BirdDog Technology Limited (BDT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to BirdDog's FY '23 Full Year Results Investor Webinar. My name is Sam Wells from NWR Communications. And joining me from the company today is Co-Founder and Chief Executive Officer, Dan Miall, as well as Chief Financial Officer, Barry Calnon. [Operator Instructions] Thank you, and over to you, Dan.

Thanks very much, Sam, and thank you very much, everyone, for joining us on this presentation. I'd like to share my screen now, and I'll go through a short presentation, giving you some updates on what we've been doing, updates on the business and also some information on the strategy of where we're heading moving forward. So in this presentation, we split it into a couple of different components. The first part, I'll be giving you an overview of the business as usual. We will then move into a financial update, which Barry will also give us. And then I'll move forward into more of the information around strategic updates, what we've been doing with R&D and where the opportunities are for us moving forward. So if I step into this. Financial year 2023 was categorized by a couple of things. There was some significant R&D investments and also some wins. There was also some challenging market conditions as well. So I'll talk to all of these to give you some information. In terms of the business itself, though, we remain extremely well capitalized with over $22 million of cash at the end of the financial year. That's being aided by rationalizing of inventory. We did have a significant amount of buildup of inventory in the reasoning behind COVID and supply chain issues. Now those COVID and supply chain issues have largely abated for us as a business. So what we've been able to do is reduce that inventory largely significantly. We're moving forward to a plan of having no more than 90 days of inventory in total as we get towards the end of this financial year and that is well progressed in terms of what we're seeing in reductions. Our core market and core product revenues were $28.5 million. Now that is down significantly on last year, and I'll talk in a moment about where that sits compared to the rest of the industry and where our opportunities lie. The revenue, though, has stabilized, and we're seeing in some of our core markets, which I'll talk to in a moment, that we're actually trending well above what the industry is seeing. In terms of our margin, the good news here is that our stable gross margin have been maintained. We've always been in and around about this 26% gross margin. And this maintains that throughout the financial year 2023. So in order to actually grow slightly our market share and maintain ourselves in this type market, we have been able to keep our margins largely intact. Pleasingly, our software revenues are now starting to show a significant increase. This is really important for us as we move forward into our recurring revenue model. Software is a key part of the business. It's not the only part of the business, but it's something that we're really focusing on to build a lot of value for our customers in terms of solutions, but also increase our overall margins as a business. So having software revenues increased from a relatively low base by a significant 25% is encouraging. And that is before we've enrolled -- unleashed our Remedi solution, which I'll talk about. And we had an announcement about a couple of weeks ago where we're now starting to see some success in this financial year. We have had a significant amount of investment in R&D, as I mentioned earlier, and this is very much deliberate. In terms of our company, we have our core products and technology that we've developed. But in order to really gain a lot of growth within our core market as well as neighboring markets, that R&D investment is very important. The good news with this is that investment is really starting to pay off. As I've mentioned, in that cloud-based solution and in the Remedi solution, we've already seen significant paybacks of that investment on the R&D. If you look at the net loss before tax, 78% or nearly 80% of that was based around our R&D investment. Now it's still a significant amount of money that we have invested. But like I mentioned, there is a view, and there's certainly a trajectory for us to get that return on that investment in a relatively short period of time. Now pulling apart some of the performance we've had on various geographies. As you can see, and as I mentioned, we're down 25% against last year, and that is a significant number. What we're actually seeing though with a huge amount of research that we've done and also our distributors and partners have done is the broader industry is down around 35%. So BirdDog is faring this storm in terms of the lower-than-expected demand or lower than previous demand within the core production space relatively well. If we look at individual markets, the U.S. market is actually holding up really quite strong in the circumstances. Where we've really seen our challenges is in the European market, and that's certainly something that's being seen in broad parts of the industry and beyond. What we have done in the early part of this financial year is drastically change our go-to-market plans within that European market. We're now working directly in key markets in Germany and France to have more collaboration with our partners and to have more collaboration with the market to boost that demand within those areas. So we're expecting some significant turnaround over and above the return to norm within the market, within the European area. Asia Pacific and LatAm have been somewhat encouraging, particularly in Latin America, where we've begun expanding our market. This has the potential to be a significant market for us. And also late in the financial year of 2023, we've made some changes in Asia Pacific that will substantially enhance our go-to-market in these areas. So in terms of where BirdDog sits, we're very comfortable in terms of our position in the market and in fact, being -- have seen that growth within that market is something that's really encouraging. The other thing that we are seeing is a huge amount of feedback again from partners globally that, that return to growth of the company. The industry has had a pause on the back of COVID, and it's been a challenge for a lot of people within the market, but that is return to growth, and we're expecting to see the beginning of that within the financial year of 2024. That couples with the growth that we'll be seeing in terms of our recurring revenue and cloud-based solutions that we will be going through. Before I go into the strategic updates, what I'd like to do now is hand over to Barry, just a little bit about the financial performance, and then I'll move back into some more specifics on our products and where opportunities take us.

Thanks, Dan. In terms of the stable -- sorry, softening revenue base, $28.8 million in total revenues and $28.5 million for our core product sales means that we did deliver a 25% uplift in our software, pleasingly from our core products at AUD 28.5 million, we've maintained our stable gross margins at around 26.5%. So literally a drop of 30 points between fin '22 and fin '23. In terms of R&D, Dan touched on that, that is a significant investment that is 13% of our revenue from core products, and we will continue to do about that potentially a little bit less as the world returns to a little bit of normality. Dan touched on the fact that almost $0.80 in every net loss dollar was contributed by R&D. As an innovative company, we identify ourselves as absolutely an R&D company first, bringing out high-quality products. In terms of the balance sheet, certainly, we remain very well capitalized at north of $22.5 million in the bank at the end of the year. And that is after investing almost $1 million in our buyback during the fin year and the $3.8 million in R&D. In terms of inventory, we've dropped that by more than 20%. And at the end of fin '23, that was just less than 6 months. So we anticipate hitting our target of less than 90 days of inventory held by Christmas. We continue to manage our receivables really tightly, and we've got net assets just shy of AUD 40 million. In terms of the cash flow, it's a pretty straightforward cash flow. We've had a more than $10 million turnaround in our operating activities, almost breakeven there, and that is, again, after spending $3.8 million in R&D and marketing activities, we did 2.2x in the fin '22 year, so $2.3 million in marketing activities. Again, we continue to really tightly manage our receivables. The share buyback details are there. And we're looking forward to continuing our cash flow, maintaining our stability north of $20 million in cash.

Thanks very much, Barry. And I think what I'd like to do now is give you a bit more of an update on the strategy, where we're going as a business and what opportunities there are for us. Clearly, speaking with what we've done over the last year, there is an underlying demand for our products within a soft market. That market, we do expect to expand, but we have some significant increases that we'll be doing in terms of building that demand overall as a company. Now I've shown a similar slide before to this one, which effectively shows the pillars on how we're planning on growing the business. As a company, we're largely seen as a hardware manufacturer. We make cameras, we make converters, we make devices that allow you to get video onto networks. And that's a fundamental of what we do as a business, and that remains. What we then started to build on top of that is our software stack and our solutions. And this is something that's becoming more and more important. And I think nothing personifies that better than the Remedi solution that we've developed. This is the first of many that we will be working into, which allows us access to markets and gives us a really specific solution, building a moat around our technology. Building hardware alone opens us up to competitive environments, building solutions is what gives us the uniqueness and gives us the value for us as a company, but also for our customers. So what we've been working on over the last several years is building out from that hardware base, our software solutions. Now we've mentioned significantly around about our cloud integration and our cloud solutions. And what we're really doing now and certainly over the next 12 months is building those -- the combination of those 3, the hardware, the software and cloud-based solutions into ultimate workflows for customers. And what we're seeing is really at first for those kind of workplace for solutions with customers out there, there is a bunch of different technology products but most of our customers these days are not at the level of sophistication where they want to build up their own systems. They want to have an entire workflow built for them that they can use. And I'll talk in a moment about Remedi, how that's really optimized those opportunities lie moving forward. One last thing to speak of here is our partnerships that we want to work with and continue to. A great example of this is our Adobe partnership. We have a show coming up actually next month called IBC in Amsterdam, and we'll be exhibiting on the Adobe Booth, our cloud-based solutions. And that's the next step within these burned up workflows that we'll be expanding beyond the Remedi solution. Conscious, we've mentioned this Remedi solution, significant, a number of times over the last few presentations, and we had an announcement last week around this as well. So I thought I'd take a little bit of time to explain what this solution is. Why it's important to BirdDog, and why it's not actually being pivot for us, but that allows us access to larger markets. Remedi is a brand that we've developed, and it utilizes our underlying technology where we can get high-quality video to anywhere in the world with extremely low latency and a whole lot of interaction. All these things wrapped up together create a truly unique solution. Within the medical environment, at the moment, people are largely using things like Teams or Zoom or even FaceTime to talk with other professionals. So for example, if an operation is happening and there's some consultation that needs to happen, quite often, there will be a Zoom call or something that happens. Now the issue with this is you don't have all of the information to hand. So the person that's trying to consult and give information can't really see what's going on. Now traditionally, that person would be in the operating theater and they'd be looking over the shoulder, but then that creates a craft environment. What Remedi does is solve all of these by allowing that high-quality video to be received anywhere in the world using our world-class cameras and our cloud-based solutions. It creates a user interface that's easy for these surgeons and consultants to use. So it's very easy for people to operate. it's secure and meets within the medical environment and GDPR certification. And it allows people to feel like they're absolutely within that surgical environment. They can control the cameras, they can look at different outputs like for example patient monitoring systems and really feel like they're there. They have all of the information in front of them. This really is a game-changing solution that provides a solution for our customers and for our stakeholders in the medical space, but also allows us to sell both our hardware and our software together as a solution. It's a really great solution that provides, as I mentioned, consultation activities. Another area which we've seen success already, which is with the Phenox deal that I spoke about is within that proctoring environment. If someone needs to have some training or needs to be involved in the use of a new piece of surgical equipment, right now, that involves people flying around the world and experts being scheduled in. With the Remedi solution, we can cut down dramatically, the travel that's required from these medical device companies and reps, and we can arm each one of those reps with one of our kits so they can go into a surgical environment and include the professionals in the right time at the right place. It saves a lot of time. It saves a lot of money and also has a great impact on the environment. So Remedi is a communication platform using all of our BirdDog solutions. The great thing with this is, we mentioned this first 9 months ago. And because of all the R&D and the basis that we have within our BirdDog Cloud platform and our ecosystem, we've been able to turn that from an idea into commercialization within such a short period of time. This Phenox deal is the first of many. It's -- at this stage, this first opportunity is within the APAC region. There's still the rest of the global markets within the Phenox sphere. And then, of course, there's many other medical device companies. The last piece of opportunity within this is education, training the next generation of surgeons on how to do things, having centers of excellence around the world being able to work with each other. So we really see a great opportunity here with Remedi moving forward. It's not a pivot entirely as a company towards medical. What it's doing is using our technology in a way that can be beneficial to another market. And a great example of that, as I mentioned, is the Adobe solution on the post-production and Hollywood film and television markets. So we'll be looking at doing a similar thing to this where we wrap up the entire solutions from our cameras to our software and cloud and market them directly to various markets. So we see a great opportunity as we're moving from a hardware-based manufacturer to a solution designer that we can really grow the opportunity within our core market as well as within further markets. So moving forward in terms of what we're working on with manufacturing and supply chain, this is still very important. We have been working on our inventory reduction and rationalization. This is important to make sure that we're not holding too much inventory. The other opportunity that's been uncovered over the last few months as the world's moved on from supply chain constraints is for us to diversify within our supply chain to allow us access to the best of breed in terms of manufacturers and technology and also allow us to expand our margins as well. So we've been doing quite a lot of work with this and expecting to see some really great outcomes to this within financial year 2024 with next-generation products attracting higher margin and with higher technology capabilities within them. So it's a very exciting progression that's happened as the world starts to move from supply chain constraints through to us being able to choose and engage with the best of breed. The other part of our supply chain, we've been working on is what we've dubbed Project Moose. Project Moose is the manufacturing and assembly of our cameras within the North American continent. The reason for this is we want to gain access to what's called the GSA or general services agreements within the U.S. And this allows us direct access to government and education and military within the U.S. and other markets as well by having products that have a country of origin within the U.S. We are still working on this, and this project is well underway. We're expecting to have some announcements on that in the coming months, and that will drive additional growth revenue within the U.S. market as we bring those products to market. So in summary, the company at BirdDog is really encouraged by where we're going in terms of use of our technology and also get some more [indiscernible] within the content core market over the last 12 months. We're encouraged to hear that projects that we just indicated [indiscernible] that is having. So [indiscernible] return to stability and growth over this financial year. We're also adding in the ability to drive additional revenue significantly high margins with our cloud-based solutions, such as Remedi and the Adobe solution, where our margins are north of 80% really does drive that revenue dollar significantly higher. We have great access to a global market. So as we have seen, where markets are challenged like the European market, we do have access to a global market, which gives us a level of installation as well. We are an innovation-focused company. And this is represented by how we are moving our technology into more integrated solutions. We were the first company to make these hardware devices that work on this NDI platform. We were the first company to make cloud-based production systems that join those together. And now we're the first company that's building these complete solutions, which give us a complete set of security around our go-to-market, allowing us to fight off any competition that might happen with point products by us being able to deliver solutions for our customers. Our key partnerships and alliances are getting stronger. As I mentioned, we have the Adobe alliances coming up shortly at IBC, which will have some large announcements and video production around that. We also continue our AV alliances with companies such as NEC, where we've seen a successful installation over in the U.K. in the last month. As we move forward, we're encouraged that our strong balance sheet will see us in a very strong position as we return to growth. And we really do see that we're poised for growth with the underlying technology we have, the access to markets that we have and the solution focus that we're building. So with that, I'll leave the presentation as it is. Sam, I'd like to hand that back to you to field any questions that may come up.

Okay. Great. Thanks, Dan. Thanks, Barry. We do have a couple of pre-submitted questions and some that have come through on the call already. [Operator Instructions] First question on the demand environment more broadly. You've identified BirdDog holding share amidst an industry-wide softening demand, presumably across the U.S. core market. What do you guys look at internally to provide confidence that we're through this? Are there any data reference -- is there any data or reference points or upcoming events that you watch closely to indicate the short-term inflection?

Absolutely. That's a great question. So for us to feel confident that the market is returning to normal really where our revenue comes from in terms of growth is from projects and seeing the amount of projects being registered, it really gives us the level of confidence of where things are moving forward. Projects are not short term, what we call run rate business. They are the longer term being specified in, but they have much larger amounts of our products in there and a larger contribution to revenue per single deal. So what we're seeing is that registration process is accelerating, and we're also seeing the level of engagement on those registered deals being far higher. So that gives us a lot more confidence that in those core markets is also being seen in Europe as well that there is demand for these products moving forward, that there is plans for large-scale deployments of our products moving forward as well. So from that point of view, we're seeing tangible registered deals and into interaction with our team on particular projects. We are also seeing an appetite or growing in appetite for some of our key dealers to hold more stock. There was a period of time over the last 12 months where there was a lot of inventory reduction that was happening in our sales channel as well. Now we're seeing that reverse where some of our dealers are now starting to want to stock products to make sure they have them on the shelf when people want them.

And there's a couple of questions coming through around the software-related revenues, ARRs and the like. I think you've identified over 1% of software and licensing revenues for FY '23. It is growing, but obviously, from a small base. Can you just sort of talk around the percentage of R&D that's focused on software and how you should think about this growth going forward?

That's a really interesting question. It's not an easy answer to really to give. As a company, largely, we actually develop software, software that goes inside our hardware and software that develop these workflows and cloud solutions. So a big portion of our R&D does go towards software development across the board. And what we're doing is building that software into our hardware devices as well as through the cloud and ultimately on to end-user devices. So in terms of R&D and where we're seeing software being a contributor at the moment, that's 1%, even just with the stand-alone project we're working on with Phenox, that represents a 3x of our software revenue for the next 12 months, including a rollout period. That's going to ramp up over time. So within these first 12 months, we're expecting that to triple our software revenue. Keeping in mind that the margins are somewhere around about 4x that of our harbor products as well. So there's a significant driver that will happen as we move towards these recurring revenue models. The important thing, though, is all of these are designed as a drag-along or tag-along type solution. We're not looking to sell software alone. We do have some solutions that we can sell that don't involve hardware. But really, our go-to-market with all of these products is to provide a whole solution with hardware attached to that software. So in terms of the R&D spend, it's probably somewhere evenly split at the moment in terms of where we're investing our R&D funds in terms of developing in-device versus software purely as a cloud-based solution, but they come together to form the overall workflow that we're providing for our customers.

Okay. Great. And just on the Zoom relationship, you announced a couple of core received Zoom certification in June. Any specific update that you can provide around that opportunity?

Sure. So I think Zoom was really exciting for me. That's really quite a big deal. As a company, we started out in terms of making our products further live production. So they're used for anything from sports events through to newsrooms to live streaming to education environments. But having this Zoom certification puts that fair and square into the AV space. And that's every bit as large market is what their production space is, if not larger. So for us to get that certification straight away was a very exciting moment. And back to my previous point, I think, is in terms of the deals or the projects that we're having registered, what we're seeing now is some of those projects are a portion -- a significant portion of those projects are now AV-based. And the reason for that is if you're wanting to install hundreds, if not thousands of cameras to use with the Zoom environment or Zoom rooms that are being rolled out across an organization, as much as any of our cameras would have worked with Zoom to have a certified one gives a huge amount of confidence. And it also takes that decision away from the person that's actually making the purchase decision. So they can say that [indiscernible] purchased a certified solution. So it takes a barrier away from purchasing our products. And so what we're seeing really is a combination base. So we're seeing a dramatic uptick in terms of the registered projects for these AV-based installations. Now these ones do take some time to come through. But we're also seeing that the level of interest in that is increasing and the engagement we're having with people on those as well. So there is a tangible or there is certainly an indication that, that Zoom certification has had an effect on the demand for those products that are in that market. And we're excited to see that come through into revenue as well.

On the buyback. I think you bought back nearly $1 million of stock last year. Could you just talk through the buyback policy and the strategy behind it and how we should sort of think about that going forward?

Do you want to talk about that, Barry?

Sure, Sam. So our investors will recollect that we had some parameters that are stock standard, there was no more than 10% and upwards of $2 million, no more than $2 million. We're at $948,000 today, 7.143 million shares in average of $0.13274. So the Board will continue to watch this space, we're in blackout until this time next week per our share trading policy. And so the Board will reconvene in the interim to understand where the market is and their disposition around the continuance or otherwise of the buyback.

Great. Just a couple of questions around cost lines. The first just on marketing spend. Can you talk about marketing spend during the year, particularly in light of the sort of decline in demand environment and how you should think about that in '24? And then secondly, just on employee expenses in light of some comments, I think, made earlier in the year around reducing costs and sort of how we should think about that going into FY '24?

Sure thing. I think on the marketing side of things, certainly last year, our last financial prior to this one was still coming out of COVID. So there was a very limited amount of expenses around trade shows, around travel. So the uptick is representative of that more than anything else. We're certainly not expecting that same level of growth year-on-year. From our perspective, financial year 2023 was back to business as usual from a marketing point of view. So we attended all the major events. We were engaged with all of the major publications. And from that point of view, we consider ourselves to be at full steam in terms of our marketing. So we expect that to remain largely stable. The reason for the spend is, obviously, in a challenged market, we do need to make sure that we are seeing, heard and wanted. So from that point of view, we weren't seeing a good savings of money by reducing that marketing. We're being judicious about where we spend our marketing, what shows where -- who we sent to those shows and what expenses were there to keep it relatively in check in terms of the spend. But from our point of view, it is important to make people aware of our products. We do need to be a part of the industry, and we do need to be present at these events. But to the point that I made a moment ago, we don't see that market spend increasing year-on-year. We see that as being back to business as usual.

And 5% to 7.5% of revenue, Sam. And that 2.3%, as Dan has talked about, is the much more normalized view of the world. And in terms of employee benefits expense and headcount, assiduous readers of our financials will have noted that in Note 6, I think it was in Note 5 of our financials. We've reallocated some of those AVs into the R&D piece. That's important because those software engineers and hardware engineers, we're recognizing their effort and therefore, measuring the -- the return on our investment around that. So in terms of headcount, we remain at 43%. We will tip up towards 50% in this financial year. We won't go any more than 50%. In terms of OpEx, we are certainly cognizant and really prudent around every dollar we spend, and we have processes in place around the globe with our current stuff to ensure that we are judicious and prudent in each dollar we spend.