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Altair Engineering Inc. (ALTR)·Q2 2024 Earnings Summary

Executive Summary

  • Altair delivered Q2 2024 software revenue of $135.4M and total revenue of $148.8M, both above the high end of company guidance; adjusted EBITDA of $17.3M was above the midpoint, while GAAP diluted EPS was -$0.06 and non-GAAP diluted EPS was $0.16 .
  • Mix shift toward software (91% of revenue) and improved non-GAAP gross margin (80.9%, +90 bps YoY) supported profitability; engineering services and other revenue declined YoY, tempering total growth .
  • Management tightened FY 2024 guidance in reported currency due to FX: total revenue midpoint to $653M (from $657M) and adjusted EBITDA midpoint to $140M (from $142M); software revenue midpoint held at $595M as constant-currency raise was offset by FX .
  • Strategic/catalyst updates during the quarter: acquisition of Cambridge Semantics to power enterprise data fabrics and gen-AI grounding; Altair One availability on Google Cloud; ISO/IEC27001:2022 certification; addition to S&P MidCap 400—reinforcing data/AI leadership and enterprise credibility .

What Went Well and What Went Wrong

What Went Well

  • Software and total revenue exceeded the high end of guidance; CEO highlighted “robustness of our software product lineup” and trajectory .
  • Strong vertical momentum, particularly aerospace/defense; signed an 8‑figure, 3‑year contract with a multinational aerospace company—Altair’s largest deal ever .
  • AI as a differentiator: HyperWorks 2024 release deepened embedded AI, physicsAI/romAI adoption grew materially, and RapidMiner was recognized by Gartner as a Leader in Data Science and ML platforms .

What Went Wrong

  • Engineering services and other revenue declined YoY to $13.4M, which dampened total revenue growth versus software’s strength .
  • Adjusted EBITDA margin compressed YoY to 11.7% from 12.1% on FX and mix dynamics; FY EBITDA guidance was lowered solely due to FX, per CFO .
  • Sequentially, Q2 softened vs Q1 as several deals closed early in Q1 and due to typical seasonality; CFO flagged Q2/Q3 as Altair’s smaller quarters for billings/revenue .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$141.161 $172.912 $148.795
GAAP Diluted EPS ($USD)-$0.28 $0.20 -$0.06
Non-GAAP Diluted EPS ($USD)$0.15 $0.40 $0.16
GAAP Gross Margin (%)78.2% 82.1% 79.5%
Non-GAAP Gross Margin (%)80.0% 83.3% 80.9%
Adjusted EBITDA ($USD Millions)$17.056 $45.818 $17.348
Adjusted EBITDA Margin (%)12.1% 26.5% 11.7%

Segment revenue breakdown:

Segment ($USD Millions)Q2 2023Q1 2024Q2 2024
License$87.738 $117.707 $92.699
Maintenance & Other Services$37.583 $40.722 $42.724
Engineering Services & Other$15.840 $14.483 $13.372
Total Revenue$141.161 $172.912 $148.795

KPIs and operating metrics:

KPIQ2 2023Q1 2024Q2 2024
Billings ($USD Millions)$147.765 $154.148 $154.468
Free Cash Flow ($USD Millions)$25.573 $70.684 $26.319
Software Revenue as % of Total88.8% 91.6% 91.0%
GAAP Operating Expenses ($USD Millions)$126.633 $121.084 $128.182
Non-GAAP Operating Expenses ($USD Millions)$96.863 $99.504 $105.251

Guidance Changes

MetricPeriodPrevious Guidance (May 2, 2024)Current Guidance (Aug 1, 2024)Change
Software Revenue ($USD Millions)FY 2024$590–$600 $590–$600 Maintained (FX offset)
Total Revenue ($USD Millions)FY 2024$652–$662 $648–$658 Lowered (FX)
Adjusted EBITDA ($USD Millions)FY 2024$138–$146 $136–$144 Lowered (FX)
Net Cash Provided by Operating Activities ($USD Millions)FY 2024$135–$143 $133–$141 Lowered (FX)
Free Cash Flow ($USD Millions)FY 2024$124–$132 $122–$130 Lowered (FX)
Non-GAAP Effective Tax Rate (%)FY 202425% 25% Maintained
Software Revenue ($USD Millions)Q3 2024n/a$130–$133 n/a
Total Revenue ($USD Millions)Q3 2024n/a$145–$148 n/a
Adjusted EBITDA ($USD Millions)Q3 2024n/a$16–$19 n/a
Non-GAAP Net Income ($USD Millions)Q3 2024n/a$13.4–$15.7 n/a
GAAP Net (Loss) ($USD Millions)Q3 2024n/a($14.0)–($11.1) n/a

Earnings Call Themes & Trends

TopicQ4 2023 (Q-2)Q1 2024 (Q-1)Q2 2024 (Current)Trend
AI/technology initiativesEngineering AI emphasis; platform upgrade; convergence of simulation/HPC/AI SimSolid for electronics preview; physicsAI/romAI use cases; Cambridge Semantics acquisition for knowledge graphs/gen-AI grounding HyperWorks 2024 released; AI-embedded workflows; RapidMiner named Gartner Leader Strengthening; productization accelerating
Aerospace & defenseStrong demand; renewed defense focus Continued strength; new leadership in federal; pipeline building Largest deal ever (8‑figure, 3‑year); multiple expansions in Europe Robust; accelerating deals
Verticalization & channelSales verticalization benefits; indirect channel important Added 7 channel partners; sector leaders hired (healthcare/DoD) More channel partners added in Q2; expanding indirect, especially data analytics Executing; broader reach
Seasonality, billings & FXSeasonality shifting away from Q1; prudent FY guide Q1 overachievement; pull-forward impacts Q2; FX headwinds to FY Q2/Q3 are smaller quarters; EBITDA/FY guide lowered only due to FX Normal seasonality; FX headwinds
EDA/semiconductor strategyOpportunity amid Synopsys-ANSYS consolidation; convergence thesis SimSolid electronics; cloud HPC; EDA customers; disruption potential Metrics Design Automation acquisition (DSim) in July; cloud-based simulation-as-a-service model touted Building entry; potential disruption
Macro outlookPrudent approach; pipeline strengthening Gradually improving demand; cautious optimism CEO confident going into 2025; innovation viewed as necessity for customers Cautious optimism sustained

Management Commentary

  • “Altair maintained its strong trajectory during the second quarter, with software revenue and total revenue above the high end of guidance.” — James R. Scapa, CEO .
  • “Adjusted EBITDA was $17.3 million above the midpoint of our guided range.” — James R. Scapa, CEO .
  • “We signed an 8‑figure, 3‑year contract with a multinational aerospace company, our largest deal ever.” — James R. Scapa, CEO .
  • “AI is very important… it’s what’s putting us really in the lead at this point.” — James R. Scapa on AI as a differentiator .
  • “From an EBITDA perspective in constant currency [FY guidance] is unchanged… the only impact to EBITDA is due to FX.” — Matthew Brown, CFO .

Q&A Highlights

  • Channel strategy and indirect sales: Emphasis on systems integrators for data modernization and graph technology implementations; expanding reach to SMBs via partners .
  • AI adoption and product momentum: Customers increasingly view AI as must‑have; physicsAI/romAI uptake is broad; HyperWorks 24 introduces performance and UX improvements .
  • FX and margin guidance: FY adjusted EBITDA constant-currency unchanged; reported guide reduced solely due to FX .
  • Seasonality/pull-forward: Q2/Q3 are historically smaller quarters; some Q1 deals closed early affecting Q2 sequential trajectory; billings/revenue patterns reiterated .
  • EDA strategy: Metrics DSim’s business model (cloud, pay-for-usage) deemed “groundbreaking”; Altair targets disruption potential while integrating with Silicon debug tools .

Estimates Context

  • S&P Global consensus estimates for ALTR were unavailable via tool, so comparisons to Wall Street consensus cannot be provided at this time. Values retrieved from S&P Global were unavailable for ALTR due to a CIQ mapping issue.
  • As a proxy, the company beat its own revenue guidance (software and total above high end) and delivered adjusted EBITDA above the midpoint, suggesting likely positive variance versus typical Street frameworks, but without S&P consensus data we cannot assert a formal beat/miss. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

  • Revenue quality continues to improve: software mix at ~91% with non‑GAAP gross margin +90 bps YoY; engineering services headwinds remain but are strategically deemphasized .
  • The narrative is increasingly AI‑led: HyperWorks 2024, physicsAI/romAI, and RapidMiner leadership are resonating across verticals—this is a core competitive moat and expansion vector .
  • Aerospace/defense is a near‑term growth engine (largest deal ever), with multi‑year contracts expanding footprint; expect continued positive contribution from this vertical .
  • FX is the key drag on reported FY guide; constant‑currency trajectory remains intact, implying underlying demand strength and execution—watch currency trends for potential re‑rating .
  • Q3 setup: guided software revenue $130–$133M and total revenue $145–$148M; seasonality implies a stronger Q4—trading setups may favor accumulating on FX-driven guide trims versus operational softness .
  • Data/AI credibility strengthened via Cambridge Semantics acquisition (knowledge graphs) and Altair One’s presence on Google Cloud Marketplace; improves enterprise sales motion and stickiness .
  • Enterprise trust signals (ISO/IEC27001:2022) and S&P MidCap 400 addition broaden investor and customer appeal, supporting multiple expansion over time .

Additional Relevant Press Releases (Q2 2024)

  • Cambridge Semantics acquisition enhances data fabric/graph capabilities for gen-AI grounding within RapidMiner .
  • Altair One now available on Google Cloud Marketplace, expanding cloud distribution and BYOC functionality .
  • ISO/IEC27001:2022 certification achieved, bolstering enterprise security posture .
  • Added to S&P MidCap 400 index (effective June 24, 2024), a milestone for investor visibility .
  • HP material collaboration integrates proprietary data into Altair Material Data Center to bridge design/production for additive manufacturing .