Altium shares dive as war for talent heats up

Aram Mirkazemi says he’ll be searching outside the US for top tech talent – including the UK and Australia – with firms finding it increasingly hard to hold onto workers.

L to R. Richard White, WiseTech Global, Anthony Eisen, Afterpay, Chris Vonwiller, Appen, Aram Mirkazemi, Altium and Kirsty Godfrey- Billy from Xero at the ASX New Technology Index Launch. Picture: John Feder/The Australian

Shares in electronics software maker Altium fell by as much as 10 per cent amid an ongoing war for tech talent, despite the company posting what chief executive Aram Mirkazemi described as ‘heartening’ results with revenue up 28 per cent year-on-year.

Altium, part of the famed ‘WAAAX’ set of ASX stocks which also includes WiseTech and Xero, improved its results following the Covid-19 impacts lifting its net profit after tax by 38 per cent to $US23m for the six months ended December 31, while revenue was up 28 per cent to $US102m.

Operating cash flow was up 33 per cent year-on-year to $US33m, and it posted an interim dividend of 21 Australian cents a share, up 11 per cent.

Like other high-growth tech stocks Altium is fighting an ongoing battle to hire and retain top tech workers, with the company dedicating a whole page in its investor presentation to the war for talent.

Altium said it will use stock compensation in order to be more competitive in the US market, and would search for key talent outside in the US including the UK and Australia.

“Altium’s strategic pivot to the cloud during Covid through business model, organisational changes and non-core asset divestment has placed it in an exceptional position to take advantage of post-pandemic conditions and to attract top-level talent,” the company told investors in its presentation on Monday.

“To sustain high growth and take advantage of opportunities Altium must being in new talent as it transitions beyond a software and product company to a cloud and platform company.”

Altium is involved in the development and sales of computer software for the design of electronic products. Mr Mirkazem said that despite a rough two years due to the pandemic and related supply chain issues, Altium is well positioned to now capitalise on post-pandemic market opportunities.

“Altium delivered a strong performance for the first half of fiscal 2022. Momentum has returned to our core PCB business and our business model transition is going smoother than expected with minimal headwinds,” he told investors.

“Our Octopart business is performing at its all-time best and the adoption of our cloud platform Altium 365 exceeds our expectations.

Altium chief executive Aram Mirkazemi

“The overwhelming response to Altium 365 from our customers and the broader engineering software industry is most heartening. We are picking up pace toward market dominance and accelerating our transformative vision to digitally connect electronic design and manufacturing to the broader engineering ecosystem.

“While I am very pleased with our first half performance, we must maintain intensity and focus in the second half, as our first half performance should be compared to a low-base last year that was impacted by Covid and the business and organisational model changes that we made as we pivoted to the cloud.”

Jarden analyst Elise Kennedy said while Altium has a long track record of profitability, she sees limits to its long-term growth compared with peers.

“We continue to see ALU‘s core PCB market size as A$1.5bn and adoption is near full penetration, with the result highlighting a relatively mature seat addition,” she said.

“We estimate adoption of its high-end product Nexus will be challenged by strong competitors, with Nexus coming in slightly below consensus in result. We do not factor in ALU365 broadening ALU’s total addressable market into other areas, as we think ‘crossing this chasm’ may prove challenging.

“In our view, ALU would need to sustain ~20 per cent growth for several years to justify the valuation and, in our view, this will be a challenge.”

Analysts at Sydney-based group Barrenjoey said Altium’s first-half result was “strong” and ahead of consensus.

“All indicators remain supportive of ALU’s strategic direction. However, with ALU expecting to “aggressively” scale its enterprise sales, it now expects FY22 margins to be at the low-end of its guidance range,” they said.

“While we suspect the market will penalise ALU for this, its opportunity for direct monetisation of 365 and developing its ecosystem is significant and time sensitive. The battle for top talent and resulting cost inflation remains a common theme in the sector.”

Shares in Altium were down 6 per cent to $32.42 just before market close.