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Altair Engineering Inc. (ALTR)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 total revenue was $151.5M (+13.0% YoY) with software revenue $138.7M (+16.5% YoY); adjusted EBITDA rose 66.3% YoY to $25.7M and margin improved to 17.0% .
  • GAAP diluted EPS was $0.02 versus a loss of $(0.05) in Q3 2023; non-GAAP diluted EPS was $0.24, up from $0.15 YoY .
  • Altair suspended quarterly calls and withdrew quarterly/annual guidance due to the announced Siemens acquisition, making the M&A process the dominant stock catalyst for the period .
  • Free cash flow was $9.8M (vs. $14.7M YoY) and cash at period end was $513.4M, reflecting strong liquidity despite lower quarterly FCF .

What Went Well and What Went Wrong

What Went Well

  • Strong top-line and mix: software revenue grew 16.5% YoY to $138.7M; total revenue grew 13.0% YoY to $151.5M .
  • Profitability inflection: GAAP diluted EPS turned positive to $0.02 (vs. $(0.05) YoY); adjusted EBITDA increased 66.3% YoY to $25.7M and margin improved to 17.0% .
  • Gross margin expansion: GAAP gross margin was 80.2% and non-GAAP gross margin 81.6% (both higher YoY) .
    • “Altair maintained its strong trajectory during the second quarter, with software revenue and total revenue above the high end of guidance,” CEO Jim Scapa (Q2 commentary; supports trend into Q3) .

What Went Wrong

  • Engineering services softness: engineering services and other revenue declined to $12.8M from $14.9M YoY .
  • Cash generation moderation: quarterly FCF fell to $9.8M from $14.7M YoY; cash from operations was $14.5M vs. $16.4M YoY .
  • Guidance withdrawn amid M&A: Altair suspended quarterly/annual guidance and did not hold an earnings call due to the Siemens transaction, limiting visibility and driving uncertainty until deal closure .

Financial Results

Consolidated Performance vs. Prior Periods and (Estimates)

MetricQ1 2024Q2 2024Q3 2024
Total Revenue ($USD Millions)$172.9 $148.8 $151.5
Software Revenue ($USD Millions)$158.4 $135.4 $138.7
GAAP Diluted EPS ($)$0.20 $(0.06) $0.02
Non-GAAP Diluted EPS ($)$0.40 $0.16 $0.24
Adjusted EBITDA ($USD Millions)$45.8 $17.3 $25.7
Adjusted EBITDA Margin (%)26.5% 11.7% 17.0%
Gross Margin (GAAP, %)82.1% 79.5% 80.2%
Gross Margin (Non-GAAP, %)83.3% 80.9% 81.6%
S&P Global Consensus RevenueUnavailable (see note)Unavailable (see note)Unavailable (see note)
S&P Global Consensus EPSUnavailable (see note)Unavailable (see note)Unavailable (see note)

Note: Consensus via S&P Global was unavailable for ALTR at time of analysis (SPGI mapping error).

Segment/Line Item Breakdown

Revenue Line Item ($USD Millions)Q1 2024Q2 2024Q3 2024
License$117.7 $92.7 $92.9
Maintenance & Other Services$40.7 $42.7 $45.7
Total Software$158.4 $135.4 $138.7
Engineering Services & Other$14.5 $13.4 $12.8
Total Revenue$172.9 $148.8 $151.5

KPIs

KPIQ1 2024Q2 2024Q3 2024
Billings ($USD Millions)$154.1 $154.5 $139.8
Ending Deferred Revenue ($USD Millions)$144.9 $152.2 $140.8
Cash from Operations ($USD Millions)$73.5 $28.6 $14.5
Free Cash Flow ($USD Millions)$70.7 $26.3 $9.8
Non-GAAP Net Income ($USD Millions)$36.2 $14.8 $21.2
Cash & Equivalents ($USD Millions, period end)$557.7 $507.1 $513.4

Guidance Changes

MetricPeriodPrevious Guidance (from Q2 PR)Current GuidanceChange
Software Revenue ($M)Q3 2024$130–$133 Suspended Withdrawn
Total Revenue ($M)Q3 2024$145–$148 Suspended Withdrawn
Adjusted EBITDA ($M)Q3 2024$16–$19 Suspended Withdrawn
Software Revenue ($M)FY 2024$590–$600 Suspended Withdrawn
Total Revenue ($M)FY 2024$648–$658 Suspended Withdrawn
Adjusted EBITDA ($M)FY 2024$136–$144 Suspended Withdrawn
Free Cash Flow ($M)FY 2024$122–$130 Suspended Withdrawn

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2024)Previous Mentions (Q2 2024)Current Period (Q3 2024)Trend
AI/technology initiativesSimSolid for Electronics, physicsAI, RapidMiner; strong AI narrative and product roadmap HyperWorks 2024 AI features; physicsAI/romAI uptake; semiconductor DSim business model via Metrics acquisition No call; press release only; operating metrics disclosed Positive momentum; narrative interrupted by M&A
Vertical go-to-marketAdded healthcare/life sciences and defense leaders; indirect channel emphasis Aerospace & defense strength; largest deal ever; expanded channel partners No callContinued execution; details not reiterated
Macro/FXCautiously improving demand; FX disclosed in guidance FX impacted guide; EBITDA guide change driven by FX No callFX sensitivity persists; commentary paused
Semiconductors/EDAStrategy to enter system-level design; SimSolid electronics roadmap DSim cloud-based model disruption; competitive performance; EDA traction No callBuilding; progress noted prior quarter
RPO/duration and sales efficiencyLonger-duration contracts increasing RPO coverage; annual licensing for revenue smoothness Continued focus on efficiency and verticalization No callEfficiency focus ongoing
Guidance/visibilityRaised/maintained FY guidance (reported vs constant FX) Q3/FY guidance with FX bridges Guidance suspended due to Siemens merger Visibility reduced short term

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 (Q2) .
  • “We are excited about our strong Q2 and first half performance... and we are looking forward to maintaining that momentum in the second half.” – Matthew Brown, CFO (Q2) .
  • “Altair continued its positive momentum... record-high quarterly software revenue and total revenue” – James R. Scapa (Q1) .
  • Q3: Company disclosed metrics and announced Siemens merger; suspended calls and guidance (management did not provide prepared remarks in Q3) .

Q&A Highlights

  • AI adoption and product convergence: Customers increasingly view AI as must-have; physicsAI/romAI uptake broadening across accounts (Q2) .
  • Vertical/channel strategy: Emphasis on indirect channels and systems integrators, especially for data and graph technology (Q2) .
  • FX and margins: Full-year EBITDA guide unchanged in constant currency; reported changes driven by FX (Q2) .
  • Semiconductor strategy: DSim cloud model seen as disruptive; competitive performance validated; Altair pursuing broader electronics/system-level entry (Q2) .
  • Demand/macro: Management saw improving demand versus 2023; seasonality expected with acceleration into Q4 (Q1/Q2) .

Estimates Context

  • Attempts to retrieve S&P Global consensus estimates for Q1–Q3 2024 were unsuccessful due to a CIQ mapping issue for ALTR, so we cannot quantify beat/miss versus Street for Q3. The company did note Q2 revenue exceeded the high end of its own guidance, but that is not a Street consensus comparison .
  • Expect buy-side/sell-side to update models for improved Q3 profitability metrics (non-GAAP EPS, EBITDA margin) amid suspended guidance; near-term narrative likely dominated by Siemens transaction timeline and approvals .

Key Takeaways for Investors

  • Strong Q3 operating performance: double-digit revenue growth, margin expansion, and positive EPS, showing resilience of the software-led model despite engineering services softness .
  • Mix shift supports margins: software now ~92%+ of revenue, driving higher gross and EBITDA margins; sustained focus on AI-embedded products likely to reinforce this trend .
  • Liquidity solid; FCF tempered: $513.4M cash provides flexibility; quarterly FCF was lower YoY—watch billings/collections seasonality and deferred revenue trajectory into Q4 .
  • Visibility limited near term: Guidance withdrawn and calls suspended due to Siemens acquisition—stock reaction will hinge on deal progress rather than quarterly cadence .
  • Strategic pillars intact: Prior quarters highlighted AI leadership (physicsAI/romAI), verticalization, and channel expansion; expect these to underpin medium-term thesis post-transaction (if independent) or inform integration value (if acquired) .
  • Watch engineering services trend: Continued pressure on services revenue underscores importance of software attach/expansion to sustain growth and margin .
  • FX remains a swing factor: Prior guidance changes were driven by currency; monitor FX sensitivity in any interim disclosures and the impact on profitability .

Additional References (Balance Sheet and Cash Flow)

  • Balance sheet shows cash and cash equivalents of $513.4M at September 30, 2024; total assets $1,377.9M; total stockholders’ equity $836.9M .
  • Consolidated cash flow for nine months ended September 30, 2024: net cash provided by operating activities $116.6M; free cash flow $106.8M .

Other Relevant Press Releases (Context)

  • Altair announced HyperWorks 2024 with AI-embedded workflows (July 2024), reinforcing technology leadership ahead of Q3 results .
  • Q3 press release context included Siemens merger announcement; details referenced in the 8-K and stated that guidance/calls were suspended .