Altium LLC (ALU) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Altium Investor Call. [Operator Instructions] And just please be advised that today's call is being recorded. But without further ado, I'll hand the conference over to your first speaker for today, Chairman, Sam Weiss. Thank you, and please go ahead, Sam.

Thank you very much. Good morning, everyone, and welcome to the Altium Investor call to share details of our vision for electronic industry transformation and our strategy for value creation. Joining me today is our Chief Executive, Aram Mirkazemi, who is in our headquarters in La Jolla, California; and our Chief Financial Officer, Martin Ive, who is with me in Chatswood in Sydney. During the call, Aram will demonstrate why Altium is uniquely positioned within the global electronics design and manufacturing industry and how our cloud platform, Altium 365; and our industry partner platform, Nexar, connect the electronics value chain from beginning to end. Altium management will reiterate their commitment to the achievement of the Altium aspirational 2025 financial goal of revenue of $500 million and 100,000 subscribers. And I will address why the Altium Board of Directors recently rejected an unsolicited acquisition offer from Autodesk, Inc. Our CFO, Martin Ive, will provide a brief trading update at the end of the call. Please note, as a reminder, today's call and the question-and-answer section at the end may include forward-looking statements regarding Altium products, its future operations or its financial performance. Any such statements are based on current assumptions by Altium management and are subject to risks and uncertainty that may cause actual events and results to differ materially. Please note that all numbers are in U.S. dollars unless specified otherwise. This call will be recorded and will be made available on our website later today. I'd now like to introduce Chief Executive Officer of Altium Limited, Aram Mirkazemi.

Thank you, Sam, and good morning, everyone. As someone who is passionate about Altium and our journey of transformation, given the circumstances that we're in, I feel it is important for me to share with you details of Altium's transformative vision and our strategy for value creation. I also would like to share with you why Altium is a unique asset in the industry. I'm speaking to you today as Altium's CEO but also as a significant shareholder myself. Since I returned back to Altium in 2010, the company has gone from trading at less than $1 to now trade in the $30-plus range. I believe that if Altium can continue to execute on its growth strategy, a lot more shareholder value will be created. This is why I support the Altium Board position to reject Autodesk's first and only offer of $38.50. I have a deep conviction that Altium is uniquely positioned in the engineering software industry and that it can execute on its strategy of transformation through dominance to deliver unprecedented value to its shareholders. Delivering value for our shareholders has been a hallmark of Altium. I'm proud to say that through extremely focused execution, we have delivered an industry-leading performance with 8 consecutive years of double-digit revenue growth and expanding margin. Altium has established a history of setting and achieving long-term strategic goals and financial targets. In 2014, we set ourselves an aspirational goal of $100 million in revenue to demonstrate that Altium can perform with potential to lead the industry. We overachieved and delivered $110 million in 2017. In 2016, we set ourselves the aspirational goal of $200 million in revenue to claim market leadership. With 3 months to go, analysts' consensus pointed to a revenue target of around $210 million, but sadly, with COVID going rampant, we fell short at the end of FY '20. In 2019, we set ourselves the aspirational goal of $500 million in revenue and 100,000 subscribers to claim market dominance as a prerequisite for industry transformation. I'm sure that we will achieve this goal by 2025 in the same way that we did the ones in the past. It's never easy, but given our past performances, we are confident to back ourselves. Though these aspirational goals are strategic in nature, we never lose sight of our true north, and that is value creation for our shareholders. We have been highly focused on delivering value at every stage of our strategy, which has been the underpinning of the success of our journey from market leadership to industry transformation through dominance. In this phase of our journey, we are targeting 100,000 active subscribers to compel key industry stakeholders to support our vision for industry transformation. The key components of our strategy in this next phase of our journey is our new cloud platform, Altium 365, which is driving our pursuit to unify and to align the electronics industry. Our cloud-based integration platform, Nexar, which is supporting our desire for partnering and building a digital ecosystem, is critical for industry transformation. What I would like to say next is perhaps the most important part of my presentation, and that is why strategic partners are interested in Altium. Why is it that this block of land is so highly sought after in the engineering software industry? First, it is critically important to recognize that electronics sit at the heart of all smart products. By way of example and something that is very topical, NASA's Mars Ingenuity Helicopter, which has to function independently on a distant planet, and I'm proud to say that its electronics were designed using Altium software. The second critical thing is I appreciate the significance of the electronics industry in the bigger context of the engineering world. To demonstrate this, industry research shows that electronics are responsible for 40% of a new car's total cost. This is most significant with electronics being part of a car's central information display, engine control system, anti-lock brake systems, transmission sensors, radar, audio systems, self-driving, to name us a few. Through Altium's growing dominance and its innovative approach to the cloud, Altium is leading the electronics industry in a way that makes Altium unique in the engineering software ecosystem. More specifically, Altium software and cloud services provide the unique bridges that connect the product design world to electronic design and, subsequently, to the electronic supply chain and the manufacturing of electronics products. With this strong early adoption of our cloud platform, we are evolving from our PCB design origins, are now playing an essential and growing role in the design and manufacturing of smart products that spans manufacturability and productivity, research and influence and component sourcing. All of this effectively means that Altium's products and platforms, through Altium 365, Nexar, Octopart, are unique bridges that connect electronics to the rest of the engineering world. These unique bridges are indispensable components of digital transformation that is taking place throughout product design and manufacturing companies around the world. At the highest end of the product design and manufacturing companies such as Dassault and Siemens, they require centralized, fully integrated solutions to deliver a singular platform for digital transformation. For other players, bringing digital transformation to the mainstream through cloud and SaaS offerings is the key strategy. Bringing digital transformation to the masses through long-haul collaboration between design, manufacturing and supply chain is yet another strategy that is pursued. All of these need to have access to the electronics industry, which is central and economically most significant for manufacturing of smart connected products. I can tell you that in this regard, Altium is unique to the industry, and there is no real alternative. Of course, having created a unique position within the global engineering industry of itself is not enough. We must continue to execute well. I'm absolutely confident that we have both a winning strategy and strong execution capability to realize the promising and even a greater future for Altium. The early adoption of our cloud platform, Altium 365, is most encouraging and continues to surpass our expectations. Today, we have over 13,000 monthly active users and over 6,000 monthly active accounts on Altium 365. However, to succeed, we must execute well and achieve large-scale adoption. At the core of our execution plan, our 4 flywheels for driving large-scale adoption, we have been highly focused on the spinning of these 4 flywheels, which, at their early stages, take a lot of effort and energy, but once they get going, there will be sights to behold. This same flywheel phenomenon underpin our journey to market leadership through our transactional sales with an awesome operating leverage and performance over many years. These new flywheels will power the execution of our strategy by driving the adoption of our cloud platform with a focus on moving design data and processes on to Altium 365. These flywheels will drive the adoption of our ecosystem with a focus on industry partners and their respective users to connect to Altium 365 via our cloud-based integration platform, Nexar. As these flywheels build up momentum, they will drive further adoption of our design tools with a focus on expanding reach and volume through our new digital sales platform. These flywheels also drive the adoption of our design platform with a focus on the high end of the market through our NEXUS product. Our move to the cloud and growing adoption by our customers is changing our traditional maintenance subscription to become more SaaS-like revenue as our customers move their design activities onto Altium 365. We estimate that by 2025, our recurring revenue will rise from around 60% today to be 80% or more. We are also seeing a continued demand for term-based licensing, which Martin will speak to later in the call. In addition, Altium 365 and Nexar will provide unique opportunities for direct monetization. While this is not our focus in the short term, as large-scale adoption remains our singular focus, in time, a range of direct monetization opportunities will come from business models such as premium services similar to Amazon Prime or transaction fees similar to Airbnb. We just need to be patient and focus on large-scale adoption. One other benefit of our cloud-first strategy is its natural promotion of term-based licensing for software tools. We have had a great response from our customers in adopting the cloud, and that is facilitating our business model transition in a way that is natural and not forced. Our business model transition to term-based licensing is perhaps the biggest value-creation event in Altium's history. As demonstrated by a successful number of software companies, such as Adobe, Autodesk and PTC, who have transitioned their software business model to recurring revenue and created a tremendous amount of value for their shareholders, I'm sure that this opportunity for value creation in relation to Altium is not lost on Autodesk. The Altium Board and Altium's leadership team is highly focused on executing with intensity and focus to capitalize on the changes that have been made, the opportunity that is before us and the rising momentum that is coming from Altium 365 from our users, the industry and strategic partners. With recent events, I know that there have been some commentators who are speculating whether Altium remains committed to its 2025 financial goals. Let me categorically say that we remain firmly committed to achieving our aspirational 2025 goals of $500 million and 100,000 subscribers. One thing that is worth mentioning is that unlike our previous phases of growth, for this next phase, we have shared a flight path with the market. Having moved into the ASX 100, we felt there was a heightened need by the investment community to model Altium's growth trajectory. Since 2020, we have shared our flight path with the market to assist with their modeling. As you all know, with COVID, we adjusted our flight path and introduced prevaccine transition and post transition as legs of that flight path. I'm pleased to say that the first leg that ends at the conclusion of this financial year is being successfully completed as we are on target or close enough to our guided range. With the second leg, we must get into double-digit revenue growth, which our second half performance this year is encouraging as we have now returned back to double-digit revenue growth. The key is the third leg starting from FY '23, where we need to get into the 20-plus growth rate to make up for the lost momentum from COVID and the effect of pivot to the cloud. That is when we need those flywheels to be running with full force. There is also an M&A component to our flight path. As you know, M&A comprises 10% to 20% of our flight path to $500 million. I would like to remind everyone that M&A is for strategic purposes in the same way that our divestment of power scheme was for a strategic move rather than keeping it as a mere prop to support our path to the $500 million. But there is one more thing that may not have been obvious for this leg of our journey, and that is significance of a strategic partnership with a big engineering software brand such as Dassault, ANSYS, PTC and Autodesk. Not only is this relevant to reaching our $500 million, it is also necessary for our end-to-end market dominance that is a prerequisite for transformation. There lies Altium's dilemma, and that's why we are here today. As with all strategic partners who are important for Altium's success, our partnership begins by focusing on value creation for the customer. Once the enormity of the opportunities rebuild, it turns to M&A discussion, and the conversation moves to value creation for respective shareholders. This is where we are with Autodesk now. Based on the above, and in recognition of Altium's unique position in the industry, any M&A activity by a single strategic partner would, in my view, need to include a significant premium in recognition of the scarcity of this asset and the opportunity cost for shareholder value creation foregone with other strategic partners. My personal view, which I feel strongly about, given the uniqueness of Altium and its position in the industry, is a strategic investment by the strategic partner in Altium as an alternative path that can overcome some of the challenges mentioned and deliver the most value-creation path for Altium shareholders. This, however, is ultimately a matter for our shareholders to decide. Before I pass over to Sam, I hope that I have been able to share with you my excitement about Altium's future, why I believe that we are uniquely positioned within the engineering ecosystem and our confidence that we have the right strategy and the ability to successfully execute to create a truly special future for our shareholders. I will now hand over to our Chairman, Sam.

Thank you, Aram. As the Chairman of Altium, and as a long time significant shareholder in the company, I'm pleased to share with you my thinking and that of the Board of Directors about the unique value of Altium. As Aram has well articulated, Altium is ideally positioned to transform the global electronics industry. Our Altium 365/Nexar platform is gaining strong adoption, and it is well on its way to becoming an open marketplace for the design and manufacture of printed circuit boards. It delivers a fully transparent view of the PCB creation process from the point that an engineer first has an idea for an electronics product to the sourcing of the parts for that printed circuit board to the fabrication of it with open access for all interested parties, whether they are engineers in allied fields or suppliers, purchasing agents or manufacturers. In this way, Altium 365/Nexar is different from the digital platforms of other large software engineering companies, whose principal benefit is to bring a suite of tools from a single owner to a customer. The opportunity for Altium to establish Altium Designer as the PCB design tool of choice for all engineers, from those working on their own to the teams of engineers building sophisticated electronics products such as automobiles or airplanes at the world's largest companies and to create Altium 365 as the manufacturing platform for the electronics industry is very rare indeed. And we believe is deserving of support, especially when both Altium Designer and Altium 365 are built upon a strong foundation of our industry-leading position in PCB design software. That position of strength in software design, as Aram outlined earlier, also has considerable upside potential as we move from the market leader to the de facto standard for PCB design tools. The Altium Board of Directors recently received an expression of interest in the form of an unsolicited offer from Autodesk, Inc. to acquire our company. We have long thought of Autodesk as one of the great engineering companies in the world and one for whom we have the utmost respect. Our management team and their counterparts at Autodesk have had a series of discussions for some time about how our 2 companies could collaborate and form a partnership that reflected our similar visions for the future of engineering software. When those conversations very recently changed to one about an acquisition of Altium, we were quite respectful of Autodesk, and we gave them an opportunity to engage directly with us about the value of Altium. Having said that, the Altium Board does not believe that the unsolicited offer of $38.50 per share reflects the value of Altium and its potential in both PCB design software and in the Altium 365/Nexar platform and, therefore, is not in the interest of our shareholders to pursue at the current price. However, we believe that we have an open and honest working relationship with the CEO and President of Autodesk, and we will continue to engage with him about the value of Altium. We also appreciate that the multiples offered by Autodesk in their proposal are high by industry standards, but we maintain that they do not recognize the underlying value in our company. In fact, we believe that Autodesk also recognizes the future value of the Altium software and platform and that their offer to acquire the company is, in some part, a reflection of their own conviction of the value that they can extract as the owner of Altium. Of course, as a public company, we are always mindful of shareholder value, and we have no preconceived resistance to an acquisition of Altium. However, we believe it should be at the point and at a price that reflects the unique value of Altium as a company and its demonstrated and future wealth creation potential. I'd like to now introduce Martin Ive, Chief Financial Officer of Altium.

Thank you, Sam, and good morning, everyone. It is pleasing to see that momentum is returning to Altium's business with a stronger second half. However, after a slow first half due to COVID impacts and our pivot to the cloud, the full year is likely to be at the low end of our guidance range. We anticipate that for fiscal 2021 revenue to be at or slightly below the low end of guidance of USD 190 million to $195 million. EBITDA margin is expected to be at the low end of the guided range of 37% to 39% on an underlying basis, excluding M&A costs and the write-back of the SOLIDWORKS minimum contractual amount due to the termination of the contracts. Altium's renewal business is performing strongly. Octopart is set for a record performance, and our China business is also delivering a very solid second half performance. We continue to observe an increase in demand for term-based licenses, which is a positive for future recurring revenue with a much larger portion of new licenses sold in Q4 being term-based. The increase in new term-based license sales has been at the expense of new perpetual license sales, particularly in North America and Europe. As Aram mentioned, Altium's adoption of its cloud platform, Altium 365, is performing strongly with over 13,100 monthly active users and over 6,300 monthly active accounts. I'll now hand over for Q&A.

[Operator Instructions] But your first question today comes from the line of Lucy Huang from the Bank of America.

So I have 3 questions. So firstly, are you able to talk through kind of manufacturing in the Nexar ecosystem? And what's the progress like in terms of getting interest from manufacturing partners or how many have signed up to this decision on the manufacturing side? And then secondly, are you able to talk to Altium 365 Pro? You have begun to monetize that package. So are you able to give us some color as to how many subscribers are now taking on this additional -- or paying for this additional product? And then just thirdly, you mentioned that the third and fourth quarter have seen a higher take-up of the term-based license. So just wondering if you can give us some color as to what proportion of the base is now sitting on a term-based versus a normal subscription.

Thank you, Lucy. This is Sam. I'm going to try to use an American term, be the quarterback in terms of handling the question. So the first 2 questions were about our platform. Firstly, about manufacturing partners and progress there. And the second was about the monetization of Altium 365 Pro, if I understood you correctly, and Aram will address those. And then for an update on our progress on term-based licenses in the second half, Martin Ive will make a few comments. So Aram, if you could talk about the platform. Thanks.

Thanks, Sam, and thanks, Lucy. With the manufacturing supply chain ecosystem, that is essentially the endgame for Altium 365. So there's a lot of work going into that in America, in China and also now in Europe. We have made some investments in a very promising company that some of you might have seen the press release around that, which essentially brings elastic manufacturing, and that has been a big step for us because that's a component that has to be done. But the main thing for us is the customer and being able to present this to customers on 365 in a way that they would prefer the Altium's way of manufacturing, which we actually call Altimade. We are set to raise cash on that in January 2022, and we're going through the last miles. Now in China, also making good progress, but I'll -- that's probably a more China-centric question. It's a different ecosystem, if you like, but we're making good progress there as well. But I'll ask Martin to answer the second question.

Sure. So Lucy, in terms of the Pro level subscription, we have around 2,000 seats that are under a Pro level subscription. So that's approximately 4% of the total subscriber base. And then just in terms of term-based licenses, and this is relating to outside of China, China is pretty much all perpetual licenses. But outside of China, with new license sales, we saw about 33% of those being term-based in Q3, and it's around 45% to 50% so far in Q4, although we would expect that to change somewhat in the last 2 weeks of the quarter. So that may well change by the time we report numbers in August.

Thank you, Martin. Moderator? Go ahead, Lucy.

So I had a follow-up question for Aram in relation to manufacturing. So am I able to clarify that right now, the vision is to direct customers ultimately onto the Altimade over time as the preferred partner in full actual manufacturing of the PCB rather than third party?

Yes. Yes, that is the intention.

Thank you, Lucy.

Your next question comes from the line of Quinn Pierson from Crédit Suisse.

A couple for me. Maybe firstly, in your prepared remarks, I think I heard you mention that a strategic investment might make a bit of sense from a shareholder perspective. Could you maybe just elaborate on that comment, kind of what kind of forms might make sense, i.e., minority or majority investment? Would that potentially be an exclusive arrangement with a potential partner? If you could just elaborate on what might make sense in that area, that would be great, please.

Thank you. Quinn, I'll ask Aram to comment on that because the -- that was in his section. But firstly, I think we should make it clear, if we haven't already, that we enjoy very positive relationships with all of the large engineering software companies that are in the broader industry that enable customers to build electronics partnerships. And we -- particularly since we have developed Altium 365, those conversations about collaboration and partnership have intensified because, as we said, we want to make Altium 365 open for anyone who is interested in building electronics part -- products. And those conversations sometimes lead to really an open conversation about whether making a strategic investment in Altium would or wouldn't make sense for one of those industry partners. But Aram might comment on that from his perspective.

Look, Slide 14 is a good slide to refer to in terms of the commercial significance of partnership. In that slide, you see this 3 levels. And it's really important to appreciate the significance of this for the whole industry and the opportunity for value creation for Altium shareholders. With regard to the high end of the market, the partnership, in its commercial context, is to deliver a centralized, fully integrated solution to deliver a singular platform for digital transformation. You see it at the top. For the mainstream, bringing digital transformation to the mainstream through cloud and SaaS solutions. And that's for the mainstream, and that's for [indiscernible] to a singular platform. That second one is more of an open-platform ecosystem play. And the third one is bringing digital transformation to the masses through long-haul collaboration between design, manufacturing and supply chain. The key to recognize here is that these 3 dimensions are [indiscernible]. They are not competing. Each dimension has got bonafide, legitimate customers that can benefit in the electronic sense from this integration and connection. All those are value-creation opportunities. Now Altium just goes with one in an exclusive way. It is true that our true north, our shareholders, but customers are also stakeholders. There are many customers who'd be deprived of those others. It essentially means the value creation for our shareholders would be limited to only a segment of the market. So logically, and this is my personal view, and I mentioned this, that this is ultimately a decision that has to be made by Altium shareholders, but I have a logical perspective on this. The perfect scenario is that if Altium could actually serve all these customers so that they can all access these bridges onto the electronics platform. But the key thing is that such a relationship has to be commercial and significant in that way for the -- for serving the customer. I hope I have answered your question.

That's helpful. But I guess following along to that, I guess could you maybe elaborate on, I guess, a little bit more detail, what a partnership with some of these large EDA companies might look like? And I guess my question -- I guess where I'm coming at this from is Altium has aspirations to build a key platform and build out an ecosystem, but I guess these other EDA companies have kind of equal aspirations to have, I guess, control eyeballs, control customers and build out their own platform. So I guess my question is what might these partnerships look like more from a commercial arrangement perspective such that everyone kind of feels like they're winning. And related to that, the Dassault opportunity or partnership didn't quite work out, I think, maybe related to this type of friction. I guess why do we think partnerships with some of these other players will work out better? So sorry, a bit of a long question there, but any kind of comments on that would be helpful, please.

I understand that question. And Sam, if I can answer that question.

Yes. Please do.

There's a slide, Slide #12, and this addresses this question. Industry solutions are moving to the cloud and giving rise to a system of ecosystems. This is really important, system of ecosystems, not a single ecosystem, a system of ecosystems, very much in the same way that Internet was the system of networks rather than replacing any of the existing networks. That's the key. And you can see Office, which was the king of desktop integration, it has transitioned to Office 365 where you have Atlassian, where you have Slack, where you have Box and Salesforce and Azure and is not bound to the Windows platform. This system of ecosystems is the future of engineering software as there are so many verticals that, in silos, there is no way that one platform can actually sell all of them for mainstream. I appreciate that for the very high end, maybe for Boeing and Airbus, a singular platform is necessary. But for the majority of companies, there needs to be a system of ecosystems. And in that regard, best-of-breed wins in the cloud, and that requires unbundling on the desktop and rebundling on the cloud. So just think of our world the same way you see Atlassian, Zoom, Slack, Box, Google Drive there is systems of ecosystems.

That's helpful. That's helpful color. Just lastly for me, please, just on kind of more short-term trading considerations. So in the December half, you called out there was about a $1 million revenue headwind from mix shift to term licenses. It looks like that mix shift is accelerating. I can see with some of your pricing changes with term licenses on discounts, a perpetual price rise coming. It looks like you're trying to accelerate that shift. Is there any, I guess, guidance you could provide in terms of how to be thinking about the annual revenue headwind over the next couple of periods from that mix shift?

Thank you, Quinn. Martin will comment on the mix of our license sales.

Sure. Thanks, Sam. So Quinn, we would expect the second half impact will be somewhere in the $3 million to $4 million range, albeit we've still got 2 weeks of the quarter left to go. And as you know, they're generally the busiest 2 weeks of the year. We haven't -- we still want to proceed, from a licensing perspective, in giving customers choice as to whether they use perpetual or term-based licensing, which makes it difficult to call out a specific number in terms of what a headwind may be in the short term as more customers pick up term-based licenses. But our view is that this is an extremely positive thing in the longer term as that recurring revenue base grows over years 2 and 3 of the customer's life cycle. So whilst there may be a short-term headwind, we feel that the benefit from customers moving to that recurring revenue stream is much more beneficial.

Thank you, Martin. Thank you very much, Quinn.

Your next question comes from the line of Siraj Ahmed from Citigroup.

I have 3 questions. Just the first one, can you give us an update on Autodesk, not regarding the bid, but just more on the strategic partnership side, given they're an important player in the ecosystem, where that's standing at?

Thank you, Ahmed. In the call, we've, I think, well canvassed our view of the acquisition. Aram has been across the discussions at the management level in terms of collaboration, and he can share a brief update on the status of them.

Siraj, this is Aram. The tier that -- on the Slide 14, I see Fusion 360. And I see Fusion 360 as quite promising for the masses of engineers. It's very popular. It's something that Altium is very attractive towards in connecting Altium 365/Nexar to Fusion 360 and [ their Forge ], which is equivalent of Nexar. It's exciting, and we've been working on that. And essentially, in my view, the transformational scenario, the transformational scenario is going to be most resonant with Fusion 360. And they have done really well. I have a lot of respect for Fusion 360 platform. And I believe that Altium 365 and Nexar is a perfect match with Fusion 360 and in the pursuit of transformation. One thing about Autodesk that is also worth mentioning is that they have always viewed that their customers and their users do not design things. They make things. Their legendary CEO, Carl Bass, that was his mantra, that our -- users don't design things. They make things. So for them, merging, converging design and make is a big thing, maybe even bigger than our vision of connecting design to manufacturing floor. But you can see that these 2 can now be so resonant. And of course, that is the thesis for the partnership, and there is a great deal of excitement around that.

Okay. So would it be fair to say the discussions are ongoing, Aram? Or just because of the bid, has that now stopped somewhat?

Fusion 360 and Altium 365, they're so, so close and compatible in terms of like hand in glove. So I'm pretty sure that the connection is going to be made one way or another. And of course, because of the situation we're in, we just have to deal with this. But I very much hope that Autodesk, regardless of the outcome and the decision that's being made by the Board and our shareholders, would continue to collaborate with us. Or if we ended up being with Autodesk, I very much look forward to pursuing this transformational journey, which, to be honest, is most exciting part of Altium.

Got it. And Aram, the 3 other logos in there, what about the partnerships with them? Can you just -- where are the discussions on that?

Well, bringing transformation to the mainstream, there are so many large companies that they are not electronic-centric like John Deere, Caterpillar and so forth, but they do require electronics, and they need to have digital transformation to go through this last mile into the electronics. So PTC is a perfect partner for us with that. And with Ansys, the perfect partner for us to get into the advanced electronics as the simulation tools are world best. And of course, the 3DEXPERIENCE has track record that our view that the significance of that, there are many circumstances or, if not more, the 3DEXPERIENCE will be the right partner for us.

Got it. The second thing, just on the trading update. Maybe this one is for Martin. But just the weakness in U.S., that's a bit of a surprise, given the economy has opened up. Can you just touch on that? And secondly, are you assuming that there's a pickup in perpetual license in the next 2 weeks when you give the guidance update?

Yes. So just to clarify, regarding the U.S. comments, [ they're around the ] switch to term licensing. So whilst the number of perpetual licenses may have reduced from last year, this is because customers are choosing to switch to term-based licensing. And that's really what's kind of driven any change in the U.S. We expect over the next 2 weeks to have a switch more to perpetual license sales. As you're aware, there has been a promotion on term-based licenses over the last couple of months, which ends tomorrow or today in Asia and Friday in the U.S. tomorrow. And we expect that we will see a ramp-up in perpetual license sales over the next 2 weeks as we close out the quarter.

Got it. So Martin, just to clarify, you're saying the license sales in the U.S. itself was doing okay. It's just that the [indiscernible].

[ The first 2, I guess ].

Okay. And last thing from me, just on M&A. On your own M&A, Aram, maybe just can you give an update on that because that's part of your FY '25 targets?

Yes. As I said, M&A is a component of our flight path and is strategic in nature for us now that we've got this [ increases, field board ] opened up in supply chain, in manufacturing. There is -- like you see in the Slide 15, Altium is not going to get into factories and so on, but there is a layer that sits between factory floor and the customer in terms of all the things that need to happen between a factory and a customer getting his product. And we have been looking at various opportunities. There was one that we came marginally close, and we put every bit of our asset into it a month ago or [indiscernible]. And yes, it's now -- the field has opened up, and that's something that we're definitely very active on it. But again, I'd like to remind that this is not for revenue. This is a strategic reason. And you can see that we've divested tasking for a strategic reason. We could have kept it to prop our path to $500 million, but we didn't. So we're very kind of true to ourselves, and M&A is, again, a key part of our strategy.

Thank you, Siraj.

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