Altium Limited (ASX: ALU) just reported its result for the half year to 31 December 2017.
Altium is one of the world's leading electronic PCB software providers.
Below are some of the highlights compared to the prior corresponding period.
Altium reported that revenue grew by 30% to US$63.2 million. The strong revenue growth was driven by several factors such as the PCB subscription pool, which grew by 4% to 35,977 active subscribers.
Individual product segments grew strongly, such as Altium Designer software licenses revenue rising by 35%, TASKING software licenses revenue growing by 21%, Service revenue growing by 58% and Altium Nexus revenue growing by 229%. Within these results management pointed to the importance of China, where revenue grew by 30%.
Management maintained a disciplined approach to costs, with spending increasing by 23%. This increase included the cost of direct sales in the Europe, Middle East and Africa (EMEA) region as well as non-recurring expenses for earn-out adjustments and acquisition costs of US$1.9 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 51% to US$19 million thanks to the strong revenue growth and controlled spending increase. The EBITDA margin increased to 30% from 25.8%. Altium said that the underlying EBITDA margin was actually 33.1% if the one-off restructuring and acquisition costs were excluded.
The EBITDA profit growth flowed through to the bottom line, with net profit after tax (NPAT) growing by 51% to US$14.9 million and earnings per share (EPS) growing by 50% to US 11.48 cents.
Operating cash flow increased by 8% to US$14.9 million whilst free cash flow increased by 16.85% to US$13 million. The company finished the December 2017 half-year with US$36 million of cash, which was a decrease from US$44 million at June 2017.
Management rewarded shareholders with an 18% increase to the interim dividend, bringing it up to AUD 13 cents per share.
Altium said that the recently passed US federal tax rate cut from 35% to 21% benefit has been offset by the elimination of interest deductibility, resulting in a faster utilisation of the amortisation benefit. Therefore, the company said that the effective tax rate is unlikely to be material in FY18.
Outlook
Altium management said that the goal of PCB market leadership is the main aim for the company. It will continue to roll out new products, pursue new partnerships and continue its merger & acquisition strategy to increase Altium's market reach.
The company expects its strategy will lead to double digit revenue growth and expanding margins. Management believe that the goal of a 35% EBITDA margin by 2020 is on track.
The electronic PCB software business maintains its goal of US$200 million revenue by 2020.
Altium CEO, Mr Aram Mirkazemi, said "Altium's strong first half performance across all regions and all businesses reflects disciplined execution to capitalize on a growing market opportunity. The first half results are in line with expectations and build momentum toward the achievement of our 2020 revenue target of US$200 million and a margin of 35% or better".
Foolish takeaway
I thought this was another excellent result by Altium, which hopefully justifies how well the share price has done over the past year.
The strong revenue growth in all key segments and improving margins is a clear sign that the company's strategy is working and that it's operating in a fast-growing industry.
I think it's impressive that the company is so confident about its 2020 revenue and EBITDA margin targets. It seems on course to deliver on those goals, perhaps beating them.
I'm not sure I would say the current Altium share price is a clear buy, but I don't want to sell my shares after seeing this result. I think it is well worth holding for the next few years, perhaps longer, as the company grows its bottom line and the dividend.
