BirdDog Technology Limited (BDT) Earnings Call Transcript & Summary

Good morning and welcome to BirdDog's First Half Results Webinar. From the company today, I'm joined by Founder and CEO, Dan Miall; and CFO, Barry Calnon. [Operator Instructions] I'll now hand it over to Dan to start the presentation.

Thanks very much, and welcome to our webinar for the first half of this financial year. So firstly, I'd like to start off by saying that the first half in terms of revenue was disappointing, in terms of our revenue, in terms of internal targets as well as the top line that we achieved. However, there is some things that we'd like to talk about, which is good news moving forward, and we'd like to work through some of those numbers to give some more context around what that is. It's certainly been challenging for the industry as a whole, and we have some data points to speak to about that. One thing that we are confident, though is that it's cycling through to a more positive section of the industry now and moving forward through the balance of this financial year and indeed the calendar year as well. So we're pleased to present our current status and also the plans moving forward. In this webinar, we've got a brief set of slides that we'd like to talk to, which will firstly cover over the financial snapshot of where we're at for the first half and also talk to some of the important metrics, things like cash flow as well as the revenue and inventory builds as well. I'll then speak about the industry and overall market commentary, where things are at, a bit of a state of the unit in terms of what's happened in the last 6 months and why that is going to change and where we're seeing the opportunities come from. I'd also like to speak a little bit about the initiatives that we've done over the last 12 months. This really marks our first year of being on the stock market in terms of webinars. And so I'd like to explain what changes we've made over that first year of being a listed company and what that means, again, moving forward for the company and what benefits that's bringing already and into the future. Then I'll speak more about our BirdDog products and the growth horizons that we have in terms of the near-term growth with products and features as well as longer-term growth with markets that we're going to, to be reaching further into to broaden the awareness of our products and ultimately broaden the revenue and growth of the business. Finally, I'll talk a little bit about the strategy that we've been working on and an update on where we're at in terms of our people and processes. And then we'll open it up to Q&As, which we, more than welcome in terms of any questions that you might have. So I'll hand over now to our financial snapshot to Barry and let him talk through some of those numbers to give you some more context.

Thanks, Dan. So we've seen the revenue down 36% to AUD 15.3 million for the half and territory, that was down 33% in the U.S., 51% in U.K. and Europe and 22% in APAC. Pleasingly though, though Europe has almost doubled quarter-on-quarter, the September quarter to the December quarter. So that's on the way back. And so we're pleased about that. And Dan will talk a little bit more about that. You've seen that the margins are holding. And in fact, at the net operating margin line, with the benefit of the new tech license that is almost down -- 18 months old now, but it still [ 3.5 years ] to go. We're north of 23% at the net operating margin line. In terms of the net profit or net loss after tax, that is within $100,000 of last year's December half for a pcp. Pleasingly, we had -- we just recorded our best ever January and the first time that our January month has beaten the preceding December month. We actually did that by 14%, which we're very pleased about. And a bit of a tip of the iceberg in terms of where we see calendar '23 coming or going, and even 18% up January month of revenue against January of 2022. And in terms of the cash flows that Dan touched on in the introduction, very pleasingly, we've had positive cash flows generated from operating activities for the entire month of January and February. Yes, February closed tomorrow, but we're on the right path based on those cost improvement measures and initiatives that John, our Chairman mentioned in the narrative that we released this morning. Two other things of note, Dan, we continue our policy of fully extending our research and development. So you told that was $533,000 or just over $0.5 million for the half. And our on-market buyback is commencing, this time next Monday, the 6th of March.

Thanks very much, Barry. So I think as much as we're talking here about the first half, it is really important to add some context on where we think things are going. And as Barry mentioned, we have seen a turnaround in terms of our cash flow. That's a combination of improved demand for the products over the last 60 days, but also an improvement in our cost programs as well. So we've had a double pickup in terms of that. To give you a bit more context in the market and where things are happening. Obviously, the last 12 months really has been somewhat disappointing. We have managed to get some intelligence through our distributors and our distribution partners, but also through market research to see where the state of the industry is. Clearly, we don't want this to be a trend that's only a BirdDog trend. And what we've actually confirmed is that is 100% the case that it is an industry-wide trending for the last 12 months. In the PTZ camera market or PTZ, I mean, Australian alphabet phonologies, the PTZ camera market, which is the core of our products that represents somewhere around about 65% of our sales. The overall industry dropped in the last 12 months by 35% to 50%. So when you look at that blended average, we're actually -- it's certainly not a good place to be in general in the industry, but -- but we're happy that we aren't at the worst part of that. What we are seeing is our nearest peer is very similar to us in that 35% year-on-year decline. The other thing that is indicative of what's happening in the industry is that the industry [ sells ] what's the Japanese camera manufacturers have. They had some really significant changes in terms of their approach to market, they're reducing their team size and changing the way they're approaching things as well. So all of this to say that there is absolutely -- there has been a slowdown in that PTZ market. It's not to say that market is finished and moved on. It's just a change in buying patterns. And that's the other piece of information that we've seen. That corporate AV side of things, which is things like the sound bars that you see in meeting spaces and automation systems, that side of the market has actually held up over the last 12 months. But what we're seeing there [indiscernible] slowed down in projects involving BirdDog, things like hire end meeting spaces, things like communication areas or production areas for people to make videos for corporate users or also for the marketing. Those projects are now picking up. And that's what we're seeing in terms of the renewed revenue that we're seeing in January and February. But probably more importantly, the projects look ahead that we're seeing, the actual projects that are now starting to formalize and become effectively given a date for when they're going to be installed. It gives us a lot of confidence that not only are we seeing the run rate or the business that we come to rely on in terms of average monthly sales, but also the larger project work is now starting to pick up. So that's particularly exciting. Another indicator that we've seen is one of our partners, that's a company called Q-SYS which is a leading automation system. So when you have a meeting room or any event space, where you have buttons that can make everything from the lights turn on to curtains go down and cameras move, one of the leading partners in there that we work with was Q-SYS, BirdDog was the #1 plug-in that was downloaded in the last months. Now for us, that's a great look ahead because these system integrators are now looking at how they can integrate those BirdDog systems into a larger deployment. So I think all of this gives us confidence that not only have we seen the worst of what's going on, but there is actually an acceleration in uptake and focus on our level of products in terms of the higher-end PTZ Cameras and also the communication and media-based live streaming. We have some great opportunities coming up in terms of new products, which I'll talk about shortly, which will also underscore that growth and double down. In terms of initiatives, this is the next thing I'd like to talk about what have we done in the last 12 months to improve the business and improve the opportunities as we grow. And you can see here, there's quite a number of different things that we've worked on from both a channel or go-to-market side of things, but also on a product and also structural side of things as well. In the last 12 months, we have released 12 new products, and we have a huge backlog or look ahead in terms of new products we're going to release as well. The road map is very, very strong, and we're accelerating how we bring that together. And that's actually by our strategic hires. In terms of the company, we have expanded our staff, but only in key areas in engineering to bring forward those product releases and in the commercial side to ensure we get out to market to be able to sell those products and capitalize on them as best as possible. John mentioned in his -- quite within the release about our cost optimization. And this is something that is very important and has been very much front of mind over the last several months -- 60 days, particularly, which is to make sure that whilst we have a bit of a slow period, that we're actually expanding in the right way. So we have things like reductions in some of the expenses that would traditionally be spent, but focusing on where we're spending our money in other areas. And pleasingly, that has resulted much further ahead than our schedule in terms of a cash flow positive result. So we're very confident that our strategy in terms of our cost optimization is in control as well as the products that we have to market are really making a difference. Another key thing that we've -- we are to point out now is our inventory build. Strategically, as part of our IPO and throughout the whole last 12 months, we've been building up that inventory. Supply chain has been a problem for pretty much every vendor, whether it's in the camera market or any other market -- automotive. That inventory buildup has now reached effectively the maximum that we see happening. We're now starting to see lead times reduce, which means that we can actually reduce our inventory holdings. So on top of that cost optimizations and sales increases that we're seeing, we're also seeing the benefit of that reduction of inventory and turning that back into cash. So we're really seeing a combination of good news that's starting to flow into the second half of the financial year and indeed, calendar year. Some of the other work that we've done over the last 12 months is about go-to-market and channel. As much as we can build the products, we need to make sure they get to the market as best as possible. And the distribution partners that we use are really key to that. We've made some major changes in Southeast Asia by going direct to a number of countries. We see this as really an experiment to see how that process works, but also to make sure we're getting place to some of these more tricky markets to ensure we see the most success. In North America, we've made some pretty dramatic changes by employing new distributors, cycling out some distribution partners in Canada, but also employing agency representatives, which gives us a huge amount of coverage across the whole of North America. And we're really starting to see the benefit of that in terms of the projects that are being booked in and also just the awareness in [indiscernible] has come up in the middle of the U.S., which is actually a government as well. So there's been a significant amount of work done on the company in terms of how we're going to market, the people that we have, the products that we have and the processes that we do. The bid of universe as we like to call it, is something that we like to talk about because if you look at that company, you sort of see that we make cameras, and you might think of this as a camera manufacturer that competes with whether it's a Japanese company or other established brands. The big differentiator with BirdDog is we have an end-to-end workflow. So that means that we make our cameras, but we also make converters, software and cloud. When you put that together, it solves actual problems for customers rather than just creating a box that does a thing. And this is something that's both really attractive to our customers, but also puts us into a really unique position as we build out our cloud-based connectivity. That then drives our customers through to a subscription-based revenue model as well. So we're really excited about what we're doing in terms of building out that BirdDog universe to interconnect all of our products together. In terms of our core markets, we've spoken about this before. Live production is really our original core market, and it remains still a very strong part of our business in terms of the percentage contribution. AV and education, the next exciting markets. And you can see that some of the partners that we have there are really top tier that helps amplify our story and get our views in front of potential customers. On the education side of things, Intel and Sharp/NEC are fantastic partners, and we continue to see a lot of support from them. And we have some excellent news coming up with Zoom. We're already recommended in many of their systems. There's new certification programs that are happening, which will be out to report on shortly. And then that fourth pillar that you see there is our postproduction workplace. This is fulfillment television, things like motion pictures, TV commercials, any type of postproduction work. We've got a great relationship already with Adobe, and that's getting further enhanced with our cloud integration directly into the Adobe ecosystem. So again, building out these solutions is not just about selling a customer a box, it's about selling a solution. And then on top of that, as we build out this cloud workflow, it's about that subscription to have a customer have a better result. And of course, the BirdDog -- the revenue of ongoing subscriptions is really exciting as well. Now growth is something that's pretty important, obviously. We're very much looking at this front and center, and we do anticipate and are pushing extremely hard to return to growth as soon as possible with some early green sheets in terms of the cash flow positivity. Now we've split our growth plans really into 2 Horizons. There's a near term, which is our Horizon 1. And that involves laying those foundations, getting into our core markets even deeper, things like our live production AV, postproduction, education and sports, the areas where we're strong and making sure our solutions are really as top tier as possible and compelling for those customers. In those areas, we have a growth strategy with our near-term products. We've got some exciting new products coming out in the coming months, which are mentioned there in the blue. We have a new camera, which is the more cost-efficient side of the market, which actually opens us up to a much larger pool of customers. The exciting thing with this particular product is it's actually going to be one of our highest for margin products as well. So whilst it opens up to a larger pool of customers, it actually drive margin revenue significantly higher, which is particularly exciting. Particularly, that area of focus is going to be in the AV space and also House of Worship, which is very large and particularly in the U.S. We then have our mid-tier product, the 420 is what it's called -- X420. This is going to be really attractive to the higher end of the AV communications, C-suite videoconferencing as well as remote production. Keep in mind, all of our products will be cloud connected. So we can send the camera directly to somebody and have that be part of remote production without any additional hardware or software that's involved. A particularly exciting area is actually our expansion into the Pro-sumer area, and that's with our MAKI product. This allows us to really start to onboard those early-stage people in, whether it's podcasting or early-stage streaming at a price point that allows us to get into that much larger market. And finally, on the growth side in the near-term is unified communication, having a premium offering for meeting spaces. The big thing with all of this is the connectivity pieces I've mentioned before, that workflow. It's not about trying to sell the product as a singular item, which is up against a competitive price point. It's about providing a workflow that solves the problem for any of those people. The other things that are really attractive, I think, moving forward is our Made in Canada programs. We've spoken about this over the last 6 months, and this is really accelerating now. Making products effectively a sea of markets where product is made in China, moving our product manufacturing to Canada is a real point of difference from a purchasing decision, but it also makes a great opportunity for us in terms of government purchases. There's been a lot of media activity at the moment, certainly in Australia, but also globally around security around cameras and access to those over the Internet. The fact that we're an Australian company with our own IP, the manufacturing in the future within Canada gives us a great opportunity to really secure some of those government opportunities. On top of this, there's TAA and TSA certification in the U.S.A, which allows us to be prespecified for government procurement contracts. The last thing in the near-term that we're working on is our environmental initiatives. We've done a lot of work in the last 12 months in terms of our packaging to ensure they're better for the environment. We don't include plastics and foams. It's a much better experience than any of our competitors. And now we're turning that focus to the actual electronics and products themselves, the plastics that we're using, the environmental impact from when we build that product right the way through. And this really resonates well, particularly in that enterprise and corporate environment. So we're very confident. The combination of all of these strategies really sees us with not only the highest performing products, but also a whole lot of reasons why people want to choose our products just purely from whether it's Made in Canada or whether it has the environmental credentials that help them in their business. All of this to say, we've got a lot of opportunities in the near-term with our growth Horizon in terms of products and how we're getting to market. And we're confident in this Horizon alone, returning us to significant growth. On the back of that, the base that we've built there or the footing that we built gives us some great opportunities to move forward into some neighboring areas. What I'd like to consider is Horizon 1 gets us deeper into those markets that we're already in. Horizon 2 creates a wider opportunity for us to then capitalize more on our R&D and our products that we bring to market. We've already started working the medical side of things, but there's a lot more we can do everything from more areas of expertise right through the pre-hospital space, where we're going to assist in-patients before they even get to hospital in terms of communication and making sure that the people on the ground are aware of what's going on. Then there's security, government and military. Again, I mentioned earlier, that's very topical at the moment. Putting those together, the fact that we have those benefits have Made in Canada, our IP and the security that we built into our IP lands itself really well to military in terms of its hardened capabilities as well as our physical products are really built around being equally in permanent installations, be it indoors or outdoors. We also have software that we've released that is very attractive in terms of command centers and control centers. So getting much deeper into those -- the security, government and military is particularly important. An exciting space really is this Pro-sumer space. Right now, Pro-sumer and live streaming, there isn't a lot going on, really, you have a web camera and you use some free software, and that's about as good as you can get. But it doesn't give you that production quality that people really want to see. It doesn't elevate the experience. So the products that we're bringing out to market and the focus that we'll be making on, that approaching the market with the expertise that we have, keeping in mind the workflows that we deliver is particularly exciting. Adding into that, we're also implementing a lot of machine learning and AI within all of our cameras and our products, which will assist even into industrial areas. So things like human movement counting or product counting differentiators when things move within a camera frame, we can identify that very easily directly within our cameras. So it gives us some great opportunities. And I suppose this slide is really to talk about we are more than seeing just our next product being the driver of growth. It is actually further into markets that we're building into the IP that we're developing now that allow us to access those markets much more readily as we move forward. Finally, in terms of our strategy, we've spoken about this in most of our presentations. We really have a 4-pillar approach to our strategy, which is people, products, partnerships and markets. In terms of people, as I mentioned, we've been rightsizing with that. We've been making sure the people that we've got are really contributing to the benefits and the growth of the business. That's part of our cost optimization programs, but it's also part of our investment programs as well to make sure that we have the skills to be able to produce the next generation of products, to be able to do that faster than our competitors and really have a compelling solution, making sure that culture is really strong, which is something we're very proud of. Products, I've spoken at length in terms of the products that we have in our first Horizon, bringing forward some more revenue and then also bringing those products into new markets as well. Partnerships is something that's really core to BirdDog and it's been very successful in terms of our awareness campaigns around different industries. And it's something that we're still very much embracing. In terms of cloud, we're extremely close with the 2 largest cloud providers being AWS and Google. We had some great integration points with them that are only getting deeper and stronger. I mentioned the Adobe side of things for that postproduction workflow, that gives us access to some 9 million users based on that Adobe partnership. So we're very much focusing still on that. And the OEM side of things is something that's emerging, which is allowing us to license this technology that we've built the value of that IP and allow us to license that into other products and other markets that will see us not only give us more access to these markets, but also an additional revenue stream. One thing that is very important for us is our markets. Whilst we have a growth strategy into additional markets. We're still very much focused on our core markets to ensure the ongoing success and growth of the business. So our core markets in live production and also AV are very well-serviced by the products that we have now as well as the [indiscernible] products that we're releasing in the near-term and indeed the cloud offering as well. So we're very excited about the future. Of course, going back to where we started, the revenue in the last 12 months and certainly the last 6 months has been below what we expected. That's been a combination of factors. But certainly, the feedback we're seeing in the market is that, that has turned and it is returning to a far more focus on the types of products that we manufacture. We still remain very well-funded and able to seize those opportunities in terms of building the products and meeting the market and investing in the areas that we see as being those growth opportunities. So I guess the last thing to leave on with that is that we are very excited about the future. We acknowledge that the revenue has been somewhat disappointing over the last 6 months, but there is certainly some green shoots and certainly some great opportunities in the near-term as well as long-term. So at this point, I thank you for listening to us and speaking about the various updates of the business. I'd like to hand back to Max to talk through the Q&A.

Thanks Dan and Barry. [Operator Instructions] First question here is, has revenue from Cloud 3.0 increased over the half? Is the cloud built in-house is similar like via acquisition? And is there any plans to streamline the overlapping cloud offerings?

Yes. So there's actually -- there's 3 questions there, which are all good. So in terms of revenue, absolutely, the Cloud 3.0 revenue has increased. We have announced this product in September, and we're seeing increased uptake in this across both the revenue side of things, but also the uptake in terms of applications downloaded, Apple apps and Google apps and the like. So we're certainly seeing that uptake improve. Where the big opportunity with this is actually the integration into all of our products though. And that's what's coming in this next release. So every camera that we make and every camera we've already shipped gets this integration directly into cloud, which creates some great opportunities for people literally to pick up their camera and put it wherever they want in the world and be able to access that. And that's something that's truly unique. So we see the driving of revenue moving forward from there as something that's really exciting. In terms of the IP and how we've developed it, it is entirely BirdDog owned IP. It's our design. The original, where BirdDog cloud came from was actually a joint venture that we embarked on 3 years ago. That has since been rolled into being wholly owned by BirdDog. So it is entirely our technology, which is able to be built into not only our products but also license to third parties as well.

Next question. How much further investment in to inventory is required by BirdDog, given its focus on the MedTech opportunity and the strong new product pipeline, should we expect inventory balances to decrease into the second half?

Yes, certainly, Max. So in terms of that wind back Dan mentioned, the [ Elon ] gave it over the last 2.5 years, wait times for raw materials is just starting to wind back and commensurate with that line back of 12 months. I think the record was actually 375 days...

Very competitive supply and...

Yes. It's one of the key components. So we're now seeing that one in back to 8 and 9 months. And by the end of this calendar year, so towards Christmas, we see that hopefully that would be coming 4, 5 and 6 months. And therefore, we don't need to hold 10 -- 9, 10, 11, 12 months' worth of inventory commensurate with that wind back of the holding times or number of months that we need to wait for inventory. That will come back, about 3 months behind so that we'll be winding back our inventory max towards 4 and 5 months by Christmas in 2023.

Yes. So just to add to that, I think the inventory buildup is on our current products, and we can consider that we have that inventory under control. And really the inventory build will continue to new products, of course, but we don't expect that to outpace the reduction in those time frames. So overall, we're expecting that inventory to begin to reduce effectively from that one.

Next question, is the return [indiscernible] cash flow driven significantly by revenue growth or what to do with the cost reduction and inventory unwind?

It's a combination of both. So we have -- we've certainly seen increased demand, as we mentioned and as Barry mentioned at the start, we had our strongest January lever. And compared to January versus December, extremely unusual, but welcome growth from that point of view as well. So -- it's a combination of both which we're excited about. It's not entirely about cost optimization. It is also from the top line revenue as well.

Yes. And there is a third arm or element to that Max and that is the inventory deposits that we've just touched on, where the bulk of that weight of the operating cash flows -- cash outflows has traditionally over the last [ 18 months ], been the inventory deposits, and that's starting to wind back, and that will be evidenced in our forecast for the March quarter. So that's also helping and contributing to the positive cash flow environment where we've engineered.