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Edited Transcript of ALU.AX earnings conference call or presentation 19-Aug-19 7:00am GMT

Full Year 2019 Altium Ltd Earnings Call

CHATSWOOD Sep 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Altium Ltd earnings conference call or presentation Monday, August 19, 2019 at 7:00:00am 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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* Andrew Levy

Macquarie Research - Analyst

* Chris Savage

Bell Potter Securities Limited, Research Division - Senior Industries Analyst

* Josh Charles Kannourakis

UBS Investment Bank, Research Division - Research Analyst

* Jules Cooper

Ord Minnett Limited, Research Division - Senior Research Analyst

* Lucy Huang

BofA Merrill Lynch, Research Division - Analyst

* Stuart B. Turner

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

* Ray Tollefsen;Teaminvest

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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 full year results briefing conference call. (Operator Instructions) Please be advised that today's conference is being recorded.

I would like to hand the conference over to your first speaker today, Ms. Kim Besharati, Vice President, Investor Relations and Corporate Affairs. 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 Altium's investor call. It's great to be back in Australia to share with you details of Altium's outstanding financial performance for 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 Senior VP, Finance, Martin Ive. I'd like to inform participants that today's call is being recorded.

Today, Altium released to the ASX the company's full year financial results and investor presentation, which we will discuss with investors over the next few days. During this call, Aram and Joe will elaborate on Altium's performance over the past 12 months. We will also share details of our progress towards our 2020 target for PCB market leadership and our 2025 goal of 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's products, its future operations or financial performance. Any such statement will be based on the current assumptions by Altium's management and subject to risks and uncertainties that may cause actual events and results to differ materially. Please note that all numbers are in U.S. dollars unless specified otherwise.

I will now pass over to Aram.

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

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Good afternoon, everyone. I'm pleased to report that Altium has delivered another outstanding performance. Revenue grew by 23% and earnings by 41%. What's more, Altium delivered record growth of 27% in Altium Designer seats. We also achieved record growth in our subscription base of 13%. I see this as an early sign that Altium is picking up a gear on its climb towards 100,000 subscribers.

China has continued its incredible run, delivering 37% growth in revenue. We are expanding capacity and reach in the region. There is no doubt that China is a powerful driver of Altium's current and future performance. This performance speaks to the greatness of our management team in China, their grit and determination to succeed.

Our sales organization in the U.S. and EMEA continued to raise the bar in performance and achieve new heights in their transactional sales. I'm very proud of their achievements, and yet again, they delivered when it mattered. The U.S. and EMEA have been leading Altium's growth from the very beginning and will be critical for achieving both market dominance and industry transformation.

Our product development team is powering Altium products to the next level. They have been hard at work to deliver AD 20 and also to go live with Altium 365 later this year. Under Sergey's leadership, our products have gone from good to great and now regarded as the world's best. I expect this to continue with our cloud offering.

Nexus is going in line with our expectations. Revenue is growing reasonably well and grew by nearly 40% in FY '19. While I don't have another [near-like story] to share, we have a large number of important reference accounts in various industries that are critical for future ramp-up. When we set our revenue goal for 2020, we had revenue contribution from Nexus of $10 million to $20 million, and I believe that we will fall within that range. I expect that Nexus will begin to have a significant revenue contribution to our business from 2021.

Octopart is surging forward on its path to dominating electronic part search. It delivered 49% growth in its revenue. Its talented team is displaying true heart in taking Octopart to the next level and will play an important role in our transformative agenda for the electronic industry.

Our TASKING business is growing in strength as a key provider of compiler technology for the automotive industry. TASKING delivered 37% growth in revenue off a strong performance last year.

Turning now to Dassault. It has been nearly 3 years that we have been working together with their CATIA team, and we now have an exciting product. Since my last update, we have conducted a series of what we internally call test flights with customers that have been very positive. Dassault is eager to deliver on its promise of bringing electronics onto their 3DEXPERIENCE platform. Dassault is fully committed, and I believe in this partnership, and I intend to go the distance. I will provide further updates when we have something material to share.

What I found most outstanding about our performance is that it has been delivered while we have focused intensely on accelerating growth beyond FY '19 towards market dominance and transformation. Let me share a little more color about this. I believe that Altium is fast approaching a tipping point in the marketplace. We have been preparing and mobilizing significant resources to stage a large-scale campaign of brand advertising to trigger an avalanche of customers to Altium. We are increasing the efficiency of our transactional sales through greater business intelligence, analytics and automation. We have also been laying the foundation for in-app engagement with our growing customer base to promote usage and to accelerate adoption. We have successfully pivoted from a marketing strategy that has been based on the pursuit of market leadership to one that is centered around market dominance. This has involved the systematization of promotional campaigns on a scale and sophistication never seen before at Altium.

We have been working hard on preparing our new cloud platform, Altium 365, in readiness for prime-time deployment in November. We have been engaged with a number of selected reference accounts, and the feedback is generally very positive. While engagement with Altium 365 by Altium Designer users is expected to be seamless and immediate, the full transition to cloud and adoption of Altium 365 methodology for design to manufacturing processes will take some time. This is both a function of users getting comfortable with having their design data on the cloud and also the maturity of Altium 365 platform itself.

We have also been busy laying the foundation to make electronics accessible to a wider community of young engineers. We have acquired a small hardware company with highly innovative and potentially breakthrough technology that can make electronics accessible to non-electronic engineers. We have also completed the first round of reengineering of Upverter to align with our vision of democratization of electronics.

What makes Altium special, in my opinion, is its ability to do all of the above and, at the same time, deliver on its line and length strategy. Altium delivers real earnings with enduring competitive advantage that translates into growth in its free cash flow and a strong organic revenue growth. In this regard, Altium is peerless both in this industry and here at home on the ASX. Our FY '19 performance has been an amazing chapter in our journey, but we have much to do and many treacherous mountains yet to climb. I want to emphasize that the pursuit of dominance and transformation will not be a walk in the park for Altium and its shareholders. Altium's management team is keenly aware of this. I believe that it's important that our shareholders appreciate the challenges of rising to dominance and industry transformation in the same way that our management team does.

In essence, I want to share with all of you what it is that I lose sleep about in the context of Altium's journey while having an unwavering conviction that Altium will succeed in its pursuit of market dominance to bring about industry transformation. Altium needs to solve the classic innovator's dilemma. As a high-performing company at the top of our game, we need to achieve dominance through delivering best-in-class technology and, at the same time, disrupt the current model through a new class of technology that challenges the existing norms. Converting dominance to transformation requires the alignment of industry heavyweight. Altium needs to rise to the challenge of compelling the key industry stakeholders to support our transformative agenda. While dominance in electronic design is a critical step but would not bring about automatically transformation in the supply chain and manufacturing.

Notwithstanding our challenges, the fact remains that with each passing year, Altium is growing stronger. Given the strength of our FY '19 results, I'm fully confident that we should not only be able to achieve but to surpass our 2020 revenue target of $200 million. My conviction in Altium's ability to achieve its 2025 goals is also growing. Market dominance is a prerequisite for Altium to bring transformation to electronic design and its realization, and we are already hard at work to achieve this. Additionally, we continue to work on a pipeline of M&A opportunities to support this endeavor. However, there is nothing imminent on the horizon that I can share.

Before I hand over to Joe, there are 2 more things that I would like to share. Based on the strength of our FY '19 results and the growing momentum, I believe that there is a good chance that we will hit our halfway mark of 50,000 subscribers as early as this financial year. I'm also committing to a new floor for our EBITDA margin of 37%, up from 35%.

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

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Thank you, Aram. Good afternoon, everyone. Altium has delivered an outstanding performance across all key financial metrics for fiscal 2019. We grew revenue by 23% for the fiscal year to $171.8 million. EBITDA grew to $62.8 million, up 40%. Net profit after tax was $52.9 million, an increase of 41%, generating an operating cash flow of $69.1 million, up 42%. We continue to maintain a strong balance sheet. Our operating cash flow enabled the company to end the fiscal year with a cash balance of $80.5 million, up 54% year-on-year.

Altium's core PCB business continues to deliver strong growth based on a competitive advantage from our unique transactional sales model and our next-generation products. The boards and systems division grew revenue by 17% for fiscal 2019. Altium Designer seats grew by 27%, resulting in 8,015 new licenses sold during the fiscal year. The subscription pool for recurring revenue grew by 13% for the fiscal year to reach 43,698 subscribers.

China has been an outstanding performer during the fiscal year with over 37% revenue growth compared to the same period 1 year earlier. Altium is scaling up its operations in China and opened a new office in Beijing in the second half in addition to our regional HQ in Shanghai and the sales office in Shenzhen. China has further lifted its rate of conversion to over 2,400 paid licenses per year in fiscal 2019, up from 1,700 licenses per year in fiscal 2018.

The Americas delivered a strong performance for the fiscal year to achieve 14% revenue growth. The U.S. is developing the next-generation transactional sales model to accelerate growth post-2020. This includes the introduction of cyberpods, our man-out-of-the-loop process, to drive efficiency and reach with renewals and to introduce improved customer intelligence.

EMEA has delivered strong revenue growth for the fiscal year of 20% in euros. Altium is now direct in most key European markets, with the Netherlands, United Kingdom, Scandinavia, Spain and Italy all performing stronger post our move to direct sales.

Our Nexus product for the agile enterprise market continues to ramp up. We are moving beyond our initial reference account wins of Autoliv Veoneer to be able to scale at the margins that Altium is known for. This is being supported through the deployment of configurable modules rather than customized ones and the rollout of implementation services associated with Nexus.

Now turning to other parts of our business. I am pleased to report that TASKING and Octopart performed very strongly over the fiscal year. TASKING grew revenue by 37%, and Octopart grew revenue by 49%. Our TASKING business is benefiting from being the #1 supplier of compiler 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 the Octopart electronics parts search engine towards a position of market dominance with 49% growth in revenue for the year. Octopart is focused on further improvements in its electronics parts search experience and building its next-generation parts data platform for a broader range of stakeholders within the electronics industry.

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. During the year, we made a small acquisition of Gumstix, a provider of innovative, design-to-order hardware and manufacturing solutions, providing initial capability for our manufacturing platform. Altium will integrate the Gumstix Geppetto software with its Upverter cloud-based PCB design tool for the long-tail electronics market segment to enable users to design a basic board without knowledge of schematics. In the longer term, Geppetto's modular approach -- design approach will also be available to Altium 365 users.

In addition to this investment in technology and building our next-generation transactional sales model, we must be able to attract, attain and reward exceptional talent to Altium. It is to this end that Altium has rolled out a 5-year LTI program for our top 50 key employees from around the world, ranging from the U.S. to China to Ukraine. While early days, this is having a real impact in terms of bringing even greater alignment and intensity among our key people as we seek to accelerate future growth.

The company's reported expenses grew by 15% to $109.1 million over the year. Altium remains committed to continuing to grow its revenue faster than costs. Our strong margin result confirms our ability to increase our profit margins and achieve aggressive revenue growth as well as invest for the future in a way that will transform electronic design and its realization.

In closing, I'd like to acknowledge that we do operate in many jurisdictions around the world and, like all other companies, are subject to geopolitical risk. The trade war with China and U.S. trade sanctions are cases in point. We are very active in managing our compliance and regulatory requirements. For example, we are currently working with OFAC in the U.S. on sanctions applicable to China and Russia. And we have been selected by the ATO for a risk review and audit as part of their top 1,000 taxpayers program. While we are actively engaged across all these fronts, there is no material risk to Altium at the present time. This wraps up the formal part of this call.

I'll now pass it over for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Lucy Huang from Merrill Lynch.

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Lucy Huang, BofA Merrill Lynch, Research Division - Analyst [2]

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I just have 3. So firstly, the company is doing very well in EMEA and America with the subscription growth in Altium Designer. I'm just wondering if you can give us a sense as to whether you are taking share from competitors and who those competitors might be and maybe, in terms of EMEA, which countries you're seeing very good sales traction in. And then secondly, in terms of renewal rates, I noticed that the subscription renewal rates have dropped off a bit in the developed and growing market. So just wondering if you can provide some color around that. And moving into FY '20, do you think we should see those renewal rates improve? And then just my last question is on the R&D profile. So I noticed that R&D spend has fallen to 13%. Is this a new sustainable rate moving forward? Or do you think the R&D profile will lift moving forward?

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

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Okay. I'll take a cut at that, and then Martin and Aram can join in. So the first question was related to where we taking market share in Europe was your question and who from. We've been aggressively trying to expand our reach within Europe as well as in the Americas, and there have been specific campaigns associated with Autodesk and trying to go take share there. So we have done very well. We've seen nice growth there. And your comments, Martin?

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Martin Ive, Altium Limited - VP of Finance [4]

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Yes. So I think across the U.S. and Europe, we've consistently seen competitors switching from PADS, which is a Mentor product; from OrCAD, which is a Cadence product; and EAGLE, which is an Autodesk product. So that would be the 3 largest competitors that our customers are switching from.

In regards to Europe, where we're seeing the growth is kind of largely throughout. We have seen larger rates of growth in some of the countries where we've gone direct recently, which would be France, Italy, Spain and the U.K.

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

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I want to point out, though, that the growth in Europe has really been a result of our shift in marketing strategy to be much more holistic to go from this market expansion to really a market dominance approach. So we have a very integrated way we're doing promotional campaigns now. So that's been a focus for us, and we're starting to see results on that.

Related to the renewal rate decline, it really was a function of Europe. Europe had an issue with capacity. So we're adding capacity as we move forward, and we expect that to be fixed as we move forward. We also believe that we're shifting the way we're selling subscriptions now, and we're going to start getting more and more into the capability-driven aspect of it as Altium 365 comes on board. So into 2020, we expect to see these rates start to improve also moving from a maintenance-type subscription to a more capability-driven subscription, okay?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [6]

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If I could answer your last question about R&D spend, first thing is that our R&D spend has actually been growing in dollars terms. In percentage-wise, it's come down, but in dollar terms, it's actually growing.

The -- Altium's R&D is a very high-performance R&D. It's got its heads down, and it's delivering product that is best in the class and best in the world year-after-year. It's not easy to bring people from outside in. They don't make the cut. Our R&D also, it's -- in my view, is not actually spending enough time to actually bring people in and to allow a wider pool of engineers to actually contribute to our -- towards our performance and our success. So this is an area that we will be making more investment. But as we've said in the past, we won't actually make the investment if we can't deliver value on it, but it is an area that we intend to make more investment in.

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Lucy Huang, BofA Merrill Lynch, Research Division - Analyst [7]

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And just probably just a follow-up question there. Given that you are making such good traction, are you seeing any competitive -- competitor response, like, for example, Cadence starting to ramp up their development work in their PCB product? Or do you think their product's just kind of nowhere near the quality of Altium at this point?

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

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I haven't seen -- we haven't seen a ramp or concerted effort in PCB. When you look at Cadence, Cadence's focus is really on continued gaining of market share against Mentor in their EDA tools for chip design, very focused there, very high end. So we've been operating very effectively in our market and expanding upwards as we release a new product every year. So the R&D that Aram talked about has been closing the capability gap to the point where our products are world-class.

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Operator [9]

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Your 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 [10]

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Just first off, just you mentioned around -- obviously around 365 and the beta version being out there in market. Can we just talk about perhaps any learnings or feedback you've had from that earlier version? And just also, second part of that question just being around just the campaign around the capability increase that comes through and the timing of that as well.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [11]

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The feedback is very positive. And we've got a selected number of key accounts that we actually have been working with, and they have taken designs through and used the collaboration and capabilities. They're very positive. And at the basic level of engagement and collaboration within the design domain, it's -- I predict that there will be an immediate engagement and there will be no issues there.

In the context of Altium 365 being used by our users to connect design space to supply chain and manufacturing, that is going to take longer. And it's -- as I mentioned, is a function of users getting comfortable with having their design data on the cloud as well as the actual platform itself reaching a level of maturity.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [12]

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Got it. And just in terms -- so I think Joe may have mentioned before just around obviously a more direct campaign to go to your existing subscriber base and also probably lapsed subscribers as well. Can we just talk a little bit about that and perhaps maybe just give some details around what the -- how large the lapsed subscriber base is and perhaps what the opportunity you see as you start driving the capability-driven subscription service?

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

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So we have, what is it, over 70,000 active users and 43,000 subscribers. So we have an active user pool where we can go actually address, which we also do. It takes a couple of years to get consistency in the subscriber base, I would say. So the fact that we've been growing seats substantially, we're seeing more lapse, that should start to trend down as this move to the capability-driven subscription actually adds value. So we should see that decline, and that's really a function of 365 coming out and going strong. We'll continue with our normal model of addressing lapsed users and getting rejoins. And that kind of focus, which is really sales capacity-driven, it starts to improve as we get better customer information through our cyberpod approach, but it's really 365 that's going to help us here.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [14]

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Got it. And just a question on China. So new office in the second half. Can we just talk a little bit about the momentum in that business? And where do you see an acceleration in the current run rate of subscription over the next sort of 12 months?

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

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I don't know that I'd call it an acceleration. It's been growing pretty substantially, and we still see significant growth going forward. The new office in Beijing is up and running and will be actually producing through this year, but it's going to be a substantial growth to still continue. We have great expectations out of China going forward.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [16]

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Got it. And just in terms of you mentioned briefly, Joe, around the impacts of the U.S.-China trade war, what is the impact of that have you seen within the sort of existing period?

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Joseph G. Bedewi, Altium Limited - CFO [17]

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Yes. The only specific impact that we have is with the sanctions on Huawei. We had some Huawei business, very small, under 200,000 with TASKING that was impacted. But that is actually changing. We're actually applying for a license through the U.S. BIS, OFAC department to enable us to sell to Huawei going forward, which is part of the new structure they're talking about. So I don't expect it will have much of an impact. We haven't seen anything substantial. If it extends longer, clearly, there could be some risk. But all in, we're pretty comfortable that we're in a great position there.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [18]

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Got it. Final question just -- and a clarification. I think you just mentioned around the 50,000 subscribers. I just missed on in terms of where you sort of said the timing as to when that would be.

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

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It would be in the current financial year, FY '20.

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Operator [20]

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Your 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 [21]

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Joe, Aram, the subscriber growth really seemed to pick up in the second half. You did 9% in the first half, 13% full year. Can you talk to why? Was that China-driven? Or was it also developed markets as well?

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Joseph G. Bedewi, Altium Limited - CFO [22]

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Yes, it was also in developed markets. It's really a function of focus, and we focused on it as we moved into the second half of the year. And the cyberpods started coming on, and we saw a little benefit from them going into the fourth quarter. But it's really a function of focus because this is really around continued making the calls. It's a very much a capacity-driven exercise for us.

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Martin Ive, Altium Limited - VP of Finance [23]

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Yes. So just to note there, Chris, also that we've started to include the term-based license numbers into subscribers. This was something we talked about at the interim that we would do. So we've included those in the FY '19 numbers and then also adjusted the prior year numbers to include term-based licenses as well.

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

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Yes. I saw the growth rates didn't match up on the subscriber numbers you put in for last year.

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Joseph G. Bedewi, Altium Limited - CFO [25]

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We did -- we went retroactive, and that's all included in term-based. So it's apples-to-apples comparatives.

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

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Sure. And just -- is it fair to say now, just trying to read into your comments on Nexus, is the [handbrake cost] now? Because I remember, at the half, Joe, you said you were being pretty judicious in how you were ramping it up and making sure the customers were happy. So are you now full throttle on that?

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

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We invested -- when we talked about investments, in the second half, we invested pretty heavily in our solution-selling approach, and that was with Nexus. So I would say they're ramping forward. We've put more pressure on them to expand. And as Aram mentioned, we now have several customers who are on board who are still systematizing as we deploy. So I would say it's still going, but there's a much greater focus on it.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [28]

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Okay. And last question, sorry, Joe, again, for you. You said tax would be 9% to 10%, and it came in at 8%. Are we still looking at that 20% mark for next year or a bit lower?

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Joseph G. Bedewi, Altium Limited - CFO [29]

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Yes. Yes, we believe we'll be 19% to 21% next year. So I think 20% is the number for now.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [30]

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And any guide on FY '21?

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Joseph G. Bedewi, Altium Limited - CFO [31]

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It's going to continue to go up because we'll -- sooner or later, we're going to hit the number that we're -- around 27% ultimately, which we think we'll get there around '23, in 2023.

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Chris Savage, Bell Potter Securities Limited, Research Division - Senior Industries Analyst [32]

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So low to mid-20s in '21.

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Joseph G. Bedewi, Altium Limited - CFO [33]

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Yes, I'd say mid-20s, correct.

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Operator [34]

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Your next question comes from the line of Ray Tollefsen from Teaminvest.

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Ray Tollefsen;Teaminvest, [35]

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Sam Weiss, the Chair, spoke to our group in Melbourne just over a year ago, and one of the issues named was China. And he mentioned that in the past, there had been quite a few unauthorized copies of the various programs but that he thought that the move to the cloud would certainly overcome that because the unauthorized copies would soon be out of date. Assuming that that's the case, is that actually contributing to the China growth? Or is it just going anyway?

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

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No, it's actually not at the moment because we have not actually rolled out Altium 365, well, globally but also not in China. We are planning to roll out Altium 365 in China with Chinese characteristics, and that should help us in that regard.

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Ray Tollefsen;Teaminvest, [37]

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Okay. So the growth is actually just a straight-out selling of the existing software to drive more people.

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Joseph G. Bedewi, Altium Limited - CFO [38]

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Yes. We should be clear that it's a license compliance model. So we're actually getting paid for licenses that have been used illegally.

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Ray Tollefsen;Teaminvest, [39]

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Used illegally, you said?

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Joseph G. Bedewi, Altium Limited - CFO [40]

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Correct. They're pirated copies in essence.

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Ray Tollefsen;Teaminvest, [41]

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Yes. So are you still getting paid for them?

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Joseph G. Bedewi, Altium Limited - CFO [42]

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We are now, yes.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [43]

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Yes, yes.

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Ray Tollefsen;Teaminvest, [44]

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That sounds all right, I mean, sort of all right. Second question, and it sort of partly relates to the -- one of the earlier questions about response. Aside from the competitors, have you heard anything industry-wise -- I'm talking about general industry and not competitive, about Altium heading to a market dominance? Is that something the market's aware of or thinking about? And if so, have you heard anything about it?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [45]

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It's definitely something that gets echoed back to us. Contract manufacturers, partners, they say we would just see more of Altium. Before, it was more some Cadence, some Altium, some Mentor, but now it's just more and more Altium. If you go to a jobs website where they advertise for electronic designer with skills, you see Altium is twice as many job ads for Altium. So definitely, Altium is heading in that direction, and the industry is acknowledging that.

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Ray Tollefsen;Teaminvest, [46]

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Got it. So the industry is not concerned about having then -- ultimately in the future, just almost having to deal with one company?

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

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Well, it's a little bit like Adobe Photoshop. In some ways, the industry can go forward. If they can standardize on one product, then they can transform. But whilst you have disparate products and different vendors, it's very difficult to go forward. So I think the industry will embrace this.

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Operator [48]

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(Operator Instructions) Your 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 [49]

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Congratulations on a lovely result. We are wondering about the Altium 365, the trial, and very interested if you could give us some color on the types of clients that you've got in the trial and whether or not the trial relates more to the factory floor side of the platform or the proposed platform or it's sort of more on the design side or just where the weight of the trial is and what some of the benefits that the clients are hoping to get from it because it's obviously quite new.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [50]

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Stuart, the trial is now focused on customers that are going to be using it within the domain of design. This is, as we said before, that we're going to get them onto Altium 365 first before we can actually then get them over to supply chain and manufacturing. So the first goalpost for us is to get designers, all our users to actually use Altium 365 for collaboration in kind of things that you do with your team members, with your other teams from other divisions and so forth. One of the particular companies that have been using Altium 365 is a company called Arduino. It's Italian company. It's got a huge phenomenon in the electronics world. They produce these motor controller boards for millions of people who actually use it for getting into electronics and embedded software programming. They are using Altium 365 as the platform for their hardware design and being able to use it in their ecosystem, which is a huge ecosystem. They obviously connect the manufacturing floor and so forth. But right now, the focus is to get their design activities onto Altium 365, and that's one of our flagship partners we've been working on. There are others. There's one in U.K. And we're trying to establish Altium 365 as the cloud platform for design collaboration, and that is a critical one to get right because after that, then you can get them to supply chain and manufacturing, which is a natural extension. But the first step to get on the cloud is a key for us to succeed.

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Operator [51]

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Your next question comes from the line of Jules Cooper from Ord.

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Jules Cooper, Ord Minnett Limited, Research Division - Senior Research Analyst [52]

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Aram, just following up on the Altium 365 questions. You've sort of expressed there that you would expect to see some immediate engagement as you roll it out in November. Are you able to sort of just talk to what sort of pricing model that you'd use, whether there are sort of incentives that -- how do you sort of get the users to commit and probably do something that they probably haven't naturally done in the past? I'm just really interested in all that sort of dynamic and how that plays out relative to your existing products.

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

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Sure. Altium 365 is not the revenue play for us. It's actually quite an important point to make. We're going to be getting to our 2020 target and 2025 target based on the strength of Altium Designer and other businesses and, most importantly, our renewal business. What's important for us is to get our existing customers to actually use Altium 365, which is essentially adding to the value proposition around our subscription business. That is a very key maybe social aspect here. Our subscription business is maintenance-based mostly, but with Altium 365, it become capability-based, which it really changes the nature of that subscription. So that's very important for us.

In terms of pricing, we have different levels of subscription for Altium 365. The standard Altium 365, you'll be able to access it with your existing subscription. Then we've got higher levels that you got to pay more. But like I said, our goal is not to actually generate revenue in the short, medium term. It's to actually get them onto Altium 365 and have our renewal business to be based on capabilities that they get rather than maintenance.

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Jules Cooper, Ord Minnett Limited, Research Division - Senior Research Analyst [54]

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Right, right. So it's almost going to be available to anyone. At least the standard access will be available to any of your users paying a maintenance subscription or that has a valid license. Is that the way to think about it, that it's just going to be there if people want to use it, yes?

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

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Yes, yes. The key is that we got to get them to actually engage in the active wallet.

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Operator [56]

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Your next question comes from the line of Andrew Levy from Macquarie.

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Andrew Levy, Macquarie Research - Analyst [57]

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I've just got 3. Just on the capability-driven selling, I was wondering if you could sort of talk about the functionality or capabilities you're referring to there and also what some of the new functionality that you'll be able to charge over and above what you currently charge for Altium Designer. And what kind of interactions with manufacturing or other areas do you look to monetize through that platform?

And the second question was just on Octopart. A couple of parts there. The first one, I thought I saw somewhere that you've moved to sort of live pricing dynamics within Octopart and were moving that model along. So I was just wondering if the revenue model at all is changing there or you're planning to change the revenue model around Octopart. And the second one is just on the growth rate, which looks to have slowed a little bit in the second half. So just wondering how we should think about the momentum in that business. And that's kind of 3 with 1 head, 2 parts.

The third one that I've got is just on, are you able to give the number of term-based licenses that were sold in the FY '19 year so we can back out the perpetual license sales and term-based license sales in that period?

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [58]

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Okay. Maybe to answer the first question about Altium 365, the pricing model and the capabilities, the way I think about it, the way we think about it is the range of collaboration. If the range is within the design space, which is, I call it, like short-distance collaboration, that's pretty much part of the standard subscription, and you get that, and there is no additional price for that. Then there is this midrange collaboration, which is a, say, collaboration between electronics and mechanical or collaboration between electronics and ERP system or systems that are kind of arm's length from electronic design context, then you go to that next level. And then ultimately, when the collaboration is long-distance or long-haul collaboration, which is between design and manufacturing or design and supply chain, then we'll be monetizing that accordingly. So this is the general way we look at it in terms of capabilities and our pricing.

As far as Octopart and their live pricing is concerned, one of the key things about Octopart is that they are absolutely passionate to be the trusted source for all things about parts data. Previously, their parts data, the pricing on that could be up to 24 hours old, but they have now rolled out a system or a capability that they can tell you exactly by how many minutes or how many seconds their pricing information is out of date. And that's a critical part of their increasing, improving their level of price.

As far as the revenue is concerned, if you look at Octopart's revenue, they have grown their revenue quite aggressively. We expect their revenue growth to continue, but however, there are things like trade wars and things that are affecting manufacturing. And when manufacturing as a whole gets affected, then the purchasing part will go down. And then that means also, there will be less number of searches are conducted on our platform, and that could impact revenue. We will be keeping an eye on that.

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Joseph G. Bedewi, Altium Limited - CFO [59]

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But it's still click-based, and they are moving into other areas also, selling data, API interfaces. So they have opportunities. But the market is definitely more dynamic now with the trade wars and things like that going on.

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Martin Ive, Altium Limited - VP of Finance [60]

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And then the final question in terms of the number of term-based licenses. So we currently have about 1,240 term-based licenses that are included in that subscriber pool, and that includes Nexus and also includes Altium Designer term-based licenses.

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Joseph G. Bedewi, Altium Limited - CFO [61]

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The reason we put the term-based licenses into the subscriber pool is this is something, as we move forward and we get more and more in term-based licenses, it's a much better gauge of recurring revenue. So we're having different categories of licenses in the subscription pool. So...

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [62]

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Just a...

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Andrew Levy, Macquarie Research - Analyst [63]

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Okay. So the Nexus ones are in the subscription pool numbers, the 43,698 as well?

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Joseph G. Bedewi, Altium Limited - CFO [64]

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Correct.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [65]

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And just a clarification on that is that it is only the client side of Nexus that is included. We have the service side that is on subscription or term-based licensing. That's -- the entire Nexus revenue is actually -- you see that is 98% term-based. This is -- it's not bad amount. It's only the client part, which is equivalent of Altium Designer that we include because from a substantive point of view, the clients of Nexus correspond to the same thing: it's clients of Altium Designer.

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Andrew Levy, Macquarie Research - Analyst [66]

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Okay. Is it possible to get the numbers of the term-based licenses at June 2018?

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Martin Ive, Altium Limited - VP of Finance [67]

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Yes, just over 900.

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Operator [68]

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(Operator Instructions) There are no further questions at this time. I would like to hand the conference -- I'm sorry. There is one more question from the line of [Mark Zetak].

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Unidentified Analyst, [69]

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Aram, what a great result. I just wanted to ask about our dividend policy. Seeing that your earnings per share have gone up by 41% and just the dividend paid is around the 26%, is there any way that in future years that an investor would think that they will get a certain percentage of dividend to earnings per share?

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Joseph G. Bedewi, Altium Limited - CFO [70]

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We don't actually have a ratio that we use. We use some internal metrics that the Board approves, but it's Board approved every cycle.

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Unidentified Analyst, [71]

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And one other question. Every morning, I wake up and wonder when Dassault is going to take Altium over, but over the last few years, you've been so successful. Has there been any thought about doing the other way and Altium...

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [72]

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Well, maybe one day, but that one day will be a long time in future.

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Operator [73]

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(Operator Instructions) There are no further questions at this time. I would like to hand the conference back to today's presenters. Please continue.

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Aram Mirkazemi, Altium Limited - CEO & Executive Director [74]

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In conclusion, we are excited about Altium's future. I'm confident that we will not only be able to achieve but surpass our $200 million target in 2020 and lay a strong foundation for delivering on our 2025 target. As I mentioned, I believe that there is a good chance that we will hit our halfway mark of 50,000 subscribers as early as this financial year. I'm also committing to a new floor for our EBITDA margin of 37%, up from 35%. Thank you.

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Operator [75]

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Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect.