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Aztec Global's Q1 2025 Results · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:08
  Okay, so you sent us this snapshot of Aztec Global's latest business update. First quarter of 2025.
• 0:15
  That's right. The presentation and the press release. And you want to know what's important. Yeah.
• 0:20
  Why the financials look the way they do and maybe what's coming next.
• 0:23
  Okay, let's unpack this.
• 0:25
  Sounds good. For anyone maybe less familiar, Aztec Global, they design and make
• 0:29
  IoT devices, data communication products, all sorts of things.
• 0:34
  Yeah, Internet of Things.
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  They're in quite a few industries. Security, consumer tech, communications,
• 0:38
  health tech, industrial, even automotive.
• 0:41
  Pretty broad scope. Right. So our mission here is to dig into this Q1 performance
• 0:46
  using these documents they released. Exactly.
• 0:49
  Figure out the why behind the numbers, good or bad, and see what hints they
• 0:53
  give about the outlook. Perfect. Let's jump right in then.
• 0:56
  Overall financial performance, the top line. What's the big number?
• 0:59
  The headline revenue for Q1 FY 2025 was $42 million. $42 million.
• 1:05
  Okay. But I feel like there's a but coming. There definitely is.
• 1:08
  You compare that to Q1 last year, FY 2024.
• 1:11
  They pulled in $128.6 million then. So this quarter is down.
• 1:16
  Way down. How much down? 67.3%. A really significant year-over-year drop.
• 1:21
  Wow. Okay. 67.3%. That's substantial.
• 1:24
  What reason did they give for such a big fall? The primary reason stated is
• 1:28
  reduced customer demand for their IoT and data communication products during the quarter.
• 1:33
  Just less demand overall. Okay. Reduced demand. Makes sense.
• 1:36
  That would hit revenue hard. So how did that flow through to,
• 1:39
  you know, the bottom line, profitability?
• 1:41
  Well, they did manage to turn a profit. Net profit came in at $1.5 million.
• 1:45
  $1.5 million profit on $42 million revenue.
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  What's the margin on that? That works out to a net profit margin of 3.6%.
• 1:53
  3.6%. And how does that compare to last year when revenue was so much higher?
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  Big difference there, too. Q1 FY 2024 saw a net profit of $15.9 million.
• 2:02
  15.9. Then the margin then was 12.4 percent.
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  So the profit itself is down 90.6 percent year over year. 90 percent drop in profit.
• 2:12
  Oh, near as the revenue hit. Wait, they still made $1.5 million profit with
• 2:16
  revenue down nearly 70 percent.
• 2:18
  That's actually a really key point they highlighted.
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  They stress disciplined cost management.
• 2:23
  Ah, controlling expenses. Exactly. And cash management, too.
• 2:27
  Plus, they had a decent amount of interest income included in their profit before tax, $2.6 million.
• 2:34
  That certainly helped cushion the blow. OK, so tight control on spending and a boost from interest.
• 2:39
  That explains how they stayed in the black. Let's maybe drill down a bit more
• 2:43
  some of those other key metrics. Sure.
• 2:44
  Let's look at EBITDA earnings before interest, taxes, depreciation, and amortization.
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  Gives a sense of core operational profit. Right. That was $4.1 million this quarter.
• 2:54
  But again, compared to $21.5 million last year, it's down 80.9%. Still a very steep drop.
• 3:00
  It is. And profit before tax, or PBT, shows a similar pattern.
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  It fell to $1.8 million from $18.9 million.
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  That's a 90.5% decrease. Okay. So the PBT margin must have taken a hit, too. Definitely.
• 3:13
  Dropped from 14.7% last year down to 4.3% this quarter.
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  Consistent picture emerging here. What about taxes? Income tax expense was also
• 3:21
  way down, $0.3 million compared to $3.0 million, down 90%. Which makes sense
• 3:28
  if the profit was much lower.
• 3:30
  Right. They directly attribute it to lower profit.
• 3:32
  Interestingly, though, their effective tax rate nudged up slightly from 15.9%
• 3:37
  to 16.7%. Hmm. Okay. And earnings per share.
• 3:42
  EPS. That followed suit. Both basic and diluted EPS fell by about 90% as well.
• 3:48
  Went from over two cents per share last year down to just 0.20 cents this quarter.
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  So yeah, looking at EBITDA, PBT, tax, EPS, it's all pointing back to that big
• 3:58
  revenue decline, isn't it? Yeah. A really challenging quarter profit-wise.
• 4:01
  Absolutely. The link is very clear across all those metrics,
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  but you know, that's not the whole story. Oh, go on.
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  Is this the silver lining part? It kind of is, yeah.
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  When you shift focus to their cash flow and balance sheet, things look,
• 4:14
  well, quite a bit better.
• 4:16
  Okay, I'm listening. Cash flow. They generated a pretty healthy $18.6 million
• 4:20
  in net cash from operating activities during Q1. Despite the profit slump. How?
• 4:26
  They put it down to tight working capital management, so managing their inventory,
• 4:30
  receivables, payables very efficiently. Keeping cash moving.
• 4:33
  Yeah. And because capital expenditure was pretty low, only $0.3 million.
• 4:37
  That resulted in free cash flow of $18.3 million for the quarter.
• 4:43
  Quite strong. $18.3 million free cash flow. That is strong, especially given the top-line pressure.
• 4:51
  What about their overall cash pile? That looks solid, too. Their net cash position
• 4:55
  actually increased during the quarter.
• 4:56
  It stood at $315.7 million at the end of March. Up from when?
• 5:01
  Up from $294.2 million at the end of December 2024.
• 5:06
  So they added cash. Though, isn't there a big dividend payment mentioned? Good point. Right.
• 5:11
  Yes, that $315.7 million figure is before paying out a $77.2 million cash dividend
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  scheduled for late April.
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  Also, keep in mind about $92 million of that cash is tied up in short-term treasury bills and deposits.
• 5:23
  Okay, so even netting out the dividend, they're still sitting on a substantial
• 5:26
  cash buffer. A very substantial buffer, yes. Yeah.
• 5:29
  And adding to that picture of stability, their net asset value per share held
• 5:32
  steady at 44 cents, same as the end of last year. Hmm.
• 5:35
  And working capital. Also stable, slightly up, actually.
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  $314.4 million versus $313.2 million. So the takeaway here is,
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  while prospects took a big hit this quarter. Yes.
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  Their underlying financial structure, their cash position, their assets,
• 5:50
  that seems quite robust.
• 5:52
  Exactly. It paints a picture of a company facing headwinds, but from a position of financial strength.
• 5:58
  Not a solvency issue, more a demand issue for now. Okay, that makes sense.
• 6:02
  So given that foundation, what are they saying strategically?
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  What's the plan? What's the outlook look like?
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  Well, a big focus is their manufacturing facility in Malaysia. Ah, yes.
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  Diversification away from, well, potential China risks. That seems to be a key part of it.
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  They're positioning Malaysia as crucial for expanding their customer base,
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  especially for clients worried about supply chain risks, geopolitics, tariffs.
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  You know the drill. Absolutely topical right now. Are they investing more there? They are.
• 6:29
  They mentioned a new automated production line in Malaysia that's supposed to
• 6:32
  be committing this quarter, Q2 2025. And the benefit.
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  They expect it to improve productivity and quality. They also highlighted their
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  vertically integrated capabilities there.
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  Plastic injection, assembly, testing, the whole process. Gives them more control.
• 6:47
  Makes sense. And potentially more appealing to customers looking for a one-stop
• 6:51
  solution outside of traditional hubs. Any signs this strategy is working?
• 6:55
  New business. They did announce securing five new customers in Q1. Oh, interesting.
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  What sectors? Spread across consumer, health tech, and industrial segments.
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  And importantly, commercial production for these new clients is expected to
• 7:09
  start in the second half of this year.
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  Okay, so that could signal some revenue recovery later in 2025.
• 7:14
  A positive sign for the outlook. Potentially, yes. It suggests the pipeline isn't dry.
• 7:19
  Now, they mentioned something called the Aztec strategy. What's that about? Sounds formal.
• 7:24
  It does, yeah. It's basically their roadmap for navigating, as they put it,
• 7:29
  the uncertain global economic climate.
• 7:32
  Okay, what are the tillers? Five main things.
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  One, strengthen customer-based relationships and diversification.
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  Two, supplier network keep it diversified to reduce risk. Three.
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  Manufacturing footprint, having flexibility with both Malaysia and China.
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  Four, cost management, stay disciplined.
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  And five, foreign exchange risk management, tighten that up.
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  So it sounds like a strategy focused on resilience, flexibility,
• 7:58
  and risk management, covering all the bases.
• 8:01
  Pretty much. Build a strong foundation to weather the storm and maybe even find opportunities.
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  Did the CEO comment on this? Yes. Mr. Michael Munn, the executive chairman and
• 8:10
  CEO, had a, quote, emphasizing their focus on building capabilities, staying competitive,
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  diversifying customers, and essentially aiming to capitalize on opportunities
• 8:21
  that might actually arise from the current challenging environment,
• 8:25
  turning challenge into opportunity. Right.
• 8:28
  Okay, so let's try and wrap this up. We've seen definitely a tough Q1 for Aztec.
• 8:33
  Revenue down significantly, profits down even more. Driven mainly by that drop
• 8:37
  in customer demand. Yeah.
• 8:38
  But on the flip side, their cash generation was strong. Their balance sheet
• 8:41
  looks solid. Lots of net cash. A definite positive counterpoint.
• 8:45
  And strategically, they seem to be making moves, building up Malaysia,
• 8:50
  winning new customers, focusing on diversification and risk management.
• 8:53
  That's the picture painted by these updates. Yes.
• 8:56
  Challenging current performance, but solid financials underneath and a clear
• 9:00
  strategy for navigating forward.
• 9:02
  So it really brings up an interesting point, doesn't it? You've got this sharp
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  decline in current demand and profits.
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  Then you have this strong cash reserve and these forward-looking investments
• 9:13
  in things like the Malaysia facility.
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  What does that contrast tell you about that balancing act?
• 9:19
  You know, managing these immediate short-term headwinds versus keeping that
• 9:23
  long-term vision alive, especially when the economy feels so uncertain.
• 9:27
  That's the million-dollar question, isn't it? How companies weigh today's pain
• 9:31
  against tomorrow's potential gain. Exactly.
• 9:34
  Something for our listeners to mull over, perhaps. How might these factors play
• 9:38
  out for Aztec in the next few quarters?