Altair Engineering Inc. (ALTR) is a global leader in computational intelligence, providing software and cloud solutions that empower organizations across diverse industries to drive smarter decisions and create a more sustainable future. With a rich history spanning over three decades, Altair has established itself as a trailblazer in the fields of simulation, high-performance computing (HPC), data analytics, and artificial intelligence (AI).
Company History and Evolution
Founded in 1985 by James Scapa and three others in Troy, Michigan, Altair started as a provider of engineering simulation software and services, specializing in computational fluid dynamics (CFD) and finite element analysis (FEA). In its early years, the company focused on developing custom software solutions for aerospace and automotive customers. As Altair grew, it expanded its portfolio to include a broader range of engineering software and services. In the 1990s, the company released its flagship product HyperWorks, an innovative suite of computer-aided engineering (CAE) tools that helped engineers design and optimize products through simulation. HyperWorks gained widespread adoption in the automotive, aerospace, and other manufacturing industries.
During the 2000s, Altair diversified its business by acquiring several companies and expanding into new domains such as data analytics and high-performance computing (HPC). Notable acquisitions included solidThinking (industrial design) in 2001, Multimech (composite materials simulation) in 2014, and Datawatch (data preparation and visualization) in 2018. These strategic moves allowed Altair to offer a more comprehensive set of solutions to its customers.
One of the key challenges Altair faced was adapting its business model from perpetual software licenses to a subscription-based approach. This transition, which began in the late 2000s, was essential to align with the industry's shift toward cloud-based computing and software-as-a-service (SaaS) offerings. Altair successfully navigated this change, which strengthened its recurring revenue streams and customer relationships.
Financial Performance
Altair's impressive financial performance showcases its ability to navigate the dynamic technology market. In the fiscal year 2023, the company reported revenue of $612.70 million, a testament to its strong market position and the increasing demand for its cutting-edge solutions. The company's net income for the year was a loss of $8.926 million, reflecting the ongoing investments in research and development to drive innovation.
In the most recent quarter, Altair's revenue reached $151.45 million, representing a 13% year-over-year increase. This growth was primarily driven by an increase in software license revenue, particularly from new business and strong retention and expansions within existing accounts, with notable strength in the aerospace and defense vertical. The company's net income for the quarter stood at $1.78 million.
Liquidity and Cash Flow
The company's cash flow position remains robust, with operating cash flow of $127.31 million and free cash flow of $117.11 million in 2023. This financial flexibility allows Altair to continue investing in product development, strategic acquisitions, and global expansion to solidify its market leadership. In the most recent quarter, operating cash flow was $14.55 million, while free cash flow reached $9.81 million.
Altair maintains a strong liquidity position, with a debt-to-equity ratio of 0.28 and a $200 million credit facility that remains fully available. The company's current ratio and quick ratio both stand at 2.17, indicating a healthy ability to meet short-term obligations.
Product Portfolio and Innovation
Altair's portfolio of software solutions is truly impressive, spanning a wide range of applications. The Altair HyperWorks platform, the company's flagship offering, is a comprehensive design and simulation suite that empowers engineers and designers to optimize product performance, reduce development time, and drive innovation. The platform integrates seamlessly with leading computer-aided design (CAD) and computer-aided engineering (CAE) tools, providing a unified user experience across various disciplines.
In recent years, Altair has also made significant strides in the data analytics and AI domains. The company's Altair RapidMiner platform is a powerful data science and machine learning solution that helps organizations unlock the value of their data and make more informed decisions. Altair's solutions have been recognized as industry leaders, with the company being named a Leader in the Gartner Magic Quadrant for Data Science and Machine Learning Platforms.
Strategic Acquisitions
Altair's commitment to innovation is further underscored by its strategic acquisitions. In 2024, the company acquired Metrics Design Automation, a Canadian company with a game-changing simulation-as-a-service business model for the semiconductor industry. This acquisition strengthens Altair's presence in the electronic design automation (EDA) market and aligns with its vision of transforming the way companies develop and test complex electronic systems.
Another notable acquisition was the 2022 purchase of World Programming, a UK-based company specializing in data analytics and business intelligence solutions. This move has bolstered Altair's capabilities in the growing field of data-driven decision-making, enabling the company to better serve its clients across various industries.
Growth Strategy and Market Expansion
Altair's growth strategy also involves a strong focus on vertical market expansion. The company has established dedicated teams and tailored solutions for key industries, including aerospace and defense, automotive, financial services, and healthcare. This industry-specific approach allows Altair to better understand and address the unique challenges faced by its customers, further strengthening its position as a trusted partner.
One of the key drivers of Altair's success is its recurring revenue model, which is underpinned by strong customer retention and expansion rates. The company's software licenses, which account for a significant portion of its revenue, are predominantly subscription-based, providing a stable and predictable revenue stream. In 2023, Altair's software revenue grew by 10% year-over-year, highlighting the resilience and demand for its offerings.
Environmental, Social, and Governance (ESG) Initiatives
The company's commitment to environmental, social, and governance (ESG) principles is also noteworthy. Altair has implemented various sustainability initiatives, including the development of energy-efficient simulation tools and the promotion of sustainable design practices among its clients. Additionally, the company has been recognized for its diverse and inclusive work culture, further strengthening its reputation as a responsible corporate citizen.
Risks and Challenges
Looking ahead, Altair faces several key risks and challenges. The highly competitive nature of the technology industry, with the constant evolution of products and services, requires the company to maintain its innovative edge. Additionally, the global macroeconomic environment, including factors such as currency fluctuations and geopolitical tensions, can impact Altair's financial performance and growth trajectory.
Future Outlook
Despite these challenges, Altair remains well-positioned for continued success. The company's strong market position, diversified product portfolio, and solid financial footing provide a solid foundation for future growth. As organizations across various sectors increasingly recognize the value of simulation, data analytics, and AI-powered solutions, Altair is poised to capitalize on these trends and deliver sustainable long-term value for its shareholders.
The simulation, high-performance computing, data analytics, and AI software markets that Altair operates in are expected to see continued strong growth, with a compound annual growth rate (CAGR) of 10-15% over the next 5 years. Altair's comprehensive portfolio of solutions positions it well to capitalize on these industry tailwinds.
Business Segments
Altair operates through two main reportable segments: Software and Client Engineering Services (CES).
The Software segment includes Altair's portfolio of software products, including solvers and optimization technology products, high-performance computing software applications and support, modeling and visualization tools, data analytics and analysis products, IoT platform and analytics tools, as well as support and complementary software products offered through Altair's Partner Alliance (APA). The software revenue, which includes term-based licenses, perpetual licenses, maintenance, and professional software services, grew 10% year-over-year for the nine months ended September 30, 2024, driven by new business and strong retention and expansions within existing accounts, particularly in the aerospace and defense vertical.
The Client Engineering Services (CES) segment provides client engineering services to support Altair's customers with long-term, ongoing expertise. Altair operates this business by hiring engineers and data scientists for placement at customer sites for specific customer-directed assignments. The CES revenue decreased 14% year-over-year for the nine months ended September 30, 2024, primarily due to lower customer demand for client engineering services during the period.
Altair also has other businesses that do not meet the criteria to be separate reportable segments, which are combined and reported as "Other." This includes innovative services and products, such as Toggled, Altair's LED lighting business that is focused on developing and selling next-generation solid-state lighting technology along with communication and control protocols.
Key Financial Metrics
Altair utilizes several key financial metrics to measure its performance:
- Billings: Consists of total revenue plus the change in deferred revenue, excluding deferred revenue from acquisitions. Billings grew 3% year-over-year for the nine months ended September 30, 2024.
- Adjusted EBITDA: Defined as net income/loss adjusted for income tax, interest, depreciation and amortization, stock-based compensation, and other special items. Adjusted EBITDA grew 18% year-over-year for the nine months ended September 30, 2024.
- Free Cash Flow: Calculated as net cash provided by operating activities less capital expenditures. Free Cash Flow was $106.81 million for the nine months ended September 30, 2024.
- Recurring Software License Rate: Intended to convey the percentage of software billings that are recurring in nature, calculated by dividing recurring software license billings by total software license billings. The recurring software license rate was 92% and 94% for the nine months ended September 30, 2024 and 2023, respectively.
Guidance and Outlook
Altair has provided guidance for both the third quarter and full year of 2024, demonstrating confidence in its growth trajectory. For the third quarter of 2024, the company expects software revenue in the range of $130 million to $133 million, representing a year-over-year increase of 9.2% to 11.7% in reported currency and 11.1% to 13.7% in constant currency. Total revenue is projected to be between $145 million and $148 million, a year-over-year increase of 8.2% to 10.4% in reported currency and 10% to 12.3% in constant currency. Adjusted EBITDA is expected to be in the range of $16 million to $19 million, or 11% to 12.8% of total revenue.
For the full year 2024, Altair anticipates software revenue to be between $590 million and $600 million, representing a year-over-year increase of 7.3% to 9.1% in reported currency and 8.9% to 10.8% in constant currency. Total revenue is expected to range from $648 million to $658 million, a year-over-year increase of 5.8% to 7.4% in reported currency and 7.5% to 9.1% in constant currency. Adjusted EBITDA is projected to be between $136 million and $144 million, or 21% to 21.9% of total revenue. Free cash flow is expected to be in the range of $122 million to $130 million.
It's worth noting that Altair exceeded the high end of their guidance range for software revenue and total revenue in the second quarter of 2024, with adjusted EBITDA coming in above the midpoint of their guided range. This performance demonstrates the company's ability to execute on its growth strategy and deliver results that meet or exceed expectations.
Conclusion
In conclusion, Altair Engineering Inc. (ALTR) is a remarkable technology company that has carved out a prominent position in the simulation, HPC, data analytics, and AI landscapes. With its unwavering commitment to innovation, strategic acquisitions, and industry-specific expertise, Altair is transforming the way businesses approach problem-solving and decision-making. As the demand for computational intelligence solutions continues to rise, Altair's future looks bright, and the company remains well-equipped to shape the future of technology.