Focusrite earnings surge as it buys synth maker Sequential

Focusrite reported a 90.9% improvement in group revenue in its first half on Tuesday, to £95.3m, as it also announced the acquisition of synthesiser maker Sequential.

The AIM-traded music and audio technology company said its gross margin improved to 48% for the six months ended 28 February, from 46.1% a year earlier, as its adjusted EBITDA surged 219.9% to £29.3m.

Net cash at period end stood at £19.1m, up from net cash of £3.3m at the end of the 2020 financial year, and swinging from net debt of £19.9m in the first half of the prior year.

The company said consumer demand remained at record levels across the Focusrite, Novation and ADAM Audio ranges, with operating revenue for the Focusrite-branded division up 93.1% to £74m, while revenue for ADAM Audio was up 78.7% to £12.6m.

Martin Audio was profitable, meanwhile, despite reduced demand due to Covid-19 restrictions.

The board declared an interim dividend of 1.5p per share, up 15% from the 1.3p distribution announced last July.

“The group has performed exceptionally well throughout the first half of the financial year, with each brand taking on the challenges and opportunities created by the pandemic as well as delivering on our mission of 'removing barriers to creativity',” said chief executive officer Tim Carroll.

“For the first half, Focusrite, Novation and ADAM Audio products continued to see high demand for home-based amateur and professional audio recording solutions.

“This resulted in revenue for the period being slightly ahead of our revised expectations as announced on 19 February.”

Carroll said that the company believed the base had “materially grown”, with more people using its solutions for music creation, podcasting, social media broadcasts and other streaming workflows.

The digitisation of “almost every facet” of modern life continued unabated, Carroll quipped, with audio being no exception.

“We continue to see challenges, most notably component supply issues that are impacting many industries.

“However, we believe our strong relationships with our contract manufacturers and component suppliers will enable us, over time, to navigate successfully through this.

“We expect demand to remain higher than pre-Covid-19 levels for our ADAM Audio and Focusrite businesses, but recognise the uncertainty that the end of lockdown will bring.”

While demand for Martin Audio products was still constrained by the shutdown of live events, Carroll said the firm was now seeing that pipeline increase for both installed and tour sound business.

“As always, we remain appropriately cautious given the unique global circumstances, but also optimistic about the future prospects for the group.”

The company’s acquisition of Sequential, meanwhile, would see that firm’s existing management and team stay post-acquisition.

Focusrite said total consideration would be $24m £18m), with initial consideration of around $20m of cash paid on completion, and the remaining $4m to be paid subject to certain performance conditions.

The initial consideration would be funded through a combination of existing cash resources, and an £8m drawdown on an existing facility of £40m with HSBC and NatWest.

Following the acquisition of Sequential, the group would have net cash of about £12m.

Sequential is based in San Francisco, in the “historically and culturally-rich” North Beach neighbourhood, from where it would continue to be led by instrument designer and Grammy winner Dave Smith, who founded Sequential Circuits in 1974.

The Sequential portfolio of high-end analogue synthesizers would “dramatically expand” the footprint Focusrite had with its Novation-branded instruments, offering more premium-priced solutions for electronic artists.

In the year ended 31 December, Sequential's unaudited turnover totalled $18.3m, while EBITDA and EBIT came in at $3.5m.

The company’s board said it expected the acquisition to be earnings-enhancing in the current financial year, excluding non-underlying transaction costs.

“Sequential adds to our rich heritage of innovation and passionate people who are dedicated to making world class solutions for musicians,” said Tim Carroll.

“For us, Sequential is a perfect fit, and a logical choice to add to our group.

“While Sequential will continue to operate as a separate business unit with a very robust roadmap, we are all excited about the opportunities and possibilities that lie ahead with the collective expertise of the Sequential and Novation research and development teams.”

At 0833 BST, shares in Focusrite were up 6.49% at 1,187.35p.