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Edited Transcript of ALU.AX earnings conference call or presentation 18-Feb-19 6:00am GMT

Half Year 2019 Altium Ltd Earnings Call

CHATSWOOD Feb 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Altium Ltd earnings conference call or presentation Monday, February 18, 2019 at 6:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Aram Mirkazemi

Altium Limited - CEO & Executive Director

* Joseph G. Bedewi

Altium Limited - CFO

* Kim Besharati

Altium Limited - Company Secretary and VP of IR & Corporate Affairs

* Martin Ive

Altium Limited - VP of Finance

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Conference Call Participants

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* Chris Savage

Bell Potter Securities Limited, Research Division - Senior Industries Analyst

* Josh Charles Kannourakis

UBS Investment Bank, Research Division - Research Analyst

* Roger Samuel

CLSA Limited, Research Division - Research Analyst

* Stuart B. Turner

Blue Ocean Equities Pty Ltd, Research Division - Senior Equities Analyst

* Wassim Kisirwani

Deutsche Bank AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Half Year FY '19 Results Briefing Conference Call. (Operator Instructions) I must advise you that this conference is being recorded today, 18th of February, 2019.

I would now like to hand the conference over to your speaker today, Ms. Kim Besharati. Thank you. Please go ahead.

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Kim Besharati, Altium Limited - Company Secretary and VP of IR & Corporate Affairs [2]

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Hello, everyone, and welcome to the Altium investor call. It is great to be back in Australia and to share with you details of Altium's very strong financial performance over the first half of fiscal 2019. I'm Kim Besharati, VP, Investor Relations. Joining me on the call today is our CEO, Aram Mirkazemi; our CFO, Joe Bedewi; and VP Finance, Martin Ive.

As a reminder, the presentation for today's call is being recorded. Today, Altium released to the ASX the company's half year financial results and investor presentation, which we'll be discussing with investors over the next couple of days.

During this call, Aram and Joe will elaborate on Altium's performance over the past 6 months to December 2018. We will also share details of our progress towards our 2020 target for PCB market leadership and our 2025 goals for PCB market dominance.

Please note, as a reminder, today's call and the Q&A section at the end may include forward-looking statements regarding Altium products, its future operations or financial performance. Any such statement will be based on the current assumptions of Altium's management and subject to risk and uncertainty that may cause actual events or results to differ materially. Please note that all numbers are in U.S. dollars, unless specified otherwise.

I'll now pass over to Aram.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [3]

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Thank you, Kim, and good afternoon, everyone.

As you would have seen in our ASX announcement, Altium has delivered another great first half results. Revenue was up by 24% and earnings were up by 58%. This is even more amazing when it's put in the context of a great first half last year.

All metrics are looking good, from China to Octopart and to TASKING and across all regions results are either great or very good. This leaves me with no doubt that there is more than enough momentum in our business to achieve our 2020 target of $200 million.

I'm particularly pleased to see China do so well back to back after it started its run nearly 2 years ago. We have certainly broken through a barrier that kept us at bay for so many years.

In the first half this year, China grew by 49% and, last year, it grew by 30%. The reason that this is significant is because there is so much potential in China and if this keeps on going, China can get to the same level as EMEA and the U.S., if not much more.

Another thing that is deeply pleasing is seeing the power of Altium's operating leverage to increase our EBITDA margin, which is now over 36%. We have always talked about Altium's strong operating leverage, but it's something else when you see it.

While we will not commit to any particular EBITDA margin of almost 35%, I can say this much, that when Altium reaches its 100,000 subscriber goal in 2025, I will be absolutely surprised if our EBITDA margin is less than 40%, in fact, it could be much higher.

I would like to say a few words about Octopart as I believe that it has reached a level of momentum that is significant for the pursuit of our long-term strategic objective.

Since acquisition, Octopart has grown in revenue, 50% the first year, 56% the second year, and now in the first half, 80%. Octopart is definitely emerging as the winner in the electronic part search space, and what we are now planning to do is to dominate that market by committing ourselves to transforming the way that electronic part data is organized and made accessible to all stakeholders within the broader electronics industry. In essence, this is no less significant than the goal of 100,000 subscribers for Altium Designer.

I'm also excited about the release of Altium Designer 19, building on the strength of Altium Designer 18, which has taken Altium to the top of the chart. We have also been working hard on the next generation version of Upverter as well as NEXUS, and the version of our software that would run under Dassault 3DEXPERIENCE platform. But more than anything else that we have achieved or done in the past, Altium's new cloud platform, Altium 365, holds the greatest promise.

We recently introduced Altium 365 to the user community and the PCB design industry and are fully engaged in rolling out its early version. It will be a while before it will have its impact on the industry. But as far as Altium is concerned, all roads end in Altium 365. We are making a tremendous commitment and investing in the Altium 365 platform in time, energy and our resources to make the platform deliver on our promise to transform electronic design and its realization.

At the financial level, there are more things that are amazing about our first half performance, and I believe that it's important to talk about them. So I'm going to ask Joe to speak to the first half results now in more detail before I come back to talk about our journey beyond 2020.

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Joseph G. Bedewi, Altium Limited - CFO [4]

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Thank you, Aram. Good afternoon, everyone. Altium has delivered a strong performance across all key financial metrics for the first half of fiscal 2019. We grew revenue by 24% for the half to $78.1 million. EBITDA grew to $28.4 million, up 49%. Net profit after tax was $23.4 million, an increase of 52% (sic) [58%], generating an operating cash flow of $26.8 million, up 80%. Our free cash flow increased by 83% to $24.3 million. EPS was $0.18, up 57%.

We continue to maintain a strong balance sheet. Our operating -- our record operating cash flow enabled the company to end the half with a cash balance of $58 million, up 11% year-on-year.

Altium's organizational structure is helping to scale the company, while maintaining operating leverage through independent channels supporting each segment of the market, while optimally sharing resources along functional lines. We will continue to deliver great results as we move towards our goal of $200 million in 2020 to claim leadership in PCB design and beyond 2020 as we pursue our goal for market dominance.

Altium's core PCB business continues to deliver strong growth and drive a competitive advantage from our unique transactional sales model and new-generation products. The Board and Systems division grew revenue by 17% for the first half of fiscal 2019. Altium Designer new seat sales grew by 34%, resulting in 3,544 new licenses sold during the half.

The subscription pool for recurring revenues grew by 9% for the first half, compared to the same period 1 year earlier, to reach 39,179 subscribers. Altium's renewal rate in developed countries was flat with the prior first half and marginally down in undeveloped countries as a result of less than optimal execution.

Our transactional sales in the U.S. has started laying the foundation for the next phase of growth with a strong focus on new logo sales. This did however have a negative impact on our standard renewal campaign rhythm, which is being addressed in the second half.

China has been a standout performer during the half with over 49% revenue growth compared with the same period 1 year earlier. Altium is scaling its operations in China and will open a new office in Beijing in the second half, in addition to our regional HQ in Shanghai and our office in Shenzhen. China has lifted its conversion rate to over 2,000 licenses per year from 1,700 licenses per year in fiscal 2018.

EMEA delivered strong revenue growth over the half of [19%] in euro -- in euros. Altium is now direct in most keen European markets, with The Netherlands, the United Kingdom, Spain and Italy all performing stronger, post our move to direct sales.

The Americas delivered a strong performance over the half to achieve 11% revenue growth compared with the same period 1 year earlier. The U.S. is developing the next-generation transactional sales to accelerate post -- growth post-2020. This includes the introduction of cyber pods, our man out of the loop process, to drive efficiency with renewals and to introduce better customer intelligence.

In December, we opened a new office in Dallas as the home of the Altium cyber pod. It is charged with building the intelligence platform for Altium's next-generation transactional sales model.

Our emerging markets were buoyed by strong performance in Russia over the half, where seat count increased by 31%. While still largely untapped, we'll be looking to expand our presence in emerging markets, including India, as part of our strategy to accelerate our growth to 100,000 subscribers before 2025.

I'm also pleased to report that Altium's TASKING and Octopart businesses performed very strongly over the half. TASKING grew revenue by 35%, and Octopart grew revenue by 80%. TASKING is benefiting from being the #1 supplier of complyware software for Infineon, the large European semiconductor manufacturer, for its Aurix TriCore chipset for the automotive industry.

Octopart has continued to outperform as it takes electronics parts search towards the position of market dominance. With 80% growth in revenue for the half, Octopart is focused on further improvements in electronic parts search experience and building its next-generation parts data platform for a broader range of stakeholders within the electronics industry.

The company's reported expenses grew by 12% to $49.8 million over the half. Altium remains committed to continue to grow its revenue faster than costs. We maintain a strong operating leverage in our business and have a company-wide mindset of value discipline.

Altium continues to review its M&A pipeline and is focused on opportunities that will enhance the development of a design and realization platform that can transform the electronics industry. We are well-positioned with a strong balance sheet and strong earnings multiples to pursue M&A.

Altium is firmly on track to achieve its $200 million revenue target by 2020. Moreover, our strong margin result confirms our ability to increase our profit margins and achieve revenue growth as well as to invest for the future that will transform electronics design and its realization.

I will now hand back to Aram to talk about our journey beyond 2020.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [5]

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Thank you, Joe. With these results, it is not hard to feel super confident and be tempted to think that the midterm alone can take us all the way. But we can't get too confident or take chances, we must work hard and prepare now for the journey beyond 2020.

In its simplest form, our future is the mirror image of our past. Some of you may remember how we started our run in 2012 and how Altium managed to deliver what could not have been imagined possible at that time. We set the target, aligned ourselves towards that target and then started to build momentum year after year until the power of momentum reached a level that broke through conventional barriers that would have ordinarily have prevented a company like Altium to reach its goal.

Our run towards 2025 will be no different. We will use exactly the same recipe as what we have used in the past. We need to lay the foundation along the organization and then build momentum.

We have already started laying the foundation across so many fronts. We have been realigning and reorganizing ourselves with a single goal in mind to scale up to 100,000 subscribers.

To give you a flavor of the kind of things that we have been doing, I will mention a couple that I feel very strongly about. One is to transition from a mindset that is feature, function and capability oriented to one that is about customer experience. We have been reorganizing departmental functions from R&D, marketing and sales to product and channel, which are naturally aligned with our customer and their experience of our products and services. This is much more significant than might appear in the first instance.

The other significant foundational move is related to integrating finance with product and channels so we can account for how value is created within the company.

We have already made a great start that looks very promising. This has the potential to help us take our margin to levels never seen before in this industry.

As you can tell, I'm pretty confident about where Altium is in terms of its preparation for the next phase of growth. There is one area, however, that still remains a challenge in my mind. I believe that our ultimate success will depend on our ability to attract world-class talent.

Attracting world-class talent is critical to our success in the next phase. While, on occasion, we have been able to attract high-level talent, we need to do this systematically and on a much larger scale. This is beyond adopting good HR practices in talent acquisition. For the next phase of growth, attracting key talent to Altium will be my #1 priority.

Before we move on to Q&A, there is one more thing I would like to share. In addition to our 100,000-subscriber target, we have committed ourselves to the aspirational target of $500 million in revenue by 2025. This is based on my confidence in Altium's ability to set goal and achieve it through focused and sustained effort.

I have absolutely no doubt that we will be able to reach this goal. I believe this is a prerequisite for Altium to bring transformation to electronic design and its realization.

This revenue goal is very much a reflection of the transformation of the company that I have just described. The 100,000 subscribers of Altium's 3D design tools will enable us to create new revenue streams in parts and manufacturing platforms, both of which have the potential to [double] our original electronic design marketing side.

This wraps up the formal part of this call, and I will now pass over for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from the line of Wassim Kisirwani from Deutsche Bank.

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Wassim Kisirwani, Deutsche Bank AG, Research Division - Research Analyst [2]

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Can I just start with a question on the margin? Obviously, some very upbeat commentary that you've just provided on the margin potential in this business, and we've seen some of that come through in this half. Just interested in maintaining that sort of margin guidance around 2020. But I appreciate there's an element of not wanting to get carried away, but you're certainly through a phase of investment in sales and R&D, you're still managing to -- the operating leverage is really coming through. Is there sort of any reason -- is there some sort of timing element to why the margins are particularly strong in this first half or is this just as a general reflection of the business now?

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Joseph G. Bedewi, Altium Limited - CFO [3]

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Yes. So I want to correct you on one thing. We don't give guidance, so it was a target and an aspirational target that we've actually worked towards and sustained. And so we really don't want to get into the thought process that this is guidance. The 35% is, clearly, a baseline. There are spending that we will do going forward, but we do continue to believe we will expand our margin -- the underlying margin. There is anomalies that could happen with M&A that could reflect in our reported margin. We're also in the process of really investing in the future, and Aram mentioned some of that, where we're going to look at things that we need to do today to be able to get to 2025. He mentioned some of those around the next-generation marketing that we're doing and the product and channel work. This is organizational capacity that we're building. We're doing that in investing in systems also. There's scaling going on in the U.S. For example, we talked about the cyber pod that we opened in Dallas. That will start to spend. You'll see more spending of that in that second half as well as some of the scaling we've done in China, with Beijing. So you'll see second half growth there. So there is a plan that we will invest in to get to where we need to be. 35% is our baseline. We won't go below that, but there will be some level of fluctuation as we move forward.

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Wassim Kisirwani, Deutsche Bank AG, Research Division - Research Analyst [4]

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Great, okay. And then can I just have a follow-up question? Just the issue you mentioned around the standard campaign renewal cycle sort of being disrupted, can you just elaborate on that, please?

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Joseph G. Bedewi, Altium Limited - CFO [5]

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There was a focus that we had in the first half really around new logo development and some of the standard campaigns that we had run for renewals had not had the meat behind them as we had in the past. That's been corrected. And as we're walking into the first -- the second half of the year, we're seeing some uplift in the renewals, and we believe that we're much more focused on that now. It's an anomaly of a lot going on and it really is somewhat of an anomaly for the first half. And again, the good thing is this is not disposable demand, so we're able to go back and we can recoup this. It's not something that goes away because of time.

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Operator [6]

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The next question comes from the line of Roger Samuel from CLSA.

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Roger Samuel, CLSA Limited, Research Division - Research Analyst [7]

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I've got 2. First one is just on China. Obviously, you guys are getting a lot of traction in China. But I'm just wondering what's the impact from the ongoing trade war between U.S. and China. Is it going to be a positive or negative for Altium? The second question is just on your tax rate. So the tax rate for this half was 9%. I'm just wondering what's your -- just wondering what you expect for your tax rate going forward.

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Joseph G. Bedewi, Altium Limited - CFO [8]

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So the tariff issues and the trade war with China, we aren't seeing any substantial impact on that at this point. We have a very strong presence in China, and most of our business there is license compliance. So these are licenses that have been pirated. We're not really in a tariff mode with that. So, so far, it's been a nonimpactor for us, and we're obviously monitoring it as it goes forward. On the tax rate, we've talked about this in the past, we'll be at around 9% to 10% this year, that's where we'll end up. And then we'll trend up to about 25% as we go forward. This 9% to 10% is based on the deferred tax asset utilization and some tax credits that we're running through. But it will trend up to about 20%, 25% to 26%.

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Operator [9]

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The next question comes from the line of [Jules Cooper] from [AUDS].

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Unidentified Analyst, [10]

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The perpetual license sales were very strong. And I guess, we have typically seen sort of 40%, 42% fall in the first half. I'm just wondering if you can provide any comment about whether you think that typical first half, second half SKU holds. Or do you sort of see, given China coming through, that it's going to be more of an even first half, second half? Just wondering if you can provide any color there? And then I've got one follow-up after that one.

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Martin Ive, Altium Limited - VP of Finance [11]

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It's Martin Ive here. In terms of the licenses, I think we would expect the trend to hold. I think if you look over the past few years, it does have some fluctuations to it. It isn't always exactly 42%. In terms of China's growth, with the expansion that we've done over the last 18 months, [working out], the office in Beijing, and now -- sorry, in Shenzhen and also opening up the office in Beijing. Those offices will continue to ramp up in terms of capacity and also in terms of effectiveness. So we think that there's still further expansion to come from those initiatives in China. So even though there has been a huge uptick in the growth rate in China in the first half, we feel that, that will be something that will continue in the second half as well.

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Unidentified Analyst, [12]

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Okay, all right. Excellent. And just on that $500 million revenue target in 2025, are you able to make a comment around how you roughly see the recurring and the perpetual nature of that revenue, looking out at that period? Obviously, we're talking about some fairly strong subscriber growth. Just wondering how we might think of that target compared to how the business is structured today.

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Joseph G. Bedewi, Altium Limited - CFO [13]

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Yes, that gets a little bit more difficult because we've got a lot of kind of pods moving here. So you'll see NEXUS revenue, for example, will be a recurring revenue because it's a term-based license. So we feel that's a very strong revenue stream. You'll see upgraded subscribers. I would hesitate to start talking about recurring, nonrecurring for 2025 at this point. Martin, you may have a comment.

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Martin Ive, Altium Limited - VP of Finance [14]

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Yes. I mean, there are some initiatives that are disclosed in the [effective tax], particularly with regard to China. And then I think some of those will be recurring revenue in between the proportion (inaudible). If we come up with a target or an amount for 2025, we think it's too early at this point.

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Joseph G. Bedewi, Altium Limited - CFO [15]

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But we will still continue with (inaudible) we are seeing that as any kind of mass conversion. We have several options to try to enhance recurring, and we will definitely be exploring and driving those through this next (inaudible).

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Operator [16]

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The next question comes from the line of Chris Savage from Bell Potter.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [17]

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Aram or Joe, can we just get an update on NEXUS? I just note the revenue was up strongly on PCP, but it was down on second half FY '18. Is that a change in momentum or is that just more something seasonal?

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Joseph G. Bedewi, Altium Limited - CFO [18]

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It's more of a seasonal thing than a change in momentum. We've actually been judicious, I'll call it, with how we're ramping NEXUS. It's a different sell for us, right? It's a solution sell. We want to make sure that our customers are very happy with the product. And we have to change our process with around assessment and deployment of this. So we have a backlog that's very strong. We are selectively moving forward and looking how to increase that flywheel as we move into the next second half and beyond.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [19]

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Also with the second half last year, the kind of flagship customer that we had [for NEXUS] acquired perpetual licenses. So much of that revenue was recognized upfront whereby subsequent customers and the ongoing NEXUS selling model is based on term-based, so there was a bit of an anomaly there.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [20]

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Okay. And could we also get an update on Dassault Systemes with regard to both CATIA and SOLIDWORKS?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [21]

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Yes, that relationship has been going really well. And we've been working very closely. The strategic partnership is something that I believe in strongly that would be important for Altium's long-term success and prosperity. And we're working on the product, and as I mentioned in the script, that this is something that -- it's one of the foundational product platforms for Altium. You've seen this in the investor deck as well that the 3DEXPERIENCE platform is one of the important platforms for Altium and its product development future. But as to anything beyond that, it's quite a strong technical integration. And I believe that, as I've said last time, that they are reaching the summit. I still maintain that position. We have not reached that summit yet, but we're not too far away either.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [22]

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Is SOLIDWORKS still at minimum revenue?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [23]

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Yes.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [24]

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And CATIA is continuing to get the better of the 2?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [25]

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Well, I think that they're also bringing 3D -- SOLIDWORKS onto the 3DEXPERIENCE platform. For them, 3DEXPERIENCE platform is the key. So all the efforts and everything else revolves around 3DEXPERIENCE platform.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [26]

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And just lastly, quickly, Joe, you said tax rate going up to 25%. Is that time frame in a few years or so?

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Joseph G. Bedewi, Altium Limited - CFO [27]

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Yes. So it's going to run about 9% is what we talked about. We'll get close to 20% next year, then it will go up pretty much linear to about 27% through 2024.

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Operator [28]

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The next question comes from the line of Josh Kannourakis from UBS.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [29]

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Just a couple of questions for me, I think a few of them have been answered. But just wanted to confirm on the seasonality across the business as well. So you mentioned, just to confirm, that the seasonality trends that you're seeing historically, under the sales cycle, you're saying, aren't expected to change. That you're still happy with this sort of historical trend of seasonality across the business?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [30]

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Yes. So I think we kind of worked towards an approximate split or SKU of 45 to 55.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [31]

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Okay, across earnings or across license subscription?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [32]

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In terms of overall sales.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [33]

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Overall sales, okay. And you mentioned that there was -- just trying to understand, I guess, from an earnings perspective as well. So you mentioned there was a little bit of incremental spend coming through in the second half. Is that how we should read it as well in terms of some of the new offices and the new intelligence platforms?

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Joseph G. Bedewi, Altium Limited - CFO [34]

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Yes, there will be somewhat of an increased spend through there. I don't see it going dramatically high, but we definitely are investing in the new offices, is a good example of that. There will be some systems investment also. Again, we're going to spend money according to the plans that we have in place, it's investment to enable ourselves to be -- move into the 2025 space and grow the way we need to grow. But we're not going to spend if we don't need to. So clearly, if we can give the money back, we will, in terms of EBITDA. We're not going to waste money.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [35]

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Of course. And just to go into that in a little bit more on the cyber pods and the man out of the loop. You've been referring to it for quite a while. But can we talk maybe a little bit more about the opportunity that you think in terms of, that perhaps the lapse subscriber base and also just in terms of converting renewals and the like?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [36]

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I'm sorry, go ahead.

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Joseph G. Bedewi, Altium Limited - CFO [37]

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It will give more focus to the renewals and to the lapses also. But it's really about being able to effectively scale to the 100,000. To do that, we need to have more automated processes. It's also a very big step for us in terms of business intelligence and gathering data for customers that will also help us drive a much more effective transactional model going forward. So it's about the 100,000, renewals will get a benefit for sure. Rejoins should get a benefit also because they'll be focused on it. But the real benefit is we're getting to know our customers better, we'll have better business intelligence.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [38]

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Yes, perfect. And can we just touch on -- you haven't talked too much on Altium 365 as well, just in terms of some of the progression, some of the early feedback, potentially, as well and sort of what's the plan over the next sort of half [year] for that product.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [39]

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The feedback is very positive, and it has created a huge buzz. We're getting calls from manufacturing sectors, we're getting calls from distributors and they're all considered potential. We'll be ramping up -- we'll be rolling out in April, and gradually ramping up. By November this year, we will be open for business for all. And before that, it will be by invitation and will give us time to actually adjust and get the system ready for prime time. But it's very positive.

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Operator [40]

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The next question comes from the line of [Ray Johnson] from [TeamInvest].

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Unidentified Analyst, [41]

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Just looking at the phenomenal growth, I'm just wondering whether the competitors are sort of getting a bit concerned about this and are starting to try and respond to those initiatives. And if so, is that likely to [clip] the growth?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [42]

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Well, we always watch carefully and are very mindful of our competitors. It's a competitive field. So we would never actually take our eyes off that. And some of them are quite strong, but their attempt to slow us down, it's been ongoing for several years now. And so far, they have not been able to land a punch. But we are having our hands up and very mindful of our competition.

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Joseph G. Bedewi, Altium Limited - CFO [43]

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If you look at some of the competitors and you have Mentor who's now part of Siemens, and their focus is very much on integration and high-end, we'll call it. And this isn't an area where they're going to necessarily delve deep too. Cadence, Cadence sees an opportunity to go get chipset -- chip revenue in their EDA products, which is their main bulk of revenue, by taking Mentor. So there's a focus there. Now they all compete with us, so we're not saying that, oh, they're forgetting it. But we're very much focused on PCB, very much focused on the mainstream of the market. And we feel like we have the ear of the engineer and the heart of the engineers. So new people coming onboard use Altium more than they use Mentor products. So we think we've got a long-term win here because we're going to be the de facto standard just because of where we're at in the market is our feeling.

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Operator [44]

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The next question comes from the line of Stuart Turner from Blue Ocean Equities.

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Stuart B. Turner, Blue Ocean Equities Pty Ltd, Research Division - Senior Equities Analyst [45]

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A couple of questions. First one, perhaps for Joe, just looking at the cash conversion during the first half compared with the first half last year. The $26.8 million on the profit after tax of $23.4 million is quite a lot richer than the PCP. And secondly, probably a question for Aram, just extending the commentary on Altium 365. How will it be configured? What's the -- what will the initial version of it look like in terms of the components? I assume it will have the revised version of Upverter/CircuitMaker and maybe a link to Octopart or something like that. Maybe if you could just flesh out on that bit for us, Aram, as I'm sure you'd love to. That will be much appreciated.

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Joseph G. Bedewi, Altium Limited - CFO [46]

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So on the cash side, I'll just answer that fairly quickly. Definitely, a concerted effort on us to ensure that we got much more efficient with that. There's fewer anomalies out there with terms of Octopart's continued consideration payments, things like that. So it was really just a very focused effort, and I think we're able to get much more efficient on that conversion.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [47]

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Stuart, this is Aram. The Altium 365 is a platform for professional specialist PCB. And in fact, one of the slides that we've got in our investor deck has the V diagram and the 4 product lines of product platform depicted in that. You see Upverter sits next to Altium 365, which has Altium Designer. And then we have NEXUS and we have 3DEXPERIENCE. The Altium 365 is for power users and PCB specialists, Upverter is for makers and entrepreneurs. NEXUS is for agile enterprises and 3DEXPERIENCE is for extreme enterprises. The 4 of them take you from concept to realization. So there are -- they in a way, do the same thing, but they're targeting different segments of the market. And Altium 365, of course, is the flagship for us. And that is the platform that we would like to have, if not all, but many of those 100,000 subscribers on to, which is critical for converting our dominance to transformation.

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Stuart B. Turner, Blue Ocean Equities Pty Ltd, Research Division - Senior Equities Analyst [48]

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Okay. So how do the -- so that's not targeted at the hobbyists and the hackers? That's the...

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [49]

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Professional.

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Stuart B. Turner, Blue Ocean Equities Pty Ltd, Research Division - Senior Equities Analyst [50]

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Professional -- someone who might be using AD19, but probably plugging into a hell of a lot more down the track than just that?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [51]

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Yes, it's for professional PCB designers. And that is the main platform that will be connecting design space to manufacturing floor. It will have ECAD, MCAD connectivity for collaboration. It will have PLM integration. That is the main platform, and our aim is to get 100,000 subscribers onto that for the purpose of transformation, which means that the components and the way it works is very critical. It has to be right for those people, and that is our focal point. Upverter, of course, it's something that we -- I have quite a strong feeling towards as well, but that's for a whole new generation or new breed of electronics designers. They're makers, entrepreneurs, they're very important for our business because you better bring young people to this industry. We're competing against mechanical CAD world and software world. And the world at large, with IoT and all the things that are happening, they do require young talent to come to electronics, and Upverter is the platform for attracting young talent to electronics.

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Stuart B. Turner, Blue Ocean Equities Pty Ltd, Research Division - Senior Equities Analyst [52]

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And so where does the fabricator that -- the small fabricator that you recently purchased, where does that plug in? Is that more the Upverter -- the maker and entrepreneur level?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [53]

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All these 4 platforms connect to manufacturing and the PCB NG company that we bought from -- bought a few months ago, that is a lab, if you like, that we'll be developing and is developing processes that critical for all these 4 platforms in terms of their realization. It's not specific to any of these 4 platforms. It connects to 4 at the back end, it will be connected to various processes and factory operations, depending on the nature of the project, rather than nature of the product.

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Operator [54]

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(Operator Instructions) There are no more questions at the moment. I would now like to hand the conference back to Mr. Aram Mirkazemi. Thank you. Please go ahead.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [55]

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In conclusion, we are excited about Altium's future. We are confident that we can achieve our 2020 revenue target of $200 million to claim market leadership in PCB design. We are also moving confidently towards our goal of 100,000 subscribers for market dominance. We have introduced a further aspirational revenue target of $500 million in 2025. A total market dominance will enable Altium to unite key stakeholders and to bring about transformation to electronics design and its realization. In closing, I would like to express my sincere thanks to our shareholders and supporters for believing in our journey and putting their trust in Altium. Thank you.

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Operator [56]

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Thank you. That concludes our conference for today. Thank you for your participation. You may all disconnect your lines now. Thank you.