BirdDog Technology Limited (BDT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to BirdDog's FY '24 results webinar. I'm Ben Larsen from NWR Communications. Joining me from the company today is Chief Executive Officer and Managing Director, Dan Miall; as well as Chief Financial Officer, Barry Calnon. [Operator Instructions] We'll do our best to get to all questions asked. Thank you, and over to you, Dan.

Thanks very much, Ben. And welcome everyone to our presentation today. I'd like to talk about a number of things with the business. But firstly, in case you didn't know, I'm Dan Miall. I'm the CEO of BirdDog here. And next to me is Barry Calnon. He's our CFO. So in today's presentation, we'll be talking about the performance of the business. And I'm sure if anyone's read the announcements this morning, there's a bit to talk about there. But underneath that, there's actually quite a lot of details that we'd like to go through. So I'm going to attempt to be as real as possible in explaining what's been going on and also where the business is heading, because I think it's really -- it's a pivotal part -- a pivotal stage in the business' existence, really. And frankly, at the end of this, hopefully, you'll see that there is actually some excitement about where we're moving forward. I was thinking about when we started out what the best word to describe this last 12 months is, and I think exceptional is probably it, and exceptional in many different ways. Undeniably, from the financial performance, it's been exceptionally poor. That has had a number of underlying reasons as to why that happened, but also underneath that, the exceptional performance that we've done in terms of reshaping the business. And throughout this presentation, I'll talk to you very much about the financial side of things as it is important. We're not trying to distract from that. But also talk about the exceptional work that we have been doing that really lays the path as we move forward. So with this, I'll start with the presentation. So to begin with, we'll talk about the summary of last year. And let's dig straight into the financials. Frankly, financial year 2024 was below what we set out to expect, and that's pretty clear in terms of the performance that we've achieved. That came about or that occurred via a number of different reasons. Some of them were within the company and specific things that we've done, and other ones were certainly outside of our control, things like macroeconomics, and also, to an extent, some industry and market factors. What I'd like to focus on really is the company specific things that have impacted our performance. We have disclosed over the last 12 months some challenges we've had with one of our key suppliers, which did lead into a legal situation that we've had to work through, and also we've been working on a number of new products and some changes within the business. So I guess the best way to describe what happened in the last 12 months is there was a lot of reorganization and a lot of changes that have happened. That reorganization, obviously, happened around building up our new products, but there's also a significant reduction in the operating costs of the business. And you'll see there -- we've spoken about it over time and we've been adding to that -- we've had around about $3 million of operating expenses reduced in the business. That gives us a great footing moving forward in terms of how we can return to profitability. But importantly, we haven't cut into the absolute fabric of the business. We're still able to deliver on the products that we want to deliver and we're still able to function as a business exceptionally well. Getting back to some of the distractions or the issues we've had in the business. That legal issue that we had with our key supplier, that supplier actually represented around about 70% of our business in terms of our camera supply. Now that over the course of the 12 months led to a number of issues. Firstly, we ran down our inventory on those cameras, which meant, frankly, in the second half of the financial year, we had less inventory to sell of the products that people wanted to buy. So that impacted our top line of the business in terms of being able to sell products. Coincidentally, with that, we also had the legal situation that was going on with that. Now that tied up a number -- or it cost quite a significant amount of money in terms of bringing that litigation piece to the business. Now that process went throughout a fair amount of the whole year, and so that was a downward trend in terms of how much the business was spending on a monthly basis. So adding to those additional issues around just general macroeconomics and industry factors, that meant that really we saw a performance that was subpar of what we wanted to. It was really a double down of issues. When you take away some of those extenuating circumstances, the underlying performance of the business in some ways was similar to the year before. Now I've got some good news on that, that we'll talk about later. But from that point of view, there were some extenuating costs there that we've worked through, and I'm pleased to report that we've actually moved through those. So when I talk about the transitional or transformational part of the business, we've really got a lot of that work that we've done in the last year and the costly parts of that behind us. So looking at what we did do in the last 12 months, so on top of the financial side of things, where there's clearly a significant loss that was incurred. As we knew there was going to be some challenges with our key supplier of cameras, we actually embarked on a pretty substantial R&D process. And that was to make sure that as we come out the other side of any situation, that we did have products to sell. If we were sitting here at the end of financial year 2024 and hadn't spent that money and time and effort on the R&D side of things, we wouldn't have products to sell and we wouldn't have a future in terms of how we return to profitability. Now the exciting thing that we've done with this is bring a number of products to market already. Inside 12 months, which is a very short period of time, we brought out 4 products. They started shipping in May of 2024, so right at the back end of that financial year, and immediately started to have an impact on the business. The first thing that I'd like to talk about with those new products is the market acceptance, but also the commercials around that as well. The market acceptance has been very strong, and immediately as we started shipping these products, it had a turnaround effect within the business. And we'll talk a little bit more about the financial side of things shortly, but they've had a dramatic impact in terms of the revenue associated with the business at the top line, but actually, more importantly, the bottom line in terms of the margins that we're able to achieve. I'll get into the products a little later as well. But fundamentally, we've managed to move up the chain in terms of our supply and manufacturing capabilities to deliver twice the margins that we have had in the previous -- in previous years. So that combined with the new products and the demand for those is giving us good scope to feel confident about where we're moving forward. But let's get back to some of the financials. I'm going to move on to Barry to let him talk about the summary of what happened in financial year 2024 and comparatives, and then we'll get on to talking more about some of the structural sides of things with the business.

Thanks, Dan. Undoubtedly, yes, the headline value of negative $16.9 million after tax is exceptional, if not, frankly, awful. However, let's -- I think it's important to break those components down for the nonrecurring elements of that $16.9 million. Firstly, the noncash impairment losses of $5.1 million, primarily the settlement of the litigation that was commercially agreed in June of 2024 and documented at the back end of July, which is why we announced on the 29th of July. And there was an intangible write down. So we don't have any intangibles on our balance sheet at 30 June. So that was $5.1 million in noncash. And then there was $2.6 million of cash outflows relating to legals and advisory, which is 90% related to the litigation. So that's $7.7 million. So that brings us back to a normalized EBITDA, and actually, coincidentally, a normalized loss after tax of $9 million. Yes, the negative $9 million is exceptional, awful, albeit not quite double the half year loss of $5.3 million before tax, which became $5.9 million after tax, as we do recognize the deferred tax assets at the half year. That not quite doubling was made because of the turnaround that started in the month of May of 2024 with the X1s launching, delivering, shipping and invoicing. That was accelerated in the month of June, and you would have seen that commentary in our foresee at the end of July off the back of the X1 series, both the Standard and the Ultra, which certainly provided us some impetus going into fin '25. In terms of cash, at year-end, it was $16.5 million, which bottomed out after the settlement of litigation at the end of July. The selective buyback in the middle of July and the bulk of the legal expenses paid, that bottomed out just below $12 million. We are now above $12 million and rising. Pleasingly, and Dan touched on this briefly, the $3 million plus of overheads that we saved on an annualized basis in fin '24 are now embedded in fin '25, along with the margins that Dan was talking about, literally double our historical margins on both a gross margin basis and a net margin basis. So the events time line, the next one depicts the business' turnaround and our journey through fin '24 and beyond.

Thanks, Barry. So I think this slide here is actually quite important because it tells us a story of almost 2 BirdDogs. And I'm actually calling the business BirdDog 2.0 as we move forward. And there's some really strong reasons for this. Frankly, we had an awful period, which was both on the financial side of things, but also in dealing with some of these distractions with the business. And you can see throughout 2023 and into the first quarter at least, if not beyond, of 2024 of our calendar year, we've been working through a number of issues. There was challenging supply chain issues, there was challenging inventory-based issues. Behind the scenes, we've actually been working extremely hard on building out our new product range to make sure that as we come out of that challenging time, we had not only products to sell, but products to sell that were beneficial to our customers and our business. And so really that time line, where the dotted line sits in May, is really the turnaround. It's the tale of 2 stories of BirdDog. From here on in, we've addressed some of the core issues. We've addressed the litigation piece with our previous supplier, and we can move on. We've also started delivering these new products. And as Barry and I've mentioned as well, the margins are an important part of this in the fact that they're double the previous margins. In addition to this, one of the biggest stories, I think, that we need to talk about is how we've been communicating these products to market and why they've been successful. In the past and what's pretty normal in our industry is products get announced at a trade show or some kind of event where people can learn about what's coming up, and then sometime in the future, they get released. Over the last full 12 months, we've been working on changing that entirely. So we've not announced products at all until they're ready to go. And these X1 products, which were announced and shipped in May, are really the first example of that. And that means 2 things. One is that we're delivering on what we've been working on and able to recognize that from both a business point of view, but also a revenue point of view immediately. And it also means that we're building out a reputation in terms of what we're delivering, then can actually, yes, build into the stability of the business. So in terms of products that we've released, we're not even quite halfway through our next generation of product releases, and we've already seen great news in terms of how we've turned around this business. If you look at on a monthly basis, we were in negatives over $500,000. And come May, that started to turn around. In June, we've turned that into a black number. We've turned that into a positive NPAT and also EBITDA. That's as we've released these X1 and Maki products. Now I'm really pleased. And I'm looking at one of these cameras at the moment. But last week, we not only announced, but began shipping globally the X5 camera. So that's now delivering more revenue to the business. That's really exciting, again, because we've been able to triple down on that structure of how we're announcing products. Now from here, we've got a trail of good news moving forward, that is next month we have a trade show in Amsterdam called IBC. We're again announcing and shipping a product there. And you'll see a pattern emerge over the next few months through October, November and December of new products being announced and shipping. And the good thing with this is all of these fall in line with our next-generation BirdDog 2.0 in terms of the margin and in terms of that -- living out our announcement and delivery. And that actually flows over to how we're talking about our news to you in terms of disclosures to stock markets as well. We'll be less talking about future opportunities and where we're planning on going, and we're talking more about what we've actually delivered and how we've been working through that. So I'm pleased in some way with this presentation to be able to start talking about that. And like I said, that's not to discount the fact that it was an incredibly distracting and expensive year in the last 12 months. So as we move into financial year 2025, there's actually some pretty significant things that have changed. One of the biggest risks and the costly part of last year was actually to do with supply concentration. We've been working diligently around that in terms of bringing up new suppliers. We now have a diversification not only by suppliers or manufacturing partners, but also by countries as well. Those of you who have listened to our presentations before will have heard us talk about GSA accreditation. We had a project we are working on to start manufacturing our products in Canada. Now that actually got derailed temporarily because of the situation around supply chain. But during the process of bringing these new products to market, we have actually managed to bring one of our products, this brand new X5, to market in a GSA-friendly manufacturing place. Now what that allows us to do is go into government purchases in the USA and other areas around the world and have preferred access to contracts because they're manufactured in a GSA or a general services agreement friendly country. We'll be working with our other products and our manufacturing partners to extend out our range that is GSA friendly as well. So this is something that we've been working on in addition to bringing these products to market. Now we've mentioned a number of times the settlement and completion of the dispute with our prior contract manufacturer. That's now behind us. That's very much last year. It was a very challenging and also, as I've mentioned a number of times, a very costly exercise. But it allows us now to move forward with confidence with our new products and without any of those distractions. We've had some really encouraging launches, and I've mentioned a couple of times about these products. But I can't emphasize enough how successful these new product launches have been in terms of the acceptance by our customers but also the quality of these releases. As part of building these products to market, we've ensured that our quality assurance systems are as high as possible. And we're seeing a much reduced rate in terms of DOA or failed products in the field. Now as an interesting statistic, we sold around about 4x as many products over the last few months, the equivalent products last year in terms of our previous corresponding period, and we saw a 20x less in terms of the amount of units that have been returned with any kind of failure. So we're not only meeting, we're absolutely beating industry norms in terms of that reliability of these new products. All of this is building towards building better reputation, building better awareness and ultimately, better market share for us as we move forward. So we're really excited about what that means as we move forward. Probably one of the biggest changes that we're looking at moving forward is actually the ability to focus back on the business. Undeniably, last year, again, being a very challenging year from a commercial but also from a financial sense and also a litigation sense was quite distracting. And so from that point of view, as we've now settled all of these previous issues that we've been dealing with and also have our new products coming into market, we're able to focus on our job at hand, which is ultimately to make this business successful. When you water it down, our job is to design innovative game-changing products, bring them to market and commercialize them and sell them ultimately to make a profit. That's what we're focusing on as we move forward, and we're really excited about where we're at now as we do move forward, back to basics, if you like. Here's a bit of a view of our products, which is really just a slide showing some of the new generation. The one thing that I think is important to talk about with our new products is you won't find any camera or any product that looks like ours. And I mentioned briefly earlier that we've moved up the supply chain. One of those benefits is that we've increased our margins. And that's obviously helping us return and give confidence around returning to profitability in the long term. What it also means is that we've built these products to be in spec and to be used for our customers. Too many companies out there actually take products from other manufacturers and put their brand on there or put their badge on and try and sell them. What we've done is actually look at our customers' requirements and build those from the ground up. So we have embedded IP and embedded value in all of our next-generation products beyond what we've had in the past. So we're taking this opportunity with building these new products to make sure that we have a recognizable brand, functions, and also doubling down on that innovative approach. One of the big things that we have that is an advantage compared to our competitors is we have an ecosystem. We have not only cameras -- now, cameras do represent a big chunk of our business, but we also have converters, we have software, and we have cloud platforms as well. And this is something that's really important to us as we move forward, because it allows us to have a solution for our customers. We're not about trying to sell a black box or trying to make a product that's slightly cheaper than somebody else. We're building solutions. Now as we've rebuffed and strengthened our product portfolio moving forward, we're now able to really double down on that in terms of our solutions. And I'm going to jump ahead a little bit in here in terms of our priority and talk about Remedi. Remedi is our medical solution that we've developed. We've been talking about this for a little over 12 months. And Remedi has had -- the last 12 months has been really a defining period for it, where we've had some seed installations that have gone into it that have now turned into reference sites. Remedi is -- in last financial year didn't produce a huge amount of revenue for the business, but it has now got the potential and is now building out that order pipeline and also our overall project pipeline, not only in Australia, where it's our core market for Remedi, but now increasingly in the USA. So what we're really excited about with Remedi is that will give us incremental business revenue to the business, and it's also a recurring revenue-based model. So whilst this has taken some time, partially to do with the distractions we've had in the business, we are still seeing that on track in terms of the market awareness and now the uptake of that as well. So we look forward to what that looks like as we move forward. In addition to this, I mentioned that a trade show that's coming up next month. We've got a product announcement in terms of cameras. We also have some real fundamental shift change in the way our software works on our cloud platform as well. This lays the boundaries for -- or lays the platform as we move forward next year in terms of how we're going to double down on that cloud and recurring revenue in our core markets as well. So I guess looking at what we've achieved over the last 12 months and what happened in the last 12 months, undoubtedly, it was a highly challenging market. We did have some dramatic headwinds in terms of that litigation piece, which was extremely expensive to the business. We also had some challenges around supply in terms of being able to deliver products that were applicable to customers, which was a downward pressure on revenue. We had elevated R&D to bring these next-generation products to market. But at the same time, we've also reorganized the business. We've taken a significant amount of money out of the cost of the business to give us a much more applicable run rate, I suppose, in terms of how we can actually make the business profitable and then bringing these new products to market with double the margin, and increased reliability and increased features gives us a much more confident footing as we move forward. So for us, looking at last year, we've -- it is a transformational year. It was an expensive year, but it was a one-off year in a lot of those. We've sealed off and completed all of those challenging parts, and we're now looking forward to how we can move forward with these new products and moving forward with success. So at this point, that's the end of the presentation. Now I'm happy to take any questions. Barry, did you have anything else to add at this point or should we move to Q&A?

I think Q&A. And yes, maybe we'll go back to the time line because I think that's a powerful...

Yes.

All right. Thank you, Dan and Barry. Yes, a few questions did come through. So we'll kick off with our first one here. So in your June quarterly foresee, you talked about EBITDA positive in the month of June. This person is looking to understand -- there was another question on this as well, actually. So together. So they're looking to understand how the business has performed in the first 2 months of FY '25, i.e., as the trend continued.

Yes. So we're not quite finished in the second month, but we've got a pretty good indication. So basically, for us at this stage, we're really excited to see that trajectory is continuing on. So whilst we were in the black in June, we're also seeing that same thing happen in July. And then now in August as well, we're confident that that's also going to close out with a positivity in EBITDA.

On the EBITDA level and, pleasingly, with the revenues, with only half of the new -- the next-generation cameras through.

Absolutely, Barry. So a good point is that we are only halfway through delivering our new generation products, and we're already able to achieve in these last 3 months now of positivity. So it's heading in the right direction.

Next question, can you be more specific on the double -- doubling the margins based on historical comments? Is that gross margin -- i.e., has that specifically manifested in the P&L?

Sure. So the eagle eyes would have noticed that in fin '23, our margin was 21.4%, at the bottom net margin line, 21.4%. That became 20.3% in the fin '24 year, again, another challenging macroeconomic environment in industry, markets, et cetera. So that's the base of our historical margins. Our gross margins are double, have achieved through the months of June, July and August -- not withstanding we've got 1 more trading -- 1.5 more trading days of shipments to go, but our gross margins are in the 50s and our net margins are in the low 40%. So 20.3% that we achieved in fin '24. We have seen 3 consecutive months, June, July and August, with a net margin above 40%. Which is why we're saying double the margins at both the gross and the net margin line.

Next question, is the litigation consigned to history? Also, how are you progressing with selling the finished goods you received as part of the settlement?

Yes. So I'm pleased to say the litigation is consigned to history. It was becoming a -- I think it was becoming apparent to me that the actual cost of litigation was going to become greater than the argument that we had with the litigation. So we had to look at how we closed that out, and that's what we did. So that is now being closed. It's finalized. And we have no further requirements within that moving forward. So for us, we're able to completely focus moving forward. So that's absolutely consigned to history. In terms of part of that settlement, you would have seen in a previous announcement that we did actually have some finished products that the previous manufacturer had finished, and we've taken possession of those. Now at this stage, I'm pleased we've only had possession of that for a month. I think it's less than a month or just on a month.

Three weeks, yes.

And we've already sold more than 20% of those. We've already moved more than 20% in terms of value out of the business. So that's encouraging. We fully intend and are working very quickly to make sure that all of that inventory is finished within this financial year. And as you can see, with that statement, we're well ahead of that schedule at this point. So we'll keep chipping away at that and making sure that we move them on. We've got no interest in having aged inventory of the old products. But we are able to move them on while still maintaining margins on the new products and profitability.

What will be new for the business at IBC in a couple of weeks time?

So it's actually a funny situation we're in, because we no longer release products based on trade shows. What we have is a nice set of circumstances, where, as I was mentioning before, we announce a product when it's ready to ship. We actually have a product that's ready to go at IBC. So coincidentally, we'll be doing that. That's another camera. It's one that fits very much in what we consider to be the quantity place within our product portfolio. And again, it's full of some really innovative features. Now in line with announcing things before they're ready to go, I'm not going to give too much away other than it's an accretive model within the portfolio. We're not adding another one that's going to compete with existing products in the market from our offerings. And we think, again, it's got some really innovative features. So we're really excited to announce that. In addition, we've got a game-changing cloud-based solution, which allows us to dramatically reduce the cost of running cloud-based video production. One of the, I guess, dirty little secrets of cloud-based video production is the cost associated with either getting the video into the cloud in the first place or processing that with high costs around your cloud service provider, whether that's AWS or Google Cloud or any of the other ones. We've broken some new technology here that allows us to really dramatically reduce those costs. So we'll be announcing that and showing that at IBC as well.

Just a request for further detail on the 4 separate contract manufacturers for the new-gen cameras. Where are they producing? Does this open up U.S. GSA accreditation? And what's the percentage split between the 4?

Yes. So at the moment, our manufacturing is all done in East Asia. So we have a lot of our manufacturing -- the current products that we have in market are split between China and Taiwan. So the Taiwan product is GSA compliant. Because it's made in Taiwan, it means that we're able to apply for GSA, TAA compliance as well. That allows us to sell in many different countries, into governments where there may be some sensitivities. In terms of the other products that are built in China, at the moment, we're working with those manufacturers to be able to move that -- or to make that manufacturing portable to be able to manufacture these products as additional requirements are needed in other countries as well. So for the moment, we have one product that is GSA applicable. And then the other products are made in China at the moment, but they are made under our designs and under our observation, I suppose. So we're able to move that to different jurisdictions as we need to.

So further questions on the next-gen cameras. So they deliver 2x margins, is quite a dramatic increase. Where is this coming from? And does this imply expected gross margins of greater than 50% for FY '25?