Altium (ASX:ALU) share price higher on guidance update

This tech company may be doing it tough today but sees plenty of growth ahead…

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The Altium Limited (ASX: ALU) share price is on the move on Friday morning.

At the time of writing, the electronic design software provider’s shares are up 3% to $35.46.

Why is the Altium share price pushing higher?

The catalyst for the rise in the Altium share price today has been the release of a presentation and a trading update.

In respect to the latter, Altium’s Chief Financial Officer Martin Ive revealed that the company’s performance improved in the second half after a slow start to the year. However, due partly to a shift in its sales mix, there is a danger it could fall short of expectations in FY 2021.

He said: “Momentum has returned to Altium’s business with double-digit growth in the second half, however, after a slow first half due to the impact of COVID and our pivot to the cloud, the full year is likely to be at, or slightly below, the low end of our guidance.”

The guidance range Mr Ive is referring to is for revenue of US$190 million to US$195 million in FY 2021.

In addition to this, Altium is expecting its margin to be at the low end of the guidance range of 37-39% on an underlying basis. This excludes one-off acquisition costs and the write back of the SolidWorks minimum contractual amount due to termination of its agreement.

Mr Ive further commented: “Altium’s renewal business is strong, Octopart is set for a record performance and China is delivering a solid performance. Demand is growing for Term Based Licences (TBLs), which is a positive for future recurring revenue, however, Altium’s perpetual licence sales have underperformed relative to our expectations in the key markets of the US and EMEA as our sales organization works through its transition of our new sales model.”

This new sales model is gathering pace, with the adoption of the Altium 365 cloud platform continuing to increase. The release advises that there are now more than 13,100 monthly active users and over 6,300 monthly active accounts.

What about the future?

While FY 2021 might have been a touch disappointing, management remains very positive on the company’s long term growth prospects. This appears to have supported the Altium share price today.

It has reaffirmed its commitment to achieve Altium’s aspirational 2025 financial goals of US$500 million revenue and 100,000 subscribers. This is expected to be underpinned by the company’s unique position within the global engineering software industry and track record of strategic execution.

In addition to this, due to the aforementioned change in its sales mix, management expects the majority of this revenue to be recurring in nature by then. It anticipates recurring revenues growing from 60% to 80% of overall revenue by 2025.

Commenting on the future, Altium’s CEO, Aram Mirkazemi, said: “Everyone at Altium is strongly focused on delivering our strategy and driving value for our investors. Electronics sit at the heart of all intelligent systems, and Altium software and services provide the unique bridges that connect electronic design to the electronics supply chain and the manufacturing of electronics products.”

“With the strong early adoption of our cloud platform, we are evolving from our PCB design origins and are now playing an essential and growing role in the design and making of smart products, that spans manufacturability and productivity, research and influence, and component sourcing.”

Mr Mirkazemi appears confident in the company’s strategy and expects Altium to dominate the industry.

He said: “With our strategy we are pursuing dominance and transformation simultaneously. This will allow us to continue to deliver value to shareholders, while driving electronics industry transformation for the benefit of our customers.”

“The building blocks of our strategy are in place; our flagship PCB design tool Altium Designer supported our journey to market leadership and remains at the core of the Company, our new cloud platform Altium 365 will drive our ambition to unify and align the electronics industry and our ecosystem platform Nexar will bring transformation and a clear pathway to monetization.” Mirkazemi added.

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James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Altium. The Motley Fool Australia owns shares of and has recommended Altium. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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