Altair Engineering Inc. (ALTR) Q4 2023 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call highlights strong financial performance with increased EBITDA and software revenue, improved gross margins, and substantial free cash flow. The company is successfully expanding its customer base and diversifying revenue streams. While Q1 guidance is below typical seasonality, the shift is strategic, and management expresses optimism about growth opportunities. Despite some uncertainty in macroeconomic conditions, the overall sentiment is positive, supported by strategic initiatives and strong customer retention.
Key Financial Performance
Total Revenue Q4 2023 $171.5 million, a year-over-year increase of 6.9% in reported currency and 6.0% in constant currency.
Software Revenue Q4 2023 $155.9 million, a year-over-year increase of 7.6% in reported currency and 6.7% in constant currency.
Adjusted EBITDA Q4 2023 $53.6 million, or 31.2% of total revenue, an increase of 38.3% year-over-year.
Non-GAAP Gross Margin Q4 2023 84.3%, an increase of 410 basis points year-over-year due to exit from lower margin hardware business.
Total Revenue Full Year 2023 $612.7 million, a year-over-year increase of 7.1% in reported currency and 8.2% in constant currency.
Software Revenue Full Year 2023 $550.0 million, a year-over-year increase of 8.6% in reported currency and 9.8% in constant currency.
Adjusted EBITDA Full Year 2023 $129.1 million, or 21.1% of total revenue, a year-over-year increase of 18.9%.
Non-GAAP Gross Margin Full Year 2023 81.8%, an increase of 180 basis points year-over-year.
Free Cash Flow Full Year 2023 $117.1 million, a substantial increase year-over-year.
Cash and Cash Equivalents End of 2023 $467.5 million, an increase of approximately $151.3 million from the prior year.
Operating Highlights
Software Product Revenue Growth: Software product revenue for the full year 2023 grew by 8.6% compared to 2022, with a recurring software license rate of 93%.
Product Update: In the fall of 2023, Altair released a significant update to its products, with an upcoming release expected to enhance solutions for simulation.
New Technology Introduction: An exciting and disruptive technology for the electronics market will be introduced at the Altair Investor Day on March 20, 2024.
Market Expansion in EV Sector: Altair has secured significant commitments from multiple electric vehicle manufacturers, including a US EV manufacturer that doubled its technology purchases.
Partnerships for EV Development: Altair announced funding for a project under the UK Government's Faraday Battery Challenge, collaborating with JLR and Danecca to develop lighter vehicle bodies.
International Market Expansion: A leading APAC EV manufacturer made an eight-figure commitment to use Altair's software across its product development processes.
Operational Efficiency in Semiconductor: A leading power semiconductor company reported a 20% throughput increase using Altair's workload management software, leading to substantial cost savings.
High-Performance Computing Solutions: Altair's High-Performance Computing solutions drove significant activity in the technology vertical, with a notable renewal from an EMEA semiconductor company.
Strategic Partnerships: Altair formalized a partnership with IIT Madras to establish an e-mobility simulation lab, supporting startups and researchers in electric vehicle development.
Channel Partner Expansion: Three new channel partners were welcomed to Altair's sales team, focusing on high-performance computing and data analytics.
Risk or Challenges
Economic Factors: The company faced a somewhat difficult macroeconomic environment throughout 2023, which could impact future performance.
Regulatory Issues: The company mentioned uncertainties around EV sales and the transition of the automotive sector towards alternative power sources, which may be influenced by regulatory changes.
Supply Chain Challenges: The company did not explicitly mention supply chain challenges, but the context of the automotive sector's transition suggests potential risks in supply chain dynamics.
Competitive Pressures: The competitive landscape in the engineering AI and simulation market is evolving, and Altair's ability to maintain its leadership position may be challenged by emerging competitors.
Currency Fluctuations: The company's revenues and expenses are impacted by changes in foreign exchange rates, which can significantly affect reported results.
Customer Retention: While the company has a high rate of retention, any decline in customer satisfaction or market demand could pose risks to future revenue growth.
Guidance & Outlook
Software Product Revenue Growth: Software product revenue for the full year 2023 grew by 8.6% compared to 2022 and 9.8% on a constant currency basis.
Recurring Software License Rate: The recurring software license rate for 2023 was 93%, an increase from 92% during 2022.
Investment in Engineering AI: Investments in engineering AI are positioning Altair as a leader in this important and growing domain.
Partnership with UK Government: Funding awarded for The UK Government's Faraday Battery Challenge to develop lighter vehicle bodies.
Collaboration with FIRST Robotics: Altair technology is now available to all teams in the FIRST Robotics Competition, supporting technical skills and community.
Strategic Partnership with IIT Madras: Formalized a partnership to establish an e-mobility simulation lab to support startups and researchers.
Q1 2024 Software Revenue Guidance: Expect software revenue in the range of $152 million to $155 million, a year-over-year increase of 1.6% to 3.6%.
Full Year 2024 Software Revenue Guidance: Expect software revenue in the range of $600 million to $610 million, a year-over-year increase of 9.1% to 10.9%.
Q1 2024 Total Revenue Guidance: Expect total revenue in the range of $167 million to $170 million, a year-over-year increase of 0.6% to 2.4%.
Full Year 2024 Total Revenue Guidance: Expect total revenue in the range of $663 million to $673 million, a year-over-year increase of 8.2% to 9.8%.
Q1 2024 Adjusted EBITDA Guidance: Expect adjusted EBITDA in the range of $37 million to $40 million, or 22.2% to 23.5% of total revenue.
Full Year 2024 Adjusted EBITDA Guidance: Expect adjusted EBITDA in the range of $143 million to $151 million, or 21.6% to 22.4% of total revenue.
Full Year 2024 Free Cash Flow Guidance: Expect free cash flow in the range of $129 million to $137 million.
Shareholder Return Plan
Share Repurchase Program: None
Key Q&A
Earnings Word Cloud
ALTR Transcript
The earnings call summary indicates solid financial performance with increased revenues and cash flow, despite a slight dip in EBITDA margin due to FX. Product development and market strategy are promising, especially with AI integration and vertical market orientation. The Q&A reveals optimism for 2025 and strong customer uptake of new technologies, although some responses lacked clarity. The guidance is positive, and the absence of major negative factors suggests a positive stock price movement over the next two weeks.
The earnings call reflects positive financial performance, with strong revenue growth, improved margins, and robust free cash flow. The optimistic guidance for 2024, strategic partnerships, and product development initiatives further enhance the outlook. Despite some concerns over indirect sales channels and integration risks, the overall sentiment remains positive, supported by strong Q1 results and management's confidence in future prospects. The Q&A session did not reveal significant negative trends, and the company's strategic focus on high-margin software and unique solutions in electronics and semiconductors positions it well for continued growth.
The earnings call highlights strong financial performance with increased EBITDA and software revenue, improved gross margins, and substantial free cash flow. The company is successfully expanding its customer base and diversifying revenue streams. While Q1 guidance is below typical seasonality, the shift is strategic, and management expresses optimism about growth opportunities. Despite some uncertainty in macroeconomic conditions, the overall sentiment is positive, supported by strategic initiatives and strong customer retention.
ALTR Report
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