10-Q: Altair Engineering Reports Q3 2024 Results, Announces Merger Agreement with Siemens

Altair Engineering Inc. reported its third-quarter 2024 financial results, showing revenue growth and a return to profitability, while also announcing a definitive merger agreement with Siemens Industry Software Inc.

Summary

• Altair Engineering Inc. reported a net income of $1.8 million for the third quarter of 2024, a significant improvement compared to a net loss of $4.4 million in the same period last year.
• Total revenue for the quarter reached $151.5 million, a 13% increase year-over-year, driven by a 16% growth in software revenue.
• The company's software segment saw revenue of $138.7 million, while engineering services and other revenue decreased by 14% to $12.8 million.
• For the nine months ended September 30, 2024, Altair reported a net income of $13.2 million, compared to a net loss of $28.6 million for the same period in 2023.
• The company's total revenue for the first nine months of 2024 was $473.2 million, a 7% increase year-over-year.
• Altair's recurring software license rate was 92% for the nine months ended September 30, 2024, indicating strong customer retention.
• The company completed four acquisitions in 2024, including Cambridge Semantics, Research in Flight, Metrics Design Automation Inc., and KSK Analytics, for a total consideration of $36.8 million.
• On October 30, 2024, Altair entered into a merger agreement with Siemens Industry Software Inc., with Siemens acquiring Altair for $113.00 per share in cash.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong revenue growth, a return to profitability, and a significant merger agreement. While there are some challenges, the overall tone is optimistic and indicates a positive trajectory for the company.

Positives

• The company achieved a return to profitability in Q3 2024, with a net income of $1.8 million.
• Software revenue showed strong growth, increasing by 16% in Q3 2024.
• The recurring software license rate of 92% indicates strong customer loyalty and predictable revenue streams.
• The merger agreement with Siemens provides a significant premium for shareholders at $113.00 per share.
• The company's cash position remains strong with $513.4 million in cash and cash equivalents.

Negatives

• Engineering services and other revenue decreased by 14% in Q3 2024.
• Operating expenses increased by 8% in Q3 2024, impacting overall profitability.
• The company incurred $30.6 million in payments related to business acquisitions and investments in the first nine months of 2024.
• The company paid $81.7 million for the settlement of the remaining balance of its 2024 convertible notes.

Risks

• The proposed merger with Siemens may not be completed due to various factors, including regulatory hurdles or failure to obtain stockholder approval.
• Failure to complete the merger could negatively impact the company's stock price and business relationships.
• The company is subject to customary no-shop restrictions, limiting its ability to pursue alternative transactions.
• The company's business is susceptible to fluctuations in foreign currency exchange rates.
• The company's results are subject to quarterly fluctuations due to seasonality and other factors.

Future Outlook

The company anticipates that the merger with Siemens will close in the second half of 2025. The company expects that its revenues and profit may be impacted by changes in foreign currency rates for the remainder of the current fiscal year.

Management Comments

• Management believes that Billings is a meaningful way to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers.
• Management believes that Adjusted EBITDA is a meaningful measure of performance as it is commonly utilized by management and the investment community to analyze operating performance in our industry.
• Management believes that Free Cash Flow is useful in analyzing our ability to service and repay debt, when applicable, and return value directly to stockholders.

Industry Context

The company's performance reflects a growing demand for simulation, high-performance computing, data analytics, and AI solutions across various industries. The merger with Siemens indicates a trend of consolidation in the software industry, with larger players acquiring specialized technology providers to expand their offerings.

Comparison to Industry Standards

• Altair's software revenue growth of 16% in Q3 2024 is strong compared to the average growth rate of the software industry, which is estimated to be around 10-12%.
• The company's recurring software license rate of 92% is above the industry average, indicating strong customer retention and a stable revenue base.
• The merger agreement with Siemens at $113.00 per share represents a significant premium over Altair's current stock price, which is a positive outcome for shareholders.
• Compared to competitors like Ansys and Dassault Systèmes, Altair's focus on computational intelligence and its diverse product portfolio positions it well for future growth.
• The company's acquisitions of Cambridge Semantics, Research in Flight, Metrics Design Automation Inc., and KSK Analytics are in line with industry trends of companies expanding their capabilities through strategic acquisitions.

Legal Proceedings

• The company may be subject to legal proceedings and claims in the ordinary course of business.
• The company has received, and may in the future continue to receive, claims from third parties asserting infringement of their intellectual property rights.

Stakeholder Impact

• Shareholders will benefit from the merger agreement with Siemens, which provides a significant premium for their shares.
• Employees may experience uncertainty due to the merger, but the company is working to ensure a smooth transition.
• Customers will benefit from the expanded product portfolio and capabilities resulting from the company's acquisitions.
• Suppliers and other business partners may experience changes in their relationships with the company due to the merger.

Next Steps

• The company will seek stockholder approval for the merger agreement with Siemens.
• The company will work to obtain all necessary regulatory approvals for the merger.
• The company will continue to integrate its recent acquisitions.
• The company will continue to monitor and manage its foreign currency exposure.

Key Dates

Keywords

Merger, Acquisition, Software, Simulation, Engineering Services, Financial Results, Revenue, Net Income, EBITDA, Convertible Notes