Altair’s Q1 revenue up 13% on software strength
The good news keeps rolling, as Altair reported Q1 revenue of $128 million, up 13% and around $2 million ahead of expectations. CEO Jim Scapa said that the guidance beat was powered by software product sales — not surprising, given the portfolio buildout and recent acquisitions.
- Software product revenue was $103 million, up 15% as reported and up 19% in constant currencies (cc). On a non-GAAP basis, including Datawatch revenue that can’t be included under current accounting standards, software revenue was up 21%
- License revenue was $77 million, up 14% while revenue from
- Maintenance and other services was $26.7 million, up 17%
- Client engineering services, an important predictor of future business, held steady at $12 million
- Billings grew by 23% cc and 18% as reported
- By geo, APAC and Europe continued to achieve what Mr. Scapa termed “exceptional growth”, with the Americas reporting “increasing momentum” as a result of the build-out of the direct and indirect channels
Mr. Scapa gave a quick update on recent acquisitions. He said that GE’s Flow Simulator, for which Altair is now the sole distributor, continues to expand, with sales in Southern and Eastern Europe to the turbo machinery and oil and gas field service industries.
SimSolid, acquired last year, is also seeing strong market traction across many regions, with auto OEMs “enthusiastically recommending” SimSolid to their designer communities. Altair plans to continue with attractively-priced trial offerings to entice people to experiment with SimSolid, and expects a lot of those trials to turn into purchased licenses. Mr. Scapa cautioned investors not to see this has a hockey stick — even though prospects are very interested in the technology and appreciate Altair’s greater size lending stability to future development of SimSolid, “I’m not expecting a huge, increase in revenue right away. That’s going to happen over a period of years, while we let them roll this out … I don’t expect [SimSolid] to impact things this year. We’re seeing usage climbing and that’s most important to us.”
Finally (on the acquisition front), the integration of Datawatch is going well, though Mr. Scapa said it’s not without challenges. Altair continues to be enthusiastic about the potential, but needs to learn to sell into financial services while also bringing it to Altair’s traditional manufacturing customers. Part of the problem: fitting Datawatch into Altair’s HyperWorks licensing scheme. Part of the opportunity, Mr. Scapa told investors, is that everyone is trying to find new uses for machine learning — including at Altair, where it’s informing how Altair will change its help system. But that poses its own set of challenges, as Mr. Scapa said that it’s too tempting to chase everyone’s possible machine learning applications. It sounds as though managing expectations is going to be very important in the Datawatch rollout.
The Altair team is conservative on forward guidance, even with the strong Q1 results. The company reiterated its expectation for the year, with total revenue of $470 million to $474 million –most of the Wall Street types I talk to see this as underwhelming given Q1– and $106 million to $108 million in total revenue for Q2. Software product revenue is expected to be between $83 million and $85 million in Q2 and $373 million to $377 million for the year, which would be 23% growth.
During his comments on SimSolid, Mr. Scapa said something very interesting: pilots and trials grow product usage, which creates market share gains, and then revenue growth. I totally buy that the “trials lead to adoption leads to revenue” concept but am not sure about the market share gains. Mr. Scapa is a crazy smart guy who talks to far more SimSolid uses that I ever could, but … It’s my impression that SimSolid typically reaches new CAE users, designers who might have handed their models off to analysts in the old scheme. These new users grow the market, a good thing for everyone, but analysts don’t seem to be giving up their licenses (yet), which is what we’d need in order for Altair to be taking market share from a competitor.
But maybe it’s just words. SimSolid lets Altair expand its footprint in new and existing accounts, to both new and existing CAE users. The overall CAE pie gets bigger, and perhaps Altair then has a larger share of a larger market — all good.