This morning, printed circuit board (PCB) software provider Altium Limited (ASX: ALU) delivered a storming set of results for 2016.
Revenue was up 16.7% to US$93.6 million, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 20.9% to US$27.4 million and normalised earnings-per-share (EPS) grew 43.5% to 17.9 US cents.
The normalised EPS comparison assumes a 29% effective tax rate in 2015 and a 6.5% rate in 2016 and so the EBITDA numbers probably provide a better indication of relative performance.
The company declared a final dividend of 10 cents taking the total dividends to 20 cents for the year representing a 2.7% yield at current prices.
Perhaps the most impressive aspect of these results is the 22.3% growth in sales to $100.4 million which will boost next year's revenue. This combined with the 100 basis points uplift in EBITDA margins to 29.3% means that management is highly confident of exceeding its 2017 target of $100 million in revenue at 30% EBITDA margins.
It is now turning its attention to achieving market leadership and $200 million revenue by 2020.
The recently announced partnership with Dassault Systemes, a leading mechanical computer aided design (MCAD) company, will help it get there. Dassault released a new version of its SolidWorks product incorporating Altium's software at the beginning of July 2016 which has the potential to deliver a step change in Altium's revenue.
Acquisitions will also assist with the company's lofty ambitions and the 2016 financial report includes details of a new purchase made in March 2016. Perception Software Inc cost $7.9 million and enables the integration of electronic computer aided design (ECAD) software, such as Altium's, and enterprise product lifecycle management (PLM) systems. The acquisition had little impact on 2016 results, but is expected to be earnings accretive in 2017. More importantly, it adds enhanced product capability progressing Altium's strategy for the enterprise Printed Circuit Board (PCB) segment.
Other acquisitions made during the year, Octopart and Ciiva, also improve Altium's existing software offering. Whilst the financial impact of Ciiva was nominal in 2016, Octopart contributed US$4.5 million in revenue and US$1.4 million in net profit after tax (NPAT). This is a decent return on US$12 million investment, especially when you consider Octopart's revenue has grown 41% per year on a compound basis since 2011.
It is usual for companies to adjust profit figures in years when they have made acquisitions to account for on-off advisory and restructuring costs. However, Altium has not done this and so the result is even more impressive than it first seems. Indeed, EBITDA margin from existing businesses was up 280 basis points to 31.1% in 2016.
Perhaps the only negative in Altium's result today was the weak operating cash flow of US$14.1 million versus US$20.4 million last year. This was affected by the termination of an onerous lease for US$1.5 million related to the relocation to the US last year as well as US$10.8 million build in receivables over the year. Also, tax paid rose to US$5.4 million up from US$0.7 million last year.
Altium currently has a 16% market share and is the fourth-largest player in the PCB software market. However, it is the fastest growing, recording more than double the revenue growth of its nearest competitor over the last year. It also enjoys the joint highest EBITDA margins and so looks well placed to achieve market leadership over future years.
Estimates show that the electronic design automation (EDA) market will grow by 11.8% per year until 2022 and so whichever way you look at it, Altium appears to have an exciting future.
