Q3 2021 Altair Engineering Inc Earnings Call
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I'll come to the altar here engineering third corner of 2021 earnings Conference call.
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Although hand the conference over to your host today These Simon Chief administrative officer.
Good afternoon, welcome and thank you for attending Ulterior earnings conference call for the third quarter of 2021 ended September 30th 2021.
Monday, Simon Chief administrative officer of all Thier and with me on the caller Jim Schiappa.
<unk>, Chairman and C E O and that Brown key financial officer.
Good afternoon welcome to close today was issued a press release with details regarding our third quarter performance and guidance for the fourth quarter and the full your 2021.
Which can be accessed on the Investor Relations section of our website, yeah investor the altar.
<unk> Dot com.
Call is being recorded.
And a replay will be available on the Irish section of our website. Following the conclusion of this call.
During today's call.
Will make statements related to our business that may be considered forward looking under federal securities laws.
$1 3 million.
Software product revenue for the quarter was $102 3 million versus $87 8 million in Q3 of 2020, resulting in year on year software product revenue growth of 16, 5%.
Adjusted EBITDA was $14 8 million compared to $8 2 million in Q3 of 2020, an increase of more than 81% from the third quarter of 2020.
Adjusted EBITDA was $14 8 million compared to $8 2 million in Q3 of 2020, an increase of more than 81% from the third quarter of 2020.
All were above our guidance ranges.
Software product revenue for the first nine months of 2021 continued a strong positive trend at 84, 7% of total revenue compared to 82, 6% during the first nine months of 2020.
Our recurring software license rate remained high at 90% for the third quarter of 2021, and 91% year to date.
To build awareness for our products throughout our target markets globally, we launched a series of virtual conferences.
Registration and engagement numbers have been impressive with more than 30000 people signing up to attend.
Attendees learned about technical trends and innovative use cases, employing our solutions from a number of leading industry and academic guest speakers.
Our response to these events has been overwhelmingly positive and we are excited about the opportunities created.
Positive growth trends for our business persists across verticals technologies and regions.
Today, I will talk about new product releases, including an exciting new offering for electronics designers, our acquisition of aspirin and the AC vertical.
Our just released corporate social responsibility report and some customer successes.
One area of ongoing customer success is the conversion of data analytics customers from traditional named user licensing to Alterra units.
Long term perpetually licensed data preparation customer in the financial industry was recently converted to a six figure annual subscription.
Tracked to deploy data analytics and visualization throughout their organization via knowledge studio and Panopticon.
We continue to evolve our product portfolio with a combination of sustaining and disruptive innovations and recently announced the 2000 21.2 product update.
The 2021 point to release of inspire our simulation driven design platform includes a large number of features including a Python API.
New geometry tools and optimization algorithms for minimizing three D printing time.
Smart works 21 point too.
As a modern evolution of our desktop tools to harness the power of AI analytics, and the internet of things and our cloud native platform built on the experience. We have gained in data analytics and smart product development.
It's built from the ground up using the latest and open source technologies to be performance scalable collaborative and secure.
We've been able to build on top of todays best component technologies, including <unk> and an event driven micro services architecture.
We leverage robust standardized interfaces like rest open API and graph QL.
Securities inherent in the platform design and we provide native support for big data engines, Gpus and open source data processing.
Smart works platform as edge optimized to accelerate development at the edge and includes tools that help build manage and scale automation and intelligence.
Certification features seamlessly accessible to altium designer designer users.
We're excited to provide often users the ability to identify and correct errors before circuit boards receive sign off and enter production.
And we plan to explore similar versions for other ecad vendors.
The power politics is gaining excellent momentum, including a recent six figure when an aerospace in addition to driving important growth in the semiconductor and automotive industries.
Locations in automotive include power electronics sensors and Ada systems.
The 20th 21 point to update a flux motor and exciting solution for electronic motor design across transportation and other industries.
Includes added transient thermal computation abilities and improve representation of solid conductors to simulate winding a C power losses.
We believe the breath of our manufacturing stimulation offering continues to distinguish altair is the leading player for modeling and simulation production processes.
Among the many new capabilities added we recently launched a new solver and environment to simulate binder jet additive manufacturing and a new release of inspire cast where users can now predict thermo mechanical stresses and warp edge during solidification.
Altura recently announced the acquisition of best frame and innovator for more than 30 years with integrated solutions to analyze design and detail architectural and civil structures constructed from steel concrete composites and timber.
As frame structural analysis and support for civil engineering codes across many countries and regions together with Altair state of the art simulation and optimization technology will allow architects and civil engineers to innovate and bring their visions to life, while adhering to local code.
Requirements.
In addition to ask friends technology, we brought on board a great technical team.
1021.
We are humbled by this award, but also accept the challenge to get better.
We are at an exciting time in our history for our technology software products and people.
Our ability to have a positive impact on global issues like sustainability diversity and increased opportunity for under represented groups will continue to grow as we do.
We are determined and committed to help the world a better place.
In addition to the most loved workplaces award from Newsweek, a few days ago altar was named Inc's first annual list of best led companies.
The selection algorithm included four key areas.
Foreman and value creation.
Market penetration and customer engagement talent and leadership team.
Our senior leadership team is intent on achieving success for the company by upholding our core cultural values and this recognition of their focus effort and achievement is a great team.
Our software technology and consulting services are key to designing a healthier and more sustainable future for humanity.
After struck usage increased 10 fold between 2013 and 2020.
As the world's leading tool for material optimization and weight reduction this continuing trend bodes well for reductions in material usage fuel consumption and cotwo emissions all aligned with the goals of the international Energy agency and other global organizations.
I am truly grateful to the entire Altair team for working so hard to sustain the type of company, we can feel proud about being a part of.
One newly published.
Customer case study exemplifies that pride.
Johnson <unk> Johnson, the world's largest health care business and a fortune 50 company produces pharmaceuticals medical devices and consumer goods that benefit of 1 billion people worldwide.
Johnson and Johnson <unk> Johnson Pharmaceuticals.
Company fighting sickness with science.
Janssen created the one dose Johnson and Johnson <unk> COVID-19 vaccine.
World Health organization approved to prevent infection infection and save lives.
This research driven organization relies on high performance computing or H P C.
Power, the discovery and production refractive broadly available pharmaceuticals.
Theyre HBC solution includes including Altera grid engine and they have ops enable them to scale in the cloud and grow their HBC infrastructure to support critical science and research, including COVID-19 vaccine development.
Nabobs creates and scales Altair grid engine clusters dynamically, allowing Johnson <unk> Johnson to continue innovating.
Scalability limits from Janssen previous configuration were removed with the Altra solution and there are clusters are now running at three times the size of the previous implementation.
With increased scalability and improved agility operations deployment and management of HBC infrastructure.
<unk> can perform science on demand with the flexibility to tackle events like COVID-19 at an enterprise level.
This is the sort of technology application.
US truly excited to keep innovating forward.
Also performed well in the third quarter.
We believe we can carry good momentum through the remainder of the year.
Q3 2020.
As with the past couple of quarters, our software billings strength relative to prior year was driven by strong new and expansion opportunities and high retention on our renewal base.
Again, we saw broad success across all three geographic regions and across our product offerings.
We've continued to enhance the capabilities across our product portfolio with important product releases this quarter and inspire smart works and flux motor and.
And have expanded into the AUC market with the acquisition of S frame, which closed in August.
Services and other billings were on track for the quarter.
Up slightly from Q3 in the prior year.
In total the strength in billings resulted in software product and total revenue exceeding our expectations for the third quarter.
Software product revenue was $102 3 million.
Or an increase of 16, 5% compared to Q3 2020.
Total revenue, which include services and other revenue was $121 3 million or an increase of 14.0%.
<unk> Q3 2020.
Our recurring software license rate, which is the percentage of software product billings that are recurring <unk>.
Continues to be strong at approximately 91% year to date.
And as a result of temporary salary reduction and significantly reduced marketing and travel costs.
Adjusted EBITDA in Q3, 2021 was 14.8 million or 12.2% of total revenue compared to 8.2 million or seven 7% in the prior year quarter, an increase of 81.4%.
This increase compared to the prior year quarter as well as relative to our expectations.
Was driven by the increase in revenue in the quarter combined with our disciplined spending.
We are now seeing the full benefit and impact of the cost reduction efforts, we initiated and Q1 and Q2 of this year.
In addition, travel expenses remained significantly below historical levels.
And below our expectations for the quarter as COVID-19 has continued to impacts travel, particularly internationally.
I am extremely pleased with our ability to drive margin expansion and realize growth.
And adjusted EBITDA, even outpacing are strong top line revenue growth.
<unk> be better than expected, just a quarter ago, including travel related expenses that we had originally anticipated being higher in the second half.
For Q4, 2021, we expect adjusted EBITDA in the range of $11 million to $14 million.
Or eight 9% to 11.0% of total revenue.
Compared to $21 7 million or 16, 3% of total revenue in the year ago period.
And for full year 2021, we are raising our adjusted EBITDA range to $72 million to $75 million or 14.0 to 14, 5% of total revenue compared to $57 3 million or 12, 2% of total revenue in 2020.
We are also raising our full year 2021 free cash flow guidance to a range of $41 million to $44 million.
As a reminder, our cash flow expectations are sensitive to billings and collection patterns, which fluctuate seasonally.
In particular, our historical pattern has shown free cash inflow in the first half of the year, primarily from collection on billings from Q4 and Q1.
That you guys kind of support with your simulation capability, So I guess.
Inherent question is trying to get a level of sense of conservatism here it sounds like momentum across the business remain strong, but if we looked at kind of the queue for guide at least from a historical kind of sequential perspective.
See it seems like there's a there's a nice layer of conservatism there.
Now do you want me to answer this one.
And then a white low macro environment, and then I can talk about the guy that now.
Okay.
That sounds fine. So I mean, we are we are seeing the.
Parts of the business for certainly affected by the trip shortage I think.
There's no there's no hiding from that that's that's a fairly obvious thing.
<unk>.
Generally effects small part of our business on the H B C side, a little bit.
So we we we just remain a little bit conservative on that mostly that just moves business around to be honest with you and and you know we guide for the whole year.
And we don't we don't do any heroics, if you will to bring deals into a certain quarter to make it sort of line up with the quarter stuff and we try and be relatively conservative we wanted our numbers quarter on quarter. So in general we're we're very very bullish and optimistic about you know.
How the how the business is going through this year and going forward I think we're very confident about products services.
Where we stand in the market.
And and and.
You know I think the numbers just speak for themselves. So amount what do you want to add to that [laughter], Yeah, and you know I only thing I'd add is is we've been pretty consistent on our second half guide just heading into into the queue. Three when we looked at the second half of the year I'm feeling pretty good about it and and so in factory.
Taken that that outlook up marginally uhm on the top line, so still feeling good about it.
I definitely agree with Jim there's there's always a little bit of conservatism uhm built.
Built in but but overall our outlook is pretty consistent with with what we gave last quarter and then and then when it comes to profitability actually taking that up pretty meaningfully actually so.
So yeah. We're we're we're feeling good about Q3 and and in the second half in general.
It's that's going to continue to go through next year.
Oh yeah.
Okay Awesome. Thank you guys and anything at all.
Yeah, there was a number I think was.
The number I think we gave last quarter was it that roughly three quarters of our install base had converted from Hyperworks units out there that that number is now in excess of 90% through Q3, and and we will get the rest of it in Q4. So at this point, where we're ready to call that substantially complete.
Okay Awesome. Thank you guys.
Thank you for the question.
Our next question comes from Ken Wong with Guggenheim Securities.
Thanks for taking my question.
Just a quick.
Circle up on in terms of how we should be thinking about for Q. It was a fantastic <unk> quarter. I guess, just one wanted to see if there was any kind of pull forward there with that or largely track the plan and then on <unk>.
How how you guys might be embedding any kind of conservatism I know someone touched on just macro in general but wanted to make sure that we kind of understood the thinking behind the.
The outlook there.
Yeah, I mean, so so our approach really to the to the second half is I think the best way to look at it you never going to get timing perfect. When we're looking at Q3 and Q4.
But the main point that we wanted to try to get across is our view of the second half is intact and actually marginally more positive as we've made our way through.
On top line so.
Yeah. There's you know there's going to be a bit of conservatism in there, but really I think the message is look we're feeling well.
We're feeling unchanged somewhat more positive because we're now halfway through the second half.
But but nothing more to read into it than that we've been pretty consistent on our view on the second half for a while now.
Fences, so it's not a complicated formula, but it's a formula that's been working here and we're going to continue to try to do that.
Great. Thanks for the insights got [noise].
Our next question comes from Jackson, either with J P. Morgan.
Great. Good evening guys. Thanks for taking my question, Jim on the H P C <unk>.
Chip shortage could we just go into a little bit more detail on on you know what is it put out what are those constraints actually causing the lower.
Core solution.
Relative to some of the other players or at least lower.
Smaller customers smaller companies versus large enterprise, that's not entirely true.
You have to have a mix, but probably a larger mix to the lower end.
We see this as a really great opportunity to get a lot of visibility around our technology and we think it's really great proud team as well because they are.
They currently.
This will give them the opportunity to be more competitive I guess at a higher end.
In the marketplace.
So we probably will do something similar for the other ecad vendors, but we want to just see how this goes to start with.
Okay, Great and then again just quickly.
Hey.
Is it over.
They've been ongoing thing that youre going to offer for free or that.
Okay.
I'm I'm not I'm not killed that to balance into getting there by 23 at the promised us and it may.
Yeah, No I'm I'm I'm not gonna commit to get in there any earlier nice try [laughter], but but we are happy with with what we've been able to do so far and I and I really do think it's important as Jim mentioned to to make sure that we're continuing to invest.
So we're we're happy we're we're sort of one foot in front of the other but but we don't want to get ahead of ourselves.
That makes a lot of time to answer them.
And then made the gym for Ya a C. A very particular something that's been lagging just in terms of technology and software adoption for for decades, effectively and we're just starting to see the adoption of appropriate three D tools Uhm do you believe that overtime AC vertical could be immaterial.
Part of the of the C a market as well and your investments now uhm position you well as tomato, you've you've already had some exposure to a C before uhm and you're kind of doubling down on that opportunity why not I'll get.
So it it's a vast market [laughter] like everything else, there's there's sort of a low ends in that or I am to that market. We've already been playing at the relatively high end, but we do think the you know being able to bring up a ball.
Are offering to that customer base, particularly from <unk>, let's all have some higher end of the market.
Is gonna be really interesting as time goes on.
You know obviously this market is very driven by the certification codes.
And and so you know that can limit some of what you might too but.
But I think you know the the market is really going to continue to evolve use a more interesting materials composites timber all of that.
And so you know the ability to use a lot of the interesting technology that we've.
You know really evolved over the last 25 years in that market. I think is gonna is gonna have an impact on it's gonna be kind of fun, so I'm not going to predict the revenue levels, but I think it's it's unappropriate investment at this time some of our other technology was sort of ready to make this move.
<unk> now and and the <unk> technology really brought us this domain expertise and the certification code technology that we need it we could have developed it ourselves we've done a lot of that in the aerospace market.
Really made sense to go out and acquire it right now so yeah hope that's a clear answer.
Very good thank you.
Okay.
Our next question comes from Blair Abernethy with President that Securities.
Thank you very much have a nice corner guys.
Just wondering on strong performance of the software a side of things this quarter.
Came a wonder if you would highlight sort of what areas what product areas. You see you saw sorta you are salt or are seeing particular strengthen I don't I don't know, whether you've mentioned anything about where some solid how some solid did in the quarter, but anything just sort of give us a little more color on on what's what's resonating well with with.
New customers these days.
I do think it's across the board since you ask about some solid some solid is just on a tear.
<unk>.
It's it's it's being embraced and adopt you know really a very large number of customers.
And as we get more and more capabilities put into the code.
More and more capabilities on the inspire code as well, where where we have it as well.
We're we're developing so that it can run on the cloud with students.
Students.
There is no really no competition, [laughter], so that technology and and.
We think it's going to continue to make a really big big play in the future and even an outside of structures, we think there's opportunities for that technology.
And and some of the other domains like electromagnetics. So yeah that that's a fun one but really it's it's across the board you know the products for manufacturing are really really starting to to hit their stride.
The inspire product is really gaining a lot of traction course, coupled with with some solid all the electronic stuff says has been really going well pollux is is getting a very very good reception and and a lot of the supplier community and all the modem.
And and many many other customers as well.
So yeah, it's it's quite across the board the H P C products and the data analytics products are growing faster simulation call that some general and and so that's going Wallace.
Okay, great. Thank you just on the data and analytics.
Given a customer base when you were Virginia required did watch was.
More financial services kind of oriented.
<unk> how does it look there in terms of you know their customer base today versus when you acquired them in and where are you gaining traction.
Traction with with new customers to the business and in in that particular area.
So the pipeline for you know our traditional manufacturing customers to to leverage. These tools is really growing we have a lot of really interesting projects that are running that are helping us to understand use cases, and what's gonna make sense. It.
A lot of interest from customers.
But it's important to get to sort of get those use cases that makes sense for them.
So that's that's going extremely well we are.
Working very very hard on sort of that next generation platform, which is important and the traditional space, but also going to be important and.
R. N R. You know traditional manufacturing space.
So you know we added M L ops and <unk>.
There's a huge amount of technology gone into the cloud native version.
It's still early we do a whole lot of customers starting to to use or getting good responses, there's more work to do there.
You know I I I expect it it's it's just a very very large market.
With a just a very large opportunity lots of competition of course, but I think we're very well place to do well, there and especially with the units model I think it it can be disruptive.
Okay, great. Thank you.
I'm showing no further questions in queue at this time I'd like to turn the call back to gym skiba for closing remarks.
Well. Thank you appreciate everybody's interest and Altair and.
I appreciate my team for just delivering another great quarter.
So thank you all.
This concludes today's conference call. Thank you for participating you may now disconnect.
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