Altair Engineering Inc.

Ladies and gentlemen, today's conference is scheduled to begin shortly. Please continue to stand by, and thank you for your patience. Thank you. Thank you. Ladies and gentlemen, thank you for standing by, and welcome to Altair Engineering Incorporated fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, Please press star zero. I would like to hand the conference over to our Chief Financial Officer, Howard Moroff.

Good morning, welcome, and thank you for attending Altair's earnings conference call for the fourth quarter of 2020. I'm Howard Moroff, Chief Financial Officer of Altair, and with me on the call is Jim Scappa, our founder, chairman, and CEO, and Matt Brown, who assumes the CFO role on March 16th. After market closed yesterday, we issued a press release with details regarding our fourth quarter performance and guidance for Q1 in the full year 2021, which can be accessed on the investor relations section of our website at investor.altair.com. This call is being recorded, and a replay will be available on the IR section of our website following the conclusion of this call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. we disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. These risks are summarized in the press release that we issued yesterday. For a further discussion of the material risks and other important factors that could affect our actual results, Please refer to those contained in our quarterly and annual reports filed with the SEC, as well as other documents that we have filed or may file from time to time. During the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release. Finally, at times in our prepared comments or responses to your questions, We may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. With that, let me turn the call over to Jim for his prepared remarks. Jim?

Thank you, Howard, and welcome to everyone on the call. Altair had an excellent fourth quarter and full year 2020, especially given the global COVID-19 pandemic and economic uncertainty. I am proud of what our team accomplished in 2020. In a year of business disruptions and personal challenges, Altair brought to market broad and deep additions and enhancements to our product portfolio while delivering solid financial results. Though some challenges remain due to the pandemic, 2020 has positioned us well for 2021. As we demonstrate successes around our vision for the convergence of simulation, high performance computing, and artificial intelligence, we will continue supporting our customers with industry leading technology and unparalleled engineering and data science expertise. We have never been in such an energized position regarding our software offerings. Our integrated suite of software optimizes design performance across multiple disciplines encompassing structures, motion, fluids, thermal management, electromagnetics, system modeling, and embedded systems, while also providing AI solutions and true-to-life visualization and rendering. Our HPC solutions maximize the efficient utilization of complex compute resources and streamline the workflow management of compute intensive tasks for applications including AI, modeling and simulation, and visualization. Our data analytics and AI products include data preparation, data science, and visualization solutions that fuel engineering, scientific, and business decisions. We were pleased to report Q4 results with total revenue of $133.4 million. Software product revenue for the quarter was $113.6 million, reflecting year-on-year growth of 12 percent. Adjusted EBITDA was $21.7 million, an increase of 70 percent in the fourth quarter of 2019. All were well above our guidance ranges. For the year 2020, software product revenue grew to $391.7 million from $366.7 million the prior year, an increase of 7%. Total revenue equaled $469.9 million compared to $458.9 million, a small increase recognizing a continued softness in services. Software product revenue is 85.2% of total revenue for the fourth quarter compared to 81.7% in the prior year period. For the full year of 2020, software product revenue increased to 83.4% of our total revenue from 79.9% in 2019. Our recurring software license rate was 92% for the full year of 2020 versus 87% in 2019. Software renewals in the quarter continued to come in as expected with several significant expansions, and new customer activity remained healthy. As we drive the convergence of simulation, HPC, and AI into 2021, I feel it might be helpful if this quarter's customer stories focused on momentum toward this convergence. And Opticon, our solution for real-time data streaming and visualization, was selected by a European company specializing in retail customer behavior analysis. Their work includes biometric measures, which can in turn lead to predictions around buying preferences. The application supports a multi-format dashboard with data visualization, photos, video, and audio. Technical domain knowledge is key in the effective implementation of AI toward engineering applications. A defense agency is implementing a great example of AI converged with system modeling to support work including radio signals, satellite communications, and electromagnetic spectrum performance. Our work with them started a year ago around electromagnetic simulations. As we help them develop a cloud-based real-time telemetry data processing, data analytics, and archiving system, it will include elements of data acquisition, real-time data science and visualization, simulation models in a closed loop, and predictive analytics. In the food industry, a large multinational company has been a longtime user of Monarch data preparation tools licensed on a traditional named user basis. After an M&A event, we met with the new parent company and opened conversations around Altair Unit's licensing model, especially with regard to the ability of the enterprise to access all of Altair's tools, including data preparation, data science and AI, as well as real-time data streaming and visualization. This dialogue turned into a true win-win. with the customer now accessing the entire suite of our data analytics and AI tools across many additional users while seeing value in a substantially increased financial commitment. In a similar fashion, a large financial services organization has been using Monarch for data preparation for more than 20 years. The relationship has been completely restructured from named users on a single application licensing to a broad deployment of Altair Units for all of their data analytics and AI needs. The result is significantly more users and nice growth in the relationship. We believe the Altair Units licensing model has potential for disruption in the data analytics and AI software marketplace. global leader in agricultural machinery committed to Altair units for the application of AI to engineering with a goal of using digital twins to improve predictive maintenance and reduce the time and cost required for testing. A European manufacturer of metal parts for the automotive industry is using Altair's AI and engineering capabilities to diagnose, predict, and reduce production anomalies. These wins are great examples of Altair's deep engineering knowledge, helping customers to bring the power of AI to their enterprises. One of our larger data analytics deals to close out 2020, a major technology company inked a seven-figure purchase agreement with initial use cases around payroll optimization. Along with the matching and reconciliation process, the customer will be using Altair for visualization and scoring analysis. Their internal ROI calculations on this implementation are impressive, and we are delighted to see a customer so emphatic about their ability to get an outstanding financial return on our data analytics and AI tools. A great example of our vision of converging AI with engineering was expressed in the press release we issued last month discussing our MOU with Rolls-Royce Germany to collaboratively connect artificial intelligence and engineering to derive business value across Rolls-Royce's engineering, testing, and design of aerospace engines. The collaboration will address a wide variety of use cases, including applying data science for the vast amounts of engineering testing data which can lead to a significantly reduced number of sensors needed. This single use case alone has the potential to reduce recurring costs by millions of euros. As a pioneer of the convergence of AI and engineering, Altair is honored to be the technology partner of choice to help Rolls-Royce Germany make better daily data-driven decisions and transform their business and products. On the topic of acquisition, I am pleased to announce we have acquired Flow Simulator from GE Aviation. Flow Simulator is an integrated flow, heat transfer, and combustion design software which enables mixed fidelity simulations to optimize machine and systems design. As organizations are increasingly simulating complex duty cycles, Solutions like Flow Simulator are needed to model an entire system, including rapid iteration concept modeling and understanding of system simulation and system behavior, and virtually anything that encompasses thermal management. Bringing Flow Simulator to the Altair software set will allow us to expand its capabilities in the aerospace market and make it available to new industries, including defense, renewable energy, automotive, and electromobility. In addition to the acquisition, Altair and GE Aviation have signed an MOU to facilitate a higher level of collaboration and establish a long-term strategic partnership. I am thrilled to strengthen our relationship with GE Aviation, a longtime customer, and equally excited about the future of Flow Simulator, as we will bring the simplification of modeling complex thermal systems to new industries. We continue to evolve Altair's organization and processes toward more operational efficiency and believe these changes are resulting in more effective delivery of technology and expertise to our customers. One example is with our global technical support organization. Infrastructure and organizational changes are allowing us provide deep knowledge and expertise to customers regardless of geography, even as our technology portfolio expands in breadth. In addition to leveraging global capabilities for customer-facing roles, we continue a path of internal digital transformation. In 2020, Altair, like many companies navigating COVID-19, shifted to a remote model for work and communications with customers and coworkers. Going forward, we expect to return to a hybrid model, remote work and traditional office and travel. We believe these changes, while not affecting our external relationships, will play a role for EBITDA expansion as we scale revenue. As announced in December in a December press release, Howard Moroff is in the process of transitioning the CFO role to Matt Brown. I am deeply grateful to Howard for his many years of great leadership and guidance for Altair, especially as we made the transition from a privately held company of many decades to an organization ready for an IPO, and then to an operating public company. In the three years since we went public, Howard has been a straight and steady voice for Altair, and I wish him well in his next adventures, especially those involving his family, and his work with charitable organizations. In choosing our next CFO, it was important to me that we have someone with an operational focus and enthusiasm for doing the right things as we grow the company to the next level of revenue and profitability. Matt is clearly on target in this regard, given his financial expertise and large scale software company experience. Matt will officially take over from Howard on March 16, and both of them are to be congratulated on their superb process of transitioning the role in a way that has truly benefited the Altair organization. I look forward to working with Matt as we remain focused on delivering great technology to our customers while we scale our software revenues and increase EBITDA for sustainable long-term growth. Now I will turn the call over to Howard and Matt provide more details on our financial performance and our guidance for the first quarter and full year of 2021. Howard and Matt.