Altair reports strong Q4, cautiously optimistic about 2021
Last week, Altair announced results for Q4 that closed 2020 on a high note, beating revenue guidance by a lot, and setting up a solid 2021.
- Total revenue in Q4 was $133.4 million, up 8% as reported (up 5% in constant currencies, cc)
- Software product revenue was up 12% (up 9% cc) to $113.6 million
- Within software, license revenue was $$76 million, up 19%
- Maintenance revenue was basically flat at $37 million
- Services revenue was down 12% to just under $8 million, but that still represents a “modest recovery” from Q3, when services revenue was down 22% from a year earlier
- Client engineering services was hardest hit (as expected, since a lot of engagements couldn’t be carried out in person), down 15% to $10 million
For the full year, total revenue was up 2% to $470 million while software product revenue was up 7% to $392 million. From the company’s 10-K (annual report), for the year, revenue from the Americas was $246 million, up 5%; from EMEA, 113 million, down 3%; and from Asia, $111 million, up 2%. Also from the 10-K, we learn that the automotive industry is still big for Altair, though decreasing in importance — representing ~36%, 40%, and 45% of 2020, 2019, and 2018 revenue (no other verticals are mentioned.)
What does it all mean? A couple of takeaways:
Altair had guided to total revenue of $112 million to $117 million for Q4 — so reporting total revenue of $133 million was a major blowout. That implies two things: first, that it’s really difficult to forecast revenue in this climate. CFO Howard Morof said that the revenue beat was due to a combination of conservative forecasts and more than expected new and expansion revenue than is typical in Q4. Plus, “the quarter continued to improve as it went along, reflecting growth investments [or expansion of existing installations], strength in our customer base, and continued use and growth in adoption of technologies that are ever so critical to our customers.”
Lesson: guidance is good, but it’s not infallible.
Second, Altair had thought software revenue for the quarter would be $95 million to $99 million, and reported $114 million — meaning that at least some of the unanticipated revenue upside was from other sources. Said another way, the software-related services and client engineering services did better than expected. That’s good news since a lot of Altair customers engage in smaller pilot projects to test out technology before committing to bigger engagements. CEO Jim Scapa characterizes this as customer intimacy, saying “we are very, very actively engaged with a lot of customers in very advanced projects, in electric motors, batteries, additive manufacturing, simulation, all of that … And, [this intimacy] advances our products as well as also advancing these relationships.”
And, for those keeping score, Q4 was the second consecutive quarter where software revenue ( was up in the double digits and services saw a modest reovery. Lesson: 2021 should be at least OK, if not good.
We also learned a little more about Altair’s acquisition of Flow Simulator from GE Aviation. (But nothing financial —the deal terms are still not undisclosed.) A quick refresher: Flow Simulator integrates flow, heat transfer, and combustion for mixed fidelity simulations, originally to optimize aircraft engines, with “thousands of users inside GE”, per Mr. Scapa. Altair had been selling Flow Simulator for a few years and is now also responsible for all aspects of its R&D. This is good — Flow SImulator’s system-level design capabilities are critical in early-stage design. Too, the expanded partnership with GE Aviation will help continue Altair’s diversification away from automotive.
Mr. Scapa also spoke about how excited GE is to have a “commercial software company take responsibility for it and there’s a lot of opportunities, to leverage this, to grow the partnership in many different directions with GE, around all of our software … we’ve been doing other projects with GE, in the area of rotating machinery and others, independent of the Flow Simulator project … And it is a model for things that we think we can do with some other customers as well.” — so perhaps we’ll see more announcements of this type.
Altair is also looking to expand its sales reach beyond its traditional direct channel. Mr. Scapa said that Atair is making “some progress [building an indirect capacity] and it depends on the geography. From my point of view, we’re not making as much progress as I would like to see, particularly in the Americas. I think the indirect is getting traction more and more in Europe and continuing to APAC. And in the Americas, I think we have some more work to do, quite frankly.”
But it’s by no means all indirect. Mr. Scapa said that “we are continuing to invest in [selling to] enterprise-level customers with whom we see large opportunities, so we’re beginning to target our direct account managers more and more those opportunities and create more focus for them. We’re creating swim lanes in the market. We’re getting smarter at how we’re organizing and leveraging the sales resources and the capacity that we have.”
Incoming CFO Matthew Brown added that “Over the past 5 years, we’ve done 23 or so acquisitions and we continue to really refine our operating model. We’re going to continue to invest in our product technology and in our sales engine moving forward. And so, this is really a refocusing is the way that I would characterize it.”
According to Altair’s 10-K, only about 10% of 2020 software revenue was generated through indirect channel partners and resellers.
Finally, Altair is all about the convergence of simulation, HPC and AI. Mr. Scapa told investors that it’s a “very natural transformation that’s really happening. It’s happening within our products, and in ways that customers and users don’t even know it’s happening to some extent. And it’s also happening for customers who really are beginning to recognize the opportunity.” From a sales perspective, he added, “almost every one of our account managers has opportunities that are really taking advantage of this convergence. And it’s really starting to engage. We’re starting to understand use cases that make sense, as we have success and point those use cases to other customers. So 5 years from now, I don’t think we’re going to be talking about sort of a difference between simulation and AI. I think it’s all going to be computational science, basically that we’re talking about.”
This convergence, plus a return to more typical seasonal patterns, leads Mr. Scapa to say that he is cautiously optimistic about 2021. As does everyone else, he sees a gradual improvement as the year goes along. Mr. Brown added that “last year Q1 was not really impacted by COVID, this year Q1 has. And as we move forward throughout the rest of the year, and we’re expecting some recovery, but net-net, our expectations on everything other than software product revenue is that the year is going to be basically flat to 2020. We’re pretty optimistic about software — we’re seeing good engagement from our customers. We’re seeing a healthy pipeline.”
In all, Altair expects revenue of $138 million to $140 million in Q1, and $502 million to $510 million for the year, which would be growth of 8% or so.