Earnings Transcript for ALU.AX - Q4 Fiscal Year 2021

Operator: Good day, and thank you for standing by. Welcome to the Altium Full Year Results Investor Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would like to hand the conference over to your first speaker today, Ms. Kim Besharati. Please go ahead.

Kim Besharati: Hello, everyone, and welcome to the Altium Investor Call. I am Kim Besharati, Chief of Staff and Head of Investor Relations. Joining me on the call today is our CEO, Aram Mirkazemi, in San Diego; and our CFO, Martin Ive, in Sydney. Today, Altium released to the ASX the company's preliminary financial results for the full year ended 30 June 2021 and investor presentation, which we will discuss with investors over the next few days. Due to unforeseen delays in the finalization of the annual audit process, amplified by the impacts of COVID-19 pandemic in New South Wales, the release of Altium's audited accounts has been delayed. Our team expects the audit process to be completed and its audited results to be released within a week. Altium does not expect there to be any material difference between today's release of unaudited financial statements and the audited financial statements to be released shortly. During this call, Aram and Martin will share details of Altium's strong second half performance to achieve the company's full year revenue guidance and our positive outlook for fiscal 2022. Please note that, 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 statements are based on current assumptions for Altium 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. As mentioned, today's call is being recorded, and it will be made available on our website shortly. I'll now pass over to Aram.

Aram Mirkazemi: Thank you, Kim. And good morning, everyone. Financial year 2021 has certainly been a significant one for Altium. We have pivoted to the cloud through business model and organizational changes, and we have been at the forefront of acquisition interest from a global player. And what's more is that this has all taken place during the midst of a global pandemic. It is against that background, and I'm very pleased to report, that Altium returned to double-digit growth in the second half of fiscal 2021, growing by 16% overall. This is a welcome return to strong growth as expected, and it has supported the achievement of our full year revenue guidance. I see Altium's second half performance as a bellwether for the company's fiscal 2022 performance. I'm excited to say that fiscal 2022 will be a return to winning for Altium earlier than expected. We have upgraded our revenue expectations from 13% to 18% to now 16% to 20% growth for fiscal 2022, but before I go to -- into too much fiscal 2022 -- about fiscal 2022, I would like to take a moment to share my thinking on our fiscal 2021 performance. I was most heartened to see our performance come back strongly in the second half. It benefited from improving macroeconomic conditions, and we bedded down our organizational and business model changes following our pivot to the cloud in September 2020. The U.S. and EMEA both performed strongly in the second half compared with the first half and executed well on our business model transition, producing a record increase in our recurring revenue. Having said that, both the U.S. and EMEA have more work to do to deliver on the promise of our recent restructuring to first get us back to our all-time best and, hopefully, to go well beyond. I'm happy to report that our Octopart and China businesses delivered very strong performances and momentum is rebuilding in our core PCB business. I'm also excited to say that the strong adoption of our cloud platform Altium 365 is further strengthening our market position. We now have close to 13,000 monthly active users and over 6,000 monthly active accounts using Altium 365. The rapid adoption of Altium 365 is delivering benefit to the company and our customers on 2 fronts. First, Altium 365 is enhancing the value of our maintenance subscription to our customers and delivering a SaaS-like subscription, thereby reducing subscription churn for dominance. Second, the rapid adoption of Altium 365 is catching the attention of the industry and attracting strategic partners that could help us accelerate our transformative vision to digitally connect electronic design to the broader engineering ecosystem. Looking ahead to fiscal 2022, as I have said, I believe that Altium will return to winning revenue growth of high teens and close to 20%. We have bedded down our business model and organizational changes and are capitalizing on the pent-up demand accumulated over the past 18 months. Our trading during July and August has been strong, with revenue up 75% in these 2 months and new business up around 40% year-to-date. Conditions for Octopart will remain favorable through fiscal 2022 and beyond, and I'm confident that China is back and executing well. All in all, we have a very positive outlook for fiscal 2022. As we move forwards, it is our new growth engines that will be powering our performance. This is our dominance engine comprised of our PCB software and Altium 365 and our transformation engine based on our cloud platform Nexar. Slides 36 to 38 of our investor presentation highlights the nature and the impact of this transformation in Altium. These 2 engines have begun to build considerable momentum in our core business. This includes the widespread adoption of Altium Designer beyond its traditional reach, establishing Altium's design platform, Nexus and Concord Pro, as the future of enterprise software in the high end of the PCB market; the creation of a digital ecosystem, Nexar, for the electronics industry to connect designs to supply chain and manufacturing; adoption of cloud and Altium 365 as the collaboration platform for PCB design. These areas of momentum are critical for Altium to drive its revenue organically towards our aspirational goal of $500 million, which is a fundamental milestone for the realization of our vision of transformation through dominance. Specifically, we will look to drive our organic growth through our strong Altium 365 adoption to significantly improve our subscription renewal rates, the rollout of our digital sales platform to take our transactional sales globally to expand reach to drive additional revenue, leveraging our digital sales platform to drive incremental revenue from existing customers without the need to discount, scaling our high-end enterprise sales with Nexus through strategic partnerships to expand TAM within the PCB market and drive significant revenue, expanding Octopart TAM through Nexar to drive additional revenue, driving license compliance and bringing recurring revenue in China through Altium China 365, creating demand for smart manufacturing to scale in revenue with high gross profit margin. Our flight path to $500 million, as we have said in the past, may include some revenue that will come by way of acquisitions. In such cases, the intent is to strengthen our growth engines and to build further momentum rather than making acquisitions purely for revenue, but above all, our drive towards dominance requires Altium to win in the high end of the market. Whilst we have been dominating in the strongest possible form in the mainstream in terms of seats and dollars, which strategically is most important, we have not as yet done any real damage in the high end of the market by taking customers away from our competitors. Our competitors have been growing their business in these accounts through selling other tools related to IC and simulation, which may have given the impression that some of our competitors are doing okay in the PCB design software market. In Slide 10 of our investor presentation, you will see that our team is the only company that has grown its market share during COVID. The numbers that you see in their financial reports are opaque and does not go into any details. On the other hand, Altium is all about PCB and fully transparent in its comprehensive reporting. Altium's drive for end-to-end dominance is picking up another gear with Altium being the only PCB company with a digital cloud platform and truly intent to build an open digital ecosystem around it. This combined with the strategic partnerships with key industry partners will enable Altium to remove the last stronghold of our competitors in the high end of the market. Slides 29 to 32 of our investor presentation capture the uniqueness of Altium in the wider engineering ecosystem and the opportunity for strategic partnership. In recent months, we have accelerated our efforts to transition our revenue from nonrecurring to recurring. This was caused by the effect of COVID on a proportion of our customers requiring extended payment term. While initially we extended payment terms, we subsequently offered term-based licensing as an alternative that served our customers' needs and resulted in acceleration of our recurring revenue. The side effect of this has been a certain amount of headwind on our revenue. This, however, should not be taken out of context. Let me further explain

Martin Ive: Thank you, Aram. Good morning, everyone. Altium delivered a strong second half performance of 16% overall revenue growth to achieve revenue guidance for the full year of $191 million, including TASKING; and 6% growth for the full year to $180.2 million on a continuing basis. This is a pleasing result after a slow first half which was impacted by our pivot to the cloud that involved both business model and organizational changes alongside COVID conditions. As Aram mentioned, we are rebuilding momentum in our core PCB business and still have some work to do. However, our second half performance was considerably better in relative terms than the first half in both the U.S. and EMEA. The months of July and August have been particularly strong months and have continued this upward momentum, which supports our fiscal 2022 financial targets. During fiscal 2021, Octopart and China were the standout performers, growing revenue by 42% and 11%, respectively. Octopart's growth is being buoyed by the shortage in the semiconductor industry driving up electronic components and parts search activity. Offer clicks, for which we get paid by our distributor customers, finished fiscal 2021 with 6 consecutive record-setting months; and a total of 16 million clicks, which is an increase of 41% year-on-year. These favorable conditions are expected to continue throughout fiscal 2022. China recovered strongly in the second half to deliver 47% revenue growth over -- after a slow performance, to finish the year with double-digit growth. As noted in February, the China license compliance activities focused on mid-tier and large organizations to build pipeline for the second half. This resulted in a significant improvement in the proportion of deals won compared to the previous 12 months. We have continued to monitor the SME segment and see signs that confidence is returning as businesses adapt to the changing conditions. On the new metric of ARR, I am pleased to report that Altium increased its ARR over the course of the year by 29% as we continued to accelerate the transition of our business model from perpetual to term-based and from on premise to cloud. A significant element of ARR growth during the year was the continuing momentum of customers towards term-based licenses. During fiscal 2021, we sold 1,910 new term-based license seats compared with approximately 450 in FY '20. The increasing demand for term-based seats is a positive for our future recurring revenue but had a short-term impact to performance in the U.S. and Europe with these being the regions in which term-based licenses are becoming more prevalent. Altium's subscriber pool grew by a solid 7% to reach 54,394, supporting our pursuit of market dominance and our target of 100,000 subscribers. There was some weakness in our subscription renewal rate in the June quarter. This was related to renewals for customers that had purchased perpetual licenses and particularly upgrades with subscriptions at discounted prices during the height of the pandemic and before we introduced term-based licenses. Conversely, we saw the strength in the renewal rate amongst those who have adopted Altium 365 to the point of virtually no churn. This trend, as it continues, will significantly enhance our capacity to achieve $500 million target and 95% recurring revenue, excluding China and developing countries. Nexus had a challenging year, down by 5% for the full year to $14.7 million, mainly affected by COVID in the first half. Nexus did, however, return to growth in the second half and closed a significant deal of $1.8 million. Most importantly, Nexus now has the capability to be hosted on the Altium 365 platform, which will remove some of the obstacles for adoption and for scale. Altium achieved a 100% increase in cash balance to $191.5 million because of improved operating cash flows and the sale of TASKING. Operating cash flow was up 9% to $61.7 million. And Altium increased its dividend to AUD 0.40 for the full year, up 3% from last year, with a full -- with a final dividend of AUD 0.21. In terms of operating expenses, Altium has been focused on investment in its cloud platform. This has included the aggressive recruitment of engineers to support our cloud platform, CAD software and Nexar products and their rapid development, which contributed $1.7 million of the increase in R&D expenses during fiscal 2021. Sales and marketing expenses grew by 10% to $58 million. This was largely due to additional investments in Nexar and Octopart business development organization and the expansion of the professional high-end sales channel. Removing the impacts of one-off costs, operating costs grew by 5%. One-off costs included the following

Operator: [Operator Instructions] Your first question comes from the line of Garry Sherriff from RBC.

Garry Sherriff: First question, maybe just in relation to the discounting that you did during FY '21. Do you believe that might have assisted with some pull-forward of orders for the second half performance and also into '22? And I guess the question is do you foresee any risk around high churn or permanently lower pricing as some of those contracts which were signed in '21 mature over the next 12 months.

Martin Ive: Garry, we actually discounted much less during the second half of FY '21 compared to the previous year. And we actually saw an increase in our realized price, particularly of perpetual licensees, in -- through the full year of around 22% outside of China. And that increased, second half of FY '21 to second half of FY '20, by around 35%. So the level of discounting that we did significantly reduced. We believe that, that was -- that one of the factors was the introduction, late introduction, of term-based licensing, which enabled some more price-conscious customers to have a lower entry point to Altium Designer. So I think -- particularly with the start that we've had to FY '22, I don't believe we've brought forward any demand, which I think was a slight issue at the end of FY '20, but I don't see that that's being repeated.

Garry Sherriff: Understood. And maybe if you could help me just try and understand, maybe talk to your pitch and execution plans for getting competitors to integrate with Altium's open digital cloud platform. I'm trying to figure out how you would incentivize your competitors to want to integrate with your open platform. I assume from their viewpoint that they might view it as jeopardizing their existing customer relationships by integrating with you, so I'm just trying to figure out, a, what's in it for them? B, how do you get them to actually do that?

Aram Mirkazemi: Garry, this is Aram. If you're speaking about our competitors in terms of the PLM and MCAD and CAE companies -- these are significant companies. And all of them see Altium completely complementary to their offerings, cloud offerings. For example, Fusion 360 from Autodesk and Altium 365, they are highly compatible and they are complementary. The same applies to Dassault's 3DEXPERIENCE and PTC's Atlas and so on. So from that perspective, it's almost hand in glove, the relationship between Altium 365 and Nexar and our partners' offerings. For example, think of it like our system being CRM system in a business world and there is the accounting system. You find that CRM and accounting system are the backbone of a business. You see the same thing apply to the engineering world. So electronics and the platforms that those companies have, highly compatible. Now as far as our direct PCB competitors are concerned, we very much welcome their customers and users to come onto our platform because our platform is open. We do not have any restrictions or closeness. We believe that those customers prefer an open platform, so we're actually set up pretty well.

Garry Sherriff: And so when you say that -- the direct PCB competitors to you, again trying to figure out, how do you get them to want to come across and, I guess, integrate or work with you?

Aram Mirkazemi: It's really the customers that got to come across. We don't need another PCB partner to come across. The partners we're talking about that we want to come across, and there are many of them, are about electronic design and realization beyond PCB. The 3 companies Zuken, Mentor and Cadence, their customers are welcome to come onto our system, as ours open, but I don't think any time soon Cadence or Zuken or Mentor we wanted to come on. Having said that, we already have got the partnership with Siemens around their Teamcenter PLM. We're doing a co-designer for their NX, so it's actually beyond layout and PCB. It's about product design and manufacturing where electronics is a central part now. And those tribal mindsets are a thing of the past; all these companies wanting to connect to electronics. And Altium 365 and Nexar is the best that there is in town.

Garry Sherriff: Okay, last couple of questions that I've got, one to do with the tax dispute with the ATO. It seems as though in your accounts that you're now talking about the ATO asserting quite a big potential tax liability. I mean that -- in your accounts, that they're talking anywhere from USD 16 million to almost USD 120 million. Could you give us a bit more insight in terms of timing around that and what you think the realistic tax liability could be?

Aram Mirkazemi: Well, it's really not about the past. It's an issue between ATO and IRS. As you know, Altium, some 10 years ago, moved its operations out of Australia; and we are now domiciled in the U.S. for over 5, 6 years. And this is all about future tax revenue and it's an issue between ATO and IRS. And the things of the past, the years that we were under audit, tax has been collected on that as we have paid all our profits in terms of dividends to Australian shareholders and they pay full tax on that. So this is really a matter that is about the future. And we're going along with the dance, I guess, but we've got the best legal team and the best advisers. And we're going to vigorously fight against anything that makes us pay twice to the U.S. and also Australia, so we don't expect to pay a cent.

Garry Sherriff: Okay. And just a last question

Aram Mirkazemi: That legal claim, as you stated there, has got to do with the timing of his last tranche of shares. And that was due in August, as per agreements that he signed. And he basically left before that and the Board is not obligated to pay his shares. It's just simple as that.

Garry Sherriff: Okay. And is the -- is -- that role of EVP Corporate Development, is that still open? Is that being replaced? What's going on with that particular role?

Aram Mirkazemi: We're hiring new talent, and for this next phase we definitely are very acquisitive in that sense. So this is a big area for us and we're looking forward to bringing new blood and the next-level players.

Operator: Your next question comes from the line of Lucy Huang from Bank of America.

Lucy Huang: Aram, Martin and Kim, I just have 3 questions. So firstly, in terms of the EBITDA margin guidance for FY '22 for 34% to 36%, just wondering where the incremental investment is likely to be in. Kind of which product, initiatives, et cetera? And then just secondly, if you can talk through the strategy moving forward with Altimade. You mentioned that you're going to make a new acquisition in second half of '22. So just with manufacturing, is Altium now looking to actually perform the manufacturing process? So I just want some color around the strategy of that business moving forward. And then just thirdly, you mentioned that Altium has sold 1,910 new term-based licenses this year, so what does this bring your term-based license subscription number to?

Martin Ive: So in terms of the margin guidance and where we expect cost growth, we do expect to continue investing in the cloud platform, so there will be a level of investment there, which is something that we have done consistently over the last 2 years. The other area of investment, which we started during FY '21, is in the kind of high-end sales channel. And that's an area that Aram talked to earlier where we haven't really made a dent yet, but we need to increase the level of resources that we have in that area. And I think one of the things just to note in terms of high-end sales and the investment there and -- the payback period will be slightly longer than we would get if we -- when we normally increase investment in our transactional sales because the sales cycles are much longer. And so we'd expect the impact of that to be felt in the latter part of FY '22 from a revenue perspective and then going through into FY '23.

Aram Mirkazemi: And maybe I can, Lucy, answer the question about Altimade. Last 2 or 3 years, we've been very much focused on the manufacturing or supply side of the equation, as far as connecting design to manufacturing is concerned. And we've got our own facility in Brooklyn, which essentially we use as a lab and building out the system and the platform. And we've been talking to partners and we've got our head around that pretty good. And with the investments in MacroFab, we now have capacity in a sense that, that side of the equation, we're good with that. And we are -- we do not intend to do manufacturing ourselves. Through MacroFab, we would be connecting to the capacity that is out there and connecting that capacity to the Altium 365 platform. The side that is now set perfectly for us to play is the go-to-market and the customer side of the equation because now we've got significant number of customers on Altium 365. And Altium 365 now reached a level of acceptance and reliability and traction that is perfect for us to do the go to market, and we focus on that. And we're hoping, in the second half, we would have our first go-to-market event for Altimade. That's the Altimade. And there was a third question.

Kim Besharati: [Indiscernible].

Aram Mirkazemi: Yes. Martin...

Martin Ive: Sorry. The number of -- or the proportion of licenses that are on the -- or the subscriber pool that's term-based is around 8%.

Lucy Huang: I'm sorry. Could you repeat that? I missed that.

Martin Ive: That's -- it's around 8%. So it's increased from around 5%, just under 5% last year.

Operator: Your next question comes from the line of Siraj Ahmed from Citi.

Siraj Ahmed: Just I have 3 questions as well. The first one, Aram, can you just repeat the start to FY '22? I think you said revenue is up 25% year-on-year in July and August, yes. If so, is it driven by key deals or perpetual? Just keen to understand whether the price increase in perpetuals did impact on sales.

Aram Mirkazemi: I'll start, Martin, and then you can elaborate on that. From my perspective, we're kind of back to our normal business. June was a very strong month. As Martin said, we -- usually in the old world, we would run some promotions and so on. It's not enough. We did not do that. And given also TBL, we did really well in June. And June the year before was this strong June. Now July and August, they're really strong. And to me, that's business coming back to its normal state, and -- but I don't want to kind of celebrate too early because July and August were low bars last year. They were at the middle of pandemic and the bars were low. But business returning back to normal. We're not back all the way in terms of producing our best or all-time best, but things are looking good.

Martin Ive: Yes. So Siraj, I think, as we've talked about earlier, we didn't significantly discount in -- towards the end of the financial year. And I think that's one of the things that helped, that has helped the good start in July and August and in terms of both volumes and the price being supported. And that's across both perpetual and term-based licenses and then also in the Octopart business as well.

Siraj Ahmed: Got it. Second one, Aram, on the $500 million target, it sounds like you are looking for a higher contribution from the high end now. I think previously you have said 10% to 20% from Nexus. Is that fair, that you are looking for higher contribution? And on that, some of your competitor is talking about having integrated offerings, right? And that's key to be -- to cracking the high end, so from that perspective, I'm keen to understand how Altium is trying doing that as well or crack that market.

Aram Mirkazemi: Sure. With the high end, as Martin mentioned, our focus is really 2025. For 2025, that's a -- it's essentially a greenfield for us. It's even referred to that -- the TAM expansion because in the high end it's not quite accessible to us in the way that the rest of the market is. For FY '22, we're going to be making some investments. And we don't expect to get a whole of the return on that, nor do we expect that -- our '22 financial year then even moving a whole lot by our high-end sales, but the -- our organic growth to that $500 million, the high end is going to play a big part, particularly out in '24, '25, as we bring the strategic partnerships to a state of fruition.

Siraj Ahmed: And last one, just looking at the active users and active accounts for 365. It looks like it stepped down from your last disclosure as of 1st June. It's a little bit surprising. I'm just keen to understand what's happened there.

Aram Mirkazemi: It's not. Our metrics are going up. I'm not sure exactly how -- you're comparing it to -- so if you're going quarter by quarter...

Siraj Ahmed: [Indiscernible]

Aram Mirkazemi: Right. You're going on that daily measure. This is 1st of August. And I think this slide downward is caused by most Europeans being away from work during their summer. This is -- now, which is end of August, is coming back up. So that number is ticking up. You will see in the previous period, 12 months, there were some -- by Christmas, it goes down. And I think, around the same time last year in July and early August, there was a bit of a slowdown, but then it kicks up.

Operator: Your next question comes from the line of Roger Samuel from Jefferies.

Roger Samuel: I've got 3 questions as well. You previously disclosed the flight path every year to your FY '25 guidance, so now with the new guidance to FY '26, what are your thoughts around the flight path? Are you still expecting some acceleration in the financial year '24, '25? And are you sort of walking away from the EBITDA margin of around 40% given your commentary around the margin floor of 34%?

Aram Mirkazemi: Roger, the thing is that, divestment of TASKING, that margin impact of that divestment hasn't come through, hasn't quite come out of the wash yet. The revenue, obviously it has and is very easy to follow, but TASKING wasn't a complete stand-alone business. It was fully integrated into Altium, so it takes a while for that to wash through. And right now we're not making a statement about our EBITDA margin at the end of 2025, but like I said, 34% and a CAGR of 20% -- greater than 20%, it gives you a Rule of 50 for a company that is going through -- going after that big vision of transformation. I don't think it gets better than that.

Roger Samuel: Okay. And my next question is on your tax rate going forward given all this tax dispute. Maybe just talk about, I mean, what should we expect in terms of tax rates going forward.

Martin Ive: Yes. So there are a couple of kind of uncertainties with the change in administration in the U.S., so we do expect that there will be some changes in tax legislation in the U.S. that may impact our tax rates going forward and -- but we expect the tax rate to be in the 23% to 26% range for the foreseeable future unless we do see any U.S. tax changes. The U.S. is a domicile where we see the -- a majority of our tax paid. And so any changes in U.S. tax rates, obviously you'll have a significant flow and impact to the group rate.

Roger Samuel: Okay, all right. And my last one, just on your partnerships around Nexar and Altium 365

Aram Mirkazemi: I think it, first and foremost, would bring a great level of productivity to the whole process of designing smart products and manufacture them. The impact of that is going to be very significant for most our customers and their customers. I'm sure we won't have trouble monetizing that when the value is delivered and the impact is felt. We're focusing on getting the users and customers onto the cloud platform. That's the main focus for us, and demonstrate the value of this new platform. And from there on, it's a stone throw to get to the side that you're referring to.

Operator: Your next question comes from the line of Paul Mason from E&P.

Paul Mason: Three from me. So the first one, I was just hoping you could clarify the Slide 10, around market share. Is that revenue, or is that users?

Aram Mirkazemi: It's revenue.

Paul Mason: Okay, great. And then just the next one

Aram Mirkazemi: Well, Supplyframe and Octopart are the only 2 assets in the industry that connect the design through search to the supply chain. And whilst Octopart is the leading search in -- by both revenue and performance, Supplyframe was going to give us a complete hold on the -- in this area; and for our purposes, would have expedited, accelerated our journey. So we went really after it hard. As you can see, we put everything in. We were against a large competitor. And we actually got there and we got the word that we got it. And then there was only one issue remaining, and that was to clarify the funding in Australia in Australia and Australian laws and so on. Goldman Sachs was behind us and they gave all their assurances as needed, but the owners of Supplyframe still wanted to get additional assurances. And they didn't know the Australian laws around capital raise, and that opened up the window just -- the door just wide enough for our competitor to come in. And essentially we could not compete against their assurance, as far as the cash was concerned. So that was a miss. We did well. And many people said, "You don't have a chance." We came that close to having it, but of all our competitors, Siemens is one -- that one ending up with Supplyframe.

Paul Mason: Okay. And so just on sort of -- that's a great answer to the first part. And second part was more about as well then, say, with Arena Solutions, which is a capability that I don't think you guys have something in your current offering that sort of matches up. Have you guys thought about trying to just build that yourself and sort of not worry about trying to maintain margins over the short term and just go all in on product strategy?

Aram Mirkazemi: Well, I guess, with Supplyframe -- our Altimade and Octopart, they've got a strong leaning towards the designers. Supplyframe provides the same functionality leaning towards manufacturers and procurement people, which are the other side of the river, if you like, but the functionality is the same, so it's really the user base that we were interested in. We don't have a direct access to manufacturing people and supply chain people who work in these organizations of our customers. We have access to the designers, which is our side. We wanted to get a foothold on the other side through Supplyframe and that was the preference. It wasn't product capabilities as such that drove our interest in Supplyframe.

Operator: Your next question comes from the line of Elise Kennedy from Jarden.

Elise Kennedy: I've just got 3 quick questions. Firstly, on China, it looked as though that had a pretty good growth in the last half particularly. I'm curious what role that business or that geographic segment plays in your aspirational targets looking forward and how that's changed over time. The second question is just around Nexus. You talked about putting more costs back into that business to really get a foothold of that market. Is that just in relation to the sales side, or is there also some R&D capability that you require to really tap into that high-end customer? And the last question is just around the relationships with Dassault, if you can give an update as to the termination of SolidWorks but where that relationship fits going forward.

Aram Mirkazemi: All right, the first question, about China. China's significance for Altium is high. They have always been a big part of our business. We have got a tremendous amount of presence in China in terms of electronics. Virtually all users in China use our software. We do not count on China beyond its current weight with respect to our $500 million flight path and that pursuit of that aspirational goal. We do have high aspirations around China particularly around Altium 365 that, if users in China see value in Altium 365, it can change the game for us in China, but from that perspective, China is not going to be carrying more weight than it has done in the past. Now as far as high-end sales is concerned, this is entirely scaling out our enterprise sales. And we've got the product, the platform, so there is no R&D issues here at all. It's scaling our enterprise sales in such a way that it would not be a drag on our EBITDA. We are highly efficient in the mainstream in terms of the operating leverage that we have. We want to make sure that our enterprise sales would have the same operating leverage. That's the key for us. We're not simply going to enterprise like classic enterprise companies, so we're very mindful that, that won't turn into a drag on our EBITDA. Now as far as Dassault is concerned, as I mentioned before, it's really a resetting of our relationship. And the part of it is how we can have Altium 365, the Nexar, which are our cloud platform, connected to their 3DEXPERIENCE and -- platform. And they have been very open and have been -- well, they have been very much respectful of the relationship, but the old chapter, we have to close that. And we did that, and the new chapter is about cloud. And Altium is more of a peer to their 3DEXPERIENCE and -- than a component of it, so I expect that relationship to go well in the next phase.

Operator: Your next question comes from the line of Josh Kannourakis from Barrenjoey.

Josh Kannourakis: Aram, Martin and Kim, I'll be very quick. And I just got on the call, so apologies if this question has been asked, but I just wanted to ask on Octopart, a significant step change there. I'd love to hear what you've seen in terms of engagement levels. You've given some quick data, but in terms of the number of customers that are recurring on the platform, any other details you can give and just some context around how you're seeing that as a start to this year as well?

Aram Mirkazemi: With -- Octopart obviously is doing really well. It's because of the supply chain disruptions and the higher level of activities in all organizations and manufacturers. So Octopart's traffic, you see in one of the slides, has dramatically gone up, but Octopart now is in the center of our Nexar platform, which really changes the game in a sense that Octopart is not just as such. It's right in the -- in our ecosystem platform Nexar, and we believe that the opportunities for monetization are now much greater. There are many who are attracted to our -- many parties attracted to our Octopart services, and we believe that this is going to increase the attractiveness of our platform. And Octopart already monetizes out of its traffic in a very strong way. And I believe that, that selling motion or that mindset is going to drive revenue for us in Nexar. So I see Nexar and Octopart as a very strong combination and that's working well.

Operator: There are no further questions at this time. I would then like to hand the conference back to Mr. Aram Mirkazemi for any closing remarks. Please continue.

Aram Mirkazemi: Thank you. In conclusion. With the strong second half performance, we have an optimistic view of fiscal 2022. We are upgrading our revenue expectations to return to our strong pre-COVID growth of 16% to 20% earlier than expected, which is even more significant when you consider our business model transition and our move to the cloud. We expect our ARR growth to be 23% to 27% in fiscal 2022 and are on track to have 90% of our -- Altium's revenue to be recurring by 2025 ex China and developing countries. Our focus in fiscal 2022 will be to continue with our cloud adoption and to scale our high-end professional sales through strategic partnerships or significant TAM expansion within the PCB market. With growth coming back earlier than expected and the rising popularity of Altium 365 driving strategic interest in Altium, our confidence in our $500 million revenue target is high. Thank you.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.