turning to costs. Employee expenses increased 23% or $8.2 million. Now this was driven by a $2 million increase in the Iris as a result of the employment costs from the Iris acquisition. There was $3.9 million as a result of stronger performance against short-term incentive targets, which drove higher variable incentive costs. And the remainder of this increase was from head count increases in the second half of FY '25. An operating restructure was undertaken during the year, resulting in a net reduction of 10% of roles across the broader group despite the additional head count from Iris that came into the year. Sales and marketing expenses decreased by 15% following the completion of launch-related investment activities in control, in particular, Dante Director, while we maintained targeted presence at key trade shows across major regions. Our other operating expenses increased 18%, reflecting the cost of running a geographically diverse listed business. So putting this all together, underlying EBITDA was a loss of $3.6 million, down from a positive $0.7 million in FY '25. Now this reflects a deliberate choice. So we invested ahead of revenue for Iris, Dante Director and the broader platform because we believe the market opportunity in front of us justify this. We're broadening Dante's footprint across audio, video and control, and each of these product launches solves a problem of a different kind for a different customer. And together, they put Dante in front of a much wider set of buyers than audio could do alone. Now at the same time, we didn't lose sight of cost discipline. We restructured the business during the year to concentrate our cost base on the highest return parts of the platform and expect the full benefits to show up in FY '27 as stronger operating leverage and improved cash generation. Turning to the cash flow statement. So operating cash flows were $1.2 million, down from $7.4 million in FY '25. While this remains positive, the reduction reflects 3 factors: a $1.7 million reduction in interest income from a lower cash balance following the Iris acquisition, a $2.7 million increase in operating costs from Iris as the business scale subscribers and also the $1.8 million cash outflow from the operating restructure that took place during the year. The largest driver of cash movement in the year was investing activities. So there was a $31 million acquisition of Iris and then the $12.4 million invested in our continued development in product lines across the group. Altogether, the overall movement in cash during the year was an outflow -- was $44.8 million. If we look to FY '27, we'll continue to invest in the business, but increasingly funded through improved operating cash flow rather than the balance sheet. We expect an improvement in operating cash flow next year, driven by our revenue outlook, combined with the benefits of a leaner cost base, and this will be the foundation of our path to positive free cash flow in future years. If we now turn to the balance sheet. So the cash movement flows directly through to the balance sheet. Cash and term deposits together stood at $65 million at the end of the year. We remain in a robust financial position, we carry no external debt and our balance sheet gives us the flexibility to fund our strategic initiatives. The most significant movement on the balance sheet relates to intangible assets, which grew to $65 million, an increase of $27 million, which is made up of the continued investment in our platform, but the majority of that is through the recognition of goodwill through the Iris acquisition. So if we look at that combined, across the P&L, cash flow and balance sheet, FY '26 tells a very consistent story. Deliberate investment in the platform expansion were funded through a strong balance sheet and cash position. And we enter FY '27 with a positive revenue outlook and a leaner cost base. And together, this will drive improved profitability and cash flow generation. I'll now hand you back to Aidan.

I think it's over to Nick to talk through some of the strategy slides.

Thanks, Aidan and Chris. As a starting point, it's worth reiterating why Dante is the de facto AV networking standard trusted by customers around the world with more than 8 million devices in the field. In summary, Dante is chosen by AV professionals because it enables them to distribute high-quality, low-latency digital signals across standard IP networks. Dante enables AV system designers, installers and operators to build and operate more flexible AV networks with significantly reduced cabling and labor costs. So AV professionals choose Dante for 5 main reasons. Ubiquity, which is underpinned by interoperability, any brand, any Dante device and the confidence that Dante's large installed base and broad OEM adoption provides. Scalability, from single room to multisite enterprise deployments running on standard off-the-shelf networking equipment and extending from audio into video control and software. Reliability, this is a must-have when you're trusted with high-profile AV installations such as Premier League grounds, major concert tours and Fortune 500 HQs. Ease of use, which is supported by our extensive training program is really one of our most important assets. As Aidan mentioned, over 375,000 trained professionals across 24 countries. And security, this matters more every year as AV moves on to enterprise IT networks. And so that's why customers choose Dante. How then do we build on this to sustainably grow value? So we think about our business as having 3 categories. So it's best to talk about each of them in turn. Slide 15 is about how we're going to do that in the path to sustain value. So the first 2 are aimed at expanding Dante's installed base across audio and video. So with OEMs, we're continuing to work with AV OEMs globally to embed Dante across their product ranges. 771 OEMs are either currently shipping or developing Dante-enabled products, utilizing either our hardware or our embedded software offerings. So this is the largest part of our business today, and it's our continuing priority to ensure that our products meet the needs of OEMs across the breadth of their product ranges. Beyond OEMs, we're developing Audinate owned products that extend Dante into more AV installations. So current examples of this include products such as AVIOs, which we sell primarily to AV integrators and installers. So these extend the benefits of Dante AV networking to AV products which are not natively Dante-enabled. In practice, this means that AV professionals can bring in more AV devices into Dante networks even in existing brownfield installations. So in each of these first 2 categories, we do generate revenue on a per unit basis. But there's an additional dimension as well though, which is to build products which help AV professionals manage, control and operate Dante AV networks. So products like Dante Director and Iris enable us to deepen our engagement with our customers and to generate recurring revenue from our global user base. So we're aligning our business around these 3 categories, not just to guide us on what we build, but also to help us best engage with, to sell to, to train and support each segment of the AV industry. So that's the model. It's worth now turning to our major priorities in each of these categories for FY '27. So firstly, our component business. We continue to see opportunities to work with AV OEMs to further expand the adoption of Dante across their product ranges. One significant initiative this year is making Dante's embedded software solutions as easy as possible for OEMs to implement into their AV products. A broader priority, though, is to continue to encourage the broadest possible adoption of Dante by AV specified integrators and end users. We're continuing to deepen the Dante ecosystem across AV specified integrators and installers in our major markets via Dante certification, training and support. So notwithstanding we've been in business for 20 years, digital AV networking is still in its early stages globally, and adoption does vary significantly by country and by region. Hence, we've been reviewing each of our major markets on a country-by-country basis to guide us on key local ecosystem initiatives for this year. With our installed products category, we will be growing AVIO revenue through recently launched product offerings, which target installed AV projects. In addition, we've recently restructured our sales organization to create a dedicated sales solution -- solution sales team, which focuses on integrators and end user customers. So this team is responsible for AVIO product sales and together with products such as DDM, Dante Director and DVS, which are also aimed at AV professionals and end users. Beyond our existing product range, though, we're continuing to develop new products that set the benchmark for Dante-enabled installations. In terms of monetizing the network, growing the Iris subscriber base is an important FY '27 priority as is growing the uptake and the capability of our control solutions across enterprise end customers, integrators and consultants. From a product perspective, we see significant opportunities to deliver products that help AV professionals better manage, control and operate AV systems. So accordingly, extending Dante and Iris into higher-value AV workflows and applications is going to be a significant focus for this year. Over to you, Aidan.

Thanks, Nick. So on Slide 17, so given the potential for AI to disrupt a variety of software and seat-based SaaS businesses, I think -- I thought it would be helpful to again share how we think about the relationship between AI, Audinate and the broader AV industry. For Audinate, the bulk of our revenue is linked with hardware devices that are installed into physical locations. So here, you should think microphones, amplifiers, cameras and the like. This revenue model is infrastructure-oriented rather than seat-based, and it is connected to the audiovisual equipment that's needed in physical environments. Another point to make is that the value of Audinate's key technology, Dante, is tied to the economic network effect created by interoperability between competing AV equipment brands. There are currently 8 million devices in the field with an ecosystem of over 5,000 products from over 500 brands. As this ecosystem and installed base grows, the moat deepens since replacing or reworking that whole portfolio of Dante products and the installed base is extremely expensive. Ultimately, I see Dante and Iris technology, so specifically the networking APIs and platform services components of those technologies as enabling workflow automation and also AI applications. Both Dante and Iris put audio and video signals onto networks with APIs to control them, and this creates a natural foundation for AI and workflow automation. AI is broadly applicable in the AV industry. The AV industry is largely project-based, and there's typically 3 phases, a design phase, an installation phase and then an operation phase. So if we look at that a little bit -- in a little bit more detail, for example, in the design phase, converting customer requirements documents into detailed specifications can be accelerated using AI. For system programming, this is not unlike software programming that is a substantial application of AI tools today. And also, when we think about the operation of audiovisual systems, the ability to speak or use natural language instructions to control and change the operation of a running AV system, I think, is a significant opportunity. Furthermore, technologies like Dante are enabling change in the industry with IT style networking, software and APIs really replacing old school AV equipment and wiring. If you think about it, the interface for AI in the AV industry is networking and APIs because AI is essentially software that's running inside computers. So Dante and Iris provide key networking and control technologies that ultimately end up enabling a broader adoption of AI throughout the industry. Slide 18 summarizes the FY '27 outlook. Audinate enters FY '27 with sustained revenue and gross profit momentum, strong gross margins and a pathway to positive free cash flow. In FY '27, U.S. dollar gross profit growth is expected to be in line with or slightly ahead of the rate achieved in FY '26, with gross margins maintained and operating costs held flat, supporting a meaningful improvement in operating profit. As I said earlier, our long-term strategy is to capitalize on the growing installed base of Dante devices and to provide the software platform the industry uses to deliver audiovisual projects and services globally. New product development, expansion into new geographic markets and deeper customer engagement are accelerating growth. Continued investment in the Dante platform is expected to support meaningful revenue growth over time. Audinate holds sufficient liquidity to fund its growth initiatives and strategic priorities. We expect materially stronger operating cash flow in FY '27, driven by improved revenue and a leaner cost base. Finally, to wrap up on Slide 19, where is Audinate today? So there have been various ups and downs over the last sort of 20-odd years of Audinate being in business. However, our core Dante networking business has remained strong, and it continues to gain even more traction in the industry. The leading indicators of design wins, products under development and new products coming to market show ongoing momentum, and there is plenty of further runway ahead. We're expanding our product offerings into video and control and have strategically realigned our business around those 3 activities that I was talking about further to create focus and growth. So that's our component business to manufacturers, our installed product business like AVIO Adapters and audiovisual system software and services. The consistent long-term effort over the last 20 years has created the installed base, the team and the conditions to make our long-term vision a reality. So ultimately, Audinate has a proven core business model, a robust balance sheet position and the discipline to succeed over the next few years. And with that, I will hand back to Chris to coordinate questions.

Thank you very much. Thank you, Aidan. We had a number of questions. So I'll just read through them, and we can look at how we answer that. So just the first question from Tom. Can you give a little more color regarding the traction for AV? And when we can expect breakeven versus the cash outflow we've had in this result? So maybe I'll talk about the cash position and outlook, and Aidan and Nick, we can talk through then the traction that's -- that we're seeing across the AV products. So in terms of cash flow, we have an operating restructure, as we've outlined, has taken place in FY '26, and those benefits will flow in FY '27. So in terms of our outlook, the expectation is revenue and gross profit growth in line with what we've had in FY '26, and we're maintaining a flat cost base. So what we're seeing in FY '27 is certainly an improvement in our operating leverage and certainly an improvement in our operating cash flow. And for us, that is a much more positive result from a cash outlook. In terms of cash flow breakeven, the expectation is not that we'll be cash -- free cash flow breakeven in FY '27. But certainly, as we get to the end of FY '27, we should see -- have much more clarity around what our cash position and free cash flow vision looks like as we go into FY '28. Aidan or Nick, do you want to talk about the traction in AV?

I think, well, we've obviously touched in -- across a number of dimensions in terms of what we see in terms of the OEM business. Uptake there continues to be steady. In terms of monetizing the network, we're sort of -- we're continuing to attack that deliberately and really focus on getting the basics right, delivering value to customers, to end users, building products that stick within their workflow and then expanding out from there. So like all recurring revenue models, you've got to grow with stickiness and gradually build out from there. So it's early days with both the Director and Iris. But increasingly, it's going to be focused on ensuring steady attachment to our user base and growing account by account, segment by segment. So sort of early days, but we're sort of buoyed by what we're seeing at the moment.

Next question is, can we get some -- can we get an update on your strategy for Iris? What is the likely revenue pathway for Iris?

Yes. And I think that was actually related to the first question as well. So the acquisition of Iris actually represents a pretty significant strategic shift for Audinate in how we think about monetizing our networking technology and how we think about monetizing audiovisual installations as a whole. So I think in the past, maybe sort of 2 years ago, we would think about the success of the audio business that we have, selling components to manufacturers. And then we would think, we can just do that again with video. And that turns out to be a tougher proposition because of a variety of reasons, which I think we've covered in previous either results or conversations that we've had with investors. But the nutshell really is that in video world, things like codecs, so the need for the compression technology creates quite a lot of friction in terms of interoperability, and that tends to dilute the value of an interoperable networking technology like we had with Dante Audio. So when we thought about capturing the value from the audiovisual system that ultimately will become networks, we were thinking about different business models and different strategies to go and do that. And one business model and strategy that was out there was the Iris business model. So the idea there is to provide the technology to manufacturers for free, but then monetize the end user part of that. So Iris really represents a vertical slice through a use case involving camera control and production and Iris has been very successful in terms of getting adoption with camera manufacturers. So it's a different model. In the end, it achieves a similar result because if you remember my comments about audiovisual systems having audio, video and control, Iris has video transport and it also has control functions. So it provides a complementary set of networking technologies that go with our audio solutions. So again, I think what I would point you towards is perhaps a shift in the way that we're thinking -- a strategic shift in the way that we're thinking about capturing value from audiovisual installations and from the technology, I guess, ecosystem that we've created with Dante. So instead of focusing on video is the next thing or how big is video going to be as a component business, we want to point investors towards thinking about there's a component business, but there's also a business selling products into installations like our AVIO business that we have today. And there's a business involving the coordination, the software, the control and management of those systems to create a lot of stickiness in those audiovisual installations. So when we think about future growth of Audinate, I would be guiding investors to be thinking about how is our component business going to grow? How is our products that we sell into AV installations going to grow? And what does it look like for our long-term strategy in terms of being able to deliver products that enhance the management, control and stickiness of Dante technologies in audiovisual installations globally. So sorry for the long answer, but I think it's sort of -- it's a very significant shift in the way we're talking about future growth, and it really represents a fair bit of strategic thinking over the last 18 months, maybe more.

Thanks, Aidan. Our next question, Iris-related as well. So the question is, is Iris bringing in revenues now? And the second part is their info on Iris revenues projections, including timing. So I'll answer the first part and maybe Aidan, Nick, you can answer the second part just around outlook in terms of revenue for Iris. So the first one, yes. So Iris is bringing revenue now disclosed in the accounts, we've got USD 200,000 worth of revenue in FY '26. And then in terms of Iris revenues and projections?

Well, obviously, as I said before, we're sort of very much focused on getting the basics right in terms of building both the sales motion, the outreach motion to ensure we can generate recurring revenue from our installed base. So very much focused on getting the basics for that right. We're obviously not providing guidance at this stage, but we're very much focused on getting the basics right, ensuring that we can support as many of the sort of 20-odd Iris partner OEMs and go to market alongside them. So we'll be saying more about this as we move forward. But at the moment, we're focused on early adoption, early rollout and getting the basics right.

Thanks, Nick. So a question from Lucas just in relation to costs. So FY '27 costs are guided as flat, excluding one-off restructuring and Iris acquisition payments. What's the expected quantum of those one-off costs in FY '27? So the assumption is 0 in terms of restructuring costs. In Iris acquisition-related costs, it will be $1.8 million with the expectation of $1.8 million in FY '27. That's non-cash. That's just amortization of shares that we issued as part of the Iris acquisition that are being amortized over 3 years. Next question from Ryan. Given that the operating expenses are rising despite recent restructuring efforts, what inflection point in revenue or cost reductions is required to reach net profitability? And what's your targeted time frame to achieve cash flow breakeven? So I think we've outlined during the presentation around the restructure efforts that took place have been completed in FY '26. Guidance in FY '27 is to have our revenues increasing and our costs remaining flat. So that certainly, as we head into FY '27, we're seeing a different outlook in terms of revenue growth and cost growth for Audinate. I think in terms of the breakeven mark, one of the key elements in achieving that breakeven mark, Iris is still a business that is young and is still not cash flow positive. And we don't expect that to be the case in FY '27 as the business continues to scale subscribers. But as we head into FY '28, the expectation is that business will turn around and certainly we'll continue to see more operating leverage in our core business outside of those investment initiatives. Next question from Lucas. With the major platform initiatives complete, why is FY '27 gross profit only in line or slightly ahead of FY '26 at 14.7% rather than accelerating? We've guided the market to our both revenue and gross profit growth expectations of in line with or slightly ahead of FY '26. I think at this stage, that's our best estimate of what we believe the outlook looks like for Audinate in FY '27 in relation to gross profit and revenue.

Yes. I mean I would add that I would love it to be -- I think the word only is interesting in this sentence, but I'd love it to be ahead of 15% for sure. I think one of the reasons is really that the overall -- the world is not the same as it was, say, 3 years ago when there was a number of tailwinds in the AV industry. So I think Audinate continues to perform at an underlying multiple of the growth rate of the industry. But the industry itself, the growth rate in the industry has gone from 6-point-something percent down to sort of high [ 3.9s ], high 4s. So this 15% growth rate actually represents a multiple of 2 to 3x the underlying growth rate of the industry, which is healthy. So I think it's a good -- so I would say it's consistent continuing growth for Audinate, driven largely by our core business. And I would also say that the changes we've made will enable us to do things like grow the AVIO products and the things being sold into AV installations and also for that to be a channel which can actually better -- for Audinate to be structured more appropriately in order to go and have a go-to-market for those products that we've developed. So that's how I would answer that question.

A question from Tim. We saw accelerating gross profit growth in the second half. So first half growth 12% versus second half 17%. Can you talk to exit or current gross profit run rate? And can we get an update on historical inventory destocking, please? Are the top 10 OEMs back to normal ordering? So I'll answer the first part of the question in relation to growth rate. So we certainly saw a positive second half performance in revenue. A lot of that was driven by the chip, cards and modules, embedded components growth in the second half of the year. That's certainly pleasing. And for us, not necessarily unexpected because we've -- we're really at the end of the inventory destocking cycle. As that looks into FY '27, we've made an estimate of what we believe our outlook will look like in FY '27, and that's been factored into the outlook.

Yes. I mean I would jump in on the OEMs back to normal ordering. So it's a question of what you mean by normal. I think the OEMs are all through the inventory overstocking type stuff that they had in terms of our components and parts. So their propensity to buy Dante technology is no longer gated by them sitting on a pile of chips. By and large, I think that's true of our top 10 for sure. However, I would say that like going forward, there's always inventory issues like there's RAM issues at the moment with all the shortages on things like RAM and costs are going up. So I think those things have really replaced concerns around people sitting on big piles of Dante circuit boards or Dante chips. So it's a different challenge even if it is in that same supply chain type area.

A question from Jenny just in relation to -- so CapEx for FY '27. So we expect somewhere around $13 million in CapEx for FY '27, which is in line with '26. And a view on when Audinate can hit cash breakeven. Not in FY '27. I think we've sort of outlined this at length. Certainly, we'll see much stronger operating cash flow come through in FY '27. As we hit in FY '28, I think that's an area that we would be targeting a cash flow -- free cash flow breakeven position. A question from Jenny just in relation to, I guess, the breakdown of where we see growth coming from across the product portfolio in FY '27.

Product portfolio growth. Okay. Yes. So I think we are not providing guidance at that sort of breakdown line type number. I think this is the first time that we have broken down our products in that way. So yes, I don't think I have a specific answer to that question. My expectation is that as we have put in place a go-to-market organization, and we have a bunch of new AVIO Adapters that have hit the market like the 4 channel AVIO Adapters right at the end of FY '26. My expectation is that there should be healthy growth on the AVIO adapter side of it, consistent growth around the Dante ecosystem, which is very much a law of large numbers thing. And I expect also to see consistent growth around the AV system software and services. So things like Dante Virtual Soundcard tend to be pretty stable in terms of their attach rate to underlying AV installations. And I would like to think that things like Dante Director and Dante Domain Manager would benefit from the organizational changes that we have made as well. Overall, there's always a question of what do you think the end of the whole financial year will look like. It's -- we're not without our headwinds. So I think I already mentioned things like RAM shortages. There are things like chip shortages potentially out there on things like FPGAs that we have to navigate. So there are always pluses and minuses, but that's probably how I would answer that question.

Related question, Aidan. So any impacts -- from Jenny, which is any impact from memory prices and availability?

Yes, yes, absolutely. So one of the things that our manufacturing team has been spending a lot of time on is getting redundancy in supply for things like RAM chips of various sorts. So we've been shaking the trees and finding parts all over the place. That does have an impact on our COGS, and we have recently put a price increase through to reflect that. So I think, generally speaking, the industry is, as a whole, dealing with the same thing because our manufacturing customers have the same issues with their products. The -- so RAM, I think, is one of those things where it's just more expensive now than it was. But I think it's a tractable problem even though we have to be on it. The next kind of cab off the rank is other chips that -- where it's more the upstream manufacturing of things like FPGA parts, which are now in tighter supply than they were. So that's the next thing that we have to manage. This is one of these gifts that keeps on giving. It's not the same as like in the middle of the pandemic or when we had that giant chip shortage. So it's not the same as that, but it is still an ongoing issue because of the pressures associated with the desire to build out truckloads of data centers.

Next question is just in relation to capitalized costs. So we capitalized $12.5 million in tangibles in '26, $12 million in '25. What's the guidance for '27? I think I've previously said, I think that's going to be around that $30 million mark in FY '27 is our expectation. Another question, again, just around achieving positive free cash outflow, which I think we've sufficiently answered. Somewhat of a double up here, Nick, but just how is Iris tracking relative to your expectations?

So I think any time you put a new product into the market, you always have to go in expecting a wide variety of outcomes. So I'd say across a couple of buckets, we've been really pleasantly surprised by what we've seen in terms of great adoption by PTZ camera OEMs. So it's been really positive continuing engagement and partnering with camera OEMs. In terms of prosumers and enterprise clients, there's really sort of good sort of engagement with the core proposition and sort of validation of the need and the opportunity to do things better. Where we're being very deliberate is ensuring that we take the time to get the alignment on product and market fit and how we sell it and how we scale it right. So we're deliberately moving forward fairly sort of fairly deliberately here as you have to do with recurring revenue models. So well, customers are always better, but at this stage, we're making sure we get stickiness and fit right so that the recurring revenue will flow fairly naturally from there.

A question from Michael just in relation to what drove revenue growth in the second half of the year. What gives you confidence around your future increase in revenue given your guidance for FY '27? I think Aidan has answered that in terms of the components. And certainly, Nick has answered that in terms of where we're focused on FY '27 in terms of our areas of growth. The only comment to add to that is that we are -- pleasingly, we've seen all of our categories of products growing in FY '26, which is positive. So that provides some diversity. The other part there is that in terms of our markets, 40% of our markets -- 40% of our revenues from the U.S., 35% from EMEA, 10% from other markets. And again, we've got diversity with our customers as well. So top 15 customers accounts for around 40% to 50% of our revenue. So overall, our guidance is based on what we can see. And based on the second half growth, which was driven by chips, cards and modules, we expect to -- we've outlined the guidance for FY '27. I think a question from Owen, which we've answered just in relation to the Iris launch and second half key metrics and also revenue makeup as well. So I think we've answered those questions in relation to Iris. A question from Sinclair. Can you -- which Nick is probably one for you to take on. So can you please provide some more comments on the increased strategic focus on adapters? Is it necessary -- is it a necessary step to enhance the competitive strength of Dante?

Yes. I think just to be clear, we've been in the adapter space for many years. But it's an aspect of the business where we see -- we still see a lot of potential to do more, particularly in the installed space. There continue to be -- obviously, there are many thousands of Dante networks out in the world. The opportunity for us, though, is to extend those networks into sort of AV equipment that our customers have that are non-Dante. So every time you extend the network, you make the Dante-enabled network more controllable in a more modern way you increase operability, et cetera, et cetera. And we continue to see lots of ways we can do that better across segments and really as we think about the broader picture of having got an overall platform. So the bottom line is, we think we can do more, both from getting products out into the market, but also in terms of new products that help us extend Dante networks into customers' AV networks.

Yes. I might just add one other piece. It's an interesting question, like is it a necessary step to enhance the competitive strength of Dante. I would say it's a necessary step for us to achieve our long-term vision, which is actually to deliver that software platform because we need to provide audio. Great. We got that one solved. We need to provide video. We're on the way with things like Iris and the video ecosystem that we have, and we also need the control function. So those are those sort of 3 parts of the stool. And things like AVIO Adapters, if we can create the right kind of AVIO adapters, then that allows us to provide all 3 legs of the stool and then to start to deliver more of our software and platform technologies. So they're not necessarily -- they don't necessarily enhance the component business or the historical strength of Audinate with the Dante technology business, but they actually -- I would say they actually are a quite important component for us to be able to deliver on our long-term strategy to be able to capture more of the value of the audiovisual installation and particularly the platform software parts. Plus, as you can see in the numbers, they're actually pretty good from a sort of revenue point of view. So I think it's a win-win.

Just from Sinclair as well. So can you please provide some more commentary just around the overall AV market? Some commentary has suggested that corporate offering installation market remains weak.

Yes. I think that's right. One of the things that has happened is that the organization that used to provide these kinds of statistics for the industry, AVIXA has kind of downscaled its data in that area. So it's once again a bit more diffuse to figure out what's going on. However, I think from talking with people in the industry, things like trade show attendance, stuff like that, I think the AV industry, generally speaking, is not immune from the overall cost of living increases. People are thinking about -- when they're thinking about doing upgrades for things like offices and the corporate installation market. I think there was a big burst of activity with the post-COVID return to office. So I think we're in a bit of a lull with respect to that particular segment. That's probably also true of things like higher education. But on balance, Dante applies across a number of different segments. And so swings and roundabouts. So I think we kind of take law of large numbers kind of view of that with respect to the component business and with respect to the AV project side of things. I think there are projects out there. They're not necessarily in those corporate and office installation areas. There are fewer of those.

I know we're getting to the end of time. So I think we'll just go through some quick ones. So Sinclair again, just if possible to provide an update on the launch of Dante Director Professional?

So what happened during the financial year with that was that we invested in developing a number of features for the enterprise version of Dante Director. So we had something like 20 enterprise customers going through an alpha trial process. We built a bunch of features that connected with those customers and looked for their requirements. We did things like ISO 27001 certification during the year. So it kicked off a whole bunch of things. So that side of it went well. The realization ultimately of sort of building that product is that, that product naturally wants to be sold through a channel into the audiovisual installation market. And so the organizational changes that we've made to create a focus on selling audiovisual products like adapters and AV system and software and services into AV installations, that's -- Dante Director is going to benefit from that. And so we're expecting to see increased opportunities coming from our standing up of that organization and the focus on the go-to-market element of that product.

Question from Reese for Nick. Any more acquisitions are you looking at?

I think the short answer is I think we're really well placed in terms of what we have from a technology, in terms of capability across the business. I think we've got all the -- really all the key elements of -- from a product and a tech perspective to be really successful to execute our strategy. So from that perspective, there's nothing obvious that we need, and there's nothing obvious on the horizon. It's probably the best answer I can give at this point.

I guess we're not shopping.

Exactly.

Potentially something interesting could come up.

I'm always wary about saying never, never, never. But there is nothing that we need to execute on the plan we have. And really, the challenge for the next 24 months is just to get on and use the assets we do have to deliver on our strategy.

There's a couple from Owen. So what percentage of your guidance is from new revenue lines versus your core chips, cards and module software sales? The overwhelming growth is coming from our core business is the answer to the question. Next one is that can you quantify the cost out? Does flat OpEx include capitalized costs? So in terms of quantifying the cost out, that's been factored into the guidance for FY '27, and we are expecting flat CapEx in FY '27 as well. A question from Reese. What percentage of revenue are you expecting from -- to spend on R&D in the next few years? Certainly, R&D is important for a business like Audinate. But in terms of the percentage of revenue, we don't have a target in mind. It's more around the cost of developing the particular products. So I think it's remained flat at around that sort of $12 million to $13 million mark over the last couple of years. But yes, there's no fixed percentage. It's more around what we're building and what we see as a return on those development costs as well. A question around, do you expect the group margin to tend higher with increased embedded software and SaaS take-up? I think we've seen a step change in our gross margin percentage really from between '24 and '26 moving to the 82% mark now. I think at this stage, 82% we've guided next year is -- feels like a reasonable margin. The answer is it depends on the strength of our chips, cards and modules business, which is still...

And probably adapters business.

Adapters, which is an important part of our makeup. So it feels like it's a good balance at the moment in terms of a combination of both hardware and software products. The Iris acquisition had an earn-out subject to achieving certain targets. Are those on track? So at this stage, the answer is not on track to hit the earn-out. So the earn-out was between $10 million and $15 million in revenue after 3 years. So at this stage, no, but that will be reassessed every reporting period. A question from Tom just in relation to what strategies does the company have to allay investor concerns regarding potential AV write-downs or the need for a capital raise? Do you want to comment?

Yes. So I think the answer to that is related to the -- perhaps the longer statement I made earlier about strategic changes and thinking about Audinate's growth opportunities differently. So in particular, I think you're referring to the potential -- the change in terms of how we think about the video networking or the video component part of our business. So what I would say is we have been working through over the last 18 months, a number of strategic changes, both in terms of acquisition, different business model for how to monetize something like video. And we have been onboarding -- we've been bringing into the company specific talent from people that have done control-related product developments. So we have been -- we've been making strategic moves both on the business model, video side of things, the talent side of things in terms of our long-term strategy to build out all of those 3 legs of the stool. And so again, I would say that the opportunity is -- the strategic shift is that the opportunity is not so much to build out a video component business, which is a rough approximation of our audio component business today. But really the opportunity for Audinate is how do we take our existing ecosystem position, the brand, the interoperability, all those people we've trained in the AV industry. And how do we capitalize on that ecosystem and footprint to capture more of the audiovisual installation value. And the way to do that in our view is not so much to try and figure out how to get a video component business up and running as an ingredient that goes into everybody's product, but to actually think about the overall audiovisual market and opportunity. And so that means different business models for things like video, like Iris, but also building out that third leg of the stool so that we have the audio, video and control functions that ultimately we can monetize in the audiovisual installation itself. So I hope that answers that question. I know it's been something that we've been talking about perhaps over the last couple of results series, and I imagine we'll come back to it again.

So I think we've got through all questions. The final 2 just relates to Iris, which I think have been covered off during the Q&A. So that's all for the questions.

Well, thank you very much for joining us on the call today. I think it's been a great result. I think it's been a lot of hard work this year and a lot of thinking as we think about the implications of Iris. We've done the acquisition. We've done some organizational change. And I'd like to think that Audinate has been operating in a disciplined fashion and that as we head into FY '27, that really is going to set us up on a path to a return to free cash flow positivity as we move forward. So thank you.