Altair (ALTR) Intends to Buy Metrics, Expands in the EDA Market

Zacks Equity Research
·4-min read

Altair Engineering Inc. ALTR entered into a deal to acquire Metrics Design Automation Inc., a Canadian company with a game-changing simulation as a service business model for semiconductor electronic functional simulation and design verification.

Metrics digital simulator, DSim, and Altair's Silicon Debug Tools, together, will provide superior simulation and debug capabilities, thereby creating a world-class, advanced simulation environment in the EDA and semiconductor space.

The cloud-based business model has the potential to transform the semiconductor space by making high-caliber EDA design tools much more affordable and accessible for companies looking to aggressively scale out simulations to accelerate design cycles.

Integrated circuit (IC) design verification has high licensing costs and may require hundreds and sometimes thousands of seats to run a single chip simulation. Also, these tools run on desktop machines and are not typically cloud-native or cloud-enabled. Altair and Metrics solutions will provide that flexibility to run as a desktop app and can run very large regressions with customers paying only for what they use.

It supports System Verilog and VHDL RTL for digital circuits targeting application-specific integrated circuits and field programmable gate arrays, with which simulations can be run concurrently and at scale, removing massive amounts of time and costs from the traditional design cycle.

DSim will be available through Altair's cloud innovation gateway — Altair One. Whether in the cloud, on your servers, or on the desktop, DSim is fully featured and optimized for speed, capacity and accuracy. The semiconductor, automotive, aerospace and defense customers will have access to Altair's leading digital simulation, visualization, and circuit debug technology that will help them track down design problems and move the most complex devices into production earlier and with a higher degree of confidence.

Moreover, transaction details are kept in wrap, subject to certain customary conditions.

Accretive Acquisitions: A Boon

Altair’s products, services and business models have been driving market share growth. Altair continues to evolve its product portfolio with a combination of sustainable and disruptive innovations. Also, strategic investments in engineering AI, accretive acquisitions and robust product demand are encouraging.

Acquisitions are an important part of Altair’s strategy to supplement its organic growth and diversify extensively across its portfolio. Since 1996 through 2023, Altair has acquired 51 companies or strategic technologies.

In April 2024, ALTR acquired Cambridge Semantics, a data fabric technology company. This acquisition brings advanced knowledge graph technology, which is critical for generative AI applications, to ALTR's platform. Cambridge Semantics' technologies will integrate into Altair’s RapidMiner, enhancing data governance, data virtualization and data discovery capabilities. These combinations will help customers build advanced analytics ecosystems and incorporate AI into business operations.

During first-quarter 2024, ALTR's non-GAAP gross margin expanded 140 basis points (bps) year over year to 83.3%. The upside was driven by a higher mix of software revenue and improved standalone software margins. Adjusted EBITDA margin was 26.5%, up 60 bps from 25.9% in the year-ago quarter. Considering the impact of changes in foreign currency exchange rates, the company expects adjusted EBITDA margin in the range of 21.2-22.1% for 2024, indicating an increase from 21.1% in 2023.

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Shares of the company have gained 16.9% in the past three months compared with the Zacks Engineering - R and D Services industry’s 2.3% growth.

Zacks Rank & Key Picks

Currently, Altair carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same space are:

Howmet Aerospace Inc. HWM presently sports a Zacks Rank #1 (Strong Buy). HWM has a trailing four-quarter earnings surprise of 8.5%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for HWM’s 2024 sales and earnings per share (EPS) indicates a rise of 10.7% and 29.9%, respectively, from the prior-year levels.

Sterling Infrastructure, Inc. STRL presently carries a Zacks Rank #2 (Buy). Sterling Infrastructure has a trailing four-quarter earnings surprise of 22.3%, on average.

The Zacks Consensus Estimate for STRL’s 2024 EPS indicates a rise of 18.6% from the prior-year levels.

Gates Industrial Corporation plc GTES presently carries a Zacks Rank #2. GTES has a trailing four-quarter earnings surprise of 14.9%, on average.

The Zacks Consensus Estimate for GTES’ 2024 EPS indicates growth of 2.9% from the prior-year levels.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Altair Engineering Inc. (ALTR) : Free Stock Analysis Report

Sterling Infrastructure, Inc. (STRL) : Free Stock Analysis Report

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