After the close last night, recent IPO Altair Engineering (ALTR)
posted strong, upside Q1 results and provided upside revenue guidance for both
Q2 and FY18. Consequently, shares are poised to open for trading higher this
morning, which will have the stock closing in on new all-time highs.
Since going public on November 1 of last year, ALTR has delivered three straight impressive quarterly reports -- explaining why the stock has surged by 85% versus its IPO price. From a broader perspective, the company is benefiting from a trend in which an increasing amount of product development companies are using simulation style software, earlier in the product development process.
From a company-specific standpoint, ALTR has been gaining market share, both through organic means, and through acquisitions.
ALTR provides engineering software products, also known as the CAE market. More specifically, ALTR focuses on simulation software which historically has been used to test designs in highly engineered and demanding industries, such as aerospace and automotive. However, as technology has improved, the applications for simulation software have greatly increased, also expanding ALTR's market opportunity, estimated to be about $6 bln with growth to $8 bln by 2021.
It has four main products: HyperWorks (its flagship product), SolidThinking, Carriots, and PBS Works. Here's a closer look at each:
- HyperWorks - A high-end simulation environment with over 30 applications that simulate and optimize design performance across multiple industries.
- SolidThinking - Focused on the middle part of the product engineering market, it offers a subset of HyperWork applications oriented towards product designers.
- Carriots - This product helps customers enable their products to communicate through protocols, perform device and data management, analyze big data, and develop applications.
- PBS Works - This helps customers optimize high-performance computing resources in a network for product design.
As for its Q1 results, ALTR posted EPS of $0.08, beating consensus
by $.05. Non-GAAP net income surged by 281% to $6.1 mln. On the top-line revenue
was up 19% to $91.7 mln, also comfortably beating the $87 mln consensus. The
19% jump was a sharp improvement from Q4's 9% growth. In its earnings press
release, management noted that improved market conditions, as well as the
positive impact of some of the investments it has made (new products,
acquisitions) strengthened its product portfolio, and its sales team.
It terms of cash flow, the results were also quite positive as cash flow from operations climbed by 39% to $26.7 mln, and free cash flow was up 37% to $25.0 mln.
In addition to the impressive Q1 results, ALTR also issued upside revenue guidance for both Q2 and FY18, forecasting $91-$92 mln in revenue for Q2 (vs. $88.3 mln consensus), and $369-$373 mln (vs. $365.3 mln consensus). As we noted above, there are clearly some favorable market dynamics surrounding the simulation software market. As technology has improved, the applications for simulation software have greatly increased, also expanding ALTR's market opportunity, estimated to be about $6 bln with growth to $8 bln by 2021. Today, simulation software is being used earlier in design processes. This allows builders to quickly evaluate multiple design options, while also considering design constraints, helping to improve quality and to reduce time to market.
This all supports the possibility of more bright days may be ahead for ALTR.