Q4 2020 Altair Engineering Inc Earnings Call
Ladies and gentlemen on today's conference is scheduled to begin shortly please continue to standby and thank you for your patience.
[music].
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to Altair Engineering incorporated fourth quarter 2020 earnings Conference call.
At this time all participants are in a listen only mode.
And speakers presentation, there will be a question and answer session.
Ask the question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded EPS.
Require any further assistance please press star zero.
I'd like to hand, the conference over to our Chief Financial Officer, how work Tomorrow.
Good morning, welcome and thank you for attending Altair is earnings conference call for the fourth quarter of 'twenty and 'twenty.
And Howard more off Chief Financial Officer of Altair with me on the call is Jim Scapa, Our founder Chairman and CEO and Matt Brown, who assumes the C and that's all well on March 16th.
After market closed yesterday, we issued a press release with details regarding our fourth quarter performance and guidance for Q1, and the full year 2021, which can be accessed on the Investor Relations section of our website at investor that Altair dotcom.
This call is being recorded and a replay will be available on the IR section of our web site. Following the conclusion of this call.
During today's call, we will make statements related to our business and maybe 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 for outlook.
These statements are subject to a variety of risks and uncertainties and could cause actual results to differ materially from our expectations.
These risks are summarized in the press release that we issued yesterday.
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 S. E T as well as other documents we have filed for May file from time to time.
Okay.
During the course of today's call, we will refer to certain non-GAAP financial measures.
Conciliation of GAAP to non-GAAP measures is included in our press release.
Finally at times and our prepared comments for responses to your questions. We may offer and metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business for our quarterly results.
Please be advised that we may or may not continue to provide this additional detail in the future.
With that let me turn the call over to Jim for his prepared remarks.
Jim.
Thank you Howard and welcome to everyone on the call.
Altair had an excellent fourth quarter and full year 2020, especially given the global COVID-19 pandemic and.
And I don't like uncertainty and.
And I'm proud of what our team accomplished in 'twenty and 'twenty.
And our Europe business disruptions for personal challenges Altair brought to market broad and deep additions and enhancements to our product portfolio.
Delivering solid financial results.
Though some challenges remain due to the pandemic 'twenty and 'twenty has positioned us well for 'twenty and 'twenty one as.
As we demonstrate successes around our vision for the convergence of stimulation high performance computing and artificial intelligence, we will continue supporting our customers with industry, leading technology and unparalleled engineering and data science expertise.
We have never been and such and energize position regarding our software offerings.
Our integrated suite of software Optimizes designed performance across multiple disciplines, and accomplishing structures motion fluids thermal management electromagnetics system modeling and embedded systems.
While also providing AI solutions and true to life visualization and rendering.
Our HBC solutions maximize the efficient utilization of complex compute resources and streamline the workflow management and a compute intensive tasks for applications, including AI modeling and simulation and.
Visual ization.
Our data analytics and AI products include data preparation and data science and visualization solutions, but fuel engineering scientific and business decisions.
We were pleased to report Q4 results with total revenue of $133 4 million.
Software product revenue for the quarter was $113 6 million, reflecting year on year growth 12%.
Adjusted EBITDA was $21 7 million and increase of 70% on on the fourth quarter of 2019.
All were well above our guidance range goes.
For the year 'twenty and 'twenty software product revenue grew and grew to $391 7 million from 366, and 7 million for prior year and an increase of 7% on.
Total revenue equaled $469 9 million compared to $458 9 million, a small increase recognizing and continued softness and services.
Software product revenue was 85, 2% of total revenue for the fourth quarter compared to 81.7 Mil per zone and the prior year period.
For the full year, 'twenty and 'twenty software product revenue increased to 83, 4% of our total revenue from 79, 9% and 2019.
Our recurring software license rate was 92 per cent for the full year, 'twenty and 'twenty versus <unk> 87 per cent and 2019.
Software renewals and the quarter continue to come in and as expected with several significant expansions and new customer activity remains healthy.
And as we drive the convergence of stimulation H B C and AI into 2021.
I feel it might be helpful. At this quarter's customer stories.
Just on and momentum toward this convergence.
And optics on our solution for real time data streaming and visualization was selected by a European company specializing in retail customer behavior analysis.
Their work includes biometric measures, which can in turn and lead to predictions around buying preferences.
The application supports our multi format dashboard with data visualization photos and video and audio.
Technical domain knowledge is key and the effective implementation of a odd toward engineering applications.
Defense Agency is implementing a great example of a converged system modeling to support work, including radio signals satellite communications and electromagnetic spectrum performance.
Our work with them started a year ago around electromagnetic simulation.
As we help them develop a cloud based real time telemetry data processing data analytics and archiving system. It will include elements of data acquisition and real time data science and visualization simulation models and closed loop and predictive analytics.
And the food industry, a large multinational company that's been a long time user of monarch data preparation tools licensed on a traditional named user basis.
After on M&A, but we met with the new parent company and opens conversations around Altair units licensing model.
Especially with regard to the ability of the enterprise to access all of the Altair <unk> tools, including data preparation and data science and E on as well as real time data streaming and visualization.
This dialogue turned into a true win win with the customer now accessing the entire suite of our data analytics and AI tools across many additional users while seeing value and a substantially increased financial commitment.
And a similar fashion on a large financial services organization, that's been using monarch for data preparation for more than 20 years. The relationship has been completely restructured from named users on a single application licensing to a broad deployment of Altair, you and us.
And for all of their data analytics and AI needs.
The result is significantly more users and nice growth and the relationship.
We believe the Altair units licensing model is potential for disruption and the.
Data analytics and other high market software market place.
A global leader and agricultural machinery committed to Altair units for the application of AI to engineering with a goal abuse and digital twins to improve predictive maintenance and reduce the time and cost required for testing.
A european manufacturer of metal parts for the automotive industry is using Altair is AI and engineering capabilities to diagnose predict and reduced production anomalies.
These wins are great. Examples of Altair is deep engineering knowledge, helping customers to bring the power of value to their enterprises.
One of our larger data analytics deals to close out 'twenty and 'twenty, a major technology company.
Inc to seven figure purchase agreement with initial use cases around payroll optimization.
Along with a matching and reconciliation process the customer will be used on altair for visualization and scoring analysis.
And our internal ROI calculations on this implementation are impressive.
And we are delighted to see a customer so emphatic about their ability to get and outstanding financial return on our data analytics and AI tools.
A great example of our vision of converging AI with engineering, that's expressed on the press release, we issued last month discussing our Mou with Rolls Royce, Germany to collaboratively conduct artificial intelligence and engineering to derive business value across rolls Royces engineering.
Testing and design of aerospace on drums.
The collaboration will address a wide variety of use cases, including applying data science for the vast amounts of engineering test and data, which can lead to a significantly reduced number of sensors needed.
This single use case alone.
The potential to reduce recurring costs by millions of euros.
As a pioneer of the convergence of AI and engineering.
Or is on or to be the technology partner of choice to help Rolls Royce, Germany, like better daily data driven decisions and transform their business and products.
On the topic of acquisition and I am pleased to announce we have acquired flow simulator GE aviation.
Both simulator and integrated flow heat transfer and combustion design software, which enables mixed fidelity simulations to optimize machine and systems design.
As organizations are increasingly stimulate and complex duty cycles solutions like flow simulator or needed to model and entire system.
Including rapid iteration concept modeling and understanding of the system simulation and system behavior and virtually anything that encompasses thermal management.
Bringing flow simulator and so the Altair software that will allow us to expand its capabilities on the aerospace market and make it available to new industries, including defense renewable energy automotive and electro mobility.
In addition to the acquisition.
Altair and GE aviation and signed an Mou and facilitate a higher level of collaboration and establish a long term strategic partnership.
And I'm thrilled to strengthen our relationship with GE aviation a longtime customer equally excited about the future flow simulator as we will bring the simplification of model and complex thermal systems to new industries.
We continue T ball Altair is organization and processes toward more operational efficiency.
And I believe these changes are resulting in more effective delivery.
Knowledge and expertise to our customers.
One example is with our global technical support organization.
Infrastructure and organizational changes are allowing us to provide deep knowledge and expertise to customers, regardless of geography, even as our technology portfolio expands and bra.
In addition to leveraging global capabilities for customer facing roles. We continue a path of internal digital transformation.
And Twenty-twenty Altair like many companies navigate and COVID-19.
Shifting to a remote model for work and communications with customers and co workers.
Going forward, we expect to return to a hybrid model.
Bolt work and traditional office and travel.
We believe these changes while not affecting our external relationships will play a role for EBIT expansion as we scale Robin yet.
As announced in December and a December press release, Howard more off is on the process of transitioning the CFO role to Matt Brown.
I am deeply grateful to Howard for as many years and great leadership and guidance for Altair.
Especially as we made the transition from a privately held company of many decades, so on organization ready for an IPO.
And then two and operating public company.
And the three years since we went public and Howard has been on a straight and steady voice for Altair and I wish him well and its next adventures, especially those involving his family and his work with charitable organizations.
And choosing our next CFO. It was important to me that we have someone with an operational focus and enthusiasm for doing the right things as we grow the company to the next level of revenue and profitability.
Net is clearly on target on this regard given his financial expertise and large scale software company experience.
That will officially take over from Howard on March 16, and both of them are to be congratulated on their superb process of transitioning the role and a way that is truly benefited the altair organization.
I look forward to working with Matt as we remain focused on delivering great technology to our customers, while we scale our software revenues and increase EBITDA for sustainable long term growth.
Now I will turn the call over to Howard and Matt to provide more details on our financial performance and our guidance for the first quarter and full year 2021.
Howard and Matt.
Thanks, Jim I appreciate the kind words and I'm delighted to have contributed to the growth and success of Altair over the course of the past decade.
I will cover our Q4 and full year 'twenty and 'twenty results, while Matt will detail our expectations for 'twenty and 'twenty one.
And Jim mentioned, we delivered excellent fourth quarter results on the top and bottom lines driven by software product revenue well in excess of our expectations going into the quarter.
I would like to remind everyone that our seasonal billings patterns, coupled with the treatment of revenue under ASC 606 results and heightened seasonality and revenue and associated metrics with higher software product revenue recorded on our first and fourth quarters of any given year and we expect this pattern to continue.
We exceeded our revenue guidance for Q4, driven by strong growth and software product revenue and handedly exceeded our adjusted EBITDA guidance driven by the combination of strong software revenue performance and continued controls over our operating expenses.
We entered the quarter with a conservative perspective due to the uncertainties arising from COVID-19, since our Q4 typically includes a greater proportion of expansion and new revenue compared to other quarters.
We are delighted to see that the strong software growth we generated in Q3 carried through into Q4.
We previously noted that changes and certain currencies can have an impact on our revenue expenses and cash flows, especially when those changes occur over a relatively shorter time periods or when currency changes on more pronounced over time.
Accordingly, we believe it is meaningful to measure aspects of our performance on a constant currency basis.
For 'twenty and 'twenty currencies did have a positive impact of $3 $8 million on billings and and.
And insignificant impact on revenue and adjusted EBITDA for the year.
For Q4 currency positively impacted revenue by $3 $2 million and he had a nominally positive impact on adjusted EBITDA.
Billings benefited in the quarter by seven $5 million due to currency moves compared to Q4, and 19, primarily driven by moves in the euro.
Our fourth quarter results are attributed to continuing solid demand for our software products that exceeded our expectations.
Software product revenue reached $113 $6 million and increase of 12, 3% from a year ago.
And over 9% on a constant currency basis.
While total revenue equaled $133 $4 million representing growth of almost 8% from the fourth quarter up 2019 and over 5% on a constant currency basis.
Acquisitions did not have a meaningful impact on revenue for the quarter.
Total revenue continued to be impacted by the reduction and software related and client engineering services revenue, resulting from the continuing impact of COVID-19 on the demand for these services.
Reflecting continued modest recovery compared to Q3, our software related services revenue declined about 12% in the quarter relative to the prior year.
These results represent improvement compared to Q3, which declined 22% compared to the prior year.
And as expected our client engineering services revenue declined by 15% and in the quarter compared to the prior year due to reductions imposed by some of our CES customers consistent with the prior quarter.
Our 'twenty and 'twenty results benefited from demand for our software products.
For product revenue reached $391.7 million and increase of almost 7% from a year ago, while total revenue equaled $469 $9 million representing growth of two 4% from 2019, both exceeding guidance provided last quarter.
Software related services declined by $23 five per cent compared to a year ago, primarily impacted by the headwinds and our automotive customer base.
Our growth and investment strategies remain targeted and higher margin software product revenue opportunities.
Revenue mix continued its favorable trend in the fourth quarter.
Software product revenue increased to $85 one per cent of total revenue up almost 350 basis points from 81.7% last year without any adjustment for currency or acquisition related impacts which were minimal.
This continues the important long term trend and increasing mix of software product revenue the key driver to expansion of our operating margins.
For the full year software product revenue progressed to 83, 4% of our total revenue from 79, 9% for the prior year.
Our recurring software license rate and as the percentage of software product revenue that is recurring.
To be strong with a healthy increase to 92% for the year as we continue to emphasize growth and our recurring revenue streams.
Fourth quarter billings were $146 million and increase of 12% from a year ago, driven by software momentum and <unk>.
Ticketed hooked on strong growth and our software product business.
For the year billings were $484 million and increase up about 1% from a year ago, driven by the growth and our software product business offset in part by declines and software related and client engineering services.
Okay.
We tend to view billings over longer time periods due to the impact variations and timing of renewals expansions and new customer arrangements can have quarter to quarter.
I would like to shift to the balance of the P&L results.
Gross margin and the fourth quarter improved to 75, 5%.
Consistent with the revenue mix shift to software product revenue.
On a full year basis gross margin improved by over 300 basis points to 74, 2% compared to prior year gross margin driven by the positive shift in revenue mix.
For the quarter, non-GAAP operating expenses, which exclude stock based compensation amortization of intangible assets and other operating income for $81 $9 million.
The increase from $73 million in Q3 is consistent with our expectations of the impact up on acquisitions later in 2020 as well as restoring certain cost reduction efforts undertaken earlier in the year.
Adjusted EBITDA for the quarter equaled $21 $7 million, a terrific increase up over 70% from last year, driven predominantly by the increase and software product revenue.
Along with the benefit of reduced travel and selling expenses operating under COVID-19 restrictions.
In Q4, we did realize some revenue and incurred expenses related to the acquisitions of univar, Alexis and M base.
The magnitude of these inclusions did not significantly impact our results either on the topline or bottom line.
Adjusted EBITDA for the year grew over 45% to $57 $3 million compared to adjusted EBITDA of $39 $5 million, a year ago, driven by healthy software and momentum in the second half of the year, along with cost reductions over part of 'twenty and 'twenty.
Arising from COVID-19 actions, we have spoken about previously.
Our performance in 'twenty and 'twenty pushed adjusted EBIDTA margins in 2020 to 12, 2% up from eight 6% in 2019.
Turning to our balance sheet consistent with the typical seasonality and our billings and collections activities. We ended the fourth quarter with $241 million and cash and cash equivalents.
We had $120 million and undrawn capacity on our U S revolver.
Just note that in early January 2021, we repaid the $30 million, we had drawn on our line of credit during 2020.
We generated cash flow from operations for the year.
$32 $9 million compared to $31 $4 million for 2019.
Our free cash flow improved to $26 $8 million compared to $21.7 million for the prior year due in part to reduction and cash expenditures for property and equipment.
And there's been a pleasure to have been a part of all care the past decade, working with Jim and entire Altair team and more recently the investment community.
Having spent much time with Matt during our transition and.
Completely confident that the finance function will be in great hands going forward.
I would now like to turn the call over to Matt to discuss expectations for 'twenty and 'twenty one.
Yeah.
Thank you Howard I wanted to start by thanking Howard for providing a very thorough and seamless transition over these past two months when I started on January for us I could not have imagined a better handover of CFO responsibilities, he's left us and a great spot for the future.
And he has assured me that if we need to call him he'll still pick up the phone.
So Howard Thank you very much appreciate it.
As you just heard we're coming off a very successful fiscal year, 2020, and especially Q4 and what was the challenging COVID-19 environment.
We saw record software product revenue in Q4 and for the full year with fiscal 2020 software product revenue growing six 8% year over year.
Total revenue in 2020 grew two 4% year over year and while also a record high we saw declines and our service revenue debt, partially offset the software product revenue growth as some customers pulled back on their services and contract spend.
As we look ahead to Q1 and fiscal year 2021, we expect to continue the momentum we saw at the end of 'twenty and 'twenty and carry that into 2021 and.
And are expecting software product revenue for Q1 'twenty one in the range of 118 to 120 million for.
For year over year growth of 8.8 to 10, 7%.
And for fiscal year, 2021, and the range of $423 million to $431 million for a year over year growth of 8.0% to 10.0%.
And looking at total revenue for 2021, we believe our services revenue has stabilized.
And although we do not expect to see service revenue declines in 2021 like we did in 2020.
We are not expecting service revenue growth either as we continue into what is likely another mixed COVID-19 year.
As a result, we are forecasting total revenue for Q1 'twenty one in the range of $138 million to $140 million.
For year over year growth of 5.0 to six 5% and.
And for fiscal year 2021 in the range of $502 million to $510 million or year over year growth of six eight to eight 5%.
We believe our revenue guidance is balanced.
It will depend on the levels and speed of the post Covid recovery, particularly in the later part of the year.
From a cost perspective, the company succeeded and limiting expenditures during 2020, well in the midst of COVID-19 uncertainty.
In particular during 2020, we reduced marketing and trade show costs by almost 40% relative to the prior year.
And reduced travel and entertainment costs by 68%.
In 2021, we expect some of this activity to return to normal, resulting in an increase and cost year over year, particularly in Q2 through Q4, 'twenty one as we anniversary some of those cost cuts and as travel resumes.
However, we will continue to be disciplined and our expenditures.
We are currently looking at targeted reductions and employee cost contractor costs and professional services spend as we reorganize within the business.
We expect these reductions to be substantially complete and the first half of 2021.
Freeing up capacity for investments and our product technology and sales capacity.
As a result, we expect to incur cash reorganization costs and the first half of between $5 million to $7 million, which is excluded from our adjusted EBITDA.
For Q1, 'twenty, one we expect adjusted EBITDA in the range of 24 to 26 million for year over year growth of 10.7% to 20.0%, which.
Which translates to adjusted EBIT margin of 17.4 to 18, 6%.
And for fiscal year 'twenty 'twenty, one we expect adjusted EBITDA in the range of $58 million to $66 million for year over year growth of one point to 15, 2%, which translates to adjusted EBIT margin of 11.6 to <unk>.
<unk>, 9%.
Our expectations on adjusted EBITDA are inclusive of the cost reductions and investments I mentioned a moment ago.
We expect free cash flow for the year to increase in line with the increase and adjusted EBITDA.
And we will be impacted by the reduction related cash cost.
And our forecasting free cash flow for fiscal year 2021 in the range of $26 million to $34 million.
As a reminder, our cash flow expectations are sensitive to billings and collection patterns, which fluctuate seasonally.
We've provided detailed guidance tables, and our earnings press release, which was issued after close of market yesterday and includes guidance on non-GAAP net income.
Moving forward when measuring non-GAAP net income we will exclude noncash interest expense and we will apply a consistent non-GAAP income tax rate.
We've made these changes to reflect management's views the business and to be more consistent with our peers.
These changes will be applied to comparable prior periods to aid and comparability and have been provided and the supplemental tables and our earnings press release.
COVID-19 developments continue to evolve, but we are cautiously optimistic on a broad economic recovery as we look ahead to 2021.
Altair has never been better positioned to support our customers on solving some of the most challenging problems faced by engineers.
And to and data analysts.
Our simulation products are being increasingly adopted earlier in the design process.
And proving product performance and reducing costs for our customers.
Our H P C products are enabling customers to maximize their compute resources.
And our data science and preparation tools are leveraging AI to enable customers to organize and visualize data to make important decisions quickly.
And we see these solutions converging and providing real value to our customers.
With that we'd be happy to take your questions operator.
Thank you and ladies and gentle and as a reminder to ask a question you will need to press star one on your telephone until they multi ourselves on the queue Cresta has our pound key.
One moment, while we compile the Q&A roster.
Our first question comes from Rich Valera Whitney and hand.
And please.
Thank you and good morning, and congratulations on a strong finish to the year and Howard Best wishes on your next chapter and welcome Matt.
And with that wanted to just talk about how the quarter played out for sure expectations really nice upside in the quarter and I'm wondering was that a result of things coming in and of you're actually seeing improvements during the quarter or just conservatism get embedded into the guidance. Because you were kind of concerned about COVID-19 second wave, which I think you had mentioned on last quarter's call.
Just wondering where the upside came from on the quarter relative to your expectations.
So that's true.
We're on it upfront.
Mrs.
Jim go ahead for unhappy to the answer.
And why don't you answer that and our that'd be great.
Sure.
And rich and thank you for the nice words.
And we certainly entered with a sense of conservatism.
We've.
Frankly been pretty cautious over the course of the entire year for for obvious reasons for most of 2020 for obvious reasons. So we entered the quarter Conservative we know that in Q4, we are a little higher proportionate for new and expansion revenue.
And as is typical in and our Q4 so.
The conservatism that we thought was very well warranted.
Against that backdrop for the quarter continue to I would say improve as the quarter navigated, along reflecting growth investment strength and and our customer base and frankly.
<unk> continued use and growth and adoption of technologies that debt are ever. So so critical to our to our customers. So I think it was really a sort of a combination of conservatism.
And as well you know.
And new and expansion in the way that you would hope to see.
That's great.
And then maybe for you Jim Great to hear about your success selling kind of converged.
Analytics and simulation solutions, but just wanted to get your sense of where you are in that path towards creating net converged model.
And kind of relative to maybe where you thought you were going to be when you made the acquisition and where you think it could be safe.
And say five years from now what you've done so far and maybe what youre doing to defer to that integration and then just where you are and sort of the model transition for.
And for that analytics business. Thanks, John.
Okay.
Okay. Thanks rich.
Your voice.
So I mean I.
I think the model transition is largely done at this point.
And we've really moved and move things over to subscription pretty.
Pretty well at this point and where it's kind of on par with the rest.
Moving on to this year.
And part is done.
As far as sort of this converged on.
Between the engineering on the day on all of it.
I think it's a very natural.
Transformation, and that's really happening with capital within our products and.
And ways.
Customers and users don't even know what's happening to some extent and it's also happening for you know for customers, who really are beginning to recognize the opportunity.
So we have almost every one of our account managers has opportunities at this flow.
That are really taking advantage of this convergence.
It's really.
It's really starts will engage we're starting to understand and use cases that make sense.
As we have success on.
And.
And I'll point point, those use cases to two other customers.
Five years from now on I don't think we're going to be talking about sort of a difference between stimulation.
I think it's all going to be.
Hold on computational science basically is what we're talking about.
That's great thanks for that Jim and congrats again on.
On a nice performance.
On June.
Our next question comes from on Jackson and bar.
And with J P. Morgan your question please.
Great Good morning, guys and and yes.
I'll Echo Rich's.
Howard it's been a lot of fun and welcome Matt.
First question on the on the reorganization.
And what areas.
Net sales force or.
Or I guess, what types of sales investment will you guys be making you know where you're going to be shifting chips away for them and and being placing bets.
Yeah sure and.
Thanks for the question Jim you want to do you want to take a stab at that and you can pass it to me.
Yep.
And I should answer that question, sorry for being bought.
So and on top.
And where we're continuing to invest.
We are continuing to invest.
And.
And enterprise level customers, who.
We see large opportunities with so we're beginning a new target.
And our direct account managers more and more.
Those opportunities and create more focus for them, we're creating swim lanes.
Really and the markup and.
Working the direct account managers of the accounts that makes sense for all for these enterprise opportunities, we have inside sales and business development.
Working more down markup and indirect also debt on markup and combination with them. So we're continuing to make investments. We're just we think we're just getting smarter on our.
We're working on iPhone and.
Leveraging.
The sales resources and the capacity that we have.
And I can answer on something there I'm not sure what is going on yeah.
Yeah, I mean, I would just China, and and say you know from a from a high level context right. I mean this is.
And over the past five years, we've done.
Two three years or so acquisitions and.
And.
Continue.
To really refine our operating model and so that's how I would characterize this.
We're going to continue to invest and our and our product technology and and and our sales engine moving forward.
And so this is really a refocusing and that's the way that I would characterize it.
Okay and then.
Follow up I guess directly from that.
What's the FX tailwind and in 2021 for the revenue growth guidance.
You know it's it's.
It's a couple of point.
I think.
Obviously as we guide.
'twenty one.
And we're using today's rates on the FX. So.
You are not.
We're not anticipating movement and the FX rates.
But but within the comparable to the sort of year over year.
Impact.
It's worth a couple of points of FX on the on the on the.
Revenue line, but next and nothing on on EBIT.
Those those naturally offset.
Sure Alright.
Alright, great. Thank you.
Our next question comes from and by ban and Sui with William Blair. Your question. Please.
Great. Thanks for taking my question and I'll.
And I'll Echo my congrats on the quarter welcome.
And welcome Mats and Howard we will Miss you.
And I'm sure I'm sure, we'll run into each other again, but.
Best of luck.
I guess I wanted to touch on on a couple of quick things one maybe just one for Jim Jim The services business.
Obviously this year or in 2020 had challenges just COVID-19 et cetera, but as you think about it one of the great things about that business. Once you got really intimate with customers like you've got to understand what they were doing but they wanted it drove some product development or at least ideas around innovation and as you think about 'twenty, one and 'twenty. Two do you think you reinvest and that.
A little bit to sort of keep that customer intimacy to keep those guys at the customers to help them with their solutions, but also to help guide and drive product innovation and how should we think about that playing out.
We are still very very actively engaged with a lot of customers on.
Also.
Very advanced projects and.
And electric motors batteries and all.
Those kinds of things additive manufacturer on simulation all of that.
The services business.
It declined if you will last year.
Is this closer to continue on the Super advanced stuff that we do.
Down to a more commodity level.
And we don't have to the varying commodity anymore over the last five or 10 years.
And the that are being lost if you will or more of the things on the commodity levels on so we're still very engaged with customers customers still recognize and above.
Technical superiority of Altair.
And it's advancing our products still but it's also advancing as relationships.
Got it got it and then.
Maybe one for Howard and Mats combined maybe but you know how would you add to that philosophy over the next number of years about guidance with Jim and team and I guess, Matt as you look at the guidance for 2021.
Given there is still risk and COVID-19.
And you think about sort of billings was up one percentage or a little above that and constant currency I guess, what are you seeing and pipeline or our customers and the auto space hiring more engineers.
Are you seeing close rates improve lands improve the size of the initial and improve expands and prove that sort of gives you that visibility confidence against the business. The business itself is not choppy, but the customer adoption and customer buying behavior can be choppy and so just trying understand how you guys have thought about the guidance and sort of what you bring to the table in terms of visibility on I'd love to sort of thing.
About that both tactically for 'twenty 'twenty, one and the strategic how do you think about guidance. Thank you yeah, Yeah no I appreciate the question so.
I would I would say that we are cautiously optimistic about 2021.
And you can kind of separate top line at least into the two sections, one being software product revenue and.
And the other being all else right. So if we start with all else.
We're still and a mixed COVID-19 year.
As you know last year Q1, not not really impacted by Covid.
This year Q1 place right and.
And as we move forward throughout the rest of the year.
We're expecting some bit of recovery, but net net our expectations on on everything other than and software product revenue is that the year is going to be basically flat.
To 2020.
And so then that leaves you with software product revenue and.
And.
We're pretty optimistic there.
Seen good engagement from our customers.
And we're seeing a healthy pipeline and we feel very strongly about our technology and how we compete.
And so thats, where youre seeing the growth.
And.
And of course, we'll have to see how the year plays out but like I said, we're cautiously optimistic there.
And if I could add to the proportional.
No.
I think that sometimes it's it's undervalued by you guys, but are recurring revenues.
And I think and.
2020 was something overload Youtube for some so we go into the year and.
Very very sturdy even on 2020, so we go into the year with a pretty high recurring revenue.
We expect the attrition on that to be a little bit better than that.
And on the prior year.
And when we look at new and expansion of course, we were a little bit weaker last year there but.
But we can judge how weak we were against where we expect we might be.
And you know them.
All of that together.
Gives us cautious optimism as well.
Gotcha Gotcha really helpful guys. Thanks for taking my questions I appreciate it.
Thank you.
Thank you. Our next question comes from Ken Wong with Guggenheim Securities. Your question. Please.
Great. Thank you for taking my question.
And this one for for you Jim.
And the data space.
On Southern California, based competitor that saw a little bit of softness and just based on what we're hearing from you guys. It looks like and you feel that your business is powered powered forward quite nicely.
Wondering maybe what some other trends youre seeing maybe what some of the differences on in terms of why you guys seem to be be searching for.
They seem to be seeing a little bit of weakness.
Yes.
So I can't speak to.
For the other guys.
But for US I think we have very very strong solution on the data prep side.
And just continues to go forward.
Thank the rest of our offer and frankly speaking is quite quite a bit deeper and broader.
And on.
The other guys I assume you're alluding to.
And on.
And frankly, all of that integrated with the rest of our business and our target levels.
Gives us this optimism.
Got it got it.
And then just one.
For the mountain Howard Combo, I guess on the on the.
EBITDA guide it doesn't look like you guys are getting much leverage next year on a full year basis. It looks like it's going to be flat for low margin perspective can you maybe just walk us through some other moving pieces on the spend side, whether its reinvestment versus a rebound and discretionary or anything else you might be missing from a from a spend perspective.
Maybe Keith keeps us on getting more leverage on on EBITDA.
Yeah sure Ken I'll take that so you may be underestimating that are all day I think if you look at look at how we exited Q4 from a spend perspective.
That really is probably your best basis as you move forward through the year.
And so you can see we carried that into the into the Q1 guide.
In terms of the spend it's it's it's not.
Not much incremental spend from Q4 to Q1 and at the midpoint of the guide.
And then as you look forward through the year, you actually will see off of that run rate you will see a reduction and our expected spend that's implicit in the guide.
So make sure that you are taking that into account.
There are some nice efficiencies there and then our coupled with investments and.
And our technology and in sales and.
And on some headwinds that we're seeing from some returned to normal on travel and marketing expenses. So.
And I think it's a pretty and I.
And I think it's pretty fair guide on it and actually I'm pretty happy with that outcome.
Yes.
Alright, Thanks, a lot for that.
Thank you. Our next question comes from Brian Essex with Goldman Sachs. Your question. Please.
Hi, Good morning, and thank you for taking the question, maybe maybe Jim a question for you and in your prepared remarks, you gave several nice examples of customer significantly restructuring their relationships.
But whereas what are the overall trends with regard to adoption of product groups within the Altair unit platform are you seeing a meaningful number of enterprises buy for greater flexibility.
For example, buying multi physics, instead, and mechanical engineering to enable usage of perhaps stim lab and inspire and other adjacent applications.
So the answer is yes, actual and be Altair units model is doing very very well received.
And it's well received by my.
Account management team they they really appreciate it.
Because it gives them the ability to get the right value.
And our customers that are willing to pay more for you and all the extra service features and our products and it lets us basic.
Basically to be competitive and.
In new markets.
And where the customers are more price sensitive.
So I think our guys are saying well I think the customers are appreciating and as well actually for.
And our share model for them.
And we are seeing adoption for sure.
Great.
Good to hear and maybe just a follow up to <unk> question.
And on services as the benches services talent that you have access to limited to a certain group of businesses or verticals or perhaps certain technology versus some emerging technology and other words, how applicable are those services as you continue to extend your model into emerging businesses or additional incremental technology.
<unk> through acquisitions.
We have very very significantly.
Shift.
Bill sets that we have.
I mean, if you look at the projects until M.
And electronics electric vehicle and electric mode sensors.
Iot devices.
We are or at the state of the art.
Battery design.
I think you'd be you'd be surprised.
And the expertise that we have now.
Great. That's super helpful. Thanks, Thank you very much and congrats on the results.
Thank you.
John.
Our next question comes on Matt Hedberg.
And then C tapped on like M. E. R question. Please.
Hey, Thank you and congrats for me as well and I'll, obviously, Howard great working with you and Matt look forward to talking with you again.
I just had one question and it's really a follow up to Brian's question on Altair units.
And obviously youre seeing success there.
And it opens up new opportunities I guess the question is as you know when you think about the 2021 guide how do you contemplate how pervasive.
Or maybe said differently you know the impact on top line growth with increasing usage of Altera and I was just wondering how you sort of conceptually thought about that as you contemplate would be the outlook for 'twenty one.
Yes.
And Matt Thanks for that budget, but I I personally am thinking.
Thinking about it.
At that sort of level.
Level.
Trying to model that.
I don't know if Matt matter of hours and have been channel do that.
And for US we're strictly looking on.
And what we see the pipeline looking like.
Yes.
And can chime in there too Jen Matt good to hear from you.
So.
Some helpful context, I think so far as of now roughly a third of our customers have actually already converted so I.
And I think that's important to note and we're going to expect the rest of those customers to.
To be substantially completed within the next year, So we'll see that throughout the year and.
And the way that I'm thinking about it is.
Is that as these customers convert their finding their way into the into the suite that makes the most sense for them and some cases and it ended up being.
And the price increase and other instances, they're finding it.
That makes sense for them, where they can they can utilize the exactly the products that they want.
And so and the first year I'm, not I'm not expecting a meaningful impact.
But what I think it does is it sets us up.
And for the future in a way that it allows these users to expand within the suites that they really.
And that they're really using and it allows us to get the value for that and particularly at the enterprise level. So.
So hopefully that answers your question, we're not baking in a meaningful impact and the year and so far and we've seen it a third of our customers already converted.
Super helpful. Thanks, guys.
Yes.
Our next question comes from down one day with and our capital your question. Please.
Hey, good morning, Thank you for taking my questions.
The first one is just a little bit in the past you've talked about for the usage has trended, especially towards the end of the day.
The year kind of give us a little bit of and updates over the year and maybe I'm not specifically asking about the quota itself, but just in general how have you seen usage and <unk> on silver evolving throughout the 2020 day that'd be very helpful.
John first of all good morning to you.
I think your question was how do we see the usage of solvers evolving is that correct.
And how did you see it you know what was the kind of the performance in 'twenty and 'twenty just as an overall considering the fact that.
Alright.
A policy and promote it.
Alright, and the solver.
Our software suite that we have.
And continues to gain share, we think and on grow.
M.
Also on every area for us actually so if you went back 10 years ago, we were probably portfolio free post company today.
A very significant part of our business is really all on the physics side.
Those lists and that's total continue to grow even more.
And as time goes on.
So solvers R R.
Our and ever increasing part of our overall business and strategy.
Okay. That's helpful. Thank you thanks, Jim.
And then in light of your comments about kind of being a little bit more mindful at the way, we invest and sales and really trying to attack those kinds of price level sales.
From and.
And re.
Basing some of the other assets either into the indirect channel or is that.
M.
So far would you say your progress on the <unk>.
Indirect sales channel now you've talked and the positive about your ambitions to significantly increase contribution to revenue from that site.
2020 and kind of.
A year foundation, and and you expect that to come for in 'twenty, one and any color on that thank.
Thank you.
Sure. We've made some progress I would say and and it depends on other geography.
But for.
For my from my point of view and not as much progress as I would like to see particularly on the Americas. So.
And I think the inside sales and business development piece of the business is really.
And gotten a lot of traction for us I think the indirect is getting traction more and more and in Europe.
And.
And on the Americas.
We have some more work to do quite frankly.
And kitchen, that's very helpful.
Thank you.
Our next question is from Mark Chapelle from and benchmark and your question. Please.
Alright. Thank you for taking my questions first of all powered on the bus to going forward as it was good working with you.
But Jim question for you and I was wondering if we could dig a little bit deeper into your strategic partnership with GE as part of the acquisition and I was wondering if you just.
To provide some additional details on the arrangement and what we should expect from it going forward.
So I mean this is a long income and partnership for US we've been working with GE for a couple of years now.
With this technology it was actually part of the Altair partner Alliance.
And.
And now the spin out from GE to be something that we've taken over responsibility for for some.
There is very very large user base of this technology inside of GE and sits in the thousands.
And they.
And they are excited and think about having commercial software company.
And I take responsibility for it and Theres a lot of opportunities to leverage those.
To grow the for the partnership and many different directions with GE around.
All of our software so that part we're very excited about there's other projects that we actually have been doing with GE on.
And the area of rotating machinery and on others.
Independent on.
Flow simulator project.
And the flow of simulators.
And that's a really terrific piece of technology.
And that was $2 inside of GE very often.
It can be candid.
And the Oems have a lot of internal development, but they do but very often it's not.
All commercial grade.
And they often are looking to spin it out and on very often that it's not.
And really competitive.
This is not the case here. This is a great piece of technology.
And it's getting traction and a lot of customers for us and.
And we're very early sign on to have it.
With us so it's just a very nice.
Partnership with GE.
Great piece of technology and John.
John.
Our model.
And for things that we think we can do with some other customers as well.
Great. Thank you very helpful and then.
And additional question here on a quarter or two ago, you released your inspire mold a solution and I was wondering and.
And that was a pretty significant capability for the plastics industry and I know, it's still early but I was wondering if you've had any.
Inspire mold wins at the end of the year here that you can talk about.
We have some wins, but probably nothing but I.
Can reach into my bag of tricks on Spa.
Peak about on oral pill here and why.
It's pretty early days.
John we see a lot of interest and on the product.
And.
We're pretty hopeful that we're going on we're going to see a lot of a lot of trash and around it but it's frankly a little early.
<unk> and another quarter or two on.
And I will tell us and what we're doing I'll make sure to study it more.
But for the next call.
Okay, Great I'll make sure to do so and thank you that's all for me.
For Ya.
Thank you and this concludes our Q&A session for today I would like to turn the call back to our CEO and Jim Scapa for his final remarks.
Thank you so.
In conclusion here I just wanted to thank everyone for their support on.
Feeling really great about it.
About 2020, with so many challenges and very excited about 'twenty and 'twenty one.
And once again, just just one on say a final. Thank you to Howard for just being a wonderful partner for me for so many years initially on the board and.
And then tell me and our CFO for the company and helping me to transform our finance department, helping us to go public and just put a wonderful partner for me.
And for so many so many years so wishing Howard the Boston.
Thanks to everyone else.
And all.
Ladies and gentlemen, and thank you for your participation in today's program. You may now disconnect have a wonderful day.
And later.
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