Shareholders of ASX software company Altium Limited (ASX: ALU) may be left frustrated at the company's performance over the last 12 months.
Like many ASX growth stocks, the Altium share price was savaged in the broad-based market sell-off that occurred at the height of the COVID-19 panic last March, with its share price plummeting from a high of well over $40 to just $23.11 in a matter of weeks.
However, over the next few months, Altium shares rallied strongly, reversing most of those coronavirus losses and climbing all the way back up to a 52-week high price of $40.21 by late October.
But, since then, the company's shares have again slid lower, and at their current price of just $26.76, they are not far off the COVID-19 lows they posted almost exactly a year ago.
What's going on with the Altium share price?
Altium released a string of market announcements throughout 2020 advising investors that COVID-19 headwinds were putting pressure on sales. In a June announcement, the company tried to reassure shareholders that it was on target to deliver strong revenue growth in challenging conditions but anticipated that its performance would still fall short of analyst expectations for FY20.
In the end, revenues increased by 10% in FY20 to US$189.1 million, with earnings before interest, tax, depreciation and amortisation expenses (EBITDA) up 13% to US$75.6 million.
The company's efforts to brace the market for a potentially disappointing result seemed to have worked, and the Altium share price jumped 7% the week of the results release.
However, since then, concerns around the continuing impact that the COVID-19 pandemic will have on the company's full-year FY21 results, coupled with some disappointing first-half revenue numbers, have seen the Altium share price drop precipitously.
At the same time, Altium has entered into plans with FSN Capital, a European private equity firm, to divest one of its software development divisions, TASKING. Altium has agreed to sell the division in a deal worth up to US$110 million, with US$10 million remaining conditional on Altium hitting certain performance targets throughout FY21.
TASKING revenue was flat year-on-year for FY20 as its software tools cater mainly to the automotive industry, and the COVID-19 pandemic severely impacted its performance. However, it still contributed US$19.8 million to Altium's top-line revenue number.
The financials
The investor presentation at the company's annual general meeting in November flagged the possibility for slower revenue growth over FY21. The company stated its expectation was for full-year revenue to increase by between 6% and 12% to between US$200 million and US$212 million. This implied there was the likely possibility that revenue growth could decline year-on-year.
In reality, it's panning out worse than that. In mid-January, Altium announced that unaudited revenues for the first half FY21 had actually declined by 3% year-on-year to US$89.6 million. Despite the poor result, Altium decided not to adjust its FY21 outlook at the time, stating that it saw enough "positive signs" to remain confident that it could still hit its full-year target.
The problem is that this puts an incredible amount of pressure on the company to perform strongly over the second half of the year. And this creates unwanted risk, which investors typically aren't keen on.
More recent updates
In the investor presentation that accompanied its first-half FY21 results announcement in February, Altium did adjust its full-year outlook. It stated that it now expected full-year revenue (excluding the TASKING division it is in the process of divesting) to be in the range of US$190 million to US$195 million.
Given TASKING contributed US$19.8 million to Altium's full-year FY20 revenue result, this would imply an increase in 'core' revenue of between 12% and 15%. This is actually higher than the 11% year-on-year revenue growth the company delivered (excluding TASKING) in FY20.
Only time will tell whether Altium can live up to its optimistic targets over the second half of FY21.
