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 enable organizations across diverse industries to drive smarter decisions and create a more sustainable future.
Business Overview
Altair operates in two reportable segments: Software and Client Engineering Services (CES). The Software segment includes the company's portfolio of software products, such as solvers, optimization technology, HPC applications, modeling and visualization tools, data analytics and analysis products, and IoT platform and analytics tools. The software-related services component of this segment includes consulting, training, and implementation services. The CES segment provides client engineering services to support customers with long-term, ongoing expertise.Altair's solutions are utilized across a wide range of industries, including automotive, aerospace, banking, financial services, insurance (BFSI), energy, heavy equipment, and more. The company's focus on computational intelligence and its ability to address complex design, engineering, and business challenges have made it a trusted partner for organizations seeking to drive innovation and achieve sustainable outcomes.
Financials
In the fiscal year 2023, Altair reported annual revenue of $612.7 million, a net loss of $8.9 million, annual operating cash flow of $127.3 million, and annual free cash flow of $117.1 million. The company's strong financial performance is a testament to its ability to execute and deliver value to its customers.Quarterly Highlights
In the first quarter of 2024, Altair continued its positive momentum, reporting total quarterly revenue of $172.9 million, software revenue of $158.4 million, and adjusted EBITDA of $45.8 million, all exceeding the high end of the company's guidance range. Software revenue on a constant currency basis grew by 6.9% year-over-year, and software revenue as a percentage of total revenue increased to 91.6% compared to 90.1% in the first quarter of 2023.Altair's strong performance in the first quarter was driven by growth across multiple industry verticals and geographies, as well as the continued success of its software product portfolio. The company saw notable expansions with customers in the banking, financial services, and insurance (BFSI) sector, the energy sector, and the heavy equipment, truck, and rail vertical.
Geographic Breakdown
Altair has a significant international presence, with operations in the Americas, Europe, the Middle East, and Africa (EMEA), and the Asia-Pacific (APAC) region. The company's global reach allows it to serve customers worldwide and capitalize on opportunities in diverse markets.Revenue Breakdown and Trends
Altair's revenue is primarily generated from its Software segment, which accounted for 91.6% of total revenue in the first quarter of 2024, up from 90.1% in the same period of the previous year. This increase reflects the company's focus on expanding its software offerings and the growing demand for its computational intelligence solutions.Within the Software segment, Altair saw strong performance in its term licenses and other software products, which grew 7.6% year-over-year in the first quarter of 2024. The company's maintenance and other services revenue also increased by 8.3% during the same period, demonstrating the recurring nature of its software business.
The CES segment, which provides client engineering services, saw a 12.0% year-over-year decrease in revenue in the first quarter of 2024, primarily due to lower customer demand for these services during the period.
Outlook
For the second quarter of 2024, Altair expects software revenue in the range of $131 million to $134 million, representing a year-over-year increase of 4.5% to 6.9% in reported currency and 6.7% to 9.2% in constant currency. For the full year 2024, the company is maintaining its previous outlook in constant currency for software revenue, but due to changes in foreign currency exchange rates, it is adjusting its full-year outlook in reported currency to a range of $590 million to $600 million, a year-over-year increase of 7.3% to 9.1%.Altair expects total revenue, including engineering services and other revenue, in the second quarter of 2024 to be in the range of $145 million to $148 million, a year-over-year increase of 2.7% to 4.8% in reported currency and 4.7% to 6.8% in constant currency. For the full year 2024, the company is adjusting its total revenue outlook in reported currency to a range of $652 million to $662 million, a year-over-year increase of 6.4% to 8.0%.
Adjusted EBITDA for the second quarter of 2024 is expected to be in the range of $15 million to $18 million, or 10.3% to 12.2% of total revenue, compared to $17.1 million or 12.1% of total revenue in the second quarter of 2023. For the full year 2024, Altair is adjusting its adjusted EBITDA outlook to a range of $138 million to $146 million, or 21.2% to 22.1% of total revenue, compared to $129.1 million or 21.1% of total revenue in 2023.
The company also expects free cash flow for the full year 2024 to be in the range of $124 million to $132 million, which has been adjusted in line with the change in its full-year adjusted EBITDA guidance.
Liquidity
As of March 31, 2024, Altair had $557.6 million in cash and cash equivalents, an increase of $179.2 million from the prior year and $90.1 million from the end of 2023. The company's strong liquidity position and free cash flow generation provide it with the financial flexibility to invest in growth initiatives, pursue strategic acquisitions, and support its ongoing operations.Altair has outstanding debt in the form of convertible senior notes, with a principal amount of $311.7 million as of March 31, 2024. The company has the ability to settle these notes in cash, shares of its common stock, or a combination of both, providing it with financial optionality.
Risks and Challenges
Altair operates in a competitive and rapidly evolving market, which presents both opportunities and challenges. The company faces risks related to its ability to acquire new customers, retain and expand relationships with existing customers, protect its intellectual property, and successfully integrate acquisitions. Additionally, Altair's performance is susceptible to factors affecting the industries it serves, such as the automotive, aerospace, and BFSI sectors, where it derives a substantial portion of its revenue.The company's international operations also expose it to foreign currency risks, which can impact its reported financial results. Altair's quarterly results may fluctuate significantly due to the seasonality of its business and the timing of customer purchasing patterns.