Altair Engineering Inc.

And thank you for standing by. Welcome to Altair's first quarter 2021 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 this session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Dave Simon, Chief Administration Officer. Please go ahead.

Good afternoon. Welcome, and thank you for attending Altair's earnings conference call for the first quarter of 2021, ended March 31, 2021. I'm Dave Simon, Chief Administrative Officer of Altair, and with me on the call are Jim Scappa, Founder, Chairman, and CEO, and Matt Brown, Chief Financial Officer. After market close today, we issued a press release with details regarding our first quarter performance and guidance for the second quarter and 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 factual results to differ materially from our expectations. These risks are summarized in the press release that we issued earlier today. 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, Dave, and welcome to everyone on the call. Altair had an excellent first quarter 2021. Our vision of the convergence of simulation, HPC, and AI driving enterprise decisions is emerging as a clear imperative embraced by customers. This technical direction, which we identified early and have invested in significantly, is important and manifest in all of the markets we serve. AI is becoming pervasive in our lives. Altair is integrating AI into all of our software applications, and we are rapidly evolving our solution platforms to allow customers to implement this technology to benefit from the latest knowledge and algorithms throughout their organizations. We are pleased to report record quarterly results with total Q1 revenue of $150.2 million. Software product revenue for the quarter was $129.5 million. versus 108.4 million in Q1 of 2020, reflecting year-on-year growth of 19.5 percent. Adjusted EBITDA was 37 million compared to 21.7 million in Q1 of 2020, an increase of more than 70 percent from the first quarter of 2020. All were well above our guidance ranges. Our business continues to shift toward a very high proportion of software versus services, expanding our gross margins and strength to invest for the future. Our modified Altair Units business model, along with a more structured go-to-market process, is delivering better revenue for value in our major accounts and enhancing our ability to more effectively compete in the middle markets. Software product revenue was 86.3% of total revenue for the first quarter compared to 82.5% in the prior year period. Our recurring software license rate was 94% for the first quarter of 2021 versus 93% in the first quarter of 2020. We are excited about our results from Q1, and we are looking forward to the balance of the year. While the coming months continue to hold some uncertainty related to the challenges with COVID-19, especially in India and other parts of APAC and EMEA, we are seeing many signs of a robust economy with customers investing to develop new products and looking to Altair experience, products, and solutions to accelerate their innovation and help them be competitive. Our results show continued strong momentum due in large measure to the strength of our constantly growing software portfolio. In 2020, we made enormous progress with broad multidisciplinary product releases for simulation, HPC, and data analytics. SimSolid, which we acquired two years ago, is clearly emerging as the leading technology for structural simulation for designers. We had 10 major releases of SimSolid since the acquisition, and the number of users and customers for this technology is growing daily. As the technology continues to mature, its performance and accuracy, especially when dealing with more complex structures and assemblies, is unparalleled. Many of the hundreds of customers using SimSolid have presented technical papers or otherwise spoken publicly about their use of SimSolid, including from the automotive, heavy equipment, electronics, architecture, oil and gas, and other industries. SimSolid now has a broad solution offering, including statics, modal, dynamics, thermal, thermal stress, fatigue, linear superposition, and linearized stresses. The code has been enhanced with an industry-best design connections library including spot welds, laser welds, 3D seam welds, bushings, adhesives, joints, and rivets. We've also improved the workflow integration of SimSolid, notably within our Inspire design platform, but also by more seamlessly connecting to a number of third-party codes. In the first quarter, we won a strategically important account for SimSolid in the aerospace and defense industry. where we believe there is significant room for expansion, both in this account and in the aerospace industry as a whole. We recently published a case study from a General Motors division. Their design teams desire to perform structural analysis to evaluate their own designs. The non-altair simulation software initially utilized proved problematic. SimSolid provided them with an alternative which dramatically decreased modeling time and allowed the designers to evaluate complex components and large assemblies, which was not possible with the previously used software. For modal analysis at the component level, GM found a correlation factor of 97% with SimSolid compared to traditional simulation methods. This was combined with a 75% reduction in time taken to complete the analysis. We believe the accuracy, time savings, and workflow efficiencies of SimSolid, combined with all of the capabilities added since the acquisition, will help continue its momentum as the product with the fastest growing usage in our software portfolio. Altair has been a pioneer in engineering simulation and MCAD simulation driven design for more than 30 years. More recently, we are bringing a simulation driven design philosophy to the electronics industry with an end-to-end solution. Delivering electronics that delight consumers requires more than just linking the ECAD and MCAD worlds. It requires physics analysis at the speed of design and collaboration across disciplines throughout development. Altair Pollux offers solutions for printed circuit board design review, verification, analysis, and even rule-based design for manufacturing, design for assembly, and design for electrical. It introduces a simulation-driven methodology for signal integrity, power integrity, and thermal for printed circuit board design, and importantly, integrates with all major ECAD and simulation tools. In an interconnected world, most devices are wireless with several antennas. Altair's 5G simulation tools uniquely combine antenna design with radio coverage and planning analysis and provide the broadest set of scenarios for 5G applications. Using Pollux and Altair's electromagnetic tools, combined with Altair's other physics-based simulation tools and machine learning, and to reduce modeling time, helps users achieve improved connectivity and functionality. For smart product development, performance optimization, sensors, actuators, and motors also provide challenges for architecture integration. They often need to be miniaturized and integrated into the PCB without sacrificing reliability or adding to manufacturing costs. Altair's model-based development tools can help drive faster assessment of system performance by enabling the flexible configuration of sensor systems and simulating the subsystems and control strategies for each function of the device. Circuit simulation plays a strategic role in the schematic capture phase of EDA workflows. Altair offers electronic circuit simulation tools and an open integration platform for modeling, simulating, and optimizing multidisciplinary systems of systems. Altair's enhanced proprietary version of SPICE based on an open source industry standard with access to the library of digital component suppliers delivers a more interactive schematic in which easy changes of component values, tolerances, frequency response, or time periods, enable an accurate verification of the electronic circuit performance. And finally, to develop complex embedded systems like sensor and actuator controls, vision systems, and IoT devices, design engineers need software for model-based firmware development. Altair's tools let you design, analyze, and simulate your embedded system using block diagrams and state charts, then automatically generate compact and optimized code to run on an extensive selection of microcontrollers. The breadth and depth of technology Altair is offering for modern simulation-driven design of electronics is being embraced by our existing customers, especially in automotive. We believe this will lead to increased business opportunities for us. The first quarter brought many new expansion wins in the area of high-frequency electromagnetics across industries, including aerospace, defense, railway, 5G technology, automotive, and others. Applications range from antenna placement and design to radio and radar coverage. Altair has a complete solution for electric drive systems, coupling e-motor concept design, multiphysics simulation, system integration and control design, and PCB verification and analysis. We had two interesting wins in the first quarter that demonstrated our value toward electric drive system development. One was with a global manufacturer of industrial pumps, and the other with a manufacturer of ventilation systems. In both cases, the ability of Altair software to simultaneously address electric motor, sensor, control, and power converter development was key to building the business. On the data analytics front, we are continuing to promote and see acceptance of the Altair Units model, especially at large enterprise customers. We launched an early access release of the SmartWorks platform to a limited customer base with strong positive initial responses. SmartWorks combines capabilities necessary to develop apps, and orchestrate edge devices for IoT and smart product development with end-to-end capabilities for data analytics from data ingestion to live system deployment. We are excited about the opportunities SmartWorks brings to Altair to serve a very large and growing addressable market. Matt Brown is fully on board as our CFO and doing a great job to help Altair grow into a substantially larger revenue and EBITDA Profile Company. Our 2021 Investor Day is Thursday, May 27, and we look forward to sharing some insights around our technology, addressable markets, and long-term outlook with you then. Now I will turn the call over to Matt to provide more details on our financial performance and our guidance for the second quarter and remainder of 2021. Matt? Thanks, Jim.

We're thrilled with our first quarter 2021 results, coming in above the high end of the range on every metric we guided to for the quarter. We delivered record software product revenue of 129.5 million, an increase of 19.5% compared to Q1 2020. We also achieved record total revenue of 150.2 million, an increase of 14.2%, compared to Q1 2020. And we had record high adjusted EBITDA of 37 million or 24.6% of total revenue, an increase of 70.5% compared to Q1 2020. Total billings for the quarter were 145.8 million, an increase of 14% compared to Q1 2020. Our results relative to prior year were primarily driven by strong software product billings, where we saw solid new and expansion results, as well as healthy retention on our renewal base. We saw year-over-year increases balanced across all three geographic regions, as well as across our product offerings. Our recurring software license rate, which is the percentage of software product revenue that is recurring, continues to be strong at approximately 94% for the quarter, as we continue to emphasize growth in our recurring revenue streams. Relative to our expectations for the quarter, we saw some of our software transactions, which were originally expected to close in the second quarter, close earlier than originally anticipated, driving some of the upside relative to the Q1 guidance. And, as anticipated, the year-over-year strength in software product billings was partially offset by declines in client engineering services and other billing. It's worth reminding you of the seasonal nature of our business, where our first and fourth quarters have higher software billings and revenue, and we expect that pattern to continue. In addition, a significant portion of our billings and revenues are billed in currencies other than the U.S. dollar, and are therefore impacted by changes in FX rates. Relative to Q1 2020, our billings and revenues were favorably impacted by changes in FX rates of approximately $5 million during the quarter. Non-GAAP gross margin, which excludes stock-based compensation and restructuring expense, improved to 79% in the first quarter, compared to 74% in Q1 2020. an increase of 500 basis points, primarily as a result of the favorable trend in our software revenue mix, which carries higher gross margins. Software product revenue as a percentage of total revenue increased to 86.3% compared to 82.5% in the year-ago period, an increase of 380 basis points. This increase in software-related revenue mix was expected as we saw an increase in software product revenue combined with the expected year-over-year decline in our services and other revenue. We expect this mixed shift towards software product revenue to continue. Non-GAAP operating expenses, which exclude stock-based compensation, amortization of intangible assets, and restructuring charges, were $82.6 million compared to $78.2 million in the year-ago period. Adjusted EBITDA was $37 million in the first quarter, or 24.6% of total revenue in Q1 2021, an increase of 70.5% compared to Q1 2020. This increase compared to the prior year quarter, as well as relative to our expectations, was driven by the increase in software revenue in the quarter, combined with disciplined spending and accelerated employee-related cost reductions. Turning to our balance sheet, we ended the first quarter with $243 million in cash and cash equivalent, an increase of about $2 million from the prior quarter. The quarter-over-quarter increase reflects strong free cash flow during the quarter of approximately $33.5 million, partially offset by repayment of the $30 million we had drawn on our revolver. Our free cash flow of $33.5 million in the quarter is an increase of $7.1 million, or 27.1%, compared to Q1 2020. As a reminder, Q1 is our seasonally most significant cash flow quarter due to collections on Q4 and Q1 billings. Looking ahead to Q2 and full year 2021, we are looking to continue the great momentum we began the year with. We are expecting software product revenue for Q2 in the range of $92 to $95 million, or year-over-year growth of 12.4 to 16.1%. And we're raising our full-year 2021 software product revenue range to $425 to $433 million, or year-over-year growth of 8.5 to 10.5%. We continue to expect services and other revenue to be approximately flat year-over-year, consistent with our previous guidance. As a result, we are forecasting total revenue for Q221 in the range of $111 to $114 million, or year-over-year growth of 12.6 to 15.7%. And we're raising our full year 2021 total revenue guidance to a range of $504 to $512 million, or year-over-year growth of 7.3% to 9.0%, reflecting our increased software revenue guidance. Our $2 million increase on the full-year revenue guidance reflects our overachievement in Q1, which as I mentioned a moment ago, was partially impacted by the timing of some Q1 software transactions that were originally expected to close in Q2. along with a negative currency impact of $5 million relative to our prior quarter's full-year guidance. From a cost perspective, we moved faster than expected in the first quarter on employee-related reductions and realized some benefits in the quarter. As I mentioned in our last earnings call, these reductions are freeing up capacity to reinvest in product technology and sales capacity which we are also moving forward with at a fast pace. In addition, and as I also mentioned in our last earnings call, we expect marketing costs and travel and entertainment costs, which were significantly impacted by COVID-19 last year, particularly in Q2 through Q4, will return to higher levels as more normal activity returns. We're seeing some of that happening already. So, for Q2 2021, we expect adjusted EBITDA in the range of $2 to $4 million, or 1.8 to 3.5% of total revenue, compared to $5.8 million, or 5.8% of total revenue in the year-ago period. Again, reflecting expectations of increased marketing and travel and entertainment spends, as well as the impact of the temporary salary reductions that impacted Q2 and Q3 last year. For full year 2021, we are raising our adjusted EBITDA range to 59 to 67 million, or 11.7 to 13.1% of total revenue, compared to 57.3 million, or 12.2% of total revenue in 2020. We are also raising our full year 2021 free cash flow guidance to a range of 30 to 38 million. As a reminder, our cash flow expectations are sensitive to billing and collection patterns, which fluctuate seasonally. We've provided detailed guidance tables in our earnings press release, including reconciliations to comparable gap amounts, which was issued after close of market today. In summary, we are pleased with our quarterly results in Q1, but even more excited about the products and technologies we're offering to our customers and driving forward in our mission to transform enterprise decision-making. With that, we'd be happy to take your questions. Operator?

Thank you. As a reminder, to ask a question, you'll need to press star 1 on your telephone. To withdraw your question, press the pound key. Our first question comes from Bhavan Suri with William Blair. Your line is open.

Hey, Jen. Thanks for taking my question, and congrats. That was a fantastic set of numbers and results there.

I guess I want to touch at a high level, maybe, Jim, for you initially. You know, you commented on the adoption of data and AI tools. Rolls-Royce was a great deep dive, I think, David Simon did with us. Um, but as you think about the broader trends of end-to-end AI, ML, and then you see the sort of digitization industries and things like 5G, IoT, EV, how do you view the current product set being able to capture that market share? Or do you think there's more stuff you need to add to sort of truly capitalize on those opportunities?

So, first of all, thank you and a nice, uh, Nice talking to you today. I'm speaking out of a hotel room, by the way, today. I have a new granddaughter, and we're in Pasadena visiting. So it's been sort of a long week. You know, it's a good question. I think that we obviously have a lot of work to do to bring these technologies to bear in all of these different places. And so we're working... We're working in small ways. Every single product that we have has sort of under the covers elements of neural nets and this sort of technology embedded within it at this point, much more so than you might realize. And then we're also working on sort of generalized tools that customers can use on their own to be applying this sort of technology in their own work. And as we go, I think we're going to keep learning and, you know, together with customers, quite frankly, and finding more and more applications where we can, you know, just accelerate the work that we're doing. I'm not sure I'm answering your question, but that is the answer the way I think about it.

No, that's helpful. And at least the components seem to be there. I guess let's turn to the sales force because, obviously, you've had a great quarter. You saw some deals come in early. But you and I have talked about restructuring efforts around sales to drive efficiencies in the past. I'd love to understand sort of what process you put in place, how have those efforts progressed because they seem to have sort of spiked and done well, spiked in a positive fashion. But then you've also commented, I think, Matt did, in terms of hiring and increasing capacity. So how do you think about sort of the restructuring efforts, how has capacity played out, and sort of what does the hiring plan look like? Thank you.

Sure. So, you know, what we're doing is we're organizing, first of all, a huge amount of training has gone on with our sales organization. Lots of new methodologies have been brought in and brought across the team over the last two years. We've also brought more tools in that sort of help us to mechanize and just be more process-centric. And all that is starting to pay dividends. At the same time, we're doing a better job of sort of dividing and conquering the market space. So the direct sales force has much more clarity around which accounts we're going after, where we see growth opportunities, and they're typically the larger enterprise-type accounts. We have a lot of focus on the indirect channels, and that's really starting to come together for us. And then we have a lot of mechanization between our marketing and all the marketing activities that we're doing for lead generation, moving that through the pipeline, a lot of inside sales activity that we've rolled out across the world, So, I mean, I think you're beginning to see the results of all that mechanization and sort of creating this one lane that everybody knows to operate in.

Yeah, I know. That's very helpful. Thanks, Jim. Congrats again, and I'll talk to you soon. Thank you, guys. Thank you.

Appreciate it.

Thank you. Our next question comes from Jackson Adair with J.P. Morgan. Your line is open.

Great. Thanks for taking my questions, guys. Jim, really nice to – well, first of all, congratulations on the new granddaughter. I should start off saying that. Thank you. It's number five, by the way. Wow. Excellent.

Growing family. I'm going for a record.

Yep. Okay, so deep dive on the Polywog products. That was great. You know, I don't think we'd really – um, dug into those in a while, maybe even since you guys acquired them a couple of years ago. Um, but the question is how easy is it to kind of sell across products into the semiconductor space? You know, if you're, if you're selling something like the, you know, like politics that might be a little bit more like EDA, is it a completely different buyer or user who you're trying to then sell your electromagnetic solvers into?

Hmm. It is, for sure. It's different groups, different departments, and these are departments that we've been sort of, you know, walking the halls, making our way across to. You know, we first got into all the electromagnetics, just sort of one layer outside of what we did historically, and we've been doing that for about seven years now, and we have pretty significant success. coming into the groups that are designing all the printed circuit boards and the electronic systems is, in fact, new departments and customers that we have quite a bit of credibility inside of. I mean, when we go to one of the guys that we've been working with a long time, they tend to trust us, and so the introductions are getting made. And I have to be honest, I wasn't sure how the customers would respond to to what we're bringing in, but the response has been quite positive. And it's not, you know, the reality when you get into these departments is a lot of, there's just a whole, that's why I laid it out a little bit. You know, they're not just doing the printed circuit board, but there's the packaging, there's thermal, there's CFD, there's, you know, there's the electromagnetics, there's the system modeling, the system of systems. and the embedded stuff. And I think they've been quite surprised at the breadth and depth of our offering. And so we're getting a good response there. So I'm really optimistic. And it's a whole additional set of customers within our existing accounts.

Yes, that's great. That's really helpful, Collar. Matt, for just a modeling question, how much was actually pulled forward? You said some deals came in one queue that you weren't expecting. Yeah, thanks, Jack, for your question. First of all, we were super happy with the way that this quarter worked out for us. Seeing us come in high above the high end of the range was nice to see. And, you know, again, records on revenue and profitability fronts. In terms of amounts that we saw closed in Q1 that, you know, originally we're thinking was in Q2, it's in that few million dollar range. It's not the entire amount by any stretch. So we saw a nice healthy upside in Q1 above and beyond what was pulled in. And one thing I would add too is, you know, it's an encouraging thing when we see some of those deals closing early because, you know, it really speaks to the health of the pipeline there. So, you know, we were happy to see that as well.

Yeah. Okay. All right. Thank you.

Thank you. Our next question comes from Ken Wong with Guggenheim. Your line is open. Ken Wong, your line is open.

Sorry about that. Mute got me. Jim, I just wanted to check in on just some of the drivers of growth. It sounds like a fairly broad base, but perhaps if we dive in a little, just wondering what new activity looked like versus expansion. What were you seeing on retention trends? Any color there, kind of deal sizes or those ticking up relative to internal expectations would be helpful.

Sure. Sure. So retention, you know, last year retention, you know, there was a little more attrition last year than we're used to. This year, very, very little attrition, actually. It's just very clear this is a much more robust year, even, you know, as good as we've ever seen. So very, very strong on the retention side this year. And we weren't sure if that was going to be the case, but, in fact, it does appear that way. It is very broad-based. It's coming across, you know, all the verticals are actually very healthy in this year. All regions are growing very healthily as well. What was your last question? I forgot what you were asking me at the end there.

And then I guess just in terms of just new business activity, are you finding that that top of funnel is kind of tracking the plan? Is it maybe coming in a little better with opening up? We just love a sense of kind of what the net new run rate is starting to look like.

Yeah, I mean, the macro picture I think this year is generally very, very positive, as I said in my prepared remarks. You know, there's still, you know, look at what's happening in India. That's a bit crazy. You do have this chip shortage that is happening in, you know, in the market, and it affects a number of our customers. But thus far, that does not seem to be having any – neither one of those seems to be having much impact for us. So, in general, pipelines are very healthy, and – you know, we feel very positive about this year.

Got it. Super helpful. And then, Matt, for you, just a bit of a follow-up on what Jackson was asking, but maybe looking at it from a full-year basis, just wanted to make sure I heard you correctly. It sounds like for this quarter you had a $5 million tailwind, and is it for the full year? It sounds like it's potentially reversing to be a $5 million headwind here. One, I want to clarify that, and then in terms of just how we think about the guidance upwards, it sounds like a few million beat, a few million pull forward in the quarter, but kind of net-net if we factor in all the FX stuff, it feels like it's still kind of a mid-single-digit raise. Is that the rough math that I should be thinking?

Yeah, not quite. So the FX picture is understandably confusing, but the 5 million... tailwind that we realized in Q1 of this year is relative to last year, not relative to the guide, right? So you have to separate those two concepts. The $5 million full year FX headwind is relative to prior quarter's guide of full year, right? So does that make sense?

Yes, it does.

Okay, perfect. So in terms of the full year guide, yeah, we're feeling really, really good about the year. And, you know, we took full year revenue guide up by $2 million. That is inclusive of that $5 million headwind. And so, you know, sort of when I think about our guidance relative to the full year guide that we gave last quarter, we're up $7 million when you exclude that FX difference. so yeah we continue to feel good about Q2 through Q4 we're excited about the opportunities that we have and pipeline looks good and healthy and as Jim just mentioned a moment ago the macro economic trends seem to be holding of course we've got our eye on the types of things that are happening in India and elsewhere but generally feel really good about the year.

Got it. And a quick clarification on that. On first quarter, I guess, was there any meaningful headwind, tailwind relative to what you guys were thinking from an FX perspective at the start of the quarter?

No. Yeah. So important clarification there. Not a meaningful FX impact. So When we think about the overperformance in Q1 relative to the guide that we gave in Q1, there's that couple few million dollars that we originally thought was going to close in Q2 that ultimately closed in Q1. Everything else is just true upside to the quarter and no meaningful FX impact relative to the guide. So just a really solid quarter where we're hitting on all cylinders. Great.

Thanks for the clarification.

Thank you. Our next question comes from Galmundo with Bamberg. Your line is open.

Hi. Thank you for taking my questions, and congrats on the results. The first one is just a little bit of clarification of the guidance. Obviously, especially on the software side, I'm thinking if I think about the outperformance that you delivered in Q1, balancing that with a little bit of a worsening FX outlook for the rest of the year and a few million of pull forward, there's still a big chunk kind of left out there based on what you raised. Is that just kind of feeling a little bit more conservative, especially because, as Jim mentioned, we're still in a very uncertain environment and we don't know how it's going to be like or any other factors that I'm not aware of that potentially makes you a little bit more cautious for the rest

No. So we can make sure that the math is coming across clearly. But, you know, our outlook for the rest of the year is still very positive. And when we take in, you know, there's a lot of different factors that you just mentioned there, but you can sort of sum them up like this. You know, FX neutral is, you know, you get to a $7 million increase relative to the prior guide. We came in over the top end of the guide on revenue by about $10 million, so you're left with, you know, three, and essentially that's kind of what I signaled at the pull-in. So we basically have a situation where we're guiding up based on the overperformance in Q1, and we're still really feeling very good about the rest of the year. So I think the math works out pretty well.

But, Gal, just to add, I think you did sum it up correctly that that balance is just a little bit of conservatism, you know, around some of the things that are happening and some of the uncertainty. So, you know, for the most part, I think what Matt's saying is, you know, we went up by more than two because of the FX piece, but we didn't go all the way to the 10. And there's a little bit of conservatism there.

Gotcha. That's really helpful. And then just as a follow-up, Jim, last year, Pretty much at the same time last year, you talked a little bit about end market weakness, the fact that people are still focused a lot on the old programs and the kind of old tech that they're working on. Today, it was a market difference the way you talked about all the new use cases. I'm wondering this acceleration in growth, how much of it has to do with the fact that there's activity happening, R&D activity on the new stuff like electric vehicles and things like that, and that really has helped you increase the usage and is now generating that growth that you're seeing versus kind of just doing more of the same what happened over the last decade or so?

Yeah, no, I mean, I think there's a lot of activity happening in the, in the R and D world in general, I mean, we're coming off of COVID obviously and, and sort of a weird year, but in general, um, you know, all the customers are hiring, uh, people are, are designing much more complex, you know, connected devices, um, lots of activity in the automotive industry because it's so competitive, lots of activities. There's, lots of new aircraft companies. I don't know if you've been paying attention, you know, there's a lot of really interesting. Yeah. I mean, it's, it's, uh, it's a fun time and, uh, you know, I think we have the right tools for the right moment. Um, I, I did want to, you know, my prepared remarks went a little deeper into the electronics offering because I, I think that sometimes, uh, you know, uh, the community may not recognize that we've been investing for almost 10 years to build, you know, basically the sentence solution portfolio. We're not doing integrated circuit design, um, but we are very focused on, you know, these electronic systems and, uh, that that's just a perfect fit with everything that we do as, as an organization. It's sort of that next layer out and, and, uh, the breadth of the offering that we have and we've poured investment into it in the last three years especially, you know, we feel great about. That's really helpful.

Thank you so much and congrats again. Thank you.

Our next question comes from Matt Hedberg with RBC Capital Markets. Your line is open.

Yeah, hi, it's Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. Jim, you just, you just, mentioned chip shortages in the Q&A here, not much impact. And then maybe to connect that with the last question, you know, you've also talked about headwinds in the automotive industry for most of last year. Recently in the news here, we're hearing stories about automotive makers seeing some disruption due to trouble sourcing chips. I guess the question is, you know, are you seeing that at all with automotive customers? Does it even impact you? Or is that just part of the headwinds you're seeing in that sector overall?

So we are actually not seeing headwinds related to that. I will be honest that I have some concerns. You know, how would that affect us? But, you know, I've done a lot of pulse checking, and it doesn't seem to be affecting us at all. So it is certainly affecting our customers. But from what we see, it's just not having an impact on the design process. design side of things.

Great. Very helpful. And then maybe a question on return to work and what you're seeing. You touched on that, the prepared remarks. You've kind of talked to a hybrid work model for yourself. Just curious what you're hearing from customers on the topic. It sounds like you're expecting some increased travel here based on the prepared remarks.

I think we're going to see a little bit of increased travel. It depends region by region. Some of the APAC regions rely even more heavily than other regions on sort of face-to-face contact, a little more in certain other markets like Germany. I'm not seeing huge international travel coming back this year. I think it will start to come back next year. mainly because there's such a difference in terms of where Israel is completely vaccinated. The U.S. has been doing really well, but starting to slow down. And other markets, it's very, very hard to get a vaccine at this point. India is just really in dire straits. So I don't see a lot of international travel. I think that... You know, you're seeing like in banking where Jamie Dimon is saying everyone's going to come back to the office. You know, it's a little bit old school. I think that most of the automotive companies or aerospace companies, I think, are going to have some level of hybrid for their engineering. They'll come back a lot more. Certain activities have to be done, you know, on site, I think, eventually again. But I think it's going to be relatively hybrid. not a big impact for us, if anything. It just pushes more and more to the virtual world, which is good for us.

Great. Thank you.

Yep.

Thank you. Our next question comes from Brian Essek with Goldman Sachs. Your line is open.

Great. Thank you for taking the question, and congratulations on the results. Great quarter. Jim, maybe for you, I mean, the sales motion that you walk through in a previous question seemed very familiar where you're penetrating a division or you're penetrating a business unit. And the question I have is, you know, as you improve your channel presence, do you see or do you anticipate seeing that sales penetration point changing where maybe you can come in at a different level, maybe the C level or slightly below that where you saw the vision of the Altair platform and more efficient consumption across the platform. Just wondering if that might really accelerate sales efficiency on that front.

We do need to sell at higher levels, and we are selling at higher levels for sure than we used to. And I'm sure you've heard this before. You have to sell top-down and bottom-up to be successful. I think just going top-down, a lot of companies are very top-down sellers. But if the products aren't really, you know, performing, if you will, eventually the rank and file are going to throw it out or it's just going to sit on the shelf and not get used. So, you know, we historically, if you go way back, we're very much, you know, bottom-up sellers. Through the years we've been getting better and better at selling at more senior levels, and I think we're getting more and more proficient at it now, yes.

Got it. And then maybe for Matt to beat you over the head with the guidance again, on the profitability side, so you beat EBITDA by, I think, over $10 million. You're raising the full-year guy by about $1 million. But you also talked about, you know, investment initiatives. So, you know, maybe if you could point us in the direction of where you might be investing, how much you might be reinvesting, and, you know, how much cushion might be in that number given that, you know, obviously you can control where you spend more than, you know, perhaps you can control what your customers buy. So maybe a little bit more certainty there.

Yeah, I mean, so when we think about the profitability and how that played out in Q1, obviously super happy with the result. Much of that... you know, the overachieve in the form of revenue makes its way down to EBITDA. Um, and the, you know, our expense expectations were, um, slightly better than expected, um, based on just the speed with which we moved through these, uh, the restructuring activities that we began, um, about midway through the quarter. So real happy about the results there. Um, And really the way that we're thinking about it is we're now looking at raising the full-year revenue guide by $2 million, raising the full-year EBITDA guide by $1 million. And what that really means is sort of the outlook from an expense picture has not changed much based on our prior guide. There's some, you know, timely movement between reinvestments and the restructuring activities that we're undertaking. But big picture, we're really just saying, you know, we had roughly 12.3% adjusted EBITDA margin at the midpoint in our last guide. We're taking that up now to 12.4% at the midpoint. So, in other words, not seeing a big change in the form of our expense picture versus what we had guided to last quarter.

Got it. That's helpful. Thank you very much.

Thank you. As a reminder, if you would like to ask a question, press the star, then the one key on your touchtone telephone. Our next question comes from Mark Chappelle with Benchmark. Your line is open.

Hi. Thank you for taking my questions, and congratulations on the quarter. And Jim, congratulations on your new granddaughter. So, Jim, question for you. It was good to hear the positive commentary around SimSolid in your prepared remarks. And, you know, the idea of introducing engineering simulation in the upfront design process has been something that's been talked about for decades now but rarely has been followed through with. It sounds like that's changing. And, you know, according to your comments, it sounds like SimSolid is a good part of that change. I was wondering if you'd just talk a little bit more about what you're seeing with organizations, product development organizations, embrace upfront design. Are you seeing it more in certain industries than others? And, well, look, I'll just let you talk about that.

Okay. Thanks for the thing, for the congratulations all the way around. Yeah, so you are right. So you've obviously been around this industry for, because people have talked about simulation up front for a long time and people have tried to do it for a long time. I think there's a great desire for simulation to be part of the design groups, and I think some solid is actually kind of a catalyst because you don't have to do all this complex modeling anymore. In order to do this work, it handles the assemblies amazingly. And it's very accurate and it's just blazing fast. But it's not just fast because there's other things that do things fast, but, you know, you get chunky results. Here you're getting, you know, very, very accurate results. And so it's sort of transformative. And we have a lot of large customer organizations who are, intending to really roll this across their design teams in a way that I've not seen before. So this is part of why I decided to, you know, put that in my talk track today. I think we are beginning to see, you know, a movement, if you will, coming. So it's exciting.

Great. Thank you. That's all for me.

Yep. Thank you.

Thank you, and there's no other questions in the queue. I'd like to turn the call back to Jim Scapa for any closing remarks. That's all the questions we have. I'd like to turn the call back to Jim Scapa for closing remarks.

Okay, well, thanks, everybody, for joining the call. Really, really appreciate it and look forward to seeing you all soon.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.