Altium share price on watch after warning of tough trading conditions

The Altium Limited (ASX: ALU) share price could come under pressure today after it warned that it could fall short of its aspirational goal of US$200 million in revenue in FY 2020.

What did Altium announce?

This morning the electronic design software company advised that it is anticipating some headwinds in May and June as a result of the ongoing restrictions and continued lockdowns associated with COVID-19 in the United States and Western Europe.

Management explained that while Altium is operationally and commercially well positioned, the consequential economic and social impacts of the lockdowns are likely to impact its performance in the final quarter of the financial year.

Altium’s CEO, Aram Mirkazemi, commented: “While engineers are actively doing prototype designs, and the electronics industry is holding up relatively well, the cash preservation priorities of small to medium size businesses are likely to affect the timing of closing sales in our typically strongest months of the year being May and especially June.”

In an effort to drive volume during these challenging market conditions, the company has launched attractive pricing and extended payment terms. It has also accelerated the introduction of its new digital online sales capability, as part of the execution of its man-out-of-the-loop strategy to bolster transactional sales capacity.

Management explained that this digital sales model will take time to ramp up but is expected to be important to support its climb to the 100,000 subscribers target by 2025.

This will be a big increase on the subscribers it expects to report in FY 2020. Altium’s CFO, Joe Bedewi, confirmed that the company remains committed to achieving its 50,000 subscriber target for the full year.

What about the rest of the business?

While Altium is best known for its Altium Designer product, there are a number of businesses that make up the group.

Mr Bedewi provided an update on how they have been performing through the crisis.

He said: “Our NEXUS team is actively closing deals and has a good pipeline for the remainder of Q4. TASKING also has performed well on a year to date basis and is further buoyed by the reopening of car manufacturing production in Europe. Octopart is receiving solid traffic to its website, as engineers search for electronic parts, and, at this point, is holding up its cost-per-click rates with distributors.”

Outlook.

Altium remains well-positioned to navigate this short term headwind. The company is financially very strong and has a current cash balance of more than US$77 million.

Mr Bedewi concluded: “While we may see a positive impact from stimulus packages to be released by governments in key economies, and are excited by the rollout of Altium 365 and our digital online sales platform, our long-term aspirational goal of US$200 million revenue for the full year will require our typically strong months of May and June to be unaffected and have the usual strong finish. At this point, given the economic consequences of the continued restrictions, this is likely to be a low probability.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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