Altair Engineering Inc.

Hello, thank you for standing by and welcome to the Altair Engineering Inc. first quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you'll 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 now like to hand the conference over to your speaker today, Dave Simon, Chief Administrative Officer, please go ahead.

Good afternoon. Welcome and thank you for attending Altair's earnings conference call for the first quarter of 2022 and March 31, 2022. 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 closed today, we issued a press release with details regarding our first quarter performance and guidance for the second quarter and full year 2022, 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 soon. 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 earlier today. For 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. Today I will discuss our results for the first quarter of 2022, the recent acquisitions and integrations of PowerSim and world programming, the release of our Simulation 22 software suite, some customer stories, and our outlook for the remainder of the year. Altair had a very strong first quarter of 2022, with all of our key metrics coming in above guidance ranges. We began this year focused on our mission to deliver high-value products and expertise to help our customers increase efficiency and competitiveness by driving smarter decisions with computational science and artificial intelligence. Despite macroeconomic challenges, including lockdowns in China, the war in Eastern Europe, supply chain disruptions, and inflation, our business momentum continues to be robust globally and across industry verticals. Total billings for the first quarter of 2022 were 171.3 million, an increase of 17.5% compared to Q1 2021, driven primarily by strong new and expansion software opportunities and high retention on our software renewal base. We saw growth in all 3G graphic regions and particular strength in the technology and banking financial service and insurance verticals. The growing success we experienced with our data analytics products in the second half of 2021 continued in the first quarter of 2022 with notable wins in that space. We are pleased to report Q1 results with total revenue of $159.8 million. Software product revenue for the quarter was $140.9 million versus $129.5 million in Q1 of 2021, reflecting year-on-year growth of 8.8 percent or 11.5 percent in constant currency. Adjusted EBITDA for Q1 2022 was $46.6 million compared to $37 million in Q1 of 2021, an increase of nearly 26% from the first quarter of 2021. Software product revenue was 88.2% of total revenue for the first quarter compared to 86.3% in the prior year period. Our recurring software license rate remains high at 93% for the first quarter of 2022 as compared to 92% for the full year of 2021. While we saw strong software product revenue growth in the quarter and over 80% of this incremental revenue converted to incremental EBITDA, the balance of the business saw an overall aggregate revenue decline of approximately $1.7 million as compared to the prior year period. In March, Altair acquired PowerSim, a market-leading provider of simulation and design tools for power electronics, including power supplies, motor drives, control systems, and microgrids. This acquisition expands Altair's electronic system design technology into the domain of power electronics. PowerSim has a leading solution proven to reduce development costs and time to market for thousands of customers around the globe, including major companies in the automotive, aerospace, consumer electronics, and industrial application sectors. The addition of PowerSIM's technologies and experienced technical team with deep domain knowledge in power electronics rounds out Altair's offerings for electric motor design and many other applications. We are rapidly integrating PowerSense software into Altair's electronic systems design suite for motor and controller design, device system and circuit level simulations, embedded code generation, and combined cooling and thermal analysis. Consistent with the tremendous value we offer customers under Altair Units, PowerSim is available under unit-based licensing subscriptions at no incremental cost. Last December, Alta acquired World Programming, a UK-based technology company founded 20 years ago specializing in data analytics software. World Programming's flagship product allows programmers to develop and execute software solutions in multi-language coding environments. including Python, R, SQL, and most notably, the SAS language. Their technology and products are being integrated into Altair's data science solutions and made available under Altair Units. The SAS coding language was developed and implemented in the early 1970s. Over the last 40 years, many large enterprises, have used the SAS language to develop data processing, statistical analysis, and data analysis programs, which run critical back office functions, often on mainframe computers. Many organizations and individual programmers have been using it for decades and are comfortable and extremely proficient in it. While compilers and interpreters for most languages are widely available on many platforms, SAS Language Compile and Interpret was only available for many years from the SAS Institute. Today, we believe world programming SAS language compiling technology is extremely competitive from a performance and completeness perspective, as over 500 customers including many large-scale global enterprises, employ it and push its development. We see the acquisition of world programming bring a substantial opportunity for Altair. However, the acquisition came with a significant challenge. An injunction existed against selling world programming products in the United States, the largest market for data analytics globally. In addition, many multinational customers expect to implement enterprise applications globally, including the United States, which made selecting world programming solutions a challenge. On March 3, 2022, a federal judge in North Carolina ruled to lift the injunction and close the case against world programming. Altair is now free to sell world programming products everywhere, including the United States. World programming's technology exemplifies our dedication to an open architecture philosophy as the best way for people to harness innovation, improve products, and get the most from their work. We believe this acquisition will have an immediate, profound impact on the way organizations think about their data science and coding operations. In fact, customers and implementation partners are already telling us it will be a game changer, allowing them the power, flexibility, and autonomy to determine their best approach and maximize every coding language they use and on which platforms on their own terms. With world programming, customers can address evolving organizational requirements and embrace modern computing, including cloud and open source concepts, while simultaneously leveraging the decades of investment they've put into the SAS language. Altair's research and development investments remain a core source of our success. A recent release of Simulation 2022 includes next-generation connectivity, architecture, engineering, and construction, as well as circuit board and electronic design capabilities. This latest release also includes a myriad of updates to Altair's traditional solutions with many new features and capabilities that broaden, strengthen, and further specialize Altair's comprehensive simulation toolkit. Simulation 2022 includes a host of updates that bolster outdoor system modeling, finite element analysis, and manufacturing solutions, including an exciting new solver for binder jet centering simulation for additive manufacturing. Simulation 2022 also includes connectivity update features that help users simulate antennas with exceptional accuracy, get results and solve bigger problems faster, and broaden the user's toolset for ADAS applications. This release also includes many updates for architectural engineering, including support for several new international construction standards. we have added more capabilities for circuit board and electronic design that enhance users' abilities to design and implement smart components, products and systems, including expanded features for design verification, signal integrity, and printed circuit board modeling functionalities. In our simulation 2020 release, Altair introduced the Design Explorer module to provide users with seamless, easy-to-use design ideation and exploration tools integrated into our finite element modeling environment. Design Explorer workflows deliver interactive insights with multi-run simulation setup, execution, design of experiments, optimization, and interpretation. It also leverages artificial intelligence as exploration generated data is trained using advanced machine learning techniques, providing AI predictive capabilities with near real-time performance. With the release of Altair Simulation 2022, the Design Explorer workflow is available in Inspire, allowing design engineers to parameterize geometry, and leverage the extreme performance and efficiency of SimSolid. In summary, Altair Simulation 2022 represents an outstanding new level of functionality and performance to help our customers leverage the power of computational science and artificial intelligence. The significant increase in capabilities is directly related to several great first quarter wins for our simulation technologies. In EMEA, we had two aerospace wins representing 60% revenue increases through multidisciplinary tools, including some solid 3D printing, electronic systems design, and topology optimization. a major APAC automotive manufacturer committed to an expansion related to a multidisciplinary optimization in computational fluid dynamics. And a building equipment supplier in EMEA selected Altair to be its solution across many disciplines, including electric motor development and structures. The convergence of simulation and AI continues to flourish. We recently published a case study from BMW describing how it is emulating engineering expertise for automotive crashworthiness optimization through AI-enhanced surrogate modeling. The company is using Altair's machine learning solutions to help target specific crash kinematics during structural optimization. This new ML-powered workflow augments and extends BMW's existing engineering expertise, allowing it to more efficiently allocate computing and human resources to high-value simulation, analysis, and validation efforts. Finally, our momentum in the banking and financial services sector continues. We closed a significant data analytics deal to bring on one of the 10 largest banks in the U.S. as an Altair Units customer, and look forward to helping them fully leverage the power of data throughout their organization. And we closed a five-year, eight-figure licensing deal, our largest data analytics and AI deal ever, with a global financial services company for applications across our product portfolio, including technology from our recent world programming acquisition. The opportunities in front of us are exciting, and we have many reasons to be optimistic amidst worldwide geopolitical and economic concerns. We are confident in our ability to do well despite the headwinds of economic uncertainty, especially given the exceptional value and combined strength of our culture, technology offerings, and business model. We take deliberately our responsibilities as good global citizens. Our recently updated sustainability report includes discussion of our efforts around inclusion, community involvement, and academic programs which empower students to become the forward thinkers and innovators who will help build a more sustainable world. 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 full year of 2022. Matt?