Q2 2020 Altair Engineering Inc Earnings Call
Ladies and gentlemen, please stand by your alter engineering Inc. second quarter.
2020 earnings conference call begin momentarily.
For your patience and please standby.
[music].
Quarters 2020 earnings conference call at this time, all participants are in listen only mode. After the speaker presentation will be a question answer session asking question during the session you'll need to press star one on your telephone. Please be advised the today's conference is being recorded if you require any further systems. Please press star zero.
Alexander Conference over to your Speaker today, Howard World Alters Chief Financial Officer. Please go ahead Sir.
Good morning, welcome and thank you for typing Altera earnings conference call for the second quarter with 2020.
Howard Morris Chief Financial Officer of all care and with me on the call is Jim Scalpel, founder Chairman and CEO.
After market close yesterday, we issued a press release with details regarding our second quarter performance and updated guidance for 2020, which can be accessed on the investor Relations section of our website.
Investor Altschiller dotcom.
This call is being recorded in the replay will be available on our IR website. Following the conclusion of this call.
During today's call, we will make statements related to our business that maybe considered forward looking under federal Securities law.
These statements reflect our views only as of today.
Not be considered representative of our views as of any subsequent to that.
We disclaim any obligation to update any forward looking statements for out.
These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially so my expectations.
These risks are summarized in the press release that we issued yesterday.
For further discussion of the material risks and other important factors that could affect our actual results. Please refer to those contain kind of quarterly and annual reports filed with the FCC as well as other documents that we have filed or may file from time to time.
During the course of today's call will refer to certain non-GAAP financial measure.
A reconciliation of GAAP to non-GAAP measures is included in our press release.
Finally at times in our prepared comments for 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 for quarterly results.
Please be advised that we may or may not continue to provide this additional detail in the future.
With that let me turn the call over to Jim for his prepared remarks, Jim.
Thank you Howard and welcome to everyone on the call.
Sure is doing well and that's still the global health crisis and economic uncertainty.
Crowds, leading organization, which has remained so dedicated an intensely focused on developing great software and helping customers succeed.
My personal hardships brought on by cope with my team.
Today I will discuss our recent acquisition about Sun was new product announcements and customer engagements. So first summarize second quarter financials.
We're pleased to report topline results above the high end of our guidance range and total revenue of 98.6 million for the second quarter.
Adjusted EBITDA of 5.7 million was also above our guidance range for the quarter.
Software product revenue was 83% of total revenue for the second quarter compared to 79% in the prior year period.
Our recurring software license rate was 93% for the second quarter 2020 versus 91% for the same period 29 team.
For the first first half of the year software product revenue grew to 190.3 million from 187.7 more young.
Prior year or an increase of 1% and grew by 3% on a constant currency basis.
Total revenue equaled 230 million compared to 234.6 million decrease of 2% driven by a decline in software related services.
Adverse shifts in currency accounted for 3.1 Millenium.
I could have impacts to revenue for the year to date results.
New customer activity in acquisition remained relatively strong in the quarter, considering the impact of cold chain.
Software renewals are coming in as expected, including in the automotive and aerospace industries, and we continue to see growing inflows from customers to transition from competing software solutions.
Our pipeline for all software products, including data analytics continues to increase in line with previous years.
It is clear that for our manufacturing customers, especially in automotive investing in their new products and delivering next generation features is of Paramount importance.
Therefore, they continue to aggressively compete for top talent and invest in tools and technologies like El Terrors to drive innovation.
There's also clearly covert 19 as accelerating the transition to digital solutions like simulation and data analytics.
It's also driving the need for cloud computing and tools to help collaboration and data management for dispersed workforces.
Last week, we announced the acquisition of Essen Wise Enterprise software Technology company based in Seoul Korea.
There are a leading provider polyurethane foam and simulation.
Their software includes a physics solver, which accurately simulates the injection foaming jelling processes accounting for the importantly, saxo chemical reactions.
An enhanced version of the solve or will be released within alturas inspires simulation driven design platform called inspire poly long.
As Altira is newest offering for manufacturing simulation.
Fire Poly Paul will provide the same ease of use and productivity other inspire solutions.
Polyurethane foam is used in a vast array of industries and products, including automotive interiors recreational equipment and medical devices.
We are delighted to offer another critical manufacturing stimulation design solution to our customers.
On June 3rd we announced the most significant software update release and our company's history.
All of Altior software products have been updated with advancements and user experience, including intuitive workflows and countless new features and capabilities.
Power users to streamline product development.
The software update release expands on the number of solutions available for designers engineers data analyst I T in HPC professionals.
To drive better decisions not accelerate the pace of innovation.
It enables access to more physics data analytics and owns computing technology.
Streamlined software delivery for prospects and customers.
Our teams worked incredibly hard collaboratively.
Make this release happen.
More than 20 years ago revolutionized how engineers and organizations license start, leaving simulation software with Hyperworks units groundbreaking value base business paradigm.
To further evolve our unique business model, we recently introduced alter units, our new unified licensing system gives access to every altira products.
From a powered solve on any scale.
We feel the new Altira units model addresses two important objectives.
First to align revenue growth with usage growth.
And to compete more effectively and mid and low end markets and in the cloud.
The new model delivers enhanced inclusivity, various price points and allows customers to maximize their software value.
We believe our new pricing package choices are truly a win win for our customers and for health care.
Continuing the product release momentum June 15th we Mark the Thirtyth anniversary monarch's original launch as a data preparation solution and a new version containing powerful and unique features such as excel traveling on complex PDF extraction.
Our customers now have even greater abilities to transform data from multiple sources into competitive business assets.
Finally to round out a busy few months of product releases on July 16, We released a new version of Altscher knowledge studio.
Brings even greater speed flexibility and transparency the data modeling and predictive analytics.
Workflows can be optimized in minutes and machine learning powered modeling.
Brides users with automated feature selection and explanations around algorithm deployment.
Additional features to this new release include automated pipe on cogeneration.
Direct data export Altair Mona.
Support for our code 4.0 and higher.
We had a significant winter our HPC technology. This quarter one of the major Silicon Valley companies, where our technology is being used to dramatically accelerate chip design.
One important and recent win was and.
Where we where we clearly outperformed two major competitors and a benchmark for high frequency electromagnetics capabilities.
It was particularly gratifying that the newly acquired technology from new for saw in Spain helped make our solution extraordinarily competitive.
Customers are increasingly embracing no code on low code solutions for data analytics like those and alturas portfolio develop automation workflows for data preparation data science and operational analytics.
Several conversations with major banking customers, we learn they're looking to move away from proprietary legacy software language solutions to modern open architecture languages.
And while there were we'll continue to be a lot of annual coding in the world of data science, our technology clearly enables a broader group of business users to be productive.
In conversations with key technical executives at manufacturing customers, we're aligning to bring the power of data analytics to their product development manufacturing field service operations.
The workflows for gathering and making use of data not yet mature and we're happy to be playing a role both in developing these workflows and providing the technologies to support them.
With the recent new releases of Panopticon monarch and knowledge studio.
Gaining momentum with our solutions for data analytics.
We are becoming increasingly optimistic that panopticon, our best in class solution operational analytics and financial services market is finding numerous applications in manufacturing and the industrial biopsy.
One example is a company, providing operations and maintenance solutions and the power generation industry.
Continuous monitoring of power generation turbines and have a great impact on maintaining reliable flow power to the power plant as well as alerting power generation turban operators to potential equipment damage.
I will turn knowledge works is being deployed for an offshore power generation turban monitoring system.
Will help assure reliable operation.
We remain well positioned on diligently toward successfully managing through the current environment.
Our business continues to generate ample free cash flow and our balance sheet remains strong.
We continue to be very positive about alters products themselves delivery capabilities and we're confident in our prospects for sustainable long term growth.
The solutions, we offer for simulation high performance computing and data analytics by their nature Kia to a virtual environment.
On the shift to these technologies has clearly been accelerated by the endowment.
Oh, good 19 as also fast tracked many of our initiatives related to selling pre and post self support which are key to improving overall margins.
We continue to be concerned about the macro economy and the need for physical world activity to normalize.
But it is clear our customers remain committed to investing in research and development for their long term competitiveness.
We are fortunate to have very broad and diverse industry base and extremely high recurring revenues, which we believe helps to insulate us to a large extent from macro economic turbulence.
We remain hopeful that good progress will be made this year for global health and prosperity.
Altera supporting a new employee initiative called a bar or the Altair Black employee reserve Snuff network.
This group is closely aligned with our vision for strengthening diversity and inclusion.
Membership and participation in a burn is open to all else your employees and I am hopeful the combination of Alturas global resources and the employee energy behind a burn will contribute to improving opportunities for underrepresented minorities.
Together, we are working to develop programs to support black and other minority students for academically oriented towards.
Scholarships mentoring internships on job opportunities.
In closing I want to express that we have never felt better about the current and future state of our company and products.
Now I will turn the call over the Howard to provide more details on our financial performance and our guidance for the third quarter and full year 20 Twond Howard.
Thanks, Jim.
First I would like to remind everyone fit our seasonal billing patterns, coupled with the treatment of revenue under AMC six so cecs results and heightened seasonality in revenue and associated metrics, but higher software product revenue recorded in our first and fourth quarters, if any given year, we expect that pattern to country.
And your present business conditions.
We exceeded our revenue guidance for Q true driven by continued strength in software product revenue and also nicely exceeded our adjusted EBITDA Guide.
Our second quarter results were driven by demand for our software product.
Software product revenue equaled $81.8 million compared to $84.8 million a year ago.
Total revenue equaled $98.6 million versus $106.8 million last year.
Both exceeding our guidance for the quarter.
Total revenue was impacted by the reduction in software related pinpoint engineering services revenue due to being the first full quarter of cope with 19 related impact on the demand for these services.
Additionally, currency shifts accounted for $1.5 million of adverse impact on total revenue predominantly from software product revenue.
During Q2 last year, we realised $3 million in revenue from Wawa.
Due to the imposition of trade restrictions.
We are quite pleased that our Q2 20 results for software product revenue and adjusted EBIDTA, We're able to absorb the reduction in revenue and bottom line impact. That's a loss. This revenue stream represents compared to the prior year.
Our softer related services revenue declined about 30% in the quarter relative to the prior year. However, these results are inline with our expectations announced last quarter, given the present business environment.
These services are susceptible to reduction at some of our customers are just external project.
In response to market conditions as a result Kobe of 19.
Also as expected our client engineering services revenue declined by 22% in the quarter compared to the prior year due to reductions imposed by some of our CES customers. After Q1 due to called Big 19.
In the second quarter.
We're product revenue increased to 83% of total revenue up 400 basis points from 79% last year without any adjustment for currency related data.
Continuing the important long term try and increasing the mix of software product revenue.
A key driver of expanding their operating margins going forward.
No there for the quarter software product, rather as a percentage of our software segment hit almost 94% of segment revenue.
Up about 230 basis points compared to the second quarter 2019.
Consistent with it shipped we saw in Q1 of this year.
Our recurring software license rate.
That is the percentage of software revenue that is recurring continues to be strong at 93%.
An increase of about two percentage points compared to 91% for the prior year period.
The key driver of this increase their continued emphasis on increasing recurring revenue licensing streams, including progress within our data analytics business compared to the prior year.
Second quarter billings were $98.9 million compared to $108 million from a year ago.
As a result of decreased fillings for software product client engineering and soccer related services.
Foreign currency impact.
We tend to view billings over longer time period due to the impact that variations and timing of renewals expansions and new customer arrangements can have quarter to quarter.
For the year to date feelings equal $226.8 million compared to $241.9 million a year ago.
Foreign currency effects accounted for $4 million of the variation.
Software related and quite engineering services also contributing to the trade.
I would like to move to the balance of the PML results.
Gross margin in the second quarter was about 75%, reflecting an increase of almost 400 basis points from Q2 90.
This increase is mostly driven by the favorable revenue mix shift to software product revenue along with improvements in margins for other segment.
Gross profit in the quarter was adversely impacted compared to the prior year by approximately $1 million directly attributable to the decline in software related and client engineering services revenue.
For the quarter, non-GAAP operating expenses, which exclude stock based compensation amortization of intangible assets.
Other operating income were $71 million.
The proactive steps, we enacted as part of our early response to cope with 19 headend immediate impact on reducing our non-GAAP operating expenses in Q2 20.
Compared to Q1 20 by just over $8 million.
By comparison.
Q2, 19, non-GAAP operating expenses were $74.1 million.
We do not expect the recently announced acquisitions Hudson wise and Ralph to significantly impact our non-GAAP operating expenses for the remainder of this year.
Some of the actions we undertook in late Q1 and throughout Q2 will continue to mitigate increase and increases in operating expenses.
As we look over the balance of the year, which we will speak about shortly.
Our adjusted EBITDA for the quarter exceeded the top of our guidance.
$5.7 million and reflects a 500000 dollar increase from last year's second quarter.
This increase is driven substantially by the positive shipped in revenue mix, coupled with efforts associated with reducing expenses in response to the kopec 19 environment.
Partially offset by a 900000 dollar negative impact from realized foreign currency transaction.
Turning to our balance sheet.
Consistent with a typical seasonality in our billing and collection activities. We ended the second quarter with $250 million in cash cash equivalents and $150 million, an undrawn capacity under us revolver.
Our liquidity position remains quite strong.
We feel well prepared to navigate the uncertainties in the current business environment associated with public 19.
Moving to our cash flows.
Cash flow from operations in the second quarter, plus an inflow of $5.4 million.
Appeared to an inflow of $6.6 million for the second quarter of 29 team.
The decrease in cash flow is primarily related to normal variation to working capital element.
Free cash flow has held steady at $4.5 million compared to last year.
Based on our outperformance in the second quarter.
Increasing our guidance for 2020.
We anticipate stable software product.
But expect to continue to see reduction soccer related services for the beyond this year, along with similar challenges for quite engineering services.
Although it is possible that both will start to see margin improvements.
The approach Q4 this year.
We continue to believe operating with a cautious and conservative posture as most prudent.
Until we see tangible evidence that global economic conditions begin to improve.
Great flooding into growth you can investment in R&D technology.
Adjustments to expenses to reflect the current demand environment had been implemented.
These include reducing certain employee compensation levels for similar adjustments has permitted and adjustments to other expenses to correlate with potential declines in billings and cash collections from customers.
Such as reducing the use of outside contractors, along with consulting and professional fees.
These steps continued to be adjusted its prudent and employee expenses for the balance of the year are expected to increase modestly.
As result of travel restrictions substantially all of our sales professional services and other activities continue to be conducted remotely also contributing to cost savings.
We have partially adjusted cost of revenue to mitigate the loss of software related services revenue primarily through the reduction in use outside contractors.
With our long term goals in mind, we will continue to strategically invest certain R&D and technical support areas and selectively expand our sales capacity.
We have navigated through many different economic cycles over our 30 year history.
We have taught us the importance of retaining much of the deeply technical in specialized engineering resources, we have dedicated to developing supporting our broad array of technologies and customers.
When we released our Q1 2020, earning an updated guidance for the full year in early may.
The level of uncertainty regarding the impact of cope with 19 on their customers and our business it was quite substantial.
Three months down the line, we continue to see substantial unknown.
Actually in terms of when business conditions will normalize for our customers for most heavily impacted by the economic and business conditions through which we must all navigate.
Against this backdrop, we have updated our guidance for the year.
Joe reflective of a level of caution and conservatism. We believe is called for under todays uncertain and evolving circumstances.
For the 2020 year, we presently expect.
Software product revenue between 368 in $380 million.
Presenting flat results to grow a 4% year over year.
Total revenue between 443 and $455 million, representing a decrease of 1% to 3% from 2019, driven primarily by a reduction in soccer related in quite an engineering services revenue.
Adjusted EBITDA between 33 $38 million, representing a decrease.
$2 million to $7 million from 29.
Free cash flow between five and $15 million.
As mentioned before or free cash flow expectations are sensitive to feelings and collection patterns following the seasonality of our billing.
Yes, the Q3 2020, our expectations are.
Software product revenue between 80, and $82 million representing growth of 3% to 5% from the third quarter of 29.
Total revenue between 96 and $100 million, representing flat to a decrease of 4% from the same period last year.
Impacted by the reduction in software related and quite engineering service revenue.
Adjusted EBITDA between breakeven and negative $2 million in line to slightly better than adjusted EBITDA negative $2.3 million last year.
Further detailed guidance tables had been provided in the press release issued after close of market yesterday.
Please note that these expectations assume stable foreign exchange rates.
Our tax expense expectations for the balance of 2020 calls for cash tax expense of between four and $5 million for the second half year based upon projections of cats with held at source in certain countries applied to fund expected to be remitted back to the United States.
Along with income tax expense in jurisdictions outside of the.
As a reminder.
To the valuation allowance position that we are in primarily in the U.S., we are not able to capture the value of foreign tax credits or operating losses for GAAP purposes in our financials.
Also as detailed in our filings we issued approximately 2.1 billion options in June at an average price up $39.48 per share.
We expect the issue an additional 2 million options in December of this year, the strong incentive to our global senior teams to continue to create long term value.
Our updated guidance takes into account expected increase and share based compensation expense on the relevant metrics from the issuance of option.
We believe that maintaining a very cautious and conservative view, it's a most appropriate perspective at this juncture.
Covered 19 developments are evolving at a rapid pace in it and unpredictable manner.
Our engineering technologies continue to be critical to the R&D and product design activities of our customers across many industries.
Our data analytics products respond to the important need to perform deep analysis and streams of information.
At our customers can make better decisions much more quickly which is so important in today's environment.
For licensing model, which we have continued to enhance is remarkably well suited to support our customers and allows us to leverage the key benefits, we provide to meet the needs of our present and future customers.
Our strong balance sheet gives us the flexibility to continue to pursue targeted M&A activities. We expect to continue to do so opportunistically.
Finally, we have a highly experienced global team dedicated to continuing to support our customers regardless of the business environment.
With that operator can we now open the call two questions.
Thank you as a reminder, its asking question, we'll need to press star one under telephone.
Sorry function press the pound Keith please standby deposit kuni roster.
Our first question comes from Rich Valera with Needham income you May proceed to your question.
Thank you good morning, and congratulations on the solid execution in a tough environment.
Jim I was hoping you could you just talked about how you see that and sort of macro outlook one quarter.
Later in two co bid.
I do want to put words in your mouth, but it sounds like you have a little bit better feel for for how the business is going to fair under Colby. This show up for renewal sound like they are coming as expected.
The the services part of the business sounds like it's down about what you expected. So just wanted you to sort of give us a sense of how you're looking at the world three months.
Later than last quarter and if it's if you feel like you have a little bit more visibility then you maybe had a quarter ago.
Okay.
Thanks, Rich good morning.
But 530 and.
California.
Yes.
Obviously, we're we're.
We're a quarter into this and probably through the worst a bit.
It's been.
That's been eye opening right, we weren't really sure hope things would proceed.
For the most part.
Our customers are continuing to do their business.
The engineers.
And we work with are continuing to be very productive.
As you see in many of the articles that we're already doing.
In our world people are extremely productive.
Our team Olson, it's or customers.
We've been supporting him really well.
I think the.
As you look at how things are proceeded globally, we saw things started in China in them.
Korea.
Italy, and Spain, and France through Europe, and then finally to the U.S. and South America.
And in a lot of the World I think things are really getting back much more to normal.
Obviously in the U.S., Brazil.
Things are or are still a little little less formal I would say.
And then you've got you've got uncertainty around a second waves in all.
But as far as the business goes.
I think we've even been surprised about Oh.
Solid.
All the recurring all the renewal so.
It's been a tiny bit more.
More attrition than usual.
I expect some smaller accounts.
What are struggling but but in in the lions share of the business, that's very very solid.
Services are down, but that's primarily be a software related services revenues are down in and.
Hello.
Client engineering services, as well, but actually the customers have held onto the people.
And Thats, a real indication to us, but they're just continuing to invest in R&D.
So.
No.
I think we've been we've tried to be conservative sure with guidance.
We've learned things over the last couple of years and I think we understand the importance of conservatism there.
But we're feeling very very.
It's sort of as positive as you can and in the middle or something like the us.
About.
Making our way through it and then coming out the other side much stronger.
Great. Thanks for that color, Jim and then what do you can talk a little bit about the altira units.
Business model is that intended to.
Still it paid kind of cloud hosted usage of your products.
And in General are you seeing more hosted usage of your products.
During during cobot and if so how does that affect the business model from a growth or profitability perspective.
So the altera units is intended to address a few different things.
We've created if you will be suites with different price points and so it gives us the ability to go into.
Different accounts, where.
They may not want access to all of the products just a portion of the products and going a little more aggressive.
Pricing that fits those markets, we're trying to target small medium accounts.
Lets us come into larger accounts and bring more value.
They want to different pools.
They can do that as well as go to the enterprise solution or to the Tronics solution alone.
Good.
What they might.
Usually get which is.
Large shareable products.
For us, it's also allowing us to get the right revenue. If you will against usage, because I think we were tracking higher growth and usage them growth in revenue.
To bring that in line.
But we think it's still a very high value solutions for customers and then finally for cloud yet.
Other units are primarily posted.
And now the customers who have the ability to use the same unit some mcleod.
And we have I think a pretty innovative approach to that as well.
We introduced health her one.
That's going on a couple of second.
Release of that as soon as far as how much.
Cloud hosting is growing it's not huge but it's growing.
Thank you sort of this inexorable feminists coming in.
I think we are.
Bringing the technology.
Basically.
Front of the wave that's coming we've been income.
Altered.
You know clearly as best in class technology for cloud technology.
Okay. Thanks for that Jim.
I'll pass it on.
Thank you.
Thank you. Our next question comes from the voluntary with William Blair. You May proceed in your question.
Hi, gentlemen, thank you for taking my question.
Jack a solid solidworks given the environment I wanted to touch a little bits.
On renewals are you know last quarter, you mentioned, some youre going to sales cycles around auto in Aero I guess first how these conversations progress sort of June July.
Have you seen any improvement in central and it feels like you have an assumption of echoing the previous question I really want to focus and auto Arrow and then.
Just to talk about renewals alongside that have you seen customers taking longer to do the expansion because they come up for renewal.
And the way that they did but are you seeing those sort of.
Conversations take long as they will pressure from procurement that im trying to understand.
So.
Some of the larger deals where we see an ex there's an expansion opportunity.
We do see them.
A tiny bit slower we had won the that actually.
Should have gone on Q2 for exam pretty large loan that we already closed.
And it's it's a very nice.
You know edition, so for us to the business, but.
The delay.
While there is some of that Theres no doubt.
Yes, so whenever possible.
Right.
Sorry jump there has just for them up for the most part I think it's that's good we're actually seeing.
Customers, who want to use more products.
In other sand the value.
Belcher brings on both the belly waylaid breadth of products and.
We are getting more attention for that actually in this environment.
But but it does if you want to get hurt your extra deal.
Yes to bid of the patient on we are.
Yes.
Except for the long trip.
One other quick question on Todd said, something you did comment on quite a bit product side I know you're excited about just not reconciled sensitive how that's gone.
I'm not sure followed your question so I apologize could you repeat.
Yes.
Obviously have.
Simulation product.
Probably good solid salt to Mike said, then I would that wrong, but.
I was wondering how uptake of that product God, given we're pretty excited what is going to do this election, driven design space somebody usually comment on that advantage on the and the comments it sounds giving us.
Yes, so I mean, some solves continuing to to drive usage for us. It also drives a lot of interest for us, which brings the opportunity to sell the other products as well.
We integrated inside of inspire inspire platform as our simulation driven design platform.
A lot of different simulation capabilities and Simon customers were really looking forward to at being in there.
And we're continuing you know we just have the personal lives deal and that brings us polyurethane foam and we've got a whole suite of manufacturing simulation as part of inspire.
And a lot more stuff coming.
Really fast actually we're pretty excited so.
Yes.
Some solid is on fire one interesting thing to note.
As.
We were looking at footprint you know of.
You know if you if you if you use some solid versus traditional after you gave the footprint has been about one 100 the amount of.
You know space, if you will.
For for all that all the data all files and the product and the new version is.
Now, it's one one 404 times smaller.
And then the pass now though.
That product is I mean, that's that's a game changer.
Great. Thank you very.
Helpful and.
Hi, Good luck answered my question.
Okay.
Thank you. Our next question comes from Brian Essex with Goldman Sachs. You May proceed with your question.
Hey, guys. Good morning. Thank you for taking my question, Jim just real quick question to follow up on health care, one Mike I caught that you you said it would be out shortly.
What kind of costs are associated with.
Preparing for that launch and.
I guess I just wanted to.
Maybe you get a better understanding of particularly as you provide scalable computing resources for users on the platform is that your infrastructure or would that be just you managing that access to third party infrastructure.
No all all of them.
All of what we're doing is on third party infrastructure you may have seen a good deal that we announced.
Nicole.
Yeah.
But we can move the you know we can move those workloads.
Any any platform if customers want actually pick the entire ultra long solution, so they're going to delta.
Our enterprise as well.
All that technologies L. Terror technology.
We are running it on public clouds.
Great Fantastic and maybe how we're just to follow up on you noted in your prepared remarks progress. The data analytics, maybe can you provide an update with regard to datawatch and the progress that that business, particularly with regard to migration over to unit based pricing is that pretty much done and have we kind of lapped the run off there where this this.
Mike you actually contributing to growth at this point.
Yes, no terrific progress there in terms of the conversion of the business model away from what was legacy paid up perpetual type business. So.
So I would say.
By and large lay up there still I would say a little bit to go over the balance of this year relative to the prior year, but.
The positioning of the product are you seeing just a slew of.
I'm announcements about the enhancements in touch in the product suite is terrific compass.
Beautifully within our Altera units release now to really enable our enterprise customers to access all of the technology.
So it's.
Yes, there is no there's no drag on on that business at this point it all whatsoever, just just an awful lot of opportunity in that segment.
Right great. Thank you very helpful color. Thanks, a lot that.
Thank you. Our next question comes from Andrew Degasperi with Baird. You May proceed with your question.
Thanks, Good morning, Jim and Howard I, just wanted to quickly touch based on.
The softer renewal comment on how to coming in as expected.
I just wonder I wondered if you saw an increase in churn.
And how that may be Brent.
And that.
Over the quarter and review.
Separately, you know how did how did that new business.
Actually.
So youre district restructuring.
Oh or did you want to answer that question sure sure absolutely so as far as churn churn is really not.
I won't say, it's not part of our vocabulary of its just really not fundamentally part of our business for our business model. As a reminder, you know our customers who use on average something in the neighborhood of 20 different applications over the course.
On the cycle so.
Yes, we typically don't see churn whatsoever in this environment, it's really no different.
Yes, the there is immense value to what we offer and.
As we continue to add into the portfolio continued to drive more and more usage.
I think we have spoken about.
Stretching of the sales cycle a little bit.
And for us that that's certainly not overly.
Challenging because typically thats, when we're talking about expansion opportunities within existing customers, which.
Continues to drive.
Great for opportunities for channel.
Nothing negative there.
Well, one thing I could up there and im not sure. If this was part of the question or not.
I will some extra static here for some reason.
But.
Renewals or or or ahead of last year and away.
So because we.
Carriers on new stuff.
So renewals are telling us as expected.
Expansion is almost.
You know consistent with prior years actually it's a little bit down but.
It's not usually down on the new is down more 35, 40% or something so you know that may be gives you a little bit of a sense of what we're seeing in.
And.
Generally it's it's a it's a pretty strong environment for us we're feeling very positive applying some of the business continues to evolve more and more software as a percentage of the total.
Recurring revenues are holding in there really strong first half of this year or there are a record levels actually.
So we're we're feeling.
And when fine actually no real solid.
Thanks, that's helpful and as a follow up.
Howard maybe on the guide for the year I'm just wondering how does what does this imply for Q3 in Q4 in terms of linearity.
So you know that the.
The movement in terms of the topline per se when we we.
Reduce the topline.
Really just our our view on being conservative in particular on.
Services side of our business, which you know you can see the results in Q2 here with.
Dr related services, yes.
You know and and the ship upward on our range on software product is really an indication of what we think.
You know is is really driving as Jim said, you know our recurring software license rate percentage of revenue as well that is software product is really quite strong. So you know when when you look at our.
Yes expectations for Q3, you're talking about software product revenue growing 3% to 5% from the third quarter of last year. So.
Yes.
Yes, that's what we've guided to we believe we're being pretty respectful and conservative of the environment and.
We're we continue to see great opportunities to expand our customer.
The accretion in attractive.
Thank you that's helpful.
Thank you. Our next question comes with JP Morgan You May proceed with your question.
Thanks, Good morning, guys. Thanks for taking my question.
Just a quick follow up on the Altair units model.
First is.
Due to the sweet still allow for.
Yes, tinkering with other tools outside.
Maybe just the just the products that are within.
That particular suite and then second at the sweet centered around they.
Disciplined do you have a CFP suite, where rebid.
End market inherent sweeter suites.
So.
To answer the last last question first there's not an arrow suite or an auto suite.
No we did we have.
Basically in industrial designers mechanical designers concept engineers.
Mechanical engineers, Mecca, Tronox engineers data analysts and enterprise.
On the enterprise suite. So that's how we've we've organized to.
Each each of those actually is additive to the solutions that are available in the previous so.
Yes, so that's how it goes on and that actually fits well with them.
Most of our customers, obviously, we have customers that are pure data analytics customers.
Services, we have added some products.
Such as composer.
Which makes sense could you can do bell Python.
Or our technology and compose.
But.
You know customers like traditional manufacturing customer that might want to use data analytics tools.
You know both in the energy enduring solution.
Engineering departments, and financial departments or marketing or other.
And then use the enterprise solution across the board.
That makes sense or or Austria.
No.
It doesn't make significant.
And I think there the first part of my question has only just underground.
But then.
You've learned or traditional units model has always love for people to play around with your other solutions maybe outside of their core sites, it's making sure that magnets.
Well the case quick follow up on.
A lot in discussions on renewals and net new and it's great to hear that makes me.
Holding up I'm, just curious is it possible that.
New worlds are also holding up at your competitors and so that may be impacting your ability to take share because.
Yes.
August 2020 may not be the best time for an engineered to all benchmark in new product could Tex new tools and a competitor and so you big saving themselves I'm, just going to make do with what I have right now and not add.
Part time job on top of my job.
So.
First of all I always like to say that the.
The market that we play in.
Our competitors playing the this is actually a pretty darn good markets. So I think all the ships are rising let me say that way.
And you're right.
There are certain certain.
You know.
Teams that are going to say that's not the time for change.
We frankly speaking you're also seeing a lot of teams that are feeling a lot of trust.
In terms of.
Others.
They are trying to evaluate you know.
Which tools should should they be using.
In some cases, frankly quite a few cases third citing too.
To make those books.
Thank you.
Yeah.
Thank you. Our next question comes from the Mark Schappel with benchmark you May proceed with your question.
Good morning, Thank you for taking my question.
Jim I relates to your SMB business is relatively small at this stage, but.
It is something that occurs initiative at the company.
Are you seeing anymore buying hesitation smaller customers than your with your larger customers in that market.
Probably I have to admit that I not.
Maybe not as informed us that should be we are more and more going in direct.
Two.
The very small customers much more so than we are doing before.
So for us.
Some new space and so we're actually seeing.
Selling more activity. So we are seeing before because we've been somewhat aggressive there.
In terms of partnering them and also some of the business development activities that we've done.
Theres no doubt that smaller companies are more impacted by the current situation.
Then.
Some of larger companies that can be more resilience of us.
Great. Thank you and then with respect to what you saw on different geography is could you just talk a little bit more about where you're seeing weakness and where you're seeing strength.
Yeah I was I was looking at the numbers. This morning, just to you know because I thought somebody might ask this question actually you know the the growth or the flatness.
The business is pretty consistent.
The cross the the.
Across the board actually between the Americas, EMEA and APAC.
So in general I think we're seeing.
We're seeing things somewhat equivalent lay the Americas little stronger I'm going to say our touch stronger.
And I'm not even quite sure why that is.
But in general it's fairly consistent across the board.
And that might be looking backwards et cetera, looking forwards by the way because I think I think things to overseas harder early earlier.
On the come to the U.S.. So I think it's that's kind of sort of balance so.
Thank you.
Yes.
Thank you everyone I'm not showing any further questions at this time I would now like to turn the call back over to James capital for any further remarks.
Okay well.
One of express appreciation core.
Everyone's support.
And.
A lot of appreciation for from my team.
Crown across the World people have really worked hard.
Sure.
Over the last three months here.
The team is really pulled together.
Actually been a very exciting time.
I do have concerns, but everyone is getting a little battle fatigue and.
Reminding people that.
Let me take some time off but in general things are going well.
I really appreciate all the investor support as well so thank you very much.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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