Ai-Media Technologies Limited (AIM) Earnings Call Transcript & Summary

We have AIM's CEO, Tony Abrahams; and CFO, Jason Singh, presenting. Following the presentation, investors will have the opportunity to ask questions. [Operator Instructions] I'll now pass to Tony.

Thanks, Mel, and thank you, everyone, for joining our FY '26 results announcement. I'd like to pay my respects to the traditional custodians of the land from which I'm joining in Chatswood in Sydney and to pay my respects to the traditional custodians of the land from which you are all joining. So our FY '26 results have been transformational for us. This is the year in which we really completed the transition from a human-in-the-loop workflow to one that is completely AI-native. Ai-Media at a glance, we deliver AI-powered language infrastructure for live and recorded video content. For broadcast, governments and enterprises, most of our work at the moment is in broadcast. And what we will detail for you today is the expansion plans beyond broadcast into government, into enterprise and away from our core traditional markets in the United States, extending beyond that to the rest of the globe. So we did deliver $36 million in annual recurring revenue, which is a 50% increase year-on-year at an 85% gross margin. We have 8,000 encoders in the field, and those encoders represent nodes effectively on our network by which our customers can connect to the LEXI suite. We now operate in 46 countries. And while I cofounded Ai-Media 23 years ago, EEG, the business that we acquired, is now over 40 years old and has a dominant position in providing the infrastructure for closed capturing in the United States and increasingly also other AI language services like voice and audio description that we will talk through. Ai-Media does power the language layer of live video. What we have done in 2026 is invest considerably with a peak in the first half on delivering an upgrade path from what is effectively a pre-AI infrastructure to an AI-native infrastructure. This has also significantly improved the security of the systems. We will be looking to expand the platform, as I said, not just beyond the broadcast, but beyond live into recorded media workflows, and we have products in market already LEXI Recorded and LEXI Audio Description that are getting early traction. Critically as well, though, and I want to talk a little bit about this, is the embedded distribution point. As more of our customers are upgrading their infrastructure, increasingly, they are looking for solutions that are aligned with their upgrade path and that's increasingly looking to embed LEXI within third-party infrastructure. And LEXI Direct is our product that delivers that. And then in terms of moving beyond broadcast, we had a lot of questions as to where we see the next big opportunity. And outside of broadcast, the next opportunity for us is within the enterprise sector and more particularly within the education sector and the higher education sector, something that typically Ai-Media had a very good handle on for human delivery, and we're now launching a brand-new LEXI Access solution, which is a single-click QR Code to enable access not just to the captions, but also to the voice translation for people who are at universities and colleges. In terms of the overall financial performance, this is probably the final year where we have had to mitigate a runoff on high revenue, low-margin Legacy Services business, and that has seen a decline of 35% year-on-year, which contributed to a 7% overall decline in total revenue. But the focus has been on growing the underlying annual recurring revenue engine, of which our SaaS revenue being LEXI Text still contributes the most. Most importantly, I think, on this slide is that we saw the EBITDA turnaround in the second half after a peak of investment in the first half to complete the build of our new AI-native encoders, which are pulling through a lot of the interest in terms of expansions of the LEXI suite in terms of LEXI Voice, LEXI Audio Description and LEXI Recorded. The increase in gross margin was largely due to a product shift away from the lower-margin Legacy Services towards the higher-margin LEXI suite. Importantly, for product and R&D, we spent $7.7 million in the year, which was an increase of 55%. As I said, a lot of that peaked in the first half, getting ready for these new encoders, new LEXI Voice and the new LEXI Recorded and LEXI AD products, which are all in market now. As a result of that, if we were applying the Australian Accounting Standards, we should have capitalized a bit of that, but we're not doing that because our policy is to keep it compliant with U.S. GAAP, which expenses all product and R&D. So our adjusted EBITDA for the year of $2.1 million is after expensing all of that product and R&D. And on top of that $7.7 million in R&D, there was also $2 million in corporate IT costs. which were also expensed. So notwithstanding this surge in product development expenses in the first half, we still increased our cash balance. And indeed, we've been cash flow positive now for 4 consecutive years. In terms of the key metrics as to how this highest quality technology business has emerged, we explicitly stated that we are migrating the business towards a consistent annual recurring revenue model. But we also said that a large part of that remains LEXI Text. And as we introduce new infrastructure platforms and we add more products to the LEXI suite, then you can expect to see that annual recurring revenue number continue to scale and for the contribution that is outside of LEXI Text to continue to grow as we build out the products and as we narrow the product market fit in the market segments that we are chasing around the world. In terms of the revenue mix, there's some very interesting things going on here. Fundamentally, the most interesting thing is obviously the scaling of the SaaS revenue, which is the growth engine for our annual recurring revenue. That growth of 42% was actually offset by a decline of 37% on our hardware revenue, which was due to the fact that we announced the launch of these new AI-native encoders during the year, but we haven't started shipping them yet. So we have got a backlog of orders for the new generation. As I said, this new generation of encoders is much more secure. We have resolved 37 fundamental security flaws on the old system. We are fully SOC 2 and ISO 27001 compliant. And so we do expect that, that is a seasonal dip in that hardware revenue. We've also introduced the new hardware as a subscription model. And Jason will provide some further detail on that in terms of how we're seeing the pipeline for the new technology encoders split between that CapEx option, which is the traditional option that we have offered and the hardware as a subscription model. Finally, Legacy Services declined 35%, but we are expecting that number now to stabilize at about 20% of total revenue going forward with a managed service component, which will be related to the implementation and customization of our technology solutions, not putting in respeakers into the mix. As I said, it's pretty simple as to what's delivered that increase in revenue is almost all LEXI Text. And that is our core product that's been in market for a long time, a 41% 3-year CAGR. And when you look at the underlying growth of the volume or the traffic across the network, you can see we acquired the EEG subsidiary in May of 2021. At the time, only 11% of the total carried across the iCap network, which is all the traffic that goes through our encoders. Only 11% of that was captured by EEG at the time. Now we're capturing 68.5% of a much higher base. So not only are we growing the total network, which is the blue line in the iCap, we're also increasing the percentage of that network that we are delivering with LEXI. In terms of how we see the strategic advantages of Ai-Media, it is about owning the workflow, not any one AI model. We are placed at the edge of the infrastructure of mission-critical workflows. And we are responsible for delivering access to the world's highest value content. And you can see that from some of the customers that we have on the next page. Ultimately, we have many, many AI models that we inject into a stream that we get from our broadcast, government or enterprise customers. We add our own workflow infrastructure for that, which delivers the encoding solution, the orchestration, the security and the integrations with third-party systems. And then we deliver that reliably at 99.99% reliability for those top-tier customers. And of those top-tier customers, 73% of our revenue is from global broadcast, the majority of which is in North America. 20% of that total is in enterprise, and that's where the near-term focus is with education and the LEXI Access product. While 7% of the revenue is in government, we do expect that to pick up in the out years, but we do see the nearest-term opportunity in terms of those 9 Squares, if you like, which is broadcast, government and enterprise in terms of the verticals and the 3 regions being Americas, EMEA and APAC. We are certainly seeing global enterprises being the opportunity that we can expand into for adjacencies in FY '27. We added 9 new territories in the last year to give a total of 46 countries. And of course, we're embedding further into the countries that we already service. I did mention that we spent quite a bit extra in particularly the first half of this year on building new encoder infrastructure. We've got effectively a 2 path -- upgrade path for our existing customers. Most of our broadcast quality customers are on the HD492 on the left. As I said, it's got a number of security floors inherent in a platform that was architected in 2018 that now need to be upgraded. The 2 upgrade paths are either to the ultra-high-definition 592, which is more a direct upgrade from the 492 with the security upgrades native 4K higher processing power and the ability to do a LEXI Voice channel on that path. And then beyond that, there is the AIX-1 or our LEXI Voice Encoder, which actually has the capability for doing 5 voice channels into 5 different languages. Now these encoders are necessary before you can deliver the voice product and voice is certainly something that we have moved forward quite considerably in the last 12 months, albeit something that is still not quite at the point where we're seeing mass adoption from broadcast customers, but we are certainly a lot closer than we were. And the refresh opportunity with the installed base is quite considerable. As I said, we haven't provided an upgrade in these encoders for about 10 years. About -- over 2,200 of the encoders are over 5 years old and out of warranty and out of service. So there are some immediate opportunities there. We also have 3 next-generation AI-native platforms, both the 592 and the AIX-1 hardware solutions, which I articulated on the previous slide. But LEXI Direct is probably the most important strategic change that we're announcing today. And that is a direct integration with third-party integrated systems like Grass Valley AMPP. And the difference between LEXI Direct and Alta is that Alta is a software encoder, but the software encoder still requires the signal to go outside of the customer's broadcast infrastructure and come back, which when we're talking about delivering live video adds latency. And so if we can actually deliver the same LEXI outcome within a customer's own walled garden, then that's going to be beneficial. And we have delivered that. As I said, the first implementation of that was with Grass Valley. But the underlying architecture of the models we're working on is with an emerging broadcast standard called the digital media facility -- sorry, the Dynamic Media Facility, DMF and MXL, which is the Media Exchange Layer, which is an initiative of the European Broadcasting Union, which is one of the largest leading broadcast organizations in the world. And it's a move to effectively containerize and put on software all broadcast architecture that previously required hardware. And this is a process we've been working on our customers with for some years. It's the next evolution of Alta. And so LEXI Direct can be seen as the next evolution of that software and coding solution with the objective that we can connect more and more people to the LEXI platform in more and more different ways. And to meet them where they are based on the infrastructure and the workflow that they have. So with these 2 commercial models on top of that with the CapEx and the recurring revenue subscription model, we believe that we have now got the infrastructure in place to begin to tackle all 9 of those Squares that we are looking at for the growth. I'll now hand over to Jason, who will talk us through, in particular, the FY '26 financial highlights. Jason?

Thanks, Tony. As Tony has mentioned before, FY '26 was the final transition year for Legacy Services into Technology Solutions. This has had quite a big impact in our revenue line, declining Legacy Services revenue by 35% on PCP. It was the first time also in 8 years that we've launched an encoder, and that happened in April of 2026. This was the second thing that had quite a significant impact on our revenue line declining at 37% on PCP. You can see through our balance sheet that we have stocked up parts for our new AI-native encoders, increasing our inventory to $4 million from $2.7 million. We have in the field approximately 2,200 encoders that are over 5 years old that are [ right ] for replacement. And we have offered our customers 2 ways to buy either through a hardware as a subscription model, as we mentioned in the last update in the half year or as a traditional CapEx model. In terms of what we're seeing in the demand and the pipeline is we're seeing traditional broadcasters still opting for the CapEx model and we're seeing the new markets in Asia-Pacific and EMEA that are opting for the Hardware-as-a-Service. So at the moment, our pipeline is showing a 70-30 split in favor of CapEx. We're offering that both to customers, and there's no detriment on either way. We had a very deliberate investment into technology for these AI-native encoders, in particular, and our LEXI Voice and LEXI suite of products. Of that, we invested approximately $2.7 million in additional resources based out of New York. We've released a large portion of those resources in the second half, and we've turned around our profitability from a loss of $400,000 underlying in the first half to a profit of $2.5 million in the second half, all in all, in the full year and adjusted EBITDA of $2.1 million. We've also taken some corrective action in terms of our other costs that we could have taken out. So we're entering FY '27 with $3 million of less cost following our peak investment in 1H '26. I will now talk through the P&L in detail. Next. Okay. So in terms of our cost base, we've got a really disciplined cost management program and targeted investment. You can see that we have deliberately reduced our G&A by 1% on prior year. And this year, we've actually removed it -- sorry, dropped it by 8%. In that $18.5 million, around $1.5 million is of share-based payments and one-off restructuring costs. We've been very, very careful in terms of how we've invested our funds. We've got approximately 65 salespeople out globally in the market, and we do spend a considerable amount of money in the trade shows. So $15.9 million is representative of our sales and marketing effort, up by 3% or CPI. As Tony has mentioned before, that we have removed $2.2 million of our investment into product and development, and we'll see that come off in the next financial year. In our P&L, you can see that the SaaS revenue has increased by 42%, which is our main driver of our annual recurring revenue. Hardware revenue has dropped by $6.4 million. A large part of that hardware number has got support services embedded in there as well. So in fact, our actual encoder sales have dropped by 55% on PCP, predominantly because of the anticipation and the pipeline buildup for the new encoders that are due to be available for purchase in Q2. Services revenue, we've seen a decline from the first half. So second half, approximately $6.6 million of services revenue. We're now expecting services revenue to make up -- managed services revenue to make up approximately 20% of total revenue going forward. Our gross margin has improved significantly, a 4% turnaround. And as a result, although the revenue dropped by 7%, we've only seen a 3% drop in gross profit. So revenue mix has changed fundamentally. Overall, our total operating expenses has remained flat once you take out the one-off expenses and share-based payments and one-off expenses and restructuring costs. Share-based payments, we have a 5-year long-term incentive plan in place for the company. Of that, approximately 45% of that has been taken up as an expense in the first year. So we will start to see that come down over the next few years. Strong operating cash flow, we still have a cash conversion of 114%, similar to last year. My last slide is cash flow. So our cash flow has remained strong. We've got $2.4 million of operating cash. We've gone from $14.7 million and a statutory EBITDA loss of $300,000. Noncash share-based payments and one-off restructuring costs of $2.5 million. We've collected a considerable amount of accounts receivable, which has given us a favorable working capital of $2.2 million. Deferred revenue due to timing has unwound at $2.2 million versus PCP, and we spent $400,000 in CapEx and have got unfavorable FX due to the bulk of our cash being in U.S. dollars. So overall, we've landed at $15.9 million. We enter FY '27 with a strong balance sheet, strong recurring revenue, new products out in the market and a much lower cost base. Thanks. I'll now hand over to Tony to talk about growth.

Tony, you're on mute.

How about now? Thanks, Mel. Can you hear? Excellent. Thank you for that. So this slide really is the uplift of the new AI-native encoders. So what's changed is those LEXI encoders in the middle have been upgraded for the new technology system. And what we've done off the back of that is we've continued to scale LEXI Text, as I said, which is by far the bulk, 90% plus of all of the SaaS revenue that we delivered in FY '26 remains LEXI Text. And most of that has been in U.S. broadcast. But we are developing these other applications that we understand have much bigger total addressable markets than just LEXI Text. But by locking in LEXI Text and ensuring that the other elements of the LEXI platform can be delivered through these exact same LEXI encoders with 0 extra button pushes by our customers, that is the key to the architecture of this ecosystem. So the 4 growth priorities for this year. First, scale LEXI Text. This is the one that's going to have the biggest impact. So what about the 31.5% of the iCap network that's currently not being delivered with LEXI, we're chasing that. We're also looking to grow the iCap network by expanding broadcast adoption across EMEA and APAC. And as I said, extending into the education vertical with the LEXI Access QR Code solution. Secondly, as Jason said, we're pretty underweight in FY '26 on our encoder sales because we announced to the market that we're coming up with a brand-new encoder solution. So there's a lot of holdback from customers until we can ship those. But also our customers are migrating from that hardware system to computers off the shelf. And so being able to deliver a software solution to meet our customers where they are has been critical with that LEXI Direct. And then offering CapEx and hardware as a subscription means that we can compress the pipeline cycle and meet the customers where they are with their capability to pay. As Jason said, and this is probably a shift from where we were 6 months ago, we're expecting still 70% of those new encoder sales now to be CapEx. We estimated 50-50, 6 months ago. So that's an important piece of market feedback from those early customer conversations since launch and before shipping. The third focus is commercializing LEXI Voice, and we've had some really, really good early customer validation of that, but we need to convert that into a compelling business model for customers and ultimately recurring revenue. And then looking to extend the LEXI platform within our existing customers, particularly to LEXI Recorded, LEXI Audio Description and LEXI Insights. We have got some product demonstration videos that we will be putting up on the investor website today that look through LEXI Audio Description and the new encoders, and we will continue to update the market with new product availabilities as they come to hand. But more particularly, it's only 4 weeks until our AGM. We've got an early AGM. We'll also have a product day in collaboration with that. And so you can expect some more updates between now and the AGM on those product features. As I said, we think about the world in terms of 9 Squares, 3 regions and 3 verticals. Americas, EMEA and APAC in terms of the regions, broadcast, government and enterprise in terms of the verticals. What's important is that although broadcast is 73% of the total globally, actually, 55% of all of our revenue is just in North American broadcast. And so that is the most demanding market. It is delivering well over 100 million minutes a year of very specialized high availability, high accuracy captioning. And so extending that into government and enterprise with new encoding solutions is what we invested heavily in, particularly in the first half of this year, but we really do now have the platform to grow and to scale, and that is the strategy. In particular, it is looking at selling the entire of the LEXI suite, which is LEXI Text, Voice, Recorded, AD and Insights across all regions and across all markets. But most particularly, the initiatives that we have invested in, in FY '26 that will accelerate sales in FY '27 are around the new hardware encoders, which is [ HENCs ], hardware encoders for broadcast and LEXI Direct, which is plugging the LEXI signal into an established workflow like, for example, the Grass Valley system. And then as I said, with Enterprise, it's the LEXI Access Solution, which is a QR Code single click entry for captioning and voice in education as well as using LEXI Direct to plug directly into third-party education systems such as Echo360 or Panopto to deliver the functions of LEXI natively within the platform where our customers are. In terms of LEXI Voice, we have had quite a few positive commercialization proof of concepts. We've got City of Sacramento, who are doing about 30 meetings a month of live English captions plus real-time Spanish voice translation. Of course, we're looking to then replicate that across other cities of. And the first real broadcast partner that we had turned out to be in Taiwan, which was delivering English to traditional Chinese translation together with real-time Mandarin dubbing. And certainly, within the workflow in Taiwan for news, this has definitely reached a commercial proof point. So what we need to do now is extend beyond these and some of the other proof of concepts that we have previously spoken about like [ Bayer ] Pharmaceuticals, who are using this across their internal network. And of course, the interesting thing about voice is that it considerably expands the total addressable market, just about doubling it. And then once we layer in all of the other LEXI services, then we can begin to tackle -- sorry, that much broader market for all language services, which is around $70 billion a year. So in summary, we enter FY '27 with a higher recurring revenue business. We've got a durable workflow moat. Most importantly, we have lost none of our top 20 customers in the last 5 years. And in fact, they're spending more with us. And the reason they're doing that is because we have embedded AI into their broadcast workflow. And then in terms of what you can expect going forward, we will report on these metrics going forward, which is recurring revenue growth, the revenue quality, earnings conversion and platform expansion. We will provide ARR guidance for FY '27 in a month at the AGM. And with that, I think, Mel, we can hand over for questions.

Great. Thanks, Tony. Let's start our first question with Nick Harris. And Tony, you touched on this in terms of the upgrade of the hardware and the launch of the new encoder. But Nick's asked, I believe you had 7,948 encoders in December '25. You've mentioned 8,000 in June '26. I thought sales of your new encoders commenced in April '26. So you should have seen a pickup in encoder sales in Q4. Am I looking at that correctly or has there been some delays given that you haven't begun shipping them? And when do you start shipping new encoders? And could you provide maybe some details on the pipeline for new encoders?

Yes. Great question, Nick. Thank you. Yes. So we launched the new encoders in April of 2026 at the NAB Show in Las Vegas. We did not start shipping the new encoders in April. We launched the new encoders. So what that effectively did is it put our customers on notice that we have a new version of the encoder coming out, which meant they obviously didn't want to go and buy the old version of the encoder, which is what we wanted because we want them to upgrade to the new encoder. We will start shipping these units in the second quarter of this financial year. So we will start shipping in October. There will be some shipments in the first half, but the bulk of the shipments are not going to occur until the second half. In terms of the math, whereby we were slightly under 8,000 and we're slightly over 8,000 now. Keep in mind, there's a useful life of 5 to 7 years of these things. So some of them drop off and some of them renew. But we were considerably down year-on-year in terms of hardware renewals because people are waiting for the new iPhone.

Great. Thanks, Tony. Kerry has asked, why have there been delays in shipping or selling the new encoders? Could you just confirm that?

There haven't been delays. This was planned. So we launched the encoder at the biggest trade show in the year, which is in April. We got feedback from market on that, and then we made some tweaks, and we put that into the build. So effectively, what you're seeing is some holdback on CapEx purchases while people are waiting for the new model to be delivered, but there are certainly no blockers.

Great. Thank you. And Ken has asked, given you're across 46 countries now, could you tell us the value of your top 10 customers or top 10 regions by market?

They're very different things. What I can say is that 55% of our total revenue is in North American broadcast and that our top 20 customers remain over 50% of our revenue and that we are extending our spend with all of those top 20 customers.

Thanks, Tony. Stella has asked, when did Channel 7 and Channel 9 convert from the Legacy Service model to SaaS? And how much did that contribute to the technology ARR and SaaS revenue growth?

Yes, great question. And I think, Stella, this is probably the key to a lot of people's modeling, which is how much of the runoff, if you like, of human-delivered services from those long-contracted customers like Channel 9 and Channel 7 goes across to LEXI and recurring revenue. That transition was completed in FY '26 for both Channel 9 and Channel 7. And all of the reductions in services revenue with the conversion to SaaS are effectively now baked in. Typically, customers would save about 70% to 80% in making that shift. And that's obviously been part of the revenue decline, but also part of the earnings improvement.

Thanks, Tony. And if we just quickly jump back to the HaaS model and encoders. If broadcasters are looking at CapEx rather than HaaS, does that mean revenue recognized in Q1 in FY '27 should be significant as they take up the new encoders?

We are not shipping the encoders in Q1. I said we will ship them in Q2. So there will be no revenue in Q1 from that, but we should start to see revenue grow again from Q2.

If we switch to LEXI Voice, you launched it at NAB 2025. Text is still a big part of your SaaS revenue. Has there been any issues with the uptake of voice or can you speak to the sales cycle and when you anticipate traction in the voice product?

Yes. I mean that's actually a kind of question that we grapple with as an executive team every single week. And the key graph that we really kind of focus on for this is the LEXI Text scaling graph. So when you look at saying, okay, well, we launched LEXI Voice in April of 2025. Well, yes, we launched LEXI Text in June of 2017. And for the first 4 years, it has still only got to 11% of the total. We, therefore, need to be realistic about what the uptake is going to be of a brand-new service for broadcasters, which is translating the content into different languages automatically. Now the good news is I don't think it's going to take us long. It's not going to take 4 years, but it's not going to take 4 weeks either. And so 1.5 years in to something that took the sister product of LEXI Text 4 years to do, we're tracking ahead of where we were with LEXI Text at the time. But we still are several halves away from seeing LEXI Voice really kick. But certainly, we can say that we are at the cutting edge of the vendors who are capable of delivering this product. We are not seeing a competitor product that is better than ours. We're not seeing our customers take up competitor products. We're seeing customers evaluate the automatic translation and automatic dubbing and then take that back to their business units to see if they've got a business case to proceed.

Thanks, Tony. While you're on that page for Jack, can you just confirm how many million minutes did iCap do this year?

Those are the millions of minutes per month. So you would multiply effectively 14 million minutes by 12 to get you to the end run rate.

Thank you. And Daniel has asked, why was hardware revenue up on the first half given customers were holding off on purchasing in COVID?

Hardware revenue was down year-on-year. That's the key point. I mean we've been talking to our customers about the new refresh cycle for a while. We launched it in April. I wouldn't make too much of the difference between H2 and H1. It's just a lumpy hardware refresh cycle, which is part of the economics of selling CapEx technology.