Business Overview and Chronology
Altair Engineering Inc. (NASDAQ: ALTR) is a global leader in computational intelligence, providing software and cloud solutions in simulation, high-performance computing (HPC), data analytics, and artificial intelligence (AI). The company's innovative products and services have positioned it at the forefront of enabling organizations across various industries to make smarter decisions, enhance product performance, and drive sustainable innovation.
Altair was founded in 1985 and launched its first commercial software in 1990. The company's growth has been primarily attributed to the increasing sales of its simulation, HPC, and data analytics technologies, which empower decision-making, optimize product performance, compress development time, and reduce costs. Over the years, Altair has strategically expanded its product portfolio and global footprint through both organic growth and targeted acquisitions.
Altair's software products represent a comprehensive, open architecture solution for computational science and AI, empowering decision-making for improved product design and development, manufacturing, energy management and exploration, financial services, healthcare, and retail operations. Since 1996, the company has acquired 55 companies or strategic technologies, with 21 of these acquisitions occurring in the last five years. These acquisitions have brought strategic IP assets and talented developers with expertise in various disciplines, including electronics, material science, crash and safety, manufacturing simulation, industrial design, photorealistic rendering, and data analytics.
As a result of these acquisitions, Altair has expanded its product portfolio to include commercially available solutions such as Altair PBS Works, Radioss, Evolve, AcuSolve, SimLab, Embed, Multiscale Designer, FEKO, FLUX, Thea Render, SmartWorks, ESAComp, SimSolid, Monarch, Panopticon, EDEM, PollEx, PolyFoam, Grid Engine, Mistral, Breeze, S-FRAME, Altair SLC (formerly WPS Analytics), EEvision, StarVision, RapidMiner, Genesis, OmniV, Dsim, and FlightStream.
Altair operates globally, with its principal sources of liquidity being its cash and cash equivalents and availability on its credit facility. As of December 31, 2024, the company held an aggregate of cash and cash equivalents of $561.9 million, which it uses for working capital purposes, acquisitions, and capital expenditures. Altair experiences seasonal variations in the timing of customers' purchases of its software and services, with new and renewal licenses concentrated in the first and fourth quarters of the year.
In 2001, the company established the Nonqualified Stock Option Plan, laying the foundation for its commitment to fostering a culture of innovation and employee ownership. The introduction of the 2012 Incentive and Nonqualified Stock Option Plan and the 2017 Equity Incentive Plan further solidified Altair's focus on attracting and retaining top talent.
Altair's transformative journey continued with the launch of its patented units-based subscription licensing model, Altair Units, in the early 2000s. This innovative approach has lowered barriers to adoption, encouraged broader engagement within the Altair ecosystem, and increased the company's recurring software license rate, which has averaged approximately 92% over the past five years.
Financial Performance and Ratios
As of the latest available financial statements for the fiscal year ended December 31, 2024, Altair reported total revenue of $665.79 million, an 8.7% increase from the previous year. The company's net income for the same period was $14.18 million, a significant improvement from the net loss of $8.93 million in the prior year.
For the fourth quarter of 2024, Altair reported revenue of $192.63 million, representing a year-over-year growth of 12.3% in reported currency and 13.8% in constant currency. However, the company's net income for Q4 2024 decreased by $18.7 million compared to Q4 2023, primarily due to an increase in operating expenses related to the pending merger with Siemens Industry. The quarterly net income stood at $996,000.
Altair's financial ratios paint a picture of a well-managed and financially stable company. The current ratio and quick ratio, measures of liquidity, both stood at 1.61 as of December 31, 2024, indicating the company's ability to meet its short-term obligations. The debt-to-equity ratio, a metric of solvency, was 0.30, suggesting a healthy balance between debt and equity financing.
The company's operating cash flow for the fiscal year 2024 was $154.08 million, and its free cash flow reached $140.00 million, showcasing Altair's strong cash-generating capabilities. These figures underscore the company's financial discipline and its ability to invest in growth initiatives while maintaining a solid balance sheet.
Altair's liquidity position remains strong, with cash and cash equivalents of $561.90 million as of December 31, 2024. Additionally, the company has access to a $200.00 million credit facility, with no outstanding borrowings as of the same date.
Segment Performance and Geographic Diversification
Altair operates through two reportable segments: Software and Client Engineering Services (CES). The Software segment, which accounted for 92% of the company's total revenue in 2024, includes software products, software services, and software-related services. The CES segment provides client engineering services to support customers with long-term, ongoing expertise.
The Software segment encompasses Altair's portfolio of software products spanning simulation, high-performance computing (HPC), data analytics, and artificial intelligence (AI). This segment generates revenue from software licensing, maintenance, and related professional services. Key product categories within the Software segment include:
1. Simulation and Concept Design Tools: These tools allow for advanced physics attributes to be modeled and rendered on top of object geometry in high fidelity. Products in this category, such as Inspire, SimSolid, and Pollex, are becoming more integrated, user-friendly, and design-centric, driving simulation and machine learning algorithms earlier in the product development process.
2. High-Performance Computing (HPC) Solutions: Altair's HPC software applications are designed to maximize the efficient utilization of customers' complex compute resources and streamline the workflow management of compute-intensive tasks for applications such as modeling, simulation, AI, and visualization.
3. Data Analytics, AI, and IoT: This category includes code-free and code-friendly solutions for data preparation, data science, MLOps, and visualization. Altair also provides solutions to support smart connected product development, including device enablement, data capture and management, edge orchestration, digital twins, and application development.
The Software segment has historically generated the majority of its revenue from term-based software licenses, which include post-contract customer support. The recurring software license rate has averaged around 92% over the past five years, with approximately 60% of new software revenue coming from expansion within existing customers.
The Client Engineering Services (CES) segment generated approximately 4% and 5% of Altair's total revenue in 2024 and 2023, respectively. This segment provides clients with long-term, ongoing engineering expertise by hiring engineers and data scientists for placement at customer sites for specific customer-directed assignments.
Altair also operates its Toggled LED lighting business and other smaller, innovative service and product concepts, which are reported under the "All Other" category. This category represented less than 1% of Altair's total revenue in 2024.
Geographically, Altair has a diversified revenue base, with 32% of its software billings attributed to the Americas, 31% to Europe, the Middle East, and Africa (EMEA), and 37% to the Asia-Pacific (APAC) region in 2024. This global footprint allows the company to capitalize on growth opportunities across various markets and mitigate risks associated with regional economic fluctuations.
Transformative Acquisitions and Strategic Partnerships
Altair has a track record of strategic acquisitions and partnerships that have expanded its product portfolio and technological capabilities. Some notable examples include the acquisitions of Univa, RapidMiner, and World Programming, which have strengthened the company's offerings in high-performance computing, data analytics, and simulation, respectively.
In 2024, Altair made several acquisitions, including KSK Analytics, a Japanese firm specializing in AI and data analytics consulting and training, and Metrics Design Automation, a Canadian company with expertise in semiconductor electronic functional simulation and design verification. These acquisitions have further solidified Altair's position as a leader in computational intelligence solutions.
Additionally, Altair has forged strategic partnerships with industry-leading organizations, such as NVIDIA, Microsoft, and AMD, to collaborate on cutting-edge technologies and drive innovation in areas like artificial intelligence, high-performance computing, and cloud computing.
Pending Merger with Siemens Industry
In October 2024, Altair announced that it had entered into a definitive agreement to be acquired by Siemens Industry Software Inc., a subsidiary of Siemens AG, for $113 per share in cash. This transaction, which values Altair at approximately $10.6 billion, has been unanimously approved by Altair's Board of Directors and is expected to close in the first half of 2025, subject to customary closing conditions and regulatory approvals.
The merger with Siemens Industry is expected to create significant synergies and accelerate Altair's growth trajectory. By combining Altair's computational intelligence expertise with Siemens' vast resources and industry-leading solutions, the combined entity will be well-positioned to drive innovation and deliver enhanced value to customers across various sectors, including manufacturing, automotive, aerospace, and beyond.
Risks and Challenges
As with any technology company, Altair faces a range of risks and challenges that may impact its future performance. These include the highly competitive nature of the simulation, HPC, data analytics, and AI software markets, the company's ability to adapt to rapidly evolving technological landscapes, and the potential impact of global economic conditions and geopolitical events on its international operations.
Additionally, Altair's reliance on recurring software license revenue and its ability to retain and expand its customer base are critical to its long-term success. The company must also navigate the complexities of integrating acquired businesses and ensuring the successful execution of its growth strategies.
Human Capital and Industry Trends
Altair recognizes the importance of human capital as a key asset for its success. With over 3,300 in-house employees, the company focuses on fostering a culture of innovation, teamwork, and communication. Altair continues to invest in its global workforce to drive diversity, professional growth, and innovation.
The simulation, high-performance computing, and data analytics/AI markets that Altair operates in are expected to see strong growth in the coming years. Industry analysts project these markets to grow at compound annual growth rates (CAGRs) of 10-15% over the next 5 years. This growth is driven by increasing demand for advanced technologies to support innovation, product development, and data-driven decision making across various industries.
Altair's global customer base includes over 13,000 customers worldwide, with its largest industry verticals being automotive, aerospace, technology, and BFSI (banking, financial services, and insurance). The company's comprehensive software portfolio, units-based licensing model, and focus on domain expertise and client services position it well to capitalize on these industry trends.
Outlook and Conclusion
Altair's strong financial performance, innovative product offerings, and strategic acquisitions have positioned the company as a leading player in the computational intelligence market. The pending merger with Siemens Industry is expected to further bolster Altair's capabilities and expand its reach, ultimately enabling the combined entity to capitalize on the growing demand for cutting-edge simulation, HPC, data analytics, and AI solutions.
As Altair continues to drive innovation and deliver sustainable value to its customers, the company's future remains bright. With its robust financial foundation, diversified revenue streams, and dedication to fostering a culture of innovation, Altair is well-equipped to navigate the challenges and seize the opportunities that lie ahead in the rapidly evolving technology landscape.
The company's focus on recurring software license revenue, which has averaged around 92% over the past five years, provides a stable foundation for growth. Furthermore, Altair's ability to expand within its existing customer base, with approximately 60% of new software revenue coming from existing customers, demonstrates the strength of its product offerings and customer relationships.
As the demand for advanced computational intelligence solutions continues to grow across industries, Altair's comprehensive portfolio of simulation, HPC, data analytics, and AI tools positions the company to capitalize on emerging opportunities. The pending merger with Siemens Industry, once completed, is expected to create additional synergies and accelerate Altair's growth trajectory, further solidifying its position as a global leader in the field of computational intelligence.