Altair revenue up 17% in Q2 – wow

Q2 was awesome across the CAE landscape. First ANSYS reported solid performance due large deals and sales across its portfolio and now, Altair reports that total revenue was up 17% (17!!! — we don’t see that very often), with software revenue up 22% (even less often). How did they do this? Can they do it again? Altair clearly thinks so, raising guidance for the year.

First, the details:

• Total revenue was $96 million, up 17%
• Software product revenue was up 22% to $73 million. During the earnings call, CEO Jim Scapa said that growth was driven by a combination of sales to new customers and expansion at existing accounts
• Software-related services revenue (training, etc.) was $9 million, up 6%
• Client engineering services revenue was basically flat at $12 million
• Other revenue, which is Altair’s case is from a fascinating grab-bag of LED lighting and the WEYV consumer music and content service, reported revenue up 10% to $2 million.

Mr. Scapa started the earnings call by saying that Q2 exceeded expectations — he’s not an excitable guy so no one expected Elon Musk-ish remarks, but still. A little self-congratulation would have been OK — and that this fuels Altair’s added investment in R&D, sales and marketing. You may recall that Altair raised additional funds in June; Mr. Scapa said that this could be used to fund larger acquisitions.

The examples Mr. Scapa cited during his remarks indicated that Altair is expanding its footprint in existing accounts, winning some from competitors, and engaging with new types of customers–such as architects using structural optimization techniques. It sounds as though many of these opportunities are “green” in the sense that customers are not using commercial (if any) tools in a specific simulation scenario.

We didn’t get much detail from Altair on how individual products are doing, but we did learn that solidThinking continues to roll among small and medium-sized companies. Altair recently announced a program aimed at startups, here, that aims to get more simulation into the hands of more people, starting with solidThinking. This Fall, Altair will introduce solidThinking Unit pools, along the lines of Hyperworks Units, granting access to cloud and desktop versions of many of Altair’s products. Why? Mr. Scapa said that “the mid-market is an enormous opportunity for us.  solidThinking is going to be a lot more interesting and attractive for resellers and customers. The new startup program is getting a lot of traction beyond what we had anticipated — thousands of companies coming in and inquiring.”

Interestingly, he said that “a lot of companies looking to do simulation or more simulation than they were in the past”. That’s awesome, and likely only partly related to the solidThinking offer — easier to use, more accessible compute power, growing confidence that they are capable of doing simulation, an understanding that simulating FIRST (as with solidThinking) rather that at the end of a design process … all contribute to the new and growing interest Mr. Scapa mentioned.

Mr. Scapa told investors that the “good momentum of the first half of the year was software driven, a combination of success at existing customers and our ability to attract new customers, coupled with adding sales capacity” (plus a modest contribution from acquisitions, said CFO Howard Morof) — in other words, the success so far this year is due to good sales people that attract new customers and good products that grow those installations over time.

No surprise, Altair raised its guidance for the year. Q3 revenue is expected to be right around $96 million while full-year 2018 revenue is expected to be $380 million to $383 million, up 15% or so. Given how well the year has gone so far, investors see this as quite doable and perhaps even conservative. But ANSYS has been so handsomely rewarded by investors for giving conservative estimates and then beating them, so I can totally see why Altair is doing the same.