This week’s reading and viewing list covers How Benjamin Graham Survived World Panic on Wall Street, Why Berkshire’s $1.5 Billion Sale of Bank of America Stock Could Be Just the Beginning and The Folly of Certainty.
Healthcare companies are often seen as defensive investments during volatile times due to the non-discretionary nature of the majority of the industry’s spend. Beyond this inherent defensiveness, the sector also offers pockets of growth, particularly for companies leveraging advancements in technology.
Digitalisation and technological advancements (both hardware and software) in healthcare are driven by a two-sided demand pull: commercially, innovators see the opportunity to create solutions that enhance healthcare for practitioners and patients; simultaneously, practitioners and patients are demanding better healthcare solutions.
Austco Healthcare Limited (ASX: AHC) exemplifies this duality. While the COVID-19 pandemic interrupted many businesses across various sectors, including healthcare, Austco faced significant challenges. Despite these hurdles, the company has emerged stronger, focusing on higher-margin software and service agreements and continuing to innovate in healthcare communication solutions. In this company spotlight, we explore Austco’s recent progress, strategic growth initiatives, and contract wins, showcasing why it’s a company to watch.
About Austco Healthcare
Austco Healthcare is an international leader in healthcare communication solutions, dedicated to enhancing outcomes for patients, residents, and caregivers across various care environments.
The company’s innovative products and customer support reach over 60 countries, affirming its global footprint. Headquartered in Australia, Austco Healthcare operates through subsidiaries in six countries and supports over 5,000 healthcare facilities via its global reseller network.
Austco has continued to grow both organically and via acquisition.
The company has acquired several existing businesses and is looking to expand its foothold in Australia and increase its direct sales capability. Austco recently completed its acquisition of Amentco. Amentco is a security and healthcare solutions provider and is a certified Austco Nurse Call reseller. Amentco specialises in providing integrated nurse call, security, access control and complementary systems to small and medium-scale enterprises in public and private sectors.
Austco has two primary solutions:
Nurse Call System
Austco’s solutions go beyond traditional “button and light” systems, embodying cutting-edge technology.
The company’s premier nurse call system, Tacera, offers a comprehensive range of features designed to meet the needs of modern healthcare environments. This includes pendants, pillow speakers, call points, pull cords, annunciators, lights, touchscreen stations, and audio devices. Tacera’s versatility and advanced functionality make it a preferred choice for healthcare providers seeking reliable and efficient communication solutions. In addition to Tacera, Austco offers Medicom, a simpler and more cost-effective nurse call solution.
Medicom retains the essential features necessary for effective patient-caregiver communication, making it an ideal option for facilities with budget constraints without compromising on quality and reliability.
Alarm Management & Reporting Analytics
Austco’s expertise extends into alarm management and reporting analytics through its Pulse platform.
Pulse Mobile, a smartphone application, empowers nurses to manage alarms and control the nurse call system remotely. This capability enhances workflow efficiency and ensures that nurses can respond promptly to patient needs from anywhere within the facility. Pulse Reports, the reporting analytics component of the platform, provides healthcare staff with access to nationwide health system data.
The ability to run custom automated reports and measure performance against protocols from a single interface facilitates streamlined communication between departments and supports data-driven decision-making.
Margin Improvement
Historically, Austco’s revenue has primarily come from one-off contracts with hospitals, typically secured during the construction phases of these facilities.
Recognising the need for more stable and higher-margin revenue streams, Austco has been shifting its focus toward software sales and service and maintenance agreements (SMA). Post-pandemic, Austco experienced a resurgence in software sales, bolstered by the renewed ability to engage directly with customers. North America in particular has emerged as a lucrative market, experiencing significant growth in software and SMA revenue.
Management is optimistic about the sustained demand for higher-margin software and SMA offerings, as customers increasingly recognise the value of ongoing support and software upgrades throughout the lifecycle of their product deployments.
The availability and cost of raw materials posed significant challenges during the COVID-19 pandemic, affecting Austco’s supply chain and overall gross margin.
In 2023, the gross margin increased slightly from 52.5% to 53.4%, before declining in the first half of 2024 due to lingering supply chain issues. As Austco moves past the higher-cost inventory, there is optimism for a return to improved gross margins.
This improvement revealed itself in the company’s third quarter trading update with the Q3 gross margin jumping to 57.5%.
Financial Updates & Contracts
Following Austco’s third quarter trading update, the company provided further insights for the full financial year ending 30 June 2024.
On an unaudited basis, Austco expects its FY24 revenue to reach approximately $58 million, representing a 38% increase compared to FY23’s revenue of $42 million. Operating earnings are projected to be between $7.5 million and $8.0 million, marking an impressive increase of 108% to 122% over the FY23 operating earnings of $3.6 million.
The market reacted positively to the update with shares rising upon release.
The company’s order book has reached a record $46.2 million as of March 2024, highlighting the strong demand for Austco’s advanced healthcare communication solutions. The open sales orders represent commitments from customers that have yet to be fulfilled and recognised as revenue. The significant buildup of orders during the pandemic, due to site restrictions impacting product delivery, is now being addressed as operational conditions normalise.
This backlog indicates a promising future revenue stream as these orders are progressively fulfilled.
In a recent contract win, Austco secured a $5.0 million deal to supply the new Surrey Hospital in Vancouver, British Columbia, with its leading Tacera alarm management and clinical workflow solution. The new hospital will feature over 650 beds, including specialised units for intensive care and neonatal intensive care, and a new emergency department set to be the second largest in Canada. The hospital, designed to meet the growing healthcare needs of Surrey’s expanding population, will be equipped with over 513 full IP patient stations and 559 clinical workflow terminals.
Revenue recognition from this project is expected to commence in FY25.
TAMIM Takeaway
Austco Healthcare’s resilience and innovation amidst the operational challenges posed by the COVID-19 pandemic have set the stage for substantial growth in the healthcare communication solutions industry.
The company’s strategic shift towards high-margin software and service agreements has fueled impressive financial growth, highlighted by its robust FY24 revenue and operating earnings projections.
With a record order book and notable contract wins, Austco’s future appears bright. Its advanced Tacera platform and extensive global presence underscore its commitment to enhancing patient care and clinical efficiency. As Austco navigates past supply chain challenges and capitalises on its technological advancements, it remains a compelling business to watch in the healthcare sector.
Disclaimer:Austco Healthcare Limited (ASX: AHC) is held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.
Tesla is a mega cap company with a long-term vision to change the world through its innovative technologies. Known for its game changing electric vehicles and advanced software, led by the enigmatic Elon Musk, the company’s story is as much about its technological advancements as it is its volatile share price.
Despite the recent slow sales growth of electric vehicles (EV) and what some analysts are calling an “EV recession,” Tesla’s share price is still up more than 50% over the past three months. This resilience highlights the company’s significant impact on markets beyond the auto industry, given the sentiment changes when Tesla unveils new progress in exciting technology like autonomous driving.
This week, Tesla’s Q2 FY2024 earnings report has stirred mixed reactions. The company’s performance reflected a blend of operational resilience and areas needing improvement, with revenue growth tempered by declines in net profit and earnings per share.
In the face of growing competition in the EV market, the pressure to perform is mounting. Tesla’s strategic focus on innovation and market disruption remains crucial for maintaining its competitive edge. This article goes under the hood into Tesla’s recent performance, highlighting the key factors that influenced its Q2 results and the company’s forward-looking strategies.
Devil in the details
Tesla’s Q2 2024 financial performance revealed a company in a difficult market.
The company reported revenues of US$25.5 billion, a 2% increase from the previous year and ahead of analyst expectations of US$24.7 billion. Revenue was impacted positively by substantial growth in the Energy Generation and Storage business, Cybertruck deliveries and increased regulatory and credit revenue. Conversely, revenue was adversely affected by a reduced average selling price of S3XY vehicles due to pricing strategies and attractive financing options, a decline in S3XY vehicle deliveries, and a negative foreign exchange impact.
Despite the growth in revenue, net profits dropped significantly by 45% year-over-year to US$1.48 billion, with earnings per share (EPS) falling to US$0.42 from US$0.78 in Q2 2023.
Automotive revenue declined by 7% to US$19.88 billion, reflecting challenges in the EV segment, including slower demand and intensified competition. However that isn’t the full story. Investors would be wise to consider that the second quarter also included a US$622 million restructuring charge for employee layoffs. It’s fair to note the charge was larger than anticipated. If you sum what Tesla investors hope to be a rare change, that would add roughly US$0.14 to earnings per share during the second quarter.
Nevertheless, energy storage sales and increased regulatory credit sales also helped offset this sales weakness. Tesla’s global EV deliveries for the quarter stood at 443,956, down 5% from the previous year.
Despite mixed top- and bottom-line results, however, there are plenty of reasons for investors to look forward when considering their long-term investing thesis.
Driving the Results
Several factors influenced Tesla’s Q2 2024 results.
The company faced heightened competition from established automakers entering the EV market, which impacted sales volumes and necessitated price cuts. We wrote back in May about BYD’s Relentless Rise and how it may threaten Tesla’s dominance. CEO Elon Musk acknowledged the “hangover” from rivals’ substantial price reductions, complicating Tesla’s market position.
Musk’s remarks during the earnings call highlighted the ongoing challenges but provided an optimistic outlook.
He stated:
“We don’t see this as a long-term issue, but really fairly short-term.”
Musk is clearly of the belief that Tesla can see out a price war longer than the competition. He also reiterated plans for innovations in autonomy and AI, announcing that the company would release more details on fully-automated robotaxi’s in October, pushed back from the initial August date.
Lights at the End of the Tunnel
Despite the challenges, Tesla’s outlook remains optimistic and forward-looking. There are three major factors for investors to consider, making it easier to take quarterly results with a grain of salt.
First, during the second-quarter conference call, CEO Elon Musk announced that Tesla would delay the unveiling of a dedicated robotaxi model to October 10, from the original date of August 8. While robotaxis and self-driving vehicles might still seem like science fiction, this unveiling is a pivotal moment for Musk’s artificial intelligence (AI) ambitions. Dan Ives, a Wedbush Securities analyst and longtime Tesla supporter, said the unveiling will “kickstart the AI narrative at Tesla, which we estimate could be worth $1 trillion alone over the next few years.”
Second, it has been apparent for some time that the high-end EV market is saturated, with consumers seeking more affordable options. Although there were speculations that Tesla might delay its affordable model to focus on the robotaxi, the company is now back on track to launch a more affordable model during the first half of 2025, or possibly sooner.
Few details were provided, but the plan will combine elements of Tesla’s existing vehicle platforms and a new platform intended for the robotaxi. If Tesla can indeed introduce a $25,000 model by early 2025, it will open the market to a broader consumer base.
Third, while Musk has endorsed former President Donald Trump in this year’s election, it does not necessarily mean the company will benefit in the short term if Trump wins. For example, Tesla’s plans for a future factory in Mexico are uncertain, as Trump could impose tariffs on Mexican goods, which would negatively affect Tesla vehicles produced there. Additionally, if Trump wins and reduces or eliminates the Inflation Reduction Act EV tax credits, it could impact Tesla’s near-term profits, although Musk argues it would be far more detrimental to Tesla’s competitors.
Tesla’s emphasis on autonomy and AI underscores its commitment to pioneering advancements in the automotive industry. Musk’s track record, although sometimes overly optimistic in terms of timelines, has demonstrated a capacity to deliver transformative technologies, including the widespread adoption of electric vehicles, disruption of the auto industry, and the success of SpaceX and other ventures.
Tesla’s expansion into AI and full self-driving, along with plans for the robotaxi unveiling and the production of the next-generation Roadster, highlights its innovative drive. While the company anticipates potentially lower vehicle volume growth in 2024 compared to 2023, it is strategically positioned for long-term success. Musk’s vision of a fully electric transportation system, encompassing cars, planes, and ships, reinforces Tesla’s ambitious trajectory.
Short-term obstacles, such as increased competition and macroeconomic factors, may affect Tesla’s performance. However, the company’s unwavering commitment to technological innovation and market disruption places it in a favourable position for sustained growth. Tesla’s ability to adapt and innovate in response to market changes will be crucial in maintaining its leadership in the evolving EV landscape.
The TAMIM Takeaway
Tesla’s Q2 2024 results have tempered the short-term expectations of some investors and analysts, yet Elon Musk remains focused on the bigger picture. The potential for Tesla to become one of the most disruptive technology companies in history is still very much alive.
The company’s financial performance demonstrated resilience amid market challenges, with revenue growth offset by declines in net profit and EPS. Increased competition and macroeconomic factors played a role in these results, but Tesla’s strategic emphasis on autonomy, AI, and innovation remains robust.
Despite these short-term hurdles, Tesla’s long-term outlook remains promising. The company’s relentless pursuit of technological advancements and market disruption continues to shape its trajectory. As Tesla navigates the complexities of the evolving EV market, its capacity for innovation and adaptability will be crucial for sustained growth and maintaining its leadership position.
Investors can take confidence in Tesla’s long-term potential, bolstered by its track record of delivering groundbreaking technologies and its ambitious vision for the future. The story of Tesla is far from over, and the company is poised to drive some of the most significant technological disruptions the world has ever seen.
The arrival of artificial intelligence (AI) into the mainstream has taken the investing world by storm.
AI demands vast amounts of data and immense computing power to perform complex tasks. This has led to a rapid escalation of AI-related stocks, with Nvidia (NASDAQ: NVDA) emerging as a dominant force.
While Nvidia has taken the initial spotlight in the AI space, the sheer size of the market opportunity provides ample opportunities for other companies to thrive. Many companies have forged strong partnerships with Nvidia, enhancing their growth prospects. Among these, Supermicro Computer Inc (NASDAQ: SMCI) stands out as a long-time Nvidia collaborator, offering compelling growth potential for investors seeking to diversify their AI-related investments.
The company’s (commonly known as Supermicro) innovative solutions and strategic positioning make it an intriguing proposition for investors.
About the Company
Supermicro has made a remarkable ascent in the tech industry, driven by the demand and excitement for AI stocks.
Established in 1993, Supermicro has long been dedicated to providing high-performance server and storage solutions, but it is only in recent years that the company has gained widespread recognition. Despite offering products in over 100 countries, Supermicro has been relatively unknown for most of its existence. Nonetheless, its AI equipment has taken Supermicro to the cutting edge of the IT industry, accounting for most of Supermicro’s all-time gains – the share price gaining more than 4,500% in the past 5 years – astonishing when you consider that the current market darling, Nvidia, has returned 3,100% in the same time frame.
Supermicro specialises in manufacturing computer servers and storage solutions, critical components for cloud computing infrastructures. Their product is particularly aligned with AI-optimised cloud environments, which have been a key driver of their recent success. The company’s unique strategy allows it to offer a modular approach to product design, enabling swift customisation to meet the specific technical requirements of its diverse clientele.
Supermicro has expanded its product offerings to include IT infrastructure essentials such as power and liquid cooling systems, further enhancing its market position.
Their high-density equipment is particularly suited to handle the intensive computing demands of AI models, exemplified by applications like ChatGPT. This has positioned Supermicro as a crucial provider in the AI ecosystem, enabling them to capture significant market share and drive substantial revenue growth. Despite its relatively low profile for much of its history, Supermicro’s strategic partnerships with top chip designers like Nvidia have propelled its prominence. The company’s ability to integrate cutting-edge chips into its systems quickly has been a critical factor in its rapid growth.
This capability has enabled Supermicro to deliver tailored solutions at an accelerated pace, meeting the evolving needs of its customers.
The Path Forward
Looking ahead, there are a number of reasons that we believe Supermicro’s growth and customer popularity will continue.
The company continues to experience robust demand for its full rack scale solutions, which incorporate cutting-edge chips from industry giants like Nvidia, Intel (NASDAQ: INTC), and Advanced Micro Devices (NASDAQ: AMD). A significant driver of future growth is its pioneering direct liquid cooling (DLC) technology. AI data centres, with their intensive operations, generate substantial heat—a challenge that is only set to intensify as AI technologies advance. DLC technology effectively addresses this issue, offering a solution that not only enhances performance but also reduces energy costs and environmental impact. Supermicro’s CEO, Charles Liang, highlighted the company’s excitement about collaborating with leading tech firms on DLC solutions, emphasising their critical role in hyper-dense AI rack deployments:
“Supermicro is excited to collaborate with these leading companies on such an exciting project. Our new industry-leading Direct Liquid Cooling (DLC) solutions are exactly the best for hyper-dense AI rack deployments that can lower energy costs and have a smaller environmental impact. The new AI data centre and the companies involved are a great example of the industry’s commitment to green computing and the global expansion of AI.”
Supermicro’s strategic investments in DLC technology are expected to transform it into a mainstream solution for AI data centres and factories. This shift is projected to significantly increase Supermicro’s market share from its current position.
With substantial investment in new facilities and technologies and as more enterprises transition to liquid-cooled infrastructure, Supermicro is well-positioned to capture a significant share of this growing market, solidifying its role as a key player in the data centre industry.
These advancements are expected to drive operational savings and reduce the carbon footprint of data centres, aligning with the industry’s shift towards green computing.
Recent Results
At the end of April, Supermicro reported strong Q3 2024 financial results.
Revenue grew by an incredible 200% year-over-year (YoY) to US$3.85 billion. The company delivered net income of US$402 million an increase from US$86 million in the same quarter of the previous year. Non-GAAP earnings per share increased to US$6.65 while gross margin improved slightly to 15.5% up from 15.4% in the prior quarter.
The company’s strong performance was driven by high demand for AI rack-scale solutions and DLC designs.
Supermicro raised its FY2024 revenue guidance to be between US$14.7 – US$15.1 billion, up from the previously guided $14.3 – $14.7 billion. The company is expected to report its next quarter’s results on August 8, 2024. Supermicro projects net sales of US$5.1 – US$5.5 billion and non-GAAP EPS of US$7.62 – US$8.42.
Additionally, CEO Charles Liang emphasised the company’s leadership in AI infrastructure and expectations for further growth as new solutions, including fully production-ready DLC, ramp up.
The TAMIM Takeaway
While Supermicro is not currently held in TAMIM portfolios it’s strategic advancements and key industry partnerships position it as a significant player in the continually evolving AI market. We believe the current rotation from Mega Caps to small and mid cap equities in the US market will provide an opportunity to enter into a position in Supermicro (and others) over the next few months.
The company’s innovative DLC technology and high-density computing solutions are well-aligned with the growing demands of AI data centres. With substantial investments in new facilities and cutting-edge technologies, Supermicro is set to capture a significant market share. As customers transition to liquid-cooled infrastructure, we believe Supermicro’s ability to deliver efficient, high-performance solutions swiftly will continue to drive its growth.
The company’s ambitious revenue targets and strategic expansions further highlight management’s confidence in the company’s ability to meet the future demands of the AI era, solidifying its role as a leader in AI infrastructure.
This week’s reading and viewing list covers Why International Investing Makes Sense for Long-Term Investors and eta CTO Andrew Bosworth on the Metaverse, VR/AR, AI, Billion-Dollar Expenditures, and Investment Timelines.
Austco Healthcare is an international leader in healthcare communication solutions, dedicated to enhancing outcomes for patients, residents, and caregivers across various care environments.
