Altair Engineering Inc.

Good day and thank you for standing by. Welcome to Altair's second quarter 2023 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 the session, you'll need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Dave Simon, Senior Vice President for Investor Relations. Please go ahead.

Good afternoon, welcome, and thank you for attending Altair's earnings call for the second quarter of 2023 and the June 30th, 2023. I'm Dave Simon, Altair's SVP for Investor Relations. 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 second quarter 2023 performance and guidance for the third quarter and full year 2023, which can be accessed in 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 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 a solid second quarter of 2023 with software product revenue, total revenue, and adjusted EBITDA all above the high end of our guidance. Our Q2 performance aligns well with our guidance for the full year and demonstrates our continued success and strength as a company. Adjusted EBITDA for Q2 2023 grew year-over-year to $17.1 million. Software product revenue as a percentage of total revenue for the second quarter continued a strong positive trend at 88.8% compared to 88.1% in the second quarter of 2022. Software product revenue as a percentage of total revenue for the first half of 2023 increased to 89.5% as compared to 88.2% in the first half of 2022. The recurring software license rate for the first half of 2023 was 94%, an increase from 93% in the first half of 2022. Total billings for Q2 23 was $147.8 million, a year-over-year increase of 17.8% in reported currency and 19.6% in constant currency. Software product revenue on a constant currency basis grew by 9.4% in the second quarter versus a year ago and 9.7% for the first six months of 2023 compared to 2022. We saw strength in the quarter in our renewal space with customers choosing to renew and expand their usage of Altair units. This growth was across many products and especially in the aerospace, defense, technology, and automotive verticals. We believe our second quarter performance positions the company well for the rest of 2023 and for next year. Altera's portfolio for software for engineering simulation continues to demonstrate leadership and innovation. Many new and significant products are in the last stages of development and plan for release at the beginning of Q4 23. And we are excited about their potential impact in the market. We continue to integrate AI within our simulation products, especially within our solvers. Last week, Alta acquired an exciting MBSE requirements management solution called OmniV, developed by two former General Motors executives. The advantage of OmniV is it is easy to learn and use and naturally connects requirements to simulation and test validation solutions to achieve program goals. OmniV is more accessible for product engineers designers, and developers to use, whereas other MBSE solutions are more abstract and geared for system engineers. OmniV covers both process development and requirements connectivity in one vendor-agnostic solution. It connects to PLM solutions, including Teamcenter, Inovia, and Windchill, and to other MBSE tools, including Cameo, IBM Doors NG, and JAMA software, making OmniV easy to integrate into any engineering enterprise environment. This technology enhances our ability to support the fast-growing use of digital twin solutions, simulation and test data management, and AI with an open architecture that provides a traceable ecosystem to track performance, cost, and mass of a product. We believe the addition of OmniV to our already powerful offering helps to position Altair as having the most comprehensive digital twin solution in the market. OmniV will be available via Altair Units integrated into Altair's digital twin solution set and accessible via Altair One, Altair's cloud innovation gateway. This year, we are focusing on more enterprise selling and engaging at higher levels with our most important customers to build long-term relationships and increase scope and scale in these accounts for the future. The aerospace vertical had some notable wins for Altair in the quarter. A space exploration company increased its software licensing commitment by more than 50%, resulting in a seven-figure annual licensing agreement. Applications range across several physics disciplines, while deriving tremendous value from Altair units, which gives broad access to our deepest simulation technologies, as well as our entire software portfolio, including data analytics and AI solutions. In addition, we are engaged with the same company in a variety of leading-edge consulting projects to push forward new product development opportunities with simulation-driven design. In another aerospace win, a major aircraft component supplier has committed to a 44% increase over a seven-figure multi-year software licensing deal. This account is especially meaningful as it is at the forefront of using simulation in lieu of physical testing for certification, which is both a major challenge and opportunity in commercial aircraft development. In the area of data analytics and AI for business applications, a new BFSI customer signed on to a six-figure annual software license related to loan servicing within two months of its exposure to the Altair suite of tools. A major European city has committed to Altair SLC as its solution for analyzing demographic data with a goal of improving social services. And a large U.S. manufacturer of building products signed a multi-year, six-figure annual software license for its accounting and finance teams to expand usage from data preparation to wide applications available in the Altair RapidMiner platform under Altair Units. We see great momentum in the convergence of simulation with AI. A major automotive manufacturer in APAC has licensed additional Altair units specifically for using data science to design antennas. Altair has for many years been a leader in simulation software for antenna development, and we have significant domain expertise in correlating test data with simulation results for more robust design guidance. Using Altair RapidMiner, we helped this manufacturer reduce a test data analysis process from two weeks down to just a few minutes and use data science to drive rapid design exploration and optimization. We continue to encourage diversity and inclusion to support the next generation of engineers and scientists. Last quarter, we announced a STEM education scholarship program with Columbia University. We are pleased to have recently added the University of Michigan-Dearborn to our Altair Only Forward Scholarship Program. These scholarships focus on supporting underrepresented minorities and women, which is especially meaningful as we seek to play a role in developing outstanding and diverse talent. These scholarships will support students with a demonstrated interest in increasing diversity in STEM fields. Each recipient must be a full-time student pursuing a four-year degree in engineering or computer science and a member of one of the following organizations, National Society of Black Engineers, Society of Hispanic Professional Engineers, or Society of Women Engineers. Scholarship recipients will be chosen by a committee of faculty and leadership in the College of Engineering and Computer Science this fall, with nine recipients each receiving $25,000. Altra was named for the third consecutive year to Newsweek's Most Loved Workplaces list as one of the top 100 companies measured by employee happiness and satisfaction at work. Credit for this string of awards goes to our global management teams, who are outstanding stewards of Altair's foundational values. We have worked hard since our founding in 1985 to create and maintain a workplace where employees can thrive in a supportive, inclusive environment. Our ability to maintain these values over 38 years of major shifts in technologies, geopolitics, and how we work is key to Altair's success. Altair was also named as one of the 2023 Fortune Best Workplaces for Millennials. This award acknowledges companies that excel at providing younger employees with a sense of purpose in the workplace. These workplace awards, combined with our STEM education commitments and strong global internship programs, are great indicators of our focus on talent development and sustainable work-life balance. Additionally, Altair was named the overall leader in the manufacturing data analytics sector in the latest report by global technology intelligence firm ABI Research for advanced data collection, normalization, and analytics capabilities. The report evaluated 10 data analytics vendors that enable industrial and manufacturing firms to proactively monitor their equipment and optimize their operations with the use of data analytics. ABI research determined rankings by evaluating capabilities for data collection, streaming analytics, data normalization, core analytics, user experience, commercial success, and time to value. The report emphasizes Altair's platform versatility and depth and made note of our huge array of modeling techniques and wide variety of options to display and share IoT sensor data. With our deep expertise and understanding of manufacturing complexities and machine learning, we have developed solutions to easily build analytical applications with our low-code platform to support faster, more effective decision-making. Earlier this week, the winners of the 2023 Altair Enlighten Award were announced. Presented in association with the Center for Automotive Research, the Enlighten Award program showcases how the automotive industry's leading minds are applying advanced technologies and responsible AI to create a better, greener industry. Congratulations to the winners of the 11th Annual Enlighten Awards, Polestar, Nikola, ArcelorMittal, Volterres, Toyota, BASF, U.S. Farathane, Audient, Multimatic, and Morelli. 2023 is an important year of complex transitions for Altair in the midst of a lackluster macroeconomic environment hampered by inflation and uncertainty to set ourselves up for very strong growth in 2024 and 2025. We are managing expenses aggressively to achieve a 20% adjusted EBITDA margin this year and to position the company for continued adjusted EBITDA increases for the next three to five years, shifting our organization to focus more on selling our entire portfolio in key vertical markets and customers, completing the software development of several strategic and significant initiatives, and establishing partnerships with key system integrators and hyperscalers to elevate our position and grow our share of wallet across key accounts. As we take stock of where we are at the halfway point in the year, we are very satisfied we have been extremely successful in every one of these endeavors, all while we continue to meet the quantitative financial objectives we established for 2023. As a result, we feel the company is going to be well positioned to take significant advantage of the strong demand we anticipate beginning in 2024. Now I will turn the call over to Matt to provide more details on our financial performance and our guidance for the third quarter and full year of 2023. Matt?