BirdDog Technology Limited (BDT) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to BirdDog's Q1 FY '25 September Quarter Investor Webinar. My name is Sam Wells from NWR, and joining me from the company today is Chief Executive Officer and Managing Director, Dan Miall. Unfortunately, Barry Calnon, the company's CFO, is sick today and therefore, unable to join today's call. Following a brief summary of the quarterly update released to the ASX this morning, we will have 5 or 10 minutes for the audience to ask some questions at the end of today's session. [Operator Instructions]. And with that, I'll pass it over to you. Thanks, Dan.

Thanks very much, Sam, and welcome, everybody to our quarterly webinar. So, as Sam mentioned, unfortunately, Barry Calnon can't make it to the call today, but I'll do my best to answer any questions that come up. Being a quarterly, I'd like to just spend a bit of time really updating you all on what we've been up to in the business, which has been quite a period of activity. And you may have seen through the 4C that we've just announced or just published as well as the preview of this presentation, there's actually some significant changes and some upside from where we've been traditionally over the last 12 months or so. So it's really quite a pleasing period. I certainly don't consider ourselves to be where we want to be, but we're certainly coming back to a position that's much more stable and showing us some signs of strength and growth from there. So with that, I'll get started with the presentation. So, I don't really want to dwell too much on the past, but I think we definitely need to at least acknowledge that the last 12 months or actually more than 12 months, 15 months has been quite a tumultuous period for the business. There's been a lot of external issues that we've been dealing with as well as internal ones. And I'm pleased to say that we've actually consigned all of those to history. It's been a really challenging time for the entire team, certainly for myself and the management team in navigating this. But as you can see with these 5 points here, a lot of the downward pressure and the negativity that's been in the business has now been very well dealt with. So, looking at these individually, looking at probably the most expensive and the largest factor, I suppose, over the last 12 months is the litigation piece with our former contract manufacturer and supplier. That was concluded as we announced a few months ago and we've now completely settled and moved on from there. That's allowed us to not only focus on the business and make sure that we're running it and building it for the future, but also 100% focus on the next generation of products. Additionally, we completed a selective buyback. That's now complete as well. That finalized within this period. So, you will see that through the 4C, there's been some outflows of cash based on that share buyback. But again, that is now complete and in the past from a business perspective. Where we move now into more of the operational side of things, looking at our margins and supply chain, this is where the business really has changed gears entirely. Historically, our margins have been somewhere around about that 20% and that's how we've built our business and how we've taken to market in the past. We've completely reorganized how we build our products and combining this with our supply chain changes, making sure that we no longer have a single point of failure for our supply chain has allowed us to negotiate better rates. And if you like, we've moved up and run in that manufacturing chain in the fact that we're now specifying, designing and building products from the ground up for BirdDog. And that's allowed us to not only have higher margins, but also make sure our supply chain is far more shored up. We're very much excited about what that means for us in the future because we are still just getting started with that engine of new products. But importantly, as the dynamics have changed in the business over the last 15 months, we've also done some quite significant changes to the operational expenditure that we have. So, you can see here that we've removed $3 million of annual overhead costs in the business. And one of those is actually where I am now. We've actually just yesterday moved into our new office, which saves us a considerable amount of money on a monthly basis, which is an additional piece than what we've already been working on in terms of costing the business to the right size for the market that we're in, but also for the way we're building our products as we move forward. So, a lot of that hard work has been done and completed and that puts us into a great footing for what we're calling BirdDog 2.0. So, BirdDog is a relatively young company, but we are 8 years old. And in that time, we've had a number of products that have come out and that's taken time for those to launch and then become successful. And then, of course, we've had some challenging times over the last 12 months. As we move into BirdDog 2.0, we're really seeing this as a great opportunity to rebrand, relaunch and rebase the business on how we're going to be successful moving forward. So with that, you will have noticed and we've spoken about this over the last few months about next-generation products that we've been launching. So, we launched 4 next-generation cameras. They're available in a couple of different colors. So, there's actually additional SKUs from there. But we've launched 4 next-generation cameras over the last 4 months. And that's been really exciting to get these products out to show that we have not only some new generation products, but also some great innovative features. They're beginning to land very well with our customers. And as you can see through our 4C reporting, we've now got revenue and also costs back in line to be effectively an EBIT neutral at the moment. The exciting news is, as I mentioned, we've had 4 new cameras that we've launched so far. We have one additional part that's coming out every month from here through to the end of the year, but also we have new products that are coming out during the new year as well. This allows us to not only have our baseline of products that are coming to market that we can build, but then also we have additional products that are not only appealing to our core market, but also into adjacent markets as well. So, we see there's a great deal of upside as we move forward. I mentioned briefly about our historical margins. What's really exciting and pleasing to see is our net margins are holding up. We're at 40% plus on our next-generation products and that is literally double what we were previously. Now we create our net margins after cost of goods, of course, but there's also freight and duties that go into that as well. So, any of you that are involved in international freight, certainly with the U.S. and other countries, it can get quite expensive. So, freight into the U.S. is an area we're looking at and I'll talk a little bit more about further optimizations there afterwards. And of course, duties and license fees. So, this is a genuine net margin that we're seeing here. So, we're really very pleased with how that's holding up. And it certainly allows us with our trimmed down operational costs to be far more easily attainable in terms of our EBIT and profitability. Now of course, revenue is number one. We can't bank margin by itself. So, the revenue is now returning to the business. It will take some time for that to really gain ahead of steam. We have new products that we need to educate our customers and our partners with. We also need to get a body of proof of these new products to have user stories and have additional information out there for people to feel confident to really buy these products en masse. So, whilst we're already seeing that revenue return to the business, which has delivered us back to being an EBIT-neutral company, as we build up that body of proof and as we build up that additional awareness, there's certainly room to grow from there. In terms of EBITDA, you will have seen in that again, the 4C, the 3 consecutive months of June, July and August, we were EBITDA positive. Now it did tip a slight amount, certainly nowhere near historicals, but a slight amount into negative in the September month. That's because we deliberately exhibited at the IBC show over in Amsterdam. There's 4 trade shows that we do each year, and each one of those is highly important for either the region or for a market that we're in. And the IBC show is the International Broadcasting Convention. It's a show that's on once a year and we needed to demonstrate our new products there to effectively relaunch ourselves with the new product lineup in Europe. So that was highly successful and very much an investment that we're proud to have made. So, as I've mentioned a couple of times already with EBITDA starting to move into positive territory, even when you combine the trade shows because, of course, we have these trade shows annually, there's a true inflection point that we're seeing here. You see the last 4 quarters have been pretty consistently 2-point something in terms of negative. So, it's a significant amount of cash burn and EBITDA negativity that we've seen. As I mentioned in that first slide, there's a lot of reasons for that, that we've dealt with and we've moved through. And now with these new products that are showing absolute signs of uptake in the market and we're seeing that revenue come through with higher margins and having products on stream, it's completely turned that around to being now very much in line with our EBIT neutral and of course, with an eye on how that can move us forward over the coming months. So, in order to do that, this is where the company has really changed and this is where we're talking about BirdDog 2.0 pretty significantly and pretty consistently with you, our shareholders, but also with our partners and customers. As we move with our next generation of products and as we rebuild how we're bringing these to market, there's 9 key structures that we're using with this to make that happen. Of course, we need to prove to our customers these products can solve their problems. We need to educate them. Now you might think that haven't we done this before. But the reality is we have a whole new product lineup. We need to educate our customers on which product suits them and how that can actually benefit them in their workflow. So, far from just turning on the tap and building new products, we're not satisfied with that. We're actually building up the awareness. We're building up the ability for people to understand why the BirdDog products are better for them and why they should be backing those moving forward. So with this, we have these key go-to-market strategies that are already underway. I've mentioned demonstrations and trials. This clear communication piece is all about use cases and explaining to end users exactly how our solutions can provide them an answer to their problems. And the key thing here is our solutions. Many of our competitors just make a single product, whether that's a camera, whether it's a converter or a piece of software. BirdDog is quite unique in the fact that we have innovative products with key features that are competitive and even better than our competitors. But then we also join those together into a complete solution. So, having that communication and education piece is really very important for us to grow our customer base and return our market share and grow beyond that as we move forward. Product positioning also is a very important part of this and that is about making sure people understand within our product range, which one is right for them. Like I mentioned, we've got a whole new product range where previously we had products that were in some ways, muscle memory for our channel. We're now working on being the next-generation BirdDog 2.0 of muscle memory for those products as well. We're gathering some really exciting customer testimonials. And over the coming weeks and months, we have a full schedule of customer testimonials that are coming out, which you'll see some really great use cases of how people are using these next-generation products. I won't give away too much of that at the moment, but there's some really exciting workflows across all of the markets that we target, be that from education through to corporate video for live production and even some really exciting things in, for example, the space territories. Quick wins. That sounds like a bit of a throwaway line, but this is more about how we can boost the market in the short term. And this has to do with promos and marketing activities. We're actually working quite heavily with our partners in the U.S. and also across Europe as well in building out these promos. But importantly, we're making sure that we don't give away our margin too much. We've hard won the additional margin for the business and we're in no rush to give that away just to build out some quick wins. But there's certainly some leverage that we can do there, which is proving to be really influential in the market. Speaking of influencers, we're also working pretty heavily with influencers in the market as well to produce content. Now these influencers produce videos, reviews, use cases, examples of how people use our products and they're independent from BirdDog. These guys are extremely powerful in us getting to market the messages around how these products can work. So, we've got a whole range of key influencers that are producing content right now. And again, that's being built out over the course of these months that will again build up a body of proof, a body of understanding and a head of steam for how we plan to move forward. And then, of course, events and visibility. All of this to say that as we sit at the moment, we've released a brand new set of products. We're halfway through delivering our product range. We've already returned the business to being EBIT neutral and we're seeing strong uptake of these new products. We do also see that there's some exciting possibilities as we grow out those products as we prove to people beyond the core market that we already have that they can actually use our products en masse. So, we see there's a significant amount of upside from here as well. So for us, we really see BirdDog as moving from dealing with challenges that we've had over the past little while to now actually moving into how we can motivate people, how we can educate people and how we can grow the business moving forward. So, we think it's a really exciting period that we're moving into now. But first and foremost, we couldn't be more pleased with the results that we're seeing in terms of these new products hitting the mark and also returning us back to a position where we're no longer burning the capital that we were previously. So with that, that brings us to the end of the -- this part of the presentation. It is rather short, but it's really just a quarterly update, most importantly around the business activities we've been doing. But I'll leave it to you to ask any questions. And Sam, if you'd like to moderate that, please.

Great. Thanks, Dan. [Operator Instructions] And we do have a couple of questions already. So, we'll move on. First one, you've done a great job removing cost out of the business and getting to near breakeven. Assuming this trajectory continues, how should we think about the future state of the business?

Yes. Thanks for that, Sam. I think in terms of rebasing the cost and also the margins in the business, we certainly see ourselves as a new baseline. We do see upside from that. But what I've, I guess, tried to explain with these activities is it takes some time for that head of steam to really progress to being really at its full potential. You can't just flick on the lights with a whole new product range and expect them to be at their absolute full potential immediately. So for us, it's exciting because we see that there's still great opportunities moving forward to increase the sales of these products we've already got out there. Do I think that's going to -- we'd go from negative $2 million a quarter to EBIT neutral and then positive $2 million in the next quarter? Honestly, probably not. But we have the ability to continue to grow that positivity in a measured and also in a predictable way. So, I guess to answer that better, we certainly see a path now moving forward to not only be neutral, but also into growth territory and positivity.

Great. Thank you. 18 months ago before several of the issues you talked about at the outset were encountered, quarterly receipts were $7 million to $8 million a quarter. With the additional next-gen products launching through December, how quickly can you get back to these levels, do you think?

I'd love it to be as quickly as possible. Look, the -- I keep track on where we sit within our market share, particularly in the U.S. because that's our biggest market. And returning ourselves back to the market share that we had previously will get us to exactly that. But keep in mind that these are at elevated margins. This isn't about necessarily grabbing all new markets and showing where there's growth. If we return our market share to where we were, which I believe we've got the products to do and as we build out the marketing and the awareness campaigns, I believe we will return that back to that market share, which will get us back into that same level of revenue with elevated margins.

All right. Thank you. And any idea what proportion of revenue in the last quarter came directly from the next-generation cameras?

A significant amount. Actually, this is where I'd love to have Barry right next to me, but unfortunately, he is unwell. It's going to be somewhere around about the 80% of our new revenue has been with the new products. And that stands to reason in the fact that historically, our cameras have been the strongest part of our market. We've had new generation products come online, which creates a little bit of a spike with those, but we're now seeing that normalize and still become an underlying demand. And of course, we're having these cameras back on market then gives us the ability to then sell those other products. But it's a significant amount of our business has always been cameras and is now returning that to being cameras, which is what's filled in that hole of negative multiple millions of dollars.

Okay. Great. And just on the margins, you've talked about gross margins on next-gen products being over 40%, nearly double those experienced previously. Should we think about this as a one-and-done uplift? Or is there further ability to expand these over time?

Look, honestly, I think we've -- I'm quite satisfied with what we've done in terms of increasing that margin. I think that's a significant jump in terms of growing that margin by double. Look, the reality is there's still opportunities for optimization. And actually, I mentioned it, but I realized I didn't speak about it is freight and tariffs. Right now, we actually ship all of our products into the U.S. via air freight. We're actually shifting that right now to being sea freight because we now have supply on stream that we can actually support a slightly longer shipping time. That will actually pick up a significant amount of percentage points of margin. So that alone still gives us the ability to gain percentage points in margin. In terms of being able to double that again, that's probably a bit of a tall ask, but we certainly still have optimization that we're doing in the business that will deliver more margin from here.

Okay. Thank you. We're getting a couple of questions just on Remedi. Can you elaborate on the -- I think you identified in the release, the $2 million plus ANZ, APAC pipeline? What sort of investment has been made or will be made to convert this pipeline in coming months and quarters?

Yes, absolutely. And I realized I didn't speak about Remedi in the presentation. Remedi is actually an important and strategic part of the business. And as you can see there, having a $2 million pipeline is actually quite significant in the scale of the business that we're at, at the moment. In terms of converting that pipeline into sales, the absolute strategy for us is to really get our foothold and grounding and scale in the APAC region before we go out to the rest of the world. Being a medical-based solution, we need to make sure that we fit the right kind of certifications and also have a number of people actually using us as a reference case and being able to prove that these systems are suitable for them. And that's what we're busily doing. So, we've had some successful rollouts in line with exactly what we're expecting in terms of how that will scale up. In terms of converting what we have in that pipeline, we have our existing team is working on that. We will grow that team as we move forward as the revenue supports that. But we're very confident in that pipeline being able to be converted. And that pipeline is really just the stepping stone for us to then expand that business well beyond there. We see Remedi as being a robust business as we move into the future. It's going to take several more quarters for that to really come on strong, but we certainly see that the conversion of pipeline starting to accelerate at a pretty significant rate over the next quarters.