Good morning, everyone. Thank you for joining our call today. As I was browsing the list, I saw Lance Korthals on the call. Welcome, Lance. It's great to see you again. For everyone else on the call, Lance was Audinate's first salesperson many, many years ago. It's wonderful to see him attending the call today. My name is Aidan Williams. I'm Co-Founder and CEO at Audinate. With me is Rob Goss, our CFO. In the first part of the call today, we will be talking through the investor presentation that accompanied our financial statements, both of which were lodged with the ASX earlier today. You may type questions at any time by typing them into the Q&A box.
At the end of the presentation, we will collate the various questions and answer as many as possible in the time we have available. As many of you will be aware, Audinate provides networking technology to manufacturers of professional audio and video equipment. We are primarily a networking IP and software company, although we have traditionally packaged our software for sale into electronic chips, cards and modules so that equipment manufacturers can readily incorporate our technology into their hardware designs. Our customers are primarily manufacturers of professional audio-visual equipment. Names like Bosch, Bose, Yamaha, that you've heard of, but a long list of other brands that you may not have heard of, certainly not household names. Our customers are also AV professionals who design and install audio-visual systems for clients right around the world.
As you can see on the map, we are a global company with headquarters in Sydney, Australia. We have several locations around the world, primarily providing sales and support functions with video engineering teams in Cambridge, in the U.K., and Louvain-la-Neuve in Belgium. Before diving into the details of the presentation, I'd like to draw your attention to three highlights. I think we have achieved excellent revenue growth of 39% in US dollars despite lingering chip shortages. This result could potentially have been even better with stronger chip supplies. I think that it shows that we have again managed supply chain challenges well over the last half. I want to highlight Dante Video Momentum. Our first video software product for manufacturers, which is called Dante AV-H, has been very well received.
At the ISE trade show two weeks ago, 19 manufacturers were exhibiting Dante video products on their booths. It is very encouraging to see Dante video products coming to market. Thirdly, we successfully launched Brooklyn 3, which is a drop-in replacement for our popular Brooklyn 2 product. Chips used in the Brooklyn 2 design have effectively gone end of life, it was critical to transition quickly to a new design using available components, both for our customers and for our revenue. I'll return to these points later in the presentation. You should see slide three on the screen now, this is a relatively new slide for us, it's intended to be a high-level map of Audinate's products and customers.
On the left, you can see a vertical column where we have characterized our products into those purchased by manufacturing customers and those primarily purchased by AV professionals. The bottom row on the slide categorizes products for manufacturers into audio and video, and further breaks those categories down into chips, cards, and modules, which are some kind of electronics and software. Dante solutions for manufacturers end up embedded into thousands of AV products and form the bedrock of the Dante platform. The products shown in the middle row are primarily purchased by AV professionals or users of AV equipment. Dante AVIO adapters enable Dante technology to be added to an existing brownfield installation in a cost-effective manner and pull through other Dante products. In addition, we provide a full complement of PC and Mac software products to connect computers and application software to Dante systems.
The top row on this map is the category for configuration and management software and includes the very widely used Dante Controller software, which is needed to initially set up a Dante system, and the Dante Domain Manager, which professionals use to manage Dante systems at scale. By way of applying this map, I just highlighted that our first software video product for manufacturers has been well received. It is called Dante AV-H, and you can see it at the bottom right-hand corner of the diagram. Also, I highlighted Brooklyn 3, the drop-in replacement for the supply-constrained Brooklyn 2. It is a hardware audio module for manufacturers and can be found in the bottom left of the diagram. Slide four summarizes Audinate's financial results for the first half. Again, I want to draw your attention to three points. The first is the record revenue result despite supply chain headwinds.
The second is the decline in gross margin percentage, which was due to a change in product mix, with revenue coming from the lower margin Viper turnkey video products. Which we acquired with the Silex video business. Further, we have chosen to prioritize chip availability over cost in our Brooklyn 3 replacement for all Brooklyn 2, resulting in a 7% lower gross margin. Ultimately, we believe gross margin percentage will return to the historical average and continue to rise with higher growth in software revenue. Finally, the improvement in operating cash flow is consistent with the scalability of the business, with increased revenue dropping through to improved EBITDA and operating cash flow. Rob will speak in more detail to the financials later in the presentation. Slide five shows key operational results for the first half.
Strong demand for Dante continued during the first half, with 78 design wins, and that's up 86% from the previous corresponding period. Each design win represents a new or existing customer committing to develop at least one new type of Dante product. As Dante technology becomes increasingly entrenched as the de facto standard, design wins become a more revealing metric than simple totals of OEM customers. Sales backlog remains at record levels. However, conversion of that backlog into further revenue growth will be dependent upon improved chip supply. The total number of Dante-enabled products continues to grow and hit another record high of 3,688 products, representing something like a 12 times lead on the next nearest alternative technology. A healthy 116 new Dante-enabled products were released during the seasonally quieter first half of the year.
However, chip shortages have forced manufacturers to redesign products, and in some cases, older or less successful products have been retired rather than being redesigned. In total, 38 Dante-enabled products were retired during the half. Strong demand for Dante, a buoyant industry outlook, and an improving but still constrained chip supply bode well for second half performance and future revenue growth. Slide six covers or summarizes progress against our FY2023 objectives. I won't cover everything on this slide, but I would like to hit a few highlights. It has been critical to transition our products and manufacturing customers across the chips or modules that are available in reasonable quantities. The Brooklyn 3 project has been particularly successful in that regard, with most manufacturers able to easily transition to Brooklyn 3.
Chip down solutions like Dante Broadway and Dante Ultimo are more challenging, requiring manufacturers to redesign circuit boards as they transition to alternative Dante solutions. Achieving momentum with Dante video products has been another high priority, and pleasingly, Dante video products from 19 different manufacturers were on display at the recent ISE trade show. We are on track to deliver meaningful video revenue this year, and we have shipped nearly 6,000 video units in the first half, positioning us well to achieve our target of 10,000 video units shipped in the full year. Progress continues to be made on improving operational efficiency with a substantial increase in capability in the Philippines and the delivery of a configure price quote or CPQ module in Salesforce to improve sales efficiency. Slide seven provides more detail on the successful release of Brooklyn 3.
As I've already mentioned, the Brooklyn 3 product redesign addressed the critical lack of chip availability in our Brooklyn 2 product. You can see a picture of the Brooklyn 3 module on the slide. Production commenced in October in both our mainland China and Malaysian contract manufacturing facilities, rapidly ramping up to record monthly volumes. Increased component costs for Brooklyn 3 were to a large extent passed through to customers with an increase of 18% increase in average selling price. Internally, this project was a high priority, and it involved essentially all parts of the company and was successfully completed in under 12 months from when serious chip shortages began. We marked successful completion of this project with a celebration thanking staff for their efforts, and you can see a photo from the Sydney office on the screen of that celebration. Turning to slide eight.
FY2023 has already been a big year for Dante Video, and we're not finished yet with increasing product momentum and the launch of new software products. I mentioned Dante AV-H for manufacturers already, but we've also launched Dante Studio, which is our first PC, Mac video software for AV professionals. On the screen, you can see several pictures from the ISE trade show held two weeks ago in Barcelona. Of the 30 manufacturer brands who have licensed the Dante video solution to date, 19 manufacturers were showing products at ISE.
These range from pan-tilt-zoom cameras, often used in unified communications and higher education applications to encoder and decoder boxes that are capable of acting as video on and off ramps for video signals to and from the Dante network. Pleasingly, Bolin, who was a very early adopter of Dante Video Technology, released even more Dante Video products at ISE and a healthy range of well-known brands, several of which you can see on the screen, were promoting their Dante AV-H products. Slide nine summarizes Dante Video product development progress. I've already highlighted the release of Dante AV-H, our first Dante Video software product for manufacturers. Interest has been very strong in Dante AV-H, with manufacturers of many cameras able to add Dante AV-H as a software update to their existing products.
Dante Studio development has continued during the half, with the completion of our beta program and the commercial availability of our first PC, Mac software video solution. As with our other PC, Mac software products, it will be available for sale via our website. Enhancements to Dante Domain Manager to support video products were also completed during the half. We will be following our typical playbook over the next half or the remainder of this financial year, driving manufacturer adoption of Dante video technology, getting first products to market from existing video licensees, and continuing to broaden our portfolio of video product offerings. I'll now hand over to Rob for the finance section.
Thanks, Aidan, and good morning, everyone. Over the next few minutes, I will be explaining the first half FY2023 financial results that were lodged with the ASX earlier today, and are summarized in the accompanying investor presentation. The financial information I will be covering is set out on slides 11- 16. I will start with slide 11, which sets out some of the key revenue information for the business. In US dollars, revenue was $20.6 million, growing 39% from $14.8 million in the prior corresponding period, hereafter referred to as PCP. The AUD-US dollar exchange rate was favorable relative to PCP, resulting in Aussie dollar revenue growth of 52.5%. The main driver of the increase was 44.9% growth in chips, cards, and modules revenue, which is abbreviated to CCM.
The main products responsible for the increase were the newly released Brooklyn 3 module, video Viper Boards, and to a lesser extent, AVIO adapters. Ultimo chips continued to be supply constrained, and whilst revenue was comparable to PCP, there was a 20% decline in the number of units shipped. The end of life of the Broadway chip was announced during first half 2023, and consequently, there was a decline in both revenue and units shipped related to this product. Original Equipment Manufacturers, hereafter referred to as OEMs, are transitioning off the Broadway chip. Pleasingly, the major buyer of Broadways is already taking Brooklyn 3 modules as an alternate. In summary, there was strong growth in high dollar value products and a decline in the volume of lower dollar value products due to supply constraints.
The net effect is a marked increase in the average revenue per unit, which is shown as a dotted yellow line in the right-hand graph. Software revenue grew 22.4% to $4.7 million from PCP of $3.8 million. OEM software products are responsible for this revenue increase, namely Dante Embedded Platform, IP Core, and other software royalties. As we flagged back in August 2022, the overall gross margin percentage declined to 71.2% from the long-term average of around 75% due to a change in product mix during first half 2023. The majority of the decrease relates to the Viper Board product acquired with Silex video business. A white-labeled finished product that is high value with a margin of less than 50%.
The second factor is the 7% lower gross profit margin of the newly released Dante Brooklyn 3 module. The third factor is the relative growth of CCM revenue over software revenue during first half 2023. In FY2024, the business expects gross margin to trend towards the historical average over time, continue to rise with higher growth in software revenues. From this point onwards, all amounts quoted will be in Australian dollar. We have included an EBITDA bridge on page 12, which shows the main factors driving the increase in EBITDA from AUD 2 million in first half 2022 to AUD 4.3 million in first half 2023. Operating expenses increased by 33.4% to AUD 17.7 million in the half year ended December 31, 2022.
The key movement was a AUD 3.3 million increase in employee costs as headcount grew from 166- 186, salary increases, and the annualization impact of new headcount over the period. Slide 13 shows that operating leverage is again evidenced as additional revenue drives EBITDA growth. This is also evident in the dotted yellow line, showing both R&D and operating expenses as a percentage of revenue declining in first half 2023. Slide 14 shows a traditional income statement with detailed explanation of individual line items, which I will leave you to review at your leisure. The main item to note is that other income includes a AUD 400,000 gain from the revaluation of the revenue earn-out associated with the acquisition of the Silex video business. This amount is excluded from EBITDA and also the calculation of staff incentives for FY2023.
As a result of all the items I've discussed, net loss after tax was AUD 0.4 million for the first half ended 31 December 2022, compared to a PCP net loss of AUD 2.1 million. On slide 15, you'll find a cash flow statement which shows operating cash flows of AUD 1.8 million compared to PCP of AUD 0.6 million. It is worth noting that operating cash flows in the first half are seasonally lower due to the payment of annual bonuses. The balance sheet is set out on slide 16. From our perspective, it remains a clean balance sheet with no debt, noting that cash and term deposits amounted to just over AUD 37.9 million at 31 December 2022. I will now hand back to Aidan to cover the outlook for the second half.
Slide 18 summarizes priorities for the second half. At a high level, our objectives in the first and second halves remain the same, and we covered first half progress against them earlier in the presentation. Whilst we expect chip supplies to improve through the rest of the calendar year, in 2023, shortages will likely linger through FY2023, with long component lead times and elevated spot market prices. We will continue the process of transitioning our products away from chips that are hard to get and creating design alternatives for our manufacturing customers. As we have said before, demand remains strong, and if the chip supply environment continues to improve, we expect to convert our backlog into revenue. Driving the adoption of new Dante products, notably Dante Video offerings, remains a priority.
Markers here are the growing numbers of Dante Video products released from manufacturers going into markets. Turning to the second half outlook on slide 19, the outlook for the remainder of FY2023 remains consistent with the statements we made at the release of our FY2022 results. We continue to target around 200 employees at the end of FY2023, although labor markets have been tight in key recruitment areas. Audinate enters the second half with a backlog and software revenue run rate to support US dollar revenue growth in the historical target range for FY2023, subject to the risks outlined earlier. We currently expect significant further traction in our video offerings, including revenue of at least $3 million in FY2023. In wrapping up, I'd like to return to the three highlights that I began with.
Firstly, I think we've achieved an excellent revenue result for the half, despite lingering chip shortage headwinds. Dante Brooklyn 3 was successfully delivered, providing manufacturers with a drop-in replacement for our supply-constrained Dante Brooklyn 2 product. Finally, I wanna highlight Dante Video momentum. Our first OEM software product, Dante AV-H, has been very well received, and at ISE two weeks ago, 19 manufacturers were exhibiting Dante Video products in their booth. It's very encouraging to see Dante Video products coming to market. Now I'll hand back to Rob to coordinate Q&A.
Once again, reminder to everyone on the call, if you have a question, please type it into the Q&A box on Zoom, and we'll endeavor to answer all of the questions that get submitted. Aidan, I'll just provide you with a little bit of time to consider the first two questions while I answer questions three and four. Question here from on video OEMs. 88 were 26 OEMs at FY2022. That included Silex. To clarify, is the 30 video OEMs just Dante, or does it include video customers, Silex video customers as well? No, the 30 is just Dante AV, and there are additional Silex customers that were acquired as a part of that acquisition.
In totality, we're well over 30, as compared to the 26, six months ago. We've got another question here around does the comment on record sales backlog refer to US dollar backlog or unit backlog? We only measure the backlog in or track it internally around US dollars, and it's the highest it's ever been. I expect if I looked at the actual unit numbers, it may well be a record in terms of unit numbers as well, but internally the focus is on the dollar value. Aidan, I'll bring it back to you. The first question on video. 30 OEMs, 20 video products. How are you seeing customer demand for your new product offerings outside of Viper?
Are non-Viper products expected to represent a reasonable portion of second half revenue?
The answer to that question is we're seeing very good traction with non-Viper Dante video product offerings, and in particular, the Dante AV-H software offering. That there's definitely meaningful traction on that as a software product. Also, we are expecting to have our Dante AV Ultra products coming to market with some other manufacturers as well. It isn't all about Viper. On the revenue side, I would say actually that when you say meaningful revenue this financial year for things like Dante AV-H, it's very early days for those products, so my expectation is that revenue associated with AV-H will be modest.
However, I think that, and certainly by comparison to Viper, because the Viper is essentially a complete white label turnkey product, so it's a much higher dollar per unit revenue than each copy of each license for Dante AV-H. The way I would describe that is, Viper will contribute pretty meaningfully to our revenue number on the video side of things, and Dante AV-H will contribute meaningfully to the volume number, or I expect it to over the next half, as well as Dante Studio. It's a set of products that are contributing to momentum on Dante Video, some manufacturer PC/Mac software products, but also Viper itself.
Thanks, Aidan. Another question here. CapEx capitalized costs higher versus consensus. How should we think about financial year CapEx, the AUD 7.5 million in first half? How to think about percentage capitalized going forward, sort of remembering that the detail of the CapEx first half included external spend of AUD 1.5 million associated with video.
Yeah.
Okay. I guess, I'd say sort of break out that AUD 1.5 as external spend. I think you can look at the graph included in the investor presentation. You can see a relatively steady and consistent trend around the dollars and the trajectory of those dollars. Historically, the percentage which we've capitalized of costs has been somewhere anywhere between 75% and 65%. We were a bit hot. We were sort of at the top end of that range for this half, given the work around Brooklyn 3 and getting other products to market. What I would say is, I'd sort of take out the AUD 1.5 for this half, and I would look at the internal spend and look at that trajectory going forward.
Aidan, I'll give you a little bit of time just to consider this question here, while I answer a few others here. How much of CCM revenue is related to video in the first half? We've disclosed that in the investor presentation. It's over AUD 2 million in the first half, placing us well to achieve the goal that we set out at the beginning of the year of AUD 3 million of video revenue. There's another question here. What is the next biggest risk to the business growth that is non-chip related, and how is Audinate planning to address this?
Yeah. Well, the biggest risk growth-wise at the moment is definitely chip related. That is the biggest thing. I think probably the next related piece is transitioning our customers to things like software products and solutions over time. That's really about helping our manufacturing customers to make that transition from existing solutions that they're using elsewhere. That would be the thing that is related, but not exactly chip shortages. It's the implications of chip shortages that probably matter. On the bigger picture, I think we still are at early days on the video side of things, I would not be.
Whilst I think we have an excellent brand with Dante audio products, there are quite a lot of different, the video market is very fragmented, and so we have not yet got to the point where I would feel comfortable saying that we're the de facto standard in the video world. I think one of the, one of the bigger risks, probably the next biggest risk is making sure that we succeed in making sure our video products succeed.
Okay. very good. Aidan, you might just wanna give some thought to questions two and four here, while I deal with a couple of the other questions. One of them is video revenue hit AUD 2 million in the first half, AUD 3 million guidance for financial year. Any reason why video shouldn't be stronger in the second half, given momentum? look, it, you know, the potential is that that revenue might bounce around a little bit. There are sort of high dollar value items related to the Viper Board, and the ability to generate that revenue is very related to supply chain availability. Yes, we're well placed to exceed the AUD 3 million target, but we'll sort of see how the second half plays out. A couple more questions here.
Balance sheet remains strong.
Yeah.
With AUD 38 million in cash and no debt. Talk through the opportunities for video and software M&A going forward and intentions.
Our intentions, I guess every time we get asked this question, I feel like I give almost the same answer. We do have a strong balance sheet. We are interested in acquisition opportunities. The cash is not necessarily burning a hole in our pocket. We have looked at, in the last half, we've looked at least one software company in the video world and decided not to go ahead with that. There are certainly other companies that we have on our radar that we're exploring, whether the opportunities make sense. Generally speaking, any acquisition that we do will have to be a strategic acquisition that's lined up with our needs from a technology point of view.
It could be a video thing, it could be a software thing, it could be a signal processing thing, it could be cloud-based management software products, control. Any of those kinds of spaces are either very aligned with our long-term strategy or quite complementary to it. We're certainly looking at various opportunities. Hopefully you have seen that we've been reasonably prudent about what we decide to pull the trigger on. I'm, you know, quite happy with the results of our Silex video acquisition. I think that's gone very smoothly and has contributed both revenue, technology and people to the company going forward.
If you think of that or you look at that acquisition, in the past, I think that's probably the style or the type of acquisition that I'd like to repeat if we could. yeah, that's probably the situation at the moment.
A follow-up question here, unrelated. Can you be a little more specific re, lingering chip shortage issues and quantify impact on Ultimo and how Brooklyn 3 has impacted both Brooklyn2 modules and Broadway sales?
I can probably start with the back end of that. Dante Brooklyn 3 has essentially caused the end of life of Dante Brooklyn 2. The chips that were in short supply that got used in Dante Brooklyn 2 and Dante Broadway, it was the same chip that was used in two of them. What we're wanting to do is make sure that we have supply for Dante Broadway customers of that part, because Dante Broadway customers, they solder that chip down onto their circuit board. We need to be able to supply Dante Broadway long enough to enable those customers to do redesigns. One of the decisions we've made is really we want to transition customers across to Dante Brooklyn 3 and free up chips from Dante Brooklyn 3 to facilitate a longer runway and transition for Dante Broadway.
Lingering chip shortages, you know, that affects the chip down solutions like Dante Ultimo and Dante Broadway more than it does Dante Brooklyn 3. On the Dante Ultimo side of things, I think Rob mentioned that we had at least a 20% unit decline in Dante Ultimo in this half. We've actually had supply come in in this half, you know, towards the end of the half. The situation with Dante Ultimo is there's still pressure on those parts and our chip supplier is giving us better visibility that they have, but we've not yet returned to what I would consider run rate that kind of matches the demand that we have.
Lingering chip shortage really means that for things like Ultimo, I don't see us being in a position between now and the end of the financial year where we will be able to deliver all of the demand that people want. I think we will be able to deliver a substantial fraction of that, and hopefully we can bring that delivery forward. At the moment, we do have commitments from our chip suppliers, but they tend to be back-end loaded. I think lingering chip supply means that life is getting better on the chip shortage side of things. Depends on the parts, and we still have to manage and allocate parts at least for the next six months. We expect likely for the rest of this calendar year, at least in some cases.
Thanks, Aidan. You might just want to give some thought to questions one and three on the screen while I deal with a couple of others. Another question here. Big FX tailwind in first half FY2023. What are you forecasting in the second half? When we reforecast our positions, generally we reforecast at spot plus AUD 0.02. As it turns out, that sort of equates to what spot is at the moment. That's the answer on FX. We've also got a question around approximate percentage of development spend is expensed, what is capitalized. There's a slide on that in the investor presentation. We vary between about 65% and 75%.
It is a little bit higher, this half because of the nature of the activities. It's all based on the timesheet of the sort of software engineers and product management personnel. It sort of reflects where we're up to and the focus on Brooklyn 3. A couple of other questions here. What are some of the metrics management measure their performance on? As shareholders, how can we follow these numbers, et cetera?
Yeah, good question. Internally, probably the way to address this is to point you towards, I think we have a backup slide in the deck, which is... Yeah, slide 26 in the presentation that was lodged with the ASX. This is really a sales pipeline chart. It goes from pre-sales. Design win is a key measure or metric all the way through products turning up on market, then ultimately generating revenue for us. I point you to that slide because, whilst we didn't talk about it in depth this time around, it does highlight the importance of design wins as a leading indicator of future repeat revenue for Audinate. Internally our bonus structure is geared around two financial measures. One is revenue, one is EBITDA.
A top line and a bottom line, financial measure. There are also two, well, this year there's actually one metric associated with delivering video units. Design wins would be the other one I would point you to in terms of their importance for future revenue growth. Clearly, the number of Dante products coming to the market, every one of those Dante products generates repeat revenue for Audinate each time it gets manufactured. Yeah, check out the sales pipeline chart. Design wins, products coming to market, and from a strategic point of view, the number of video units is a key metric that we're tracking and measuring ourselves on this year.
Okay. Thanks, Aidan. another question here. Interested in the structural growth of the sector. One, for the circa 40% revenue growth achieved, what's the split between new and existing customers? Two, are trade shows back to pre-COVID levels? Three, the current economic climate. Are you seeing any changes to sector budgets for AV video, e.g. education and healthcare?
Yep.
Especially in light of price increases. There's a bit to unpack in that one?
Yeah, there's quite a lot. I'm not sure I have details in the split between new and existing customers. My guess would be, unless you have anything further to add, Rob, would be that most of it is existing customers in terms of our revenue growth.
Yep.
Are trade shows back to pre-COVID levels? I would say no. ISE, I think was up, substantially up on its show last year, but it hasn't yet got back to the 2019 kind of peak of something like 80,000 people. I think we're still at least 20,000-25,000 people off that. Trade shows are healthy, and people are returning to trade shows, both customers and manufacturers. I think trade shows are still well worth doing and they're great opportunities for us.
In terms of sector budgets and AV and stuff like that, I think one of the things that's happened is, you know, associated with the whole sort of COVID thing, is there has been a bit of a sort of secular shift in terms of how people think about working, and that has caused changes in higher education, in business, where more people are at home. While there was a mad scramble in the middle of COVID from universities, for example, to continue to be able to teach remotely, I think what we're seeing now is much more interest in improving AV systems for a hybrid working environment.
There's a lot less interest in huddle rooms with a crappy webcam, and now there's much more interest in trying to make or trying to equalize the experience of everybody individually being at home with a, you know, reasonable setup and a conference room experience with a bunch of people around a table that's kind of glaringly different from the sort of experience you get when you have individuals. I think that would be the big shift, I would talk to.
Okay. Excellent. Well, thank you to everyone. We've got a few more questions which we'll get through, but we'll rule the line under the questions received to this point. If you wanna give some thought to that final question while I cover a few of the others which are still on the screen. Talked about chip supply headwinds with high spot prices. How significant were these cost headwinds in percentage or dollar terms in first half FY2023? Not overly significant. We've talked to the three items which have contributed to the decline in gross margin percentage. In particular that Brooklyn 3 product we did optimize on chip availability rather than cost. We do believe that there's a pathway to cost down for that product over time. Another one here.
Software revenue declined slightly year-on-year. Please comment on the performance plan to drive software revenue in the near term. Thank you for that one. In effect, there are a large number of products which go into that software bucket. What we found is the OEM software products, so these are different ways in which Dante can get built inside a piece of AV equipment, still performed quite well over the period. There was some softness in the revenue associated with Dante Domain Manager and some of the retail products, Dante Via and Dante Virtual Soundcard, which we believe are symptomatic of the AV industry being still quite supply constrained and that adversely impacting new installations.
You will note that software revenue has sort of bounced around a little bit historically. Do believe that's still sort of symptomatic of the environment that we find ourselves in. We're, yeah, we're interested to see how that plays out longer term. Our view has not changed that there'll be a growing and increasing proportion of revenue generated from software. In the near term, it might be a little bit choppy. Another question here, given the return of trade shows, do you expect revenue seasonality to return? Ultimately, I think we're in an environment where the volatility in earnings is still related to supply chain and availability of parts.
There is some potential upside in revenue if part availability is more than what we've factored into the outlook statements?
That's that one.
We've answered, and so we'll just come down to the final one for you, Aidan.
Yep.
Why is Viper lower gross margin as a full turnkey relative to AVH? Is it a legacy pricing brand issue? Will it get rebranded as a Dante product with better margin?
It's more to do with the fact that it is a full turnkey product rather than the Dante branding piece. Historically, Audinate has not provided. Audinate's products have generally been high margin products because we've offered essentially IP and software. Any time we've had a chip or a module, it's essentially been packaging for a high margin, high value piece of software. The Viper is really, it's a whole circuit board, like it's a complete product, so it has hundreds of dollars worth of electronic components in it. Many of those components are not fundamental to the core Dante networking function. It really just cannot sustain a kind of 75% gross margin.
We get our gross margin because the IP we have is valuable. Most of the Viper Board is really related to contract manufacturing, and that tends to be why it has a lower gross margin. It's a higher dollar value unit, lower gross margin as a result. We absolutely will. We are working to transition those Viper products across to Dante AV Ultra, for sure. There's a lot of product development happening in that world, and we want to make sure that we can offer a higher value. We wanna take the key technology components out of the Viper design. Effectively the IP and the software, and bundle that up with the Dante technology. There's video compression, there's various kinds of video product features.
We wanna take the compression, the video product features, and combine that with the Dante technology, and then create a combination Dante video product which has high value and then is sold somewhat like the way we sold Broadway and the way we currently sell our IP Core solution on the audio side of things. What we're really trying to do is create a high value Dante video product that incorporates the Viper technology, but that product will not be a full turnkey solution as it currently is with the Viper technology. Hopefully that answers that question.
Very good. Well, thanks, Aidan. In the interest of transparency, we have attempted to answer all of the questions which came through on the line. In summary, it was an excellent first half result in an environment which is still quite challenging for the AV industry, and we remain very positive about the outlook for the second half of FY2023. Thanks again for your interest and your support of Audinate.
Thank you.