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spk16: Good day and thank you for standing by. Welcome to the Altair Engineering Inc. Q1 2024 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 the question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that 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 would now like to hand the conference over to your speaker, Stephen Palmtag, Head of Investor Relations. Please go ahead.
spk14: Good afternoon. Welcome, and thank you for attending Altair's Earnings Conference Call for the first quarter of 2024, ended March 31st. I'm Stephen Palmtag, Altair's Head of 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 first quarter 2024 performance and guidance for the second quarter and full year 2024, 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 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 those 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.
spk19: Jim? Thank you, Stephen, and welcome everyone on the call. In the first quarter of 2024, Altair continued its positive momentum with total quarterly revenue of 172.9 million, software revenue of 158.4 million, and adjusted EBITDA of 45.8 million, all exceeding the high end of our guidance range for the first quarter. Altair's Q1 results continue to demonstrate the strength of our software product portfolio and bringing computational intelligence to our customers. Software revenue on a constant currency basis grew by 6.9% in the first quarter on a year-over-year basis. Software revenue as a percentage of total revenue for the first quarter grew to 91.6% compared to 90.1% in the first quarter of 2023. Altair continues to grow with success in multiple industry verticals across global geographies and a broad portfolio of technologies. Adjusted EBITDA for Q1 2024 increased by 6.4% year-over-year to $45.8 million, or 26.5% of revenue, compared to 25.9% in Q1 of 2023. In our banking, financial services, and insurance vertical, a multinational customer specializing in payment card services signed a seven-figure commitment representing over 80% year-on-year expansion compared to 2023. This expansion was driven by Altair Monarch, our self-service data preparation solution within the Altair RapidMiner platform. Additionally, a major European accounting firm committed to utilizing Altair SLC, our SAS language compiler, which will focus on both mainframe and distributed environments. In the energy sector, we signed a deal with a new global customer that provides subsea and surface solutions. The commitment was driven by Altair SimSolid, evidencing our industry-leading structural simulation and the potential for meaningful expansion in our energy vertical. Additionally, a global leader in energy management and automation expanded its subscription renewal, driving an increase in revenue over 80% annually compared to 2023. The expansion was driven by Altair Pollux, a solution that seamlessly integrates with all major eCAD tools and accelerates the development of today's smart, connected, and tightly packaged electronic packaged products. The heavy equipment truck and rail vertical secured a seven-figure, three-year commitment from a global leader in power sports vehicles and propulsion systems. The deal expands our footprint to more departments across more applications, including structural design, kinematics, highly nonlinear events, and data analytics. The automotive vertical continued to highlight our best-in-class technology, In Q1, a European automotive OEM focused on the ultra-luxury segment signed a six-figure contract to use a broad range of our simulation, data analytics, and AI offerings. They will use Altair SimSolid and ROM AI for structural simulation, providing fast and precise whole-engine simulation, and leverage Altair RapidMiner for data mining and predictive modeling across their engineering and operations. At our investor day, we announced the upcoming release of Altair SimSolid for electronics, bringing game-changing, fast, easy, and precise multi-physics scenario exploration for electronics from chips, printed circuit boards, and integrated circuits to full system design. Since solid is already growing its presence rapidly across traditional manufacturing verticals, including automotive, aerospace, and heavy equipment, and is now poised to play significantly in the electronics market as the industry transforms from 2D designs to 3D systems and chiplets. The journey from computer-aided design to simulation has historically been strewn with the obstacles of mesh generation, a necessary but time-intensive step that delays insights and stretches project timelines. The solution's ECAD to simulation workflow will empower users to surpass conventional boundaries and seamlessly scale from meters to nanometers. This translates to faster time to results and the ability to solve even more complex multidisciplinary problems, empowering engineers to achieve superior design outcomes. The first release will support structural and thermal analysis for printed circuit boards and ICs with full wave electromagnetics analysis coming in a future release. As Altair SimSolid advances towards the inclusion of full wave electromagnetics, it showcases Altair's vision of a comprehensive, multidisciplinary simulation environment. This evolution not only sets a new standard against traditional mesh reliant systems, but it also promises a future where thermal, structural, and electromagnetic challenges are addressed within a unified meshless platform for rapid and precise design iterations. Our indirect sales channel continues to represent a significant percentage of our overall revenue and is a key priority going forward. This is evidenced by welcoming seven new channel partners to the Altair sales team in the first quarter. EDA Expert in France and Brand Engineering in Switzerland will offer the full suite of Altair's electronic design solutions. We will extend the reach of Altair's cutting-edge data analytics and AI portfolio through relational FS in Greece, Analytium in the United Kingdom and Ireland, Integral Solutions in Poland, Arias Info Communication in Hungary, and Analytical Information Management Solutions in Turkey. To further demonstrate our commitment to verticals, we hire two key leaders who will drive our efforts in healthcare and life sciences and the Federal Department of Defense, which is part of our aerospace and defense vertical. Both individuals bring decades of valuable experience that will further propel Altair's industry efforts and will bolster our focus on high-growth industry segments, helping us expand Altair's market share in segments where we have best-in-class technology, a strong track record of success, and a unique blend of talent. Within HLS, we also signed our first major pharmaceutical customer that will leverage Altair's data analytics and AI across its drug manufacturing sites. In April, we announced the acquisition of Cambridge Semantics, a modern data fabric technology company. We believe Cambridge Semantics brings the fastest and most scalable analytical graph database to organizations that have significant data volumes and deep questions. Knowledge graphs are key pieces of data fabrics and critical for successful generative AI applications as they provide the business context necessary to ground generative AI models, eliminate hallucinations, and dramatically improve response quality. Cambridge Symantec's technologies will be integrated into Altair RapidMiner, adding knowledge graph, data governance, data virtualization, and data discovery technology to the platform's existing data science and data analytics tools. Bringing together Cambridge Symantec's transformational knowledge graph technology with Altair's leading tools for data analytics and data science will offer our customers a solid foundation for building advanced analytics ecosystems, which inject AI into day-to-day business operations. This acquisition also adds deep data warehousing expertise to our already strong analytics and data science team, creating an enhanced core group of engineers that understand the entire data lifecycle, from creation to impact. Now moving from data science to rocket science, yesterday we announced the acquisition of Research in Flight, the maker of Flightstream, a computational fluid dynamics software with a large footprint in the aerospace and defense sector, and a growing presence in marine energy, turbo machinery, and automotive applications. Flightstream is a user-friendly yet powerful flow solver that bridges the gap between high-fidelity CFD simulations and the needs of engineers and designers. Its exceptionally fast computational speeds and low hardware footprint, coupled with a streamlined user interface and a robust aerodynamic solver, make it an invaluable tool for early stage rapid design iterations and in-depth aerodynamic studies for aerospace and defense applications. Flightstream is able to capture subsonic to supersonic flows, including compressible effects and a unique surface vorticity capability. It leverages the strengths of panel method flow solvers and enhances them with modern computational techniques to provide a solver that is fast and capable of handling complex aerodynamic phenomena. Altair's growth in the aerospace defense and surrounding industries has accelerated in recent years through our best-in-class computational intelligence solutions. The integration of Flightstream into our portfolio will enhance our offering with more specialized, modern, and efficient tools to meet the increasingly complex demands of customers in these industries, including the urban air mobility and eVTOL sectors. Flightstream is a United States Air Force network-approved software and is also used at NASA Ames and Langley Research Centers, as well as by the U.S. Army. It will be integrated into the Altair Hyperworks design and simulation platform and be available via Altair Units. Last month, we were honored to win the 2024 Google Cloud North America Partner of the Year Award for Diversity, Equity, and Inclusions. This award further demonstrates that Altair is a global leader and an organization where people always come first. Our numbers speak for themselves. More than 75 languages are spoken and more than 50 nationalities are represented within Altair's global workforce of over 3,000 employees. Women make up 43% of our executives and board of directors, both significantly higher than U.S. averages, and two standout employee resource groups, Women in Technology and the Altair Black Employee Resource Network, further educate and empower all Altair employees by hosting more than 30 events each year, focusing on personal growth, combating bias, and more. Q1 was a strong beginning to 2024, We are optimistic that Altair is well positioned to take advantage of a gradually improving macro environment and remain excited about our future growth. 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 2024. Matt?
spk11: Thank you, Jim. Hello to everyone on the call, and thank you for joining us. Before I get into the financial results for the quarter, I want to remind everyone we held an in-person Investor Day in Santa Clara on March 20th, where we showcased meaningful product updates, discussed our exciting market opportunity, and provided updated midterm financial targets. If you weren't able to attend, you can watch the replay at InvestorDay.Altair.com. Go check it out. Okay, jumping into our financial results for the quarter. We are very pleased with our strong start to the year. Computational intelligence continues to be a driving force in addressing our customers' most critical design, engineering, and business challenges. And I'm proud that Altair's products are being increasingly leveraged to solve those challenges. We've continued to execute with focus with record high first quarter total revenue of 172.9 million, record high software revenue of 158.4 million, and adjusted EBITDA of 45.8 million, all exceeding the high end of our guidance range. As a reminder, some of our revenues and expenses are transacted in currencies other than the US dollar, and therefore our reported results may be significantly impacted by changes in foreign currency exchange rates. To aid in the review of our results, throughout my remarks, I will reference growth rates in both reported and constant currency. For the first quarter, Calculated total billings were $154.1 million, a year-over-year decrease of 5.7% in reported currency and a decrease of 5.3% in constant currency. Software revenue in Q1 was $158.4 million, a year-over-year increase of 5.9% in reported currency and 6.9% in constant currency compared to Q1 2023. The year-over-year increase in software revenue was driven by high retention rates and new and expansion business, with particular strength in the aerospace and defense and automotive verticals. The increase in software revenue relative to expectations was partially due to some deals closing sooner than originally expected. Total revenue in Q1, which includes engineering services and other revenue, was $172.9 million, a year-over-year increase of 4.1% in reported currency and 5.1% in constant currency compared to Q1 2023. Non-GAAP gross margin, which excludes stock-based compensation was 83.3% in the first quarter compared to 81.9% in the prior year quarter, an increase of 140 basis points. The year-over-year increase in non-GAAP gross margin in Q1 was due to a combination of mixed shift towards software revenue, where gross margins are higher than our engineering services and other revenue margins, as well as an increase in our standalone software margins. Software revenue was 91.6% of total revenue in Q1, compared to 90.1% in the prior year. In the long run, we anticipate a continued gradual shift in the revenue mix towards software, as its growth surpasses that of engineering services and other revenue. Non-GAAP operating expenses, which exclude stock-based compensation and amortization of intangible assets, were $99.5 million, compared to $93.9 million in the year-ago period. Adjusted EBITDA in Q1 was $45.8 million, or 26.5% of total revenue, compared to $43.1 million or 25.9% in the prior year, an increase of 6.4%. This increase compared to the prior year quarter, as well as relative to our expectations, was driven by the increase in software revenue combined with a disciplined approach to spending. Turning to our balance sheet, we ended the quarter with $557.6 million in cash and cash equivalents, an increase of approximately $179.2 million from the prior year and $90.1 million from year end. Free cash flow was $70.7 million in Q1 compared to $57.5 million in the year-ago period, an increase of 23.0%. and demonstrates our ability to generate significant free cash flow. As a reminder, the remainder of our 2024 convertible notes mature on June 1, 2024, which we will settle with approximately $82 million in cash for the principal balance and the premium in shares, leaving us with a healthy cash balance of just under $500 million. Let's turn to guidance for Q2 and full year 2024. We've provided detailed guidance tables in our earnings press release, including reconciliations to comparable GAAP amounts. To provide clarity on the FX impacts to our expectations, we've provided growth rates in both reported currency and constant currency in our guidance tables. For Q2, we expect software revenue in the range of $131 to $134 million, a year-over-year increase of 4.5% to 6.9% in reported currency, and 6.7% to 9.2% in constant currency. As I mentioned, some deals in Q1 closed earlier, which has an offsetting impact on Q2 expectations. For full year 2024, we are maintaining our previous outlook in constant currency for software revenue. However, due to changes in foreign currency exchange rates over the past quarter, we are adjusting our full year outlook in reported currency to a range of $590 to $600 million, a year-over-year increase of 7.3% to 9.1% in reported currency and 8.3% to 10.1% in constant currency. We expect Q2 total revenue, which includes engineering services and other revenue, in the range of $145 to $148 million, a year-over-year increase of 2.7% to 4.8% in reported currency and 4.7% to 6.8% in constant currency. For full year 2024, we are also maintaining our previous outlook in constant currency for total revenue. However, again, due to changes in foreign currency exchange rates over the past quarter, we are adjusting our full year outlook in reported currency to a range of $652 to $662 million, a year-over-year increase of 6.4% to 8.0% in reported currency, and 7.5% to 9.1% in constant currency. For Q2, we expect adjusted EBITDA in the range of $15 to $18 million, or 10.3% to 12.2% of total revenue compared to 17.1 million or 12.1% of total revenue in Q2 2023. For the full year 2024, changes in foreign currency exchange rates have also impacted adjusted EBITDA. And therefore, we are adjusting our outlook to a range of 138 to 146 million. or 21.2% to 22.1% of total revenue compared to 129.1 million or 21.1% of total revenue in 2023. And finally, for the full year 2024, we expect free cash flow in the range of 124 to 132 million. which has also been impacted by changes in foreign currency exchange rates, and therefore has been adjusted in line with the change in our full-year adjusted EBITDA guidance. As a reminder, our cash flow expectations are sensitive to billings and collection patterns, which fluctuate seasonally. But we continue to be pleased with the high free cash flow as a percentage of adjusted EBITDA which sits at approximately 90% and has been steadily increasing over the past several years. We are happy to have exceeded our Q1 revenue and profitability goals, and our enthusiasm remains high for the opportunities that await us in the back half of the year. With that, we'd be happy to take your questions. Operator?
spk16: Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. And one moment for our first question, which is coming from Dylan Becker of William Blair. Your line is open. Hey, Jim.
spk03: Hey, Matt. Really nice start to the year here. I wonder, Jim, you had made some comments, but how you're thinking about kind of the business momentum progressing and how can a Q1 inform that revised outlook? I think you called out a gradually improving environment. Matt, you said there were some earlier deals pulled forward a bit, but just wondering if you could give additional color on kind of what you guys are seeing in the landscapes.
spk19: Sure. Hi, Dylan. I can take a shot and then Matt can add in. We are feeling like things are improving for us. We recognize that there are some layoffs and other things and the economy only grew 1.6%. Here was the recent announcement. But for us, we're continuing to see the pipeline grow and the verticals that we you know, that we set up last year, which took some time to get going, really are taking hold and beginning to generate lots and lots of new opportunities. Some of them have a little bit longer sales cycles, but it is really starting to look very promising into the future. Matt, anything you want to add there?
spk11: Yeah, I'm happy to. Hi, Dylan. Yeah, I would characterize this as just a very positive, almost sort of textbook Altair quarter where we overachieved. And we're looking forward now to the back half of the year and feel good about how the first half is shaping up. So we're pleased to just continue putting one foot in front of the other and feel pretty good about the year.
spk03: Okay, great. That's really helpful. Um, and then Jim as well to, um, maybe early, but the kind of receptive, uh, receptivity or kind of any early feedback you're seeing and hearing, uh, on SimSolid for the electronics opportunity there. I know there's still some competitive noise, but is that starting to drive any additional opportunities quite yet or still early? Maybe just kind of some, some enthusiasm or feedback you're seeing and hearing. Thanks.
spk19: I think it's just a little bit early right now. And, and, uh, We haven't actually released, I think that's in the next week or two, the first version with the structures and thermal. But I think it is going to be pretty interesting for customers. A lot of those customers are not familiar with us, and so they're going to have to start looking and testing. But I think it's going to knock people's socks off.
spk13: Great. Thanks, guys.
spk16: Yep. Thank you, and one moment for our next question. And our next question will be coming from Stephen Tusa of JPMorgan Chase and Company. Your line is open.
spk04: Hey, guys. Good afternoon.
spk00: Hey, Stephen.
spk04: So I'm just trying to reconcile the second quarter. It sits a little bit below where we had in our model, and I think consensus is there. Was there anything kind of pulled into this quarter that we should be aware of? Just trying to reconcile that with the constructive comments on the macro.
spk11: Sure. Yeah, Steve, I can take that one. So a little bit closed early in Q1, but there's a couple of other things going on as well. So currency does play a role. We had about $4 million of currency impact in the first half, so a combination of Q1, Q2. But on balance, when you look at sort of how we did in Q1 and midpoint of our guide for Q2, I think what you'll find is we are largely in line or slightly ahead of expectations when factoring in FX on the first half. So net-net feel real good about how the first half is shaping up and looking forward to second half.
spk04: And is that kind of normal seasonality in your view, like just the way the deal flow happens?
spk11: Well, yeah. So historically, we have seen Q2 and Q3 being our smallest quarters from a billings and revenue perspective. We expect that that's going to be the same this year as well, where even within the second half, we'll see acceleration into Q4. But, yeah, it's typical. It's as we were expecting for Q2. And, again, just happy with how the first half is shaping up.
spk16: Okay, great. Thanks a lot. And one moment for our next question. Our next question will come from Charles Shi of Needham & Company. Your line is open.
spk20: Hey, good afternoon, Jim, Matt. Congrats on the strong first quarter results, especially when I look at your largest competitor, which is reported. Good to see you guys continue on that year-on-year growth in the most recent quarter. I want to ask this question. I asked this question in the last quarter, but I want to ask again. your RPO, your current RPO number, which is in your 10K, kind of covers a little bit more than usual that the next three to four quarters of the revenues. Historically, your current RPO only covers like 20%-ish of the next 12-month revenue, but now it looks like it's resettling to a higher level, roughly 25%. Mind if you shed some light on this? Because there are two ways to interpret the result, right? One is maybe you are just being conservative about your revenue guidance or your bookings behavior a little bit changed to that. So you may be booking something that's a little bit shorter term. So which one is it? Please provide some color. Thanks.
spk11: Yeah. Hey, Charles. Thanks. I can speak to that. So it's a little bit of both. So obviously we're pleased with the amount of coverage that RPO is providing for us. But we're also focusing on ensuring that we're making the most of our sales capacity and being as efficient as possible, which means we are also signing some deals and contracts that have a longer duration, even though those deals may not necessarily be billed up front. They are commitments nonetheless, and then therefore go into backlog So there's a little bit of both going on there, but obviously we're pleased with the growth in RPO, and that's something that we're continuing to focus on, particularly as we get more and more efficient with our sales team.
spk20: Thanks. Maybe a follow-up. Maybe this is for Jim. obviously you launched this SimSolid for electronics, this product that looks like both EDA companies are trying to attack the system level to get into your field, more at the system level, design, analysis, those areas, but you're also on the offensive to get into their field. So I want to understand a bit on your strategy here in terms of how you think about you can differentiate in the broader context of maybe there's a little bit of convergence of semiconductor design, electronics design, and the overall larger system designs. And any light would be great. Thanks.
spk19: Okay, sure. Thank you. Good to see you the other day at the GSA conference, Charles, by the way. You know, there is a lot of change happening in the semiconductor design world and actually in the whole electronics world in terms of how it's evolving. And as it moves more and more towards chiplets and more complexity on the system side, it becomes much more of a 3D problem. And we're trying to build solutions that are going to be differentiated, as you said. And SimSolid is a very, very unique technology. There's just nothing like it in the market where you don't require... meshing and where you get what we're calling absolute resolution on what the design is, as opposed to doing a lot of approximations that you typically have in traditional finite element analysis. So we think it's going to be a perfect fit in electronics, particularly when we get the electromagnetics working and you have full multidisciplinary simulations. So, yeah, we're very excited about that. We're just working hard to develop good solutions for customers. Thanks.
spk15: And one moment for our next question.
spk16: And our next question will be coming from Ken Wong of Oppenheimer & Company. Your line's up.
spk02: Again, Ken Wong.
spk08: Hey, this is Ahmad Kalilan for Ken. Thanks for taking my question. I know you guys have been a little tepid on hiring the last year or two, I guess. How are you thinking about hiring now? I know you guys have been making investments in the channel and in your verticals, I guess. How should we think about overall hiring in sales and marketing?
spk19: So, I mean, I think we are carefully hiring, I would say. As we sort of complete the reorg into the verticals, we're having a lot more clarity around where we have needs, both regionally and with expertise in certain verticals. And we're making very, very careful hires to bring ourselves up to where we think we need to be. but we're also trying to gain a lot of efficiencies in the sales team and We think there's a lot of potential with that as well. And of course, we're trying to move You know parts of the business more and more indirect and so with with that whole combination I think we're we're careful but we are hiring it's it's not as though we're not not hiring people Thanks, that's a very insightful response and
spk08: And then just secondly, you know, there's been a lot of heightened M&A activity, at least among your public market peers. I guess, you know, as far as the smaller tuck-in type deals that you guys typically go after, are you noticing those deals be more competitive or, you know, is there any change in the competition for those types of deals?
spk19: In general, no. I think those competitors are rather busy with probably larger types of acquisitions that they've been making more recently. But it is a competitive market in general. And so we obviously take the time to understand the market well. and to seek out opportunities for just really fantastic pieces of technology. We announced the two in the last week or two, Cambridge Semantics and now the Flightstream software. Both are fantastic pieces of technology, great teams. We're going to hit the ground running, we think, with both of these products, and customers are all excited about both of them. So, I mean, it's a competitive landscape, but we, you know, we probably are a little bit differently focused than those competitors.
spk02: Thank you.
spk16: Thank you. And one moment for our next question. And our next question will be coming from Joshua Tilton of Wolf Research. Your line is open.
spk07: Hey, guys, I think you called me. Hey, John. You broke up for a second. Okay, great. Just two quick ones from me. The first one, just on the billings growth in the quarter, maybe this is FX related too, but 1Q is usually a pretty stronger quarter for billings growth for you guys. But it was kind of light relative to our expectations on what felt like an easier compare. So maybe you could just kind of unpack that and then how you kind of think about billings growth through the rest of the year. And then also maybe just in the context of you know, given what you mentioned on the call, I'd kind of assume growth would be a little bit higher since you early renewed something. So just maybe walk us through what's going on on the one-billings group.
spk11: Yeah, yeah, happy to, Josh. So one thing to keep in mind on our reported calculated billing is it is a calculated billing number, so change in deferred plus revenue. So you do get a little bit of FX in there. The other thing, though, is this is a total revenue and total change in deferred number. So it is impacted by services and other revenues. This was actually down year on year, which we expected. So all of that is going to impact your total billings number. That said, Billings was more or less in line with where we were expecting in the first quarter. It was something that I touched on last quarter and sort of highlighted for everybody that we did expect a seasonal shift out of Q1 somewhat and more into the other quarters during the year. So really pretty much in line with expectations. Revenue actually slightly above expectations. And so overall, we're real happy with the way that the quarter turned out.
spk07: Makes sense. And then maybe just a quick follow-up for me. I think at some point last year, and again, this shouldn't really be a shocker to anyone on the call, you guys kind of referred to the demand environment as lackluster. We're a few months into the new year, 2024. Any change in the demand environment from what you saw last year? Would you still call it lackluster? Is it getting better? What do you guys see out there from a demand perspective today and Maybe how does it compare to what was, you know, obviously a little bit more of a tough year last year?
spk19: I do think the demand environment is improving for us. I don't know if it's, you know, a macro improvement or just, you know, a micro for Altair, but we do see the demand environment getting stronger. So we're feeling positive about that. We're conservative but positive.
spk17: We like that. Super helpful.
spk15: One moment for our next question.
spk16: And our next question will be coming from Blair Abernathy of Rosenblatt Securities. Your line is open.
spk09: Thanks very much. Matt, just wondering if you go back to the duration comment on your RPO. Just wondering if you could remind us of your largest or let's say your more seasoned customers as they're coming back to you now. What's their average contract term looking like? Is it changing at all in this environment?
spk11: So generally speaking, we are still signing up for annual lease subscription, but we do occasionally have deals in which it makes sense to sign up for a longer duration contract. And duration has has gotten somewhat longer and that's embedded in that RPO number, because in some cases it makes a lot of sense to have that customer signed up for a multi-year duration that frees up sales capacity than to go work on other transactions. But importantly, we are generally billing that either upfront or in some cases annually, but always licensing annually. And so you end up with a more predictable and smoother revenue recognition. So in other words, you're not recognizing a multi-year transaction from a revenue perspective upfront because we're still licensing annually. So there's a little bit of duration in that number. But we don't disclose specifics around duration. You can just see sort of percentage of next 12 months that we do disclose in our 10Q.
spk10: Got it. Got it. Thank you.
spk09: And then just shifting over to the go-to-market, that's your investor day back in mid-March you talked about. You talked about expanding the focused sales team approach into some new verticals. Can you just tell us where you're at with that?
spk19: Sure. Well, this year we added a couple of new verticals, the heavy industry and healthcare life science. And we brought somebody in on the defense side in aerospace and defense. And we shifted someone who ran half of the Americas over to do consumer electronics and technology. So we're just continuing to, you know, bring these up and along. And we are seeing a lot of traction in healthcare life science, for example, in heavy industry and in the consumer electronics space. So it is taking hold. We're seeing good activity in healthcare. In the older verticals, if you will, aerospace and defense, very, very strong for us right now. And that probably is a macro effect, but I think it's also that we're putting that kind of focus there now. So, yeah, I think it's working quite well.
spk02: Great. Thank you. Sure.
spk16: And one moment for our next question. And our next question will be coming from Matthew Hedberg of RBC Capital Markets. Your line is open.
spk06: Great. Hey, guys. Thanks for my questions. You know, Jim, we're a couple months into the Synopsys Ansys deal, and I'm curious. I think last quarter you said you hadn't really seen anything. I'm wondering if you've seen anything change there as that deal continues to progress. And, I mean, how do you think that could, you know, improve your selling opportunity even more so?
spk19: It's really, really hard for me to comment on that, Matt. But, I mean, I think, you know, there's a little bit of distraction, I'm sure, related to it. And I think, you know, customers are also uncertain, you know, about where that's all going. And I do think in general it's probably – advantageous for me and maybe some of the other companies that might compete. So we're just doing the best that we can to take advantage of opportunities that we see.
spk06: That's great to hear. And then on the call, you talked about two new leaders, one in the healthcare space and one in federal. I guess, what are some of the key initiatives that they're going to be focused on? And are there other things that you're doing in some of these higher growth verticals?
spk19: Are there things that we're doing in the higher growth verticals? I mean, we're just very, very active, to be honest with you. So we're just getting out in front of customers as much as we can, and we seem to be having a very, very good reception from customers. We're trying to get more executive connect with all the key customers.
spk12: Got it. Thanks a lot, guys. Sure.
spk16: And I would now like to hand the call back to Jim for closing remarks.
spk19: Well, thank you. I appreciate everyone joining the call and for your interest in Altair. And I look forward to meeting many of you as we travel and go to investor conferences. So thanks, everyone.
spk16: And this concludes today's conference call. Thank you for participating. You may now disconnect. Thank you. you Thank you. Thank you. music music Thank you. Thank you. Good day, and thank you for standing by. Welcome to the Altair Engineering Inc. Q1 2024 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 the question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that 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 would now like to hand the conference over to your speaker, Stephen Palntag, Head of Investor Relations. Please go ahead.
spk14: Good afternoon. Welcome, and thank you for attending Altair's Earnings Conference Call for the first quarter of 2024, ended March 31st. I'm Stephen Palntag, Altair's Head of 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 first quarter 2024 performance and guidance for the second quarter and full year 2024, 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 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 those 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.
spk19: Jim? Thank you, Stephen, and welcome everyone on the call. In the first quarter of 2024, Altair continued its positive momentum with total quarterly revenue of $172.9 million, software revenue of $158.4 million, and adjusted EBITDA of $45.8 million, all exceeding the high end of our guidance range for the first quarter. Altair's Q1 results continue to demonstrate the strength of our software product portfolio and bringing computational intelligence to our customers. Software revenue on a constant currency basis grew by 6.9% in the first quarter on a year-over-year basis. Software revenue as a percentage of total revenue for the first quarter grew to 91.6% compared to 90.1% in the first quarter of 2023. Altair continues to grow with success in multiple industry verticals across global geographies and a broad portfolio of technologies. Adjusted EBITDA for Q1 2024 increased by 6.4% year-over-year to $45.8 million, or 26.5% of revenue, compared to 25.9% in Q1 of 2023. In our banking, financial services, and insurance vertical, a multinational customer specializing in payment card services signed a seven-figure commitment representing over 80% year-on-year expansion compared to 2023. This expansion was driven by Altair Monarch, our self-service data preparation solution within the Altair RapidMiner platform. Additionally, a major European accounting firm committed to utilizing Altair SLC, our SAS language compiler, which will focus on both mainframe and distributed environments. In the energy sector, we signed a deal with a new global customer that provides subsea and surface solutions. The commitment was driven by Altair SimSolid, evidencing our industry-leading structural simulation and the potential for meaningful expansion in our energy vertical. Additionally, a global leader in energy management and automation expanded its subscription renewal, driving an increase in revenue over 80% annually compared to 2023. The expansion was driven by Altair Pollux, a solution that seamlessly integrates with all major eCAD tools and accelerates the development of today's smart, connected, and tightly packaged electronic packaged products. The heavy equipment truck and rail vertical secured a seven-figure, three-year commitment from a global leader in power sports vehicles and propulsion systems. The deal expands our footprint to more departments across more applications, including structural design, kinematics, highly nonlinear events, and data analytics. The automotive vertical continued to highlight our best-in-class technology, In Q1, a European automotive OEM focused on the ultra-luxury segment signed a six-figure contract to use a broad range of our simulation, data analytics, and AI offerings. They will use Altair SimSolid and ROM AI for structural simulation, providing fast and precise whole-engine simulation, and leverage Altair RapidMiner for data mining and predictive modeling across their engineering and operations. At our investor day, we announced the upcoming release of Altair SimSolid for electronics, bringing game-changing, fast, easy, and precise multi-physics scenario exploration for electronics from chips, printed circuit boards, and integrated circuits to full system design. Since solid is already growing its presence rapidly across traditional manufacturing verticals, including automotive, aerospace, and heavy equipment, and is now poised to play significantly in the electronics market as the industry transforms from 2D designs to 3D systems and chiplets. The journey from computer-aided design to simulation has historically been strewn with the obstacles of mesh generation, a necessary but time-intensive step that delays insights and stretches project timelines. The solution's ECAD to simulation workflow will empower users to surpass conventional boundaries and seamlessly scale from meters to nanometers. This translates to faster time to results and the ability to solve even more complex multidisciplinary problems, empowering engineers to achieve superior design outcomes. The first release will support structural and thermal analysis for printed circuit boards and ICs with full wave electromagnetics analysis coming in a future release. As Altair SimSolid advances towards the inclusion of full wave electromagnetics, it showcases Altair's vision of a comprehensive, multidisciplinary simulation environment. This evolution not only sets a new standard against traditional mesh reliant systems, but it also promises a future where thermal, structural, and electromagnetic challenges are addressed within a unified meshless platform for rapid and precise design iterations. Our indirect sales channel continues to represent a significant percentage of our overall revenue and is a key priority going forward. This is evidenced by welcoming seven new channel partners to the Altair sales team in the first quarter. EDA Expert in France and Brand Engineering in Switzerland will offer the full suite of Altair's electronic design solutions. We will extend the reach of Altair's cutting-edge data analytics and AI portfolio through relational FS in Greece, Analytium in the United Kingdom and Ireland, Integral Solutions in Poland, Arias Info Communication in Hungary, and Analytical Information Management Solutions in Turkey. To further demonstrate our commitment to verticals, we hire two key leaders who will drive our efforts in healthcare and life sciences and the Federal Department of Defense, which is part of our aerospace and defense vertical. Both individuals bring decades of valuable experience that will further propel Altair's industry efforts and will bolster our focus on high-growth industry segments, helping us expand Altair's market share in segments where we have best-in-class technology, a strong track record of success, and a unique blend of talent. Within HLS, we also signed our first major pharmaceutical customer that will leverage Altair's data analytics and AI across its drug manufacturing sites. In April, we announced the acquisition of Cambridge Semantics, a modern data fabric technology company. We believe Cambridge Semantics brings the fastest and most scalable analytical graph database to organizations that have significant data volumes and deep questions. Knowledge graphs are key pieces of data fabrics and critical for successful generative AI applications as they provide the business context necessary to ground generative AI models, eliminate hallucinations, and dramatically improve response quality. Cambridge Semantics technologies will be integrated into Altair RapidMiner, adding knowledge graph, data governance, data virtualization, and data discovery technology to the platform's existing data science and data analytics tools. Bringing together Cambridge Symantec's transformational knowledge graph technology with Altair's leading tools for data analytics and data science will offer our customers a solid foundation for building advanced analytics ecosystems. which inject AI into day-to-day business operations. This acquisition also adds deep data warehousing expertise to our already strong analytics and data science team, creating an enhanced core group of engineers that understand the entire data lifecycle, from creation to impact. Now moving from data science to rocket science, yesterday we announced the acquisition Research and Flight, the maker of FlightStream, a computational fluid dynamic software with a large footprint in the aerospace and defense sector, and a growing presence in marine energy, turbo machinery, and automotive applications. FlightStream is a user-friendly yet powerful flow solver that bridges the gap between high-fidelity CFD simulations and the needs of engineers and designers. Its exceptionally fast computational speeds and low hardware footprint, coupled with a streamlined user interface and a robust aerodynamic solver, make it an invaluable tool for early stage rapid design iterations and in-depth aerodynamic studies for aerospace and defense applications. Flightstream is able to capture subsonic to supersonic flows including compressible effects and a unique surface vorticity capability. It leverages the strengths of panel method flow solvers and enhances them with modern computational techniques to provide a solver that is fast and capable of handling complex aerodynamic phenomena. Altair's growth in the aerospace defense and surrounding industries has accelerated in recent years through our best-in-class computational intelligence solutions. The integration of Flightstream into our portfolio will enhance our offering with more specialized, modern, and efficient tools to meet the increasingly complex demands of customers in these industries, including the urban air mobility and eVTOL sectors. Flightstream is a United States Air Force network-approved software and is also used at NASA Ames and Langley Research Centers, as well as by the U.S. Army. It will be integrated into the Altair Hyperworks design and simulation platform and be available via Altair Units. Last month, we were honored to win the 2024 Google Cloud North America Partner of the Year Award for Diversity, Equity, and Inclusions. This award further demonstrates that Altair is a global leader and an organization where people always come first. Our numbers speak for themselves. More than 75 languages are spoken and more than 50 nationalities are represented within Altair's global workforce of over 3,000 employees. Women make up 43% of our executives and board of directors, both significantly higher than U.S. averages, and two standout employee resource groups, Women in Technology and the Altair Black Employee Resource Network, further educate and empower all Altair employees by hosting more than 30 events each year, focusing on personal growth, combating bias, and more. Q1 was a strong beginning to 2024, We are optimistic that Altair is well positioned to take advantage of a gradually improving macro environment and remain excited about our future growth. 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 2024. Matt?
spk11: Thank you, Jim. Hello to everyone on the call, and thank you for joining us. Before I get into the financial results for the quarter, I want to remind everyone we held an in-person Investor Day in Santa Clara on March 20th, where we showcased meaningful product updates, discussed our exciting market opportunity, and provided updated midterm financial targets. If you weren't able to attend, you can watch the replay at InvestorDay.Altair.com. Go check it out. Okay, jumping into our financial results for the quarter. We are very pleased with our strong start to the year. Computational intelligence continues to be a driving force in addressing our customers' most critical design, engineering, and business challenges. And I'm proud that Altair's products are being increasingly leveraged to solve those challenges. We've continued to execute with focus with record high first quarter total revenue of $172.9 million, record high software revenue of $158.4 million, and adjusted EBITDA of $45.8 million, all exceeding the high end of our guidance range. As a reminder, some of our revenues and expenses are transacted in currencies other than the U.S. dollar, and therefore our reported results may be significantly impacted by changes in foreign currency exchange rates. To aid in the review of our results, throughout my remarks, I will reference growth rates in both reported and constant currency. For the first quarter, Calculated total billings were $154.1 million, a year-over-year decrease of 5.7% in reported currency and a decrease of 5.3% in constant currency. Software revenue in Q1 was $158.4 million, a year-over-year increase of 5.9% in reported currency and 6.9% in constant currency compared to Q1 2023. The year-over-year increase in software revenue was driven by high retention rates and new and expansion business, with particular strength in the aerospace and defense and automotive verticals. The increase in software revenue relative to expectations was partially due to some deals closing sooner than originally expected. Total revenue in Q1, which includes engineering services and other revenue, was $172.9 million, a year-over-year increase of 4.1% in reported currency and 5.1% in constant currency compared to Q1 2023. Non-GAAP gross margin, which excludes stock-based compensation was 83.3% in the first quarter, compared to 81.9% in the prior year quarter, an increase of 140 basis points. The year-over-year increase in non-GAAP gross margin in Q1 was due to a combination of mixed shift towards software revenue, where gross margins are higher than our engineering services and other revenue margins, as well as an increase in our standalone software margins. Software revenue was 91.6% of total revenue in Q1, compared to 90.1% in the prior year. In the long run, we anticipate a continued gradual shift in the revenue mix towards software, as its growth surpasses that of engineering services and other revenue. Non-GAAP operating expenses, which exclude stock-based compensation and amortization of intangible assets, were $99.5 million, compared to $93.9 million in the year-ago period. Adjusted EBITDA in Q1 was $45.8 million, or 26.5% of total revenue, compared to $43.1 million or 25.9% in the prior year, an increase of 6.4%. This increase compared to the prior year quarter, as well as relative to our expectations, was driven by the increase in software revenue combined with a disciplined approach to spending. Turning to our balance sheet, we ended the quarter with $557.6 million in cash and cash equivalents, an increase of approximately $179.2 million from the prior year and $90.1 million from year end. Free cash flow was $70.7 million in Q1 compared to $57.5 million in the year-ago period, an increase of 23.0%. and demonstrates our ability to generate significant free cash flow. As a reminder, the remainder of our 2024 convertible notes mature on June 1, 2024, which we will settle with approximately $82 million in cash for the principal balance and the premium in shares, leaving us with a healthy cash balance of just under $500 million. Let's turn to guidance for Q2 and full year 2024. We've provided detailed guidance tables in our earnings press release, including reconciliations to comparable GAAP amounts. To provide clarity on the FX impacts to our expectations, we've provided growth rates in both reported currency and constant currency in our guidance tables. For Q2, we expect software revenue in the range of $131 to $134 million, a year-over-year increase of 4.5% to 6.9% in reported currency, and 6.7% to 9.2% in constant currency. As I mentioned, some deals in Q1 closed earlier, which has an offsetting impact on Q2 expectations. For full year 2024, we are maintaining our previous outlook in constant currency for software revenue. However, due to changes in foreign currency exchange rates over the past quarter, we are adjusting our full year outlook in reported currency to a range of $590 to $600 million, a year-over-year increase of 7.3% to 9.1% in reported currency and 8.3% to 10.1% in constant currency. We expect Q2 total revenue, which includes engineering services and other revenue, in the range of $145 to $148 million, a year-over-year increase of 2.7% to 4.8% in reported currency and 4.7% to 6.8% in constant currency. For full year 2024, we are also maintaining our previous outlook in constant currency for total revenue. However, again, due to changes in foreign currency exchange rates over the past quarter, we are adjusting our full year outlook in reported currency to a range of 652 to 662 million, a year-over-year increase of 6.4% to 8.0% in reported currency, and 7.5% to 9.1% in constant currency. For Q2, we expect adjusted EBITDA in the range of 15 to 18 million, or 10.3% to 12.2% of total revenue compared to 17.1 million or 12.1% of total revenue in Q2 2023. For the full year 2024, changes in foreign currency exchange rates have also impacted adjusted EBITDA. And therefore, we are adjusting our outlook to a range of 138 to 146 million. or 21.2% to 22.1% of total revenue compared to 129.1 million or 21.1% of total revenue in 2023. And finally, for the full year 2024, we expect free cash flow in the range of 124 to 132 million. which has also been impacted by changes in foreign currency exchange rates, and therefore has been adjusted in line with the change in our full-year adjusted EBITDA guidance. As a reminder, our cash flow expectations are sensitive to billings and collection patterns, which fluctuate seasonally. But we continue to be pleased with the high free cash flow as a percentage of adjusted EBITDA which sits at approximately 90% and has been steadily increasing over the past several years. We are happy to have exceeded our Q1 revenue and profitability goals, and our enthusiasm remains high for the opportunities that await us in the back half of the year. With that, we'd be happy to take your questions. Operator?
spk16: Certainly. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And one moment for our first question, which is coming from Dylan Becker of William Blair. Your line is open.
spk03: Hey, Jim and Matt. Really nice start to the year here. I wonder, Jim, you had made some comments, but how you're thinking about kind of the business momentum progressing and how can a Q1 inform that revised outlook? I think you called out a gradually improving environment. Matt, you said there were some earlier deals pulled forward a bit, but just wondering if you could give additional color on kind of what you guys are seeing in the landscapes.
spk19: Sure. Hi, Dylan. I can take a shot and then Matt can add in. We are feeling like things are improving for us. We recognize that there are some layoffs and other things and the economy only grew 1.6%. Here was the recent announcement. But for us, we're continuing to see the pipeline grow and the verticals that we you know, that we set up last year, which took some time to get going, really are taking hold and beginning to generate lots and lots of new opportunities. Some of them have a little bit longer sales cycles, but it is really starting to look very promising into the future. Matt, anything you want to add there?
spk11: Yeah, I'm happy to. Hi, Dylan. Yeah, I would characterize this as just a very positive, almost sort of textbook Altair quarter where we overachieved. And we're looking forward now to the back half of the year and feel good about how the first half is shaping up. So we're pleased to just continue putting one foot in front of the other and feel pretty good about the year.
spk03: Okay, great. That's really helpful. Um, and then Jim as well to, um, maybe early, but the kind of receptive, uh, receptivity or kind of any early feedback you're seeing and hearing, uh, on SimSolid for the electronics opportunity there. I know there's still some competitive noise, but is that starting to drive any additional opportunities quite yet or still early? Maybe just kind of some, some enthusiasm or feedback you're seeing and hearing. Thanks.
spk19: I think it's just a little bit early right now. And, and, uh, We haven't actually released, I think that's in the next week or two, the first version with the structures and thermal. But I think it is going to be pretty interesting for customers. A lot of those customers are not familiar with us, and so they're going to have to start looking and testing. But I think it's going to knock people's socks off.
spk13: Great. Thanks, guys.
spk16: Yep. Thank you, and one moment for our next question. And our next question will be coming from Stephen Tusa of JPMorgan Chase and Company. Your line is open.
spk04: Hey, guys. Good afternoon.
spk00: Hey, Stephen.
spk04: So I'm just trying to reconcile the second quarter. It sits a little bit below where we had in our model, and I think consensus is there. Was there anything kind of pulled into this quarter that we should be aware of? Just trying to reconcile that with the constructive comments on the macro.
spk11: Sure. Yeah, Steve, I can take that one. So a little bit closed early in Q1, but there's a couple of other things going on as well. So currency does play a role. We had about $4 million of currency impact in the first half, so a combination of Q1, Q2. But on balance, when you look at sort of how we did in Q1 and midpoint of our guide for Q2, I think what you'll find is we are largely in line or slightly ahead of expectations when factoring in FX on the first half. So net-net feel real good about how the first half is shaping up and looking forward to second half.
spk04: And is that kind of normal seasonality in your view, like just the way the deal flow happens?
spk11: Well, yeah. So historically, we have seen Q2 and Q3 being our smallest quarters from a billings and revenue perspective. We expect that that's going to be the same this year as well, where even within the second half, we'll see acceleration into Q4. But, yeah, it's typical. It's as we were expecting for Q2. And, again, just happy with how the first half is shaping up.
spk16: Okay, great. Thanks a lot. And one moment for our next question. Our next question will come from Charles Shi of Needham & Company. Your line is open.
spk20: Hey, good afternoon, Jim, Matt. Congrats on the strong first quarter results, especially when I look at your largest competitor, which is reported. Good to see you guys continue on that year-on-year growth in the most recent quarter. I want to ask this question. I asked this question in the last quarter, but I want to ask again. your RPO, your current RPO number, which is in your 10K, kind of covers a little bit more than usual that the next three to four quarters of the revenues. Historically, your current RPO only covers like 20%-ish of the next 12-month revenue, but now it looks like it's resettling to a higher level, roughly 25%. Mind if you shed some light on this? Because there are two ways to interpret the result, right? One is maybe you are just being conservative about your revenue guidance or your bookings behavior a little bit changed to that. So you may be booking something that's a little bit shorter term. So which one is it? Please provide some color. Thanks.
spk11: Yeah. Hey, Charles. Thanks. I can speak to that. So it's a little bit of both. So obviously we're pleased with the amount of coverage that RPO is providing for us. But we're also focusing on ensuring that we're making the most of our sales capacity and being as efficient as possible, which means we are also signing some deals and contracts that have a longer duration, even though those deals may not necessarily be billed up front. They are commitments nonetheless, and then therefore go into backlog So there's a little bit of both going on there, but obviously we're pleased with the growth in RPO, and that's something that we're continuing to focus on, particularly as we get more and more efficient with our sales team.
spk02: Thanks.
spk20: Maybe a follow-up. Maybe this is for Jim. obviously you launched this SimSolid for electronics, this product that looks like both EDA companies are trying to attack the system level to get into your field, more at the system level, design, analysis, those areas, but you're also on the offensive to get into their field. So I want to understand a bit on your strategy here in terms of how you think about you can differentiate in the broader context of maybe there's a little bit of convergence of semiconductor design, electronics design, and the overall larger system designs. And any light would be great. Thanks.
spk19: Okay. Sure. Thank you. Good to see you the other day at the GSA conference, Charles, by the way. You know, there is a lot of change happening in the semiconductor design world and actually in the whole electronics world in terms of how it's evolving. And as it moves more and more towards chiplets and more complexity on the system side, it becomes much more of a 3D problem. And we're trying to build solutions that are going to be differentiated, as you said. And SimSolid is a very, very unique technology. There's just nothing like it in the market where you don't require... meshing and where you get what we're calling absolute resolution on what the design is, as opposed to doing a lot of approximations that you typically have in traditional finite element analysis. So we think it's going to be a perfect fit in electronics, particularly when we get the electromagnetics working and you have full multidisciplinary simulations. So, yeah, we're very excited about that. We're just working hard to develop good solutions for customers.
spk15: Thanks. And one moment for our next question.
spk16: And our next question will be coming from Ken Wong of Oppenheimer & Company. Your line's up.
spk08: Again, Ken Wong. Hey, this is Ahmad for Ken. Thanks for taking my question. Um, I know you guys have been a little tepid on hiring the last year or two, I guess. How are you thinking about hiring now? I know you guys have been making investments in the channel and in the vertical, um, in your verticals, I guess, you know, I guess, how should we think about overall hiring and sales and marketing?
spk19: So, I mean, I think we are carefully hiring, I would say. As we sort of complete the reorg into the verticals, we're having a lot more clarity around where we have needs, both regionally and with expertise in certain verticals. And we're making very, very careful hires to bring ourselves up to where we think we need to be. but we're also trying to gain a lot of efficiencies in the sales team and We think there's a lot of potential with that as well. And of course, we're trying to move You know parts of the business more and more indirect and so with with that whole combination I think we're we're careful but we are hiring it's it's not as though we're not not hiring people Thanks, that's a very insightful response and
spk08: And then just secondly, you know, there's been a lot of heightened M&A activity, at least among your public market peers. I guess, you know, as far as the smaller tuck-in type deals that you guys typically go after, are you noticing those deals be more competitive or, you know, is there any change in the competition for those types of deals?
spk19: In general, no. I think those competitors are rather busy with probably larger types of acquisitions that they've been making more recently. But it is a competitive market in general. And so we obviously take the time to understand the market well. and to seek out opportunities for just really fantastic pieces of technology. We announced the two in the last week or two, Cambridge Semantics and now the Flightstream software. Both are fantastic pieces of technology, great teams. We're going to hit the ground running, we think, with both of these products, and customers are all excited about both of them. So, I mean, it's a competitive landscape, but we, you know, we probably are a little bit differently focused than those competitors.
spk02: Thank you.
spk16: Thank you. And one moment for our next question. And our next question will be coming from Joshua Tilton of Wolf Research. Your line is open.
spk07: Hey, guys, I think you called me. You broke up for a second. Okay, great. Just two quick ones from me. The first one, just on the billings growth in the quarter, maybe this is FX related too, but 1Q is usually a pretty stronger quarter for billings growth for you guys. But it was kind of light relative to our expectations on what felt like an easier compare. So maybe you could just kind of unpack that and then how you kind of think about billings growth through the rest of the year. And then also maybe just in the context of you know, given what you mentioned on the call, I'd kind of assume growth would be a little bit higher since you early renewed something. So just maybe walk us through what's going on on the one-billings group.
spk11: Yeah, yeah, happy to, Josh. So one thing to keep in mind on our reported calculated billing is it is a calculated billing number, so change in deferred plus revenue. So you do get a little bit of FX in there. The other thing, though, is this is a total revenue and total change in deferred number. So it is impacted by services and other revenues. This is actually down year on year, which we expected. So that's going to all of that is going to impact your total billings number. That said, Billings was more or less in line with where we were expecting in the first quarter. It was something that I touched on last quarter and sort of highlighted for everybody that we did expect a seasonal shift out of Q1 somewhat and more into the other quarters during the year. So really pretty much in line with expectations. Revenue actually slightly above expectations. And so overall, we're real happy with the way that the quarter turned out.
spk07: Makes sense. And then maybe just a quick follow-up for me. I think at some point last year, and again, this shouldn't really be a shocker to anyone on the call, you guys kind of referred to the demand environment as lackluster. We're a few months into the new year, 2024. Any change in the demand environment from what you saw last year? Would you still call it lackluster? Is it getting better? Like, what do you guys see out there from a demand perspective today and Maybe how does it compare to what was, you know, obviously a little bit more of a tough year last year?
spk19: I do think the demand environment is improving for us. I don't know if it's, you know, a macro improvement or just, you know, a micro for Altair, but we do see the demand environment getting stronger. So we're feeling positive about that. We're conservative but positive.
spk17: We like that. Super helpful.
spk15: One moment for our next question.
spk16: And our next question will be coming from Blair Abernathy of Rosenblatt Securities. Your line is open.
spk09: Thanks very much. Matt, just wondering if you go back to the duration comment on your RPO. Just wondering if you could sort of remind us of your largest or let's say your more seasoned customers as they're coming back to you now. What's their average contract term looking like? Is it changing at all in this environment?
spk11: So generally speaking, we are still signing up for annual lease subscription. But we do occasionally have deals in which it makes sense to sign up for a longer duration contract. And duration has gotten somewhat longer, and that's embedded in that RPO number. Because in some cases, it makes a lot of sense to have that customer signed up for a multi-year duration that frees up sales capacity than to go work on other transactions. But importantly, we are generally billing that either upfront or in some cases annually, but always licensing annually. And so you end up with a... with a more predictable and smoother revenue recognition. So in other words, you're not recognizing a multi-year transaction from a revenue perspective up front because we're still licensing annually. So there's a little bit of duration in that number, but we don't disclose specifics around duration. You can just see sort of percentage of next 12 months that we do disclose in our 10Q.
spk10: Got it. Got it. Thank you.
spk09: And then just shifting over to the go-to-market, at your investor day back in mid-March, you talked about expanding the focused sales team approach into some new verticals. Can you just tell us where you're at with that?
spk19: Sure. Well, this year we added a couple of new verticals, the heavy industry and healthcare life science. And we brought somebody in on the defense side in aerospace and defense. And we shifted someone who ran half of the Americas over to do consumer electronics and technology. So we're just continuing to bring these up and along. And we are seeing a lot of traction in health care life science, for example, in heavy industry, and in the consumer electronics space. It is taking hold. We're seeing good activity in the older verticals, if you will. Aerospace and defense, very, very strong for us right now, and that probably is a macro effect, but I think it's also that we're putting that kind of focus there now. So, yeah, I think it's working quite well.
spk02: Great. Thank you. Sure.
spk16: And one moment for our next question. And our next question will be coming from Matthew Hedberg of RBC Capital Markets. Your line is open.
spk06: Great. Hey, guys. Thanks for my questions. You know, Jim, we're a couple months into the Synopsys Ansys deal, and I'm curious. I think last quarter you said you haven't really seen anything. I'm wondering if you've seen anything change there as that deal continues to progress. And, I mean, how do you think that
spk05: could, you know, improve your selling opportunity even more so?
spk19: It's really, really hard for me to comment on that, Matt. But I mean, I think, you know, there's a little bit of distraction, I'm sure, related to it. And I think, you know, customers are also uncertain, you know, about where that's all going. And I do think in general it's probably advantageous for me and maybe some of the other companies that might compete. So we're just doing the best that we can to take advantage of opportunities that we see.
spk06: That's great to hear. And then on the call you talked about two new leaders, one in the healthcare space and one in federal. I guess, you know, what are some of the key initiatives that they're going to be focused on? You know, and are there other things that you're doing in some of these higher growth verticals?
spk19: Are there things that we're doing in the higher growth verticals? I mean, we're just very, very active, to be honest with you. So we're just getting out in front of customers as much as we can. And we seem to be having a very, very good reception from customers. We're trying to get more executive connect with all the key customers.
spk12: Got it. Thanks a lot, guys. Sure.
spk16: And I would now like to hand the call back to Jim for closing remarks.
spk19: Well, thank you. I appreciate everyone joining the call and for your interest in Altair. And I look forward to meeting many of you as we travel and go to investor conferences. So thanks, everyone.
spk16: And this concludes today's conference call. Thank you for participating. You may now disconnect.
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