Will Software Services Aid Altair in (ALTR) Q2 Earnings?

Altair Engineering Inc. ALTR is scheduled to report second-quarter 2019 results on Aug 8, after market close.

In the last reported quarter, the company’s adjusted earnings and revenues topped the Zacks Consensus Estimate by 23.8% and 2%, respectively. However, its bottom line decreased 25.7% from the year-ago figure of 35 cents, owing to foreign currency headwinds and incremental G&A expenses related to Datawatch transaction audit and SOX implementation costs.

Nonetheless, the company has an impressive earnings surprise history. Altair topped the consensus estimate in five of the trailing six quarters, with an average positive surprise of 64%.

Which Way are Estimates Trending?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

Altair Engineering Inc. Price and EPS Surprise

Altair Engineering Inc. Price and EPS Surprise

Altair Engineering Inc. price-eps-surprise | Altair Engineering Inc. Quote

The Zacks Consensus Estimate for earnings of 8 cents in the quarter to be reported has remained stable over the past 60 days. The estimated figure indicates an increase of 60% from the year-ago earnings of 5 cents per share. Moreover, revenues are expected to be $108 million, suggesting a 13% year-over-year improvement.

Factors to Consider

In the second quarter, Altair is likely to benefit from ongoing momentum in software-related services and inorganic moves. The company has been gaining from optimization of product design, positive trends in its primary end market (automotive) and operational efficiency. These factors are anticipated to have aided Altair in the to-be-reported quarter as well.

Contract wins in new and existing accounts across broad geographies and industries also add to the positives.

For the second quarter, the company expects total revenues in the range of $106-$108 million (compared with $95.6 million reported a year-ago) and non-GAAP revenues within $108.2-$110.2 million. Particularly, Software Product revenues, which accounted for 81% of total first-quarter revenues, are projected between $83 million and $85 million, up from $72.8 million generated in prior-year period. Non-GAAP Software Product revenues are likely to be within $85.2-$87.2 million.

The company’s recent acquisitions of Datawatch, SIMSOLID and FluiDyna GmbH, as well as focus on R&D to optimize product design are likely to add to the positives.

Notably, it expects non-GAAP net income within $5.6-$7.6 million, indicating an improvement from $3.9 million reported a year ago.

However, the company’s margins are likely to be negatively impacted by unfavorable foreign currency headwinds and incremental G&A. The company has been incurring heavy R&D expenses owing to investment in new product designs. This is ultimately hurting its profitability. The same is expected to remain a headwind in the quarter to be reported. Although its operational efficiency bodes well, concerns surrounding the bottom line exist. The company projects adjusted EBITDA to be in the band of $3.8-$5.8 million, compared with $7.3 million reported in comparable prior-year period.

Also, its revenues are seasonal, based on renewal dates from customers. Generally, the first and fourth quarters have typically greater renewals and expansion revenues than the second and third quarters. The company expects these headwinds to impact results in the to-be-reported quarter.

What the Zacks Model Says

Our proven model shows that Altair is likely to beat estimates in the to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Altair currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Meanwhile, we caution against stocks with a Zacks Rank #4 and 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Peer Releases

Quanta Services Inc. PWR reported lower-than-expected results in second-quarter 2019. During the quarter, adjusted earnings came in at 31 cents per share, missing the consensus estimate of 84 cents by 63.1% and decreasing 47.5% from the year-ago period. Total revenues of $2.84 billion also lagged the consensus mark of $2.89 billion by 1.8%. However, the said metric increased 6.8% year over year.

KBR, Inc. KBR reported strong second-quarter 2019 results, buoyed by continued solid organic growth in Government Services and Technology businesses. It reported adjusted earnings of 41 cents per share, beating the Zacks Consensus Estimate of 40 cents by 2.5%. The reported figure also increased 17.1% from 35 cents per share registered a year ago. Total revenues of $1.42 billion surpassed the consensus mark by 3.3% and increased 12.2% year over year.

Fluor Corporation FLR reported adjusted earnings of 33 cents per share in second-quarter 2019, missing the Zacks Consensus Estimate of 50 cents by 36.5%. The reported figure also deteriorated significantly from the year-ago earnings of 81 cents per share by 59.3%. Revenues during the quarter totaled $4.09 billion, lagging the consensus mark of $4.56 billion by 10.2% and declining 16.2% year over year. The downside was mainly caused by lower contribution from Energy & Chemicals, Government, and Diversified Services segments.

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