Q4 2021 Altair Engineering Inc Earnings Call

February 24, 2022

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Good day, and thank you for standing by.

<unk> fourth quarter 2021 earnings conference call.

This time all participants are in a listen only mode. I'm just speaking presentation, there will be a question and answer session.

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Like to hand the conference.

We can today, Dave Simon Chief administrative officer.

Please go ahead.

Good afternoon, welcome and thank you for attending <unk> earnings Conference call for the fourth quarter and full year 2021 ended December 31 2021.

And David Simon Chief administrative officer are also here and with me on the call are Jim Scapa, founder, Chairman and CEO , and Matt Brown, Chief Financial Officer.

After market close today, we issued a press release with details regarding our fourth quarter and full year 2021 performance.

Guidance for the first quarter and full year 2022, which can be accessed on the Investor Relations section of our website at investor that Altair Dot com.

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 that may be considered forward looking under federal securities laws.

These statements reflect our views only as of today and should not be considered representative of.

Our views as of any subsequent date.

Disclaim any obligation to update any forward looking statements or outlook. These statements.

And subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations.

These risks are summarized in the press release that we issued earlier today.

For further discussion.

Of the material risks and other important factors that could affect our actual results.

Please refer to those contained in our quarterly and annual reports filed with the SEC.

As well as other documents that we have filed or may file from time to time.

During the course of today's call, we will refer to certain non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP measures is included in our press release.

Finally.

At times in our prepared comments or responses to your questions.

Let me offer metrics that are incremental to our usual presentation to.

Provide greater insight into the dynamics of our business or quarterly results.

Be advised that we may or may not continue to provide this additional detail in the future.

With that let me turn the call over to Jim for his prepared remarks, Jim.

Thank you, Dave and welcome to everyone on the call.

Today, I will discuss our strong results for 2021.

Recent acquisitions of World programming and casino.

Some additional awards the company received.

And the overall momentum we are experiencing early in 2022.

Alterra had an excellent fourth quarter and full year 2021, with all of our key numbers for Q4 and full year.

Coming in above our guidance ranges.

Our vision for driving smarter decisions with computational science and artificial intelligence is resonating with customers.

Products continue to gain market share and we are expanding our footprint across all verticals.

Total revenue for Q4, 2021 was $148 million, including software product revenue of $122 million for.

Adjusted EBITDA for the quarter was $24 million, representing a 17% adjusted EBITDA margin.

Total revenue for the full year 2021 grew 13, 2% to $532 2 million compared to $469 9 million in 2020.

Software product revenue for the full year 2021 grew 15, 8% to $453 7 million.

<unk> to $391 7 million in 2020.

Software product revenue for 2021 represented 85, 3% of total revenue compared to 83, 4% during 2020.

And our recurring software license rate remained high at 92% for the year.

Adjusted EBITDA for the full year of 2021 was $85 3 million representing growth of 49% compared to $57 3 million in 2020.

Free cash flow grew 100% from 2021 to $53 8 million from $26 8 million in 2020.

Our adjusted EBITDA margin for the full year of 2021 grew to 16% a significant improvement over adjusted EBITDA of 12% from 2020.

In December of 2021, Altair acquired World programming.

The UK based technology company specializing in data analytics software used by many of the worlds leading companies.

World programming brings great technology to Altair as well as a world class team of mathematicians statisticians data scientists programmers and thought leaders.

World programming platform WPS analytics supports development and execution of software applications written in popular languages, such as Python or SQL and the SaaS language, including the ability to develop compile and execute millions of them.

Models built using SaaS language.

WPS analytics will be incorporated into our <unk> data analytics solution suite and available under Alterra units.

WPS analytics technology integrated into the powerful low code Altair solution.

A strong and unique offering to address the requirements within enterprises programming data scientist.

And business analysts, including the ability to develop compile and interpret SaaS language programs.

WPS hub combined with Altair is ml ops environment.

Hey, good straightforward and simple, but production is machine learning models programs written in the language of SaaS and modern data analytics applications.

The acquisition of World programming aligns with Altair is open architecture philosophy.

Giving customers easy access to technologies, and a flexible and intuitive environment.

We see the acquisition as a significant opportunity to help companies transition to modern open solutions and languages, while preserving significant investments made.

<unk> critical enterprise business applications and the SaaS language.

And leverage the best elements of this older technology.

As the Altair broadens, our data analytics offering under the Alterra units business model, we believe customers will increasingly appreciate the value we deliver.

And <unk> will grow to be a very significant player in this market.

We recently announced the acquisition of Cassini and next generation cloud native platform for Industrie four point aisle.

Cassini's technology manages the entire product lifecycle from concept to customer through four key product pillars.

Engineering manufacturing quality and service.

By bringing data people and processes together in an end to end digital environment, creating a digital thread and providing a 360 degree view of the conceptualized product data.

Along with their technology, we bring on board a talented team with deep experience in both the mechanical and electronic sector.

Cassini software will be integrated into the all tier one cloud innovation platform.

<unk> customers, a comprehensive digital thread view of activities and the <unk> value chain.

Especially with respect to simulation.

Our tier ones best in class top down and bottom up simulation data management capabilities.

<unk> with Cassini's technology.

We will provide a closed loop product validation platform to harness the power of physics and data science based simulations.

Alturas is the integration of strong data management capabilities within our platforms and seamlessly enabled as critical for customers to manage the enormous and growing complexity of traditional mechanical and electrical stimulation models.

Simulation results sensor data and AI reduced order models.

Our tier one and cassini each bring different and important aspects of these requirements.

Third cloud native and both teams are passionate about the vision.

After being awarded Newsweek's, most loved workplace and Inc. Magazine's best led company earlier in 2021.

Our string of workplace incorporate awards continued in the fourth quarter of 2021.

Health care, Germany was named a top 20 to 22 employer by <unk>, a leading employer review and branding side and the dark region.

The economic times, the world's second most widely read English language business newspaper named Altair, India Best brand for 2021 2022.

We were recently named the top workplace in the USA for 2022.

An investor's business daily ranked Altair number 50 on its list of best 100 ESG companies.

We are proud of these awards as they recognize the enduring strength of our culture and values.

And the hard work our global teams put forward.

To help the world would be a better and more sustainable place for all.

Customers increasingly recognize the value and power of Altair is data analytics suite.

And product set.

Our data analytics team at several notable wins in the fourth quarter.

Two seven figure multiyear software licensing deals in the banking and financial services industry.

The majority of our new enterprise customer wins leveraged the unit's model.

Many existing customers see the high value benefits of units.

Units licensing, including concurrent users floating licenses and access to all products and are asking to switchover.

As examples our major bank with active users across a range of <unk> applications.

Including data preparation.

Real time analytics and visualization.

Recently committed to converting all its existing licenses to alterra units.

Our retail customer with hundreds of users also converted their existing licenses to alterra units.

This trend is important as we grow our footprint in the market and expand the portfolio of solutions available to customers.

Beyond resulting in increased revenue.

These units conversions and new deals demonstrate how our licensing model can help us disrupt the traditional data analytics market.

Separate us from the competition.

Momentum surrounding the convergence of computational science and AI with engineering is accelerating.

In APAC, a major automotive manufacturer purchased licenses to our data analytics suite.

Giving their manufacturing engineering team the ability to easily connect collect and build simulation models.

And automotive supplier and longtime Altair simulation software customer began using Altair is data analytics tools within at CAE team to <unk>.

Leverage past company data to create predictive models for use cases.

Including cost modeling and part quality predictions based on manufacturing conditions.

Another supplier is using our data analytics tools to compare manufacturing processes utilizing historic data and selecting the best matches to create faster and more accurate quotes for new parts.

When historical <unk> technical data is used in these types of applications organizations, often experience significantly improved financial performance.

These are just a few examples that show simulation and data analytics converging.

Resulting in true computational intelligence.

The vision for simulation driven design continues to evolve.

The inspire platform supports significantly more geometry creation and manipulation with every release and we believe is becoming the solution of choice for mechanical conceptual design.

Our math on systems digital twin studio released new capability to perform complex spice simulations and our Spice solver.

Now also available integrated within our Hp's C work flow technology are highly cost efficient IC design.

We believe our solution to design antennas and simulate complex wave propagation through <unk> and Adas applications for radar leads the market.

And our solution to synthesize E motor designs, driven by multi disciplinary stimulation and optimization are best in class and employed by many customers with multiple wins in the fourth quarter related to electric vehicle development.

Our major customer in Europe has been embracing the inspire platform, including some solid.

A strong basis for re architected their design process driven by simulation.

This customer had previously selected <unk> as the platform for high level simulation and is now implementing inspire and some solid and their new overall computer aided design and analysis workflow.

Some solid capabilities and performance are advancing quickly.

And its usage continues to grow and a large proportion of our manufacturing customers.

And one in APAC country fourth quarter saw some solid across the transportation sector.

With wins at a commercial vehicle manufacturer paths.

Passenger vehicle OEM.

And at a tier one supplier focused on plastics applications.

Usage gains are happening both within the design engineering user base as well as several core CAE groups.

Some solid played a critical role in acquiring a new ADC clients in Europe .

They are experienced stimulation users recognize the ability of some solid to dramatically speed up their processes.

And its unique capabilities are being embraced in the energy sector displacing traditional analysis codes, which are unable to match performance.

<unk> was recently selected as the solution of choice for safety and crash simulation by a major rail manufacturing company.

Which resulted from the merger of two significant players in this market.

Each company had used a different solution and the newly combined company has decided to go forward only with Altair.

With this victory on several other wins in the rail market. We believe the Altair is emerging as the leading solution in the rail market.

Our high performance computing business grew strongly in 2021.

The efficient usage of HBC resources, and HBC application licenses on Prem and in the cloud.

<unk>, an important differentiator for most companies and research institutes.

We recently announced a multiyear agreement with Hewlett Packard Enterprise.

To offer <unk> HPLC solution suite for workload and workflow management with HPE is HPLC systems to support next generation supercomputing.

The solution includes job scheduling software with robust scalable technology.

Capable of handling the most intense jobs, while improving productivity optimizing utilization and efficiency and simplifying administration for supercomputers of any size.

The agreement strengthens our nearly 20 year relationship between HPE and Altair and we look forward to many more years of success together.

Argonne National Laboratory announced it will utilize <unk> technology across the organizations HBC systems at the argon leadership computing facility.

CF, including Polaris and Aurora supercomputers.

Altair, PBS professional which replaces the Alcs cobalt work workload manager will be the default workload management solution and will allow researchers to easily and more efficiently run diverse workloads and data intensive tasks, including machine learning.

Turning and stimulation.

With Polaris is the leading edge testbed system for Aurora.

Scheduled to be the fastest extra scale computing system in the U S and capable of performing quintillion calculations per second.

It is critical to ensure that downtime is avoided.

Is it could put research teams hundreds of hours behind completing a project.

Supported by <unk> global team of HBC specialists, <unk> technology will optimize and manage thousands of note hours simultaneously and help ensure researchers can make quicker more efficient scientific described discoveries.

We are honored and excited to be a part of the team, enabling pure science to move forward.

Significant Altair unlimited HBC appliance deal in the fourth quarter was deployed at a European division of a global automotive supplier.

The seven figure multiyear deal represents the renewal customers predecessor system.

And one billings expansion of 87%.

Applications include computational fluid dynamics structures and electromagnetics.

We secured a notable altair unlimited HBC appliance deal at a major global materials supplier.

By demonstrating the scalability of our solutions and establishing successful solver benchmarks the value proposition of Alpha unlimited was quickly evident.

Solver applications, including non linear analysis of plastic components material characterization.

<unk> response base fatigue prediction and impact analysis.

This convergence of simulation and high performance computing is a great boost to customer productivity and an excellent example of the power of <unk> solutions.

I am pleased to have welcomed Sandy Carter to <unk> board of directors.

As a pioneer in the digital business Revolution, and a former high level executive at AWS for five years, Sandy Senior Vice President and channel Chief of Unstoppable domains and chairman of the board for girls in Tac.

She was named to Forbes Global top 40, marketing Masters list and Cnn's 10, most powerful women in tech.

Our energy technical knowledge executive talent, and inclusive management style or a tremendous addition to our board.

We performed well in the fourth quarter to finish out an extra ordinary 2021 against the backdrop of global uncertainty.

We made excellent progress against the targets, we set forward at our May 27, 2021 analyst.

And we experienced broad success throughout the year across many industry verticals technology areas and geographies.

We added great technology, both internally developed and from acquisitions, including S frame, which offers interesting new opportunities in the fast growing AUC sector.

2020 to carry some of the same uncertainties and challenges from the prior year.

And some new ones, including COVID-19, Berends supply chain inflation.

Labor market and technology and geopolitical issues with negative effects on the macro economy.

We believe we can carry our good momentum forward through this year and remain confident in the value we provide to customers driving smart decisions and innovative products with computational science and artificial intelligence.

I am sincerely appreciative of our global teams and excited about our future.

Now I will turn the call over to Matt to provide more details on our financial performance and our guidance for the first quarter and full year of 2022.

Matt.

Thank you, Jim and Hello to everyone on the call and thank you for joining us.

Q4 was another fantastic quarter, and what was one of the most successful years in Altair is 37 year history.

We continued our streak of beating expectations across the board.

Not seeing significant wind on our way to achieving record high revenue and adjusted EBITDA for any fourth quarter in the company's history.

Total billings for the quarter for $159 1 million.

An increase of 9% compared to Q4 2020.

Our strength in software billings was once again, driven by strong new and expansion opportunities.

And high retention on our renewal base.

We saw growth in all three geographic regions and particular.

<unk> strength in the technology and DSI verticals.

Our data analytics products are continuing to gain traction with growth there outpacing stimulation and HPV, which is the trend we saw all year.

Services and other billings were in line with expectations.

Slightly down from Q4 in the prior year.

In total the strength in billings resulted in software product and total revenue exceeding our expectations for the fourth quarter.

Software product revenue was $122 4 million.

Or an increase of seven 7% compared to Q4 2020.

Total revenue, which include services and other revenue was $140 8 million.

For an increase in five 5% compared to Q4 2020.

Our recurring software license rate, which is the percentage of software product billings, they're recurring continues to be strong at approximately 92% for the year.

As a reminder, a significant portion of our revenues are building currencies other than the U S dollar.

And are therefore impacted by changes in FX rates.

Relative to Q4 2020, our revenues were unfavorably impacted by changes in FX rates of just over $2 million during the quarter.

non-GAAP gross margin, which excludes stock based compensation and restructuring expense.

With 78, 1% in the fourth quarter.

Compared to 76, 2% in the prior year.

An increase of 190 basis points as our software revenue mix, which carries higher gross margin.

Increased as a percentage of total revenue.

Software revenue was 86, 9% of total revenue in Q4 2021.

Compared to 85, 1% in the prior year.

Over the long term, we continue to expect general mix shift towards software product revenue.

As growth there will outpace services and other revenue.

non-GAAP operating expenses, which excludes stock based compensation amortization of intangible assets and restructuring charges were $87 4 million.

Compared to $81 9 million in the year ago period.

That year over year increase was primarily concentrated in sales and marketing expenses.

Reflecting increased commissions expense as a result of over performance on software billings for the year.

Adjusted EBITDA in Q4, 2021 was 24.0 million or 17 point year a percent of total revenue.

Compared to $21 7 million or 16, 3% in the prior year quarter.

This increase compared to prior year quarter as.

As well as relative to our expectations.

Driven by the increase in revenue in the quarter combined with our disciplined spending.

It's worth looking back at the entire year on the incredible progress we've made.

At the beginning of the year, we laid out a vision to achieve double digit revenue growth, while expanding our adjusted EBITDA margin.

Our focus paid off.

We invested heavily in product development, bringing the best technology and simulation high performance computing data analytics and artificial intelligence to our customers.

And we invested in our sales and marketing motion elevating our brand awareness in the market.

These efforts helped drive software product revenue to $453 7 million for the year.

An increase of 15, 8% compared to 2020.

And we achieved total revenue of $532 2 million for the year.

An increase of 13, 2% compared to 2020.

Our non-GAAP gross profit increased $58 1 million or 16, 5% to $409 2 million or <unk> 76, 9% of revenue in 2021.

Compared to $351 1 million or margin of 74, 7% in 2020.

And operating expenses, we invested in areas for growth, while persistently reducing select other costs.

This helped to drive adjusted EBITDA to $85 3 million or 16.0%.

An increase of 48, 8% compared to 2020.

This is the 380 basis point increase to our adjusted EBITDA margin compared to 2020.

And this increase in profit is driving an increase in free cash flow, which more than doubled year over year to $53 8 million, which is freeing up cash to invest in our business and fuel future growth.

At the beginning of the year.

We set out to grow revenue in the double digits.

Grow gross profit greater than our growth in revenue.

And grow adjusted EBITDA greater than our growth in gross profit.

And in 2021, that's exactly what we were able to do.

Combined with some of the competitive when Jim mentioned, a few minutes ago.

Several important acquisitions and notable award.

2021 was truly a remarkable year in our history.

Turning to the balance sheet.

Ended the year with $413 7 million in cash and cash equivalents.

A decrease of approximately $42 million from the prior quarter.

The quarter over quarter decrease is primarily due to approximately 49 million outflow related to our acquisition of WPS.

Partially offset by approximately $5 million free cash flow.

As a reminder, our cash flows throughout the year are seasonal in nature.

Typically with Q1 being our most significant cash flow quarter, followed by Q2.

Let's turn to guidance for Q1 and full year 2022.

We've provided detailed guidance tables in our earnings press release, including a reconciliation to comparable GAAP amounts.

Which was issued after close of market today.

For Q1, we're expecting software product in the range of $134 million to $137 million or year over year growth of three four to five 8%.

And full year 2022 in the range of $496 million to $508 million or year over year growth of nine 3% to 12.0%.

We expect services and other revenue to be down slightly compared to 2021.

As a result, we expect total revenue for Q1 in the range of $152 million to $155 million or year over year growth of 1.2 to three 2%.

And full year 2022 in the range of $568 million to $582 million or year over year growth of $6 seven to nine 4%.

Currency changes relative to prior year are unfavorably impacting year over year Q1, total revenue growth by approximately two percentage points.

And unfavorably impacting year over year, 2022% total revenue growth by approximately one and a quarter percentage point.

From a cost perspective, we've been successful and our disciplined approach to spending and expect to carry that approach into 2022.

For Q1, we expect adjusted EBITDA in the range of $36 million to $38 million.

Were $23 seven to 24, 5% of total revenue.

Compared to 37.0 million.

For 24, 6% of total revenue in the year ago period.

And for full year 2022, we expect adjusted EBITDA in the range of <unk> $96 million to $106 million or $16 nine to 18, 2% of total revenue.

Impaired to $85 3 million or 16% of total revenue in 2021.

In January 2022, we satisfied the existing litigation judgment against the PL of $65 9 million, which was a liability we assumed as part of our acquisition.

This payment is captured in free cash flow in 2022, and as a result, we are expecting free cash flow in the range of $5 million to $12 million for 2022.

We are pleased with our growth in free cash flow from core operations year over year, which is benefiting from our overall increase in profitability.

As a reminder, our cash flow expectations are sensitive to billings and collection pattern, which fluctuate seasonally.

In particular, our historical pattern has shown a free cash inflow in the first half of the year, primarily from collections on billings from Q4 and Q1.

And a smaller free cash outflow in the second half of the year.

Besides the litigation settlement amount I mentioned I just mentioned, we're expecting that pattern to continue this year.

In addition, today, we announced our board of Directors has approved a $50 million share repurchase program.

Having this program in place allows us to be nimble and gives us the flexibility to Opportunistically return capital to our shareholders, while still focusing on our primary goal of investing in our business to drive growth.

We have not committed to specific share volumes or prices.

And view this program as being a small part of our overall balanced capital allocation strategy.

I couldnt be prouder of what this team was able to accomplish in 2021.

And I'm extremely excited about what lies ahead.

With that we'd be happy to take your questions.

Operator.

As a reminder to ask a question you in a depressed star one on your telephone and withdrawing our question just principal key place then compile the Q&A roster.

Our first question will come from the line of.

Munda from Banbury you may begin.

Hey, Thank you for taking my question.

The first one is just.

Tim you mentioned a lot of enterprise deals in activity over kind of seven figures.

More than what you've said in the past and I was just trying to see if there is a trend. If you are seeing the trend developing work.

<unk>, becoming more of a partner rather than the tool provider to some of these customers have been with you for a while.

In other words.

Maybe go across different types of physics, but not just that.

So by being in things like.

Alex install it and data side.

On the on the token side, when you're kind of thinking about the debate.

The new banking, Denmark. Thank you.

Thanks, Scott that's a good question.

So we are in fact.

If you look at the number of deals large large scale deals that we're doing there is many many more its console increase.

We don't track that as a metric for you, but we track it internally and the numbers are going very much in the right direction and it is in fact, what you are talking about we are more strategic and a lot of customers. We are selling the entire portfolio of our solutions not just point solutions typically.

Okay.

And that's a big part of why.

Yeah. Thanks, Thanks for the nice softball question.

Yes.

No okay.

Yes.

You would expect that to kind of continue to implore withdrawn from what youre, saying.

I do yes.

Okay.

Alright.

Strategic accounts so yes.

Right right yes.

As a follow up maybe just thinking about again the margin progression looks.

It looks impressive.

Matt.

More than three percentage point improvement year on year, if we look into next year.

You are getting very very close to your target that you set out.

For the.

At the capital market day My question here again.

If you see that progressing faster than you expected, but you're going to be reinvesting in growth do you think you could potentially get there earlier.

What you set out.

It may last year.

Yes, Thanks Scott.

So you are right I think we are well on our way to our goal.

20% exiting 2023, but if you kind of look at how we've progressed, we've been really careful about not trying to get.

Two ahead of profit.

And sacrificing growth because we wanted to be really really balanced and invested in our technology and in our sales motion.

And so from.

From that perspective, as you kind of look at the midpoint of the guide.

17, 6% EBIT for 2022.

That is about two thirds of the way through.

Where we were we started at 12, 2% on our way to 20%.

And so we feel good about that two thirds of the way through.

Two years out of the three on our way to a three year plan.

We may as we move along we may continue to adapt and adjust and.

And there is a chance that we save a little bit extra for the bottomline, but but.

But I do think we want to make sure that we're continuing to invest for the long term, we want to be around for a nice long time.

That makes a lot of sense.

Thank you all I'll, let others ask the questions, but congrats on a great quarter.

Thank you.

Thank you and our next question our.

Our next question will come from the line of Jackson Ader from Jpmorgan.

May begin.

Great Hey, guys.

Thanks for taking my question.

The first one is for Jim on the.

On the crash and impact segment, Okay. Thank you mentioned radio.

Can be coming.

Gaining some real traction in rail.

Just curious what is what's the underlying reason why your solver, there would be a strong fit for.

For rail.

Rather than maybe in the automotive and then.

Relatedly, how big is the rail vertical within that entire crash and impact solver market.

So I actually don't know the answer to the size of rail, but I mean, it's obviously quite a bit smaller.

It's still significant when you go outside the U S.

An important sector and we've managed to capture it.

Think more of it.

Related to relationships.

All of that because we have very strong footprint across all of the all the products that we have.

And the world of simulation. There is these are sticky markups and so.

Tools used for crash and impact.

And in place.

They don't tend to change a whole lot in the automotive sector. They are there is opportunities to do some changing we've been very successful in China for example, where it's a little bit more.

Greenfield or it's been more greenfield in the crash and impact sector.

The <unk> product is a superb product very strong and electronics for example, very strong in a number of different areas and obviously very strong in automotive as well.

But in rail.

Managed to.

Get a strong position and we understand the applications that they are doing there.

We have good relationships.

Okay, Great and then a follow up on the acquisitions for Matt.

Number one.

I assume that this litigation was known when when you made the acquisition of <unk>.

WPS, but.

With that.

Did that factor into I guess, the overall purchase price number one and then number two just simply how much do you expect.

That is recent acquisitions to contribute to revenue in 2022.

Yes, Thanks, Jackson, So yes, absolutely did.

Did know the litigation liability when we made the acquisition it was factored into our purchase prices yes.

It was just a function of the accounting.

So happens that this liability is acquired and then the cash movement goes against that liability.

The cash flow and thats flowing through cash from operating activities, rather than where you might expect to see it and finance activities from us from an acquisition perspective.

And so it was built into our model and our deal pieces and when you sort of adjust for that out of free cash flow you end up with free cash flow at a range of <unk> $71 million to $78 million, which is year on year growth of 32% to 45% that's more sort of a normalized free cash flow.

<unk>.

With respect to the acquisition and revenue that we're expecting.

<unk> 2022.

We're not giving precise numbers, but WPS.

Historically had revenues in the $19 million or so range and so it is not.

Not extremely significant to our full year guide.

It represents a couple of percentage points.

We expect that.

As we invest in that business can ramp that up.

<unk>.

Potentially could see some growth in future years, but we're not expecting.

To see growth from that number into 2022.

Okay.

If I could just add to that Jack So we do see the and I think Matt mentioned.

Yes.

In his remarks earlier.

Data analytics is growing very very fast for us. If you look at simulation <unk> data analytics data analytics is a pretty fast growth market for us overall.

Overall, so <unk> and.

And their technology, just fits within that space.

Space.

Okay, Great and then on the casino side the other the other acquisition.

Contribution.

Yes, no no no incremental revenue on that acquisition is assumed into the 2022 guidance.

Alright.

Thank you.

Apology.

Equity higher if you will.

Understood got you alright, thanks, guys.

Okay. Thank you.

Our next question will come from the line of Blair Abernethy from Rosenblatt Securities you may begin.

Thank you and nice quarter guys.

Just the just following on on the World programming.

Could you just describe Jim how youre, how youre planning to go to market with this now obviously they must have had an existing sales force and so forth.

And what's sort of the what's the integration.

Profile looks like with the rest of your products.

So we expect.

To integrate the products pretty nice land sales teams are already.

Almost entirely integrated.

Relevant teams are predominant greater as well.

Obviously it takes it takes a little more time to get everyone comfortable culturally and all that.

But.

It's a very technical culture.

One that fits easily.

Sort of different thumb data watch if you will that this is this is a pretty easy integration for us.

As far as how the products go.

We're very very focused on.

Grammars. So if you think about data science and in enterprise you have sort of two different types of users you have to programmers.

Data science programmers who are.

Deep down into the got some writing code and then you have business analysts, but really want to use sort of a low code types of technology that auto generate code on.

Build out the applications. So they were probably more focused on the programmers.

And so they support really well Python and R and SQL programming.

And then big differentiator that they have built a compiler interpreter for SaaS language.

And that's a really nice.

And very unique piece of technology.

Is really important because a lot of companies have built a lot of.

A lot of code in the SaaS language and many of these companies want to move to more modern languages, but they have a lot of important.

Code.

<unk> written on the SaaS language and Theres also some great capabilities.

You can access.

They support mixed language types of code to really great environment for building all of that.

And we see now with the integration of their tools being able to sort of address both community on enterprise the programmers and the business analysts with these tools and also support an environment, which has a mix of modern modern codes as well as if you will.

<unk>.

Some legacy technology that was written Linzess language.

Great. That's very helpful. Thank you.

Switching gears, just a little gem.

The.

Can you just give us an update on the on your channel partner.

<unk> been doing in 2021, how that's come along and where you're seeing some.

Where are you seeing some traction.

So I think that is.

Making progress I'd like it to go fast or if I can be really on us but if.

If you look at our numbers.

The indirect business is continuing to gain.

And more importantly, with them within the organization.

Every region.

Is much more engaged in.

Working with the partners supporting the partners.

We think it's going to be really critical to get to that next level as a business.

To really get the scale you have to have an indirect component thats really substantial.

And we're really committed to that so it's coming I would like it to come faster, but I think it's.

There was a real progress made last year.

It's really one of our number one priorities for 2022.

Great. Thanks very much.

Yeah.

Our next question will come from the line of Matt Hedberg from RBC capital markets.

Your line is open.

Hey, it's Dan Bergstrom for Matt Hedberg, Thanks for taking our questions Jim maybe another softball for you.

Would love to get your updated thoughts around shifts in the supply chain and what youre seeing and hearing from customers.

You've provided good top context around us in the last several calls just would love an update what you're seeing as we enter 2002 here.

So I mean for us.

Don't think of.

A very significant impact to be perfectly honest actually the one place where.

We actually have.

Direct impact is the other business line, which is that lighting business because.

There's probably one year lead time.

Semiconductor components.

When we're ordering them. So so that is a pretty big impact and it gives me a view into what.

Many of my customers are really.

Sort of managing and dealing with particularly if you have a new line product.

Where you have an established the supply chains. So for example, our older line lighting products, we have much less difficulty, but newer designs newer products, where we're establishing those supply chains, that's much harder, but again for alterra and software business and I suspect for most of.

My my compatriots.

Don't think its a huge impact for us and we certainly haven't seen that.

That's great. Thanks, and then.

Software was really strong again this quarter I know the strength is broad based but are there any particular areas.

Strength that you could point out or maybe drill down into for us.

I mean, I think it's let's see obvious areas.

We first of all it is really across all regions.

All three regions.

Really.

Strong strong growth actually.

Data analytics is stronger in the U S because it's.

We spent more time with that but we are investing to take it more and more overseas and I think that's going to shift the WPS business has a lot of overseas component.

I think thats going to help.

Technology.

Defense.

Off road or.

Pretty strong particular markets for us.

But auto and Aero are still growing very substantially actually so it is really across the board sorry, the boring answer.

No it's great to hear thank you.

In Q.

Our next question will come from the line of Ken Wong from Guggenheim You may begin.

Hi, This is Nancy on for Ken Thanks for taking my question and congrats on the quarter.

Two questions from me.

You got it just slightly down next year, so I'm wondering.

How we can think about that business going forward in fiscal 'twenty, two and beyond.

If there is any dynamics, we should be aware of as we build our models and then secondly, as you look at the first quarter.

Any kind of meaningful portfolio.

All forward activity in key to be aware of thanks.

I'll, let Matt take that.

Yes happy to take that so.

When we look at our services and other business.

You really have to kind of get to get underneath it and.

CES business that we're seeing struggle a bit.

As we head into 2022, Theres still a little bit of a hangover from Covid actually so we're seeing an impact there.

Particularly in Q1, as we make our way through the year it starts to level off.

A bit.

And get a bit better.

But we do expect at least in the long term that that business is going to come back around.

And continue to grow.

Sort of low single low to mid single digit range.

Software related services.

And Thats included in that services, and others actually going pretty well so.

So it's really kind of CES, it's bringing that overall.

It down.

And I forgot your follow up question.

Jack.

Thanks that was helpful was there any pull forward activity.

Oh right no there wasn't any substantial pull forward activity.

When we're when we're heading down to the end of the end of the year and in the end of the quarter you can't always predict when deals are going to close.

But we did not see any meaningful activity crossing quarters that weak outside of norm.

Yeah.

And our next question will come from the line.

Non story.

Blair you may begin.

Hey, guys. Its dillon on for <unk> I appreciate you squeezing us in here and.

And congrats on the strong quarter and into the year, maybe a two parter and so we've seen you guys kind of offer up some of that I think that the PCB design capabilities for free here with some new users. It sounds like that's being kind of viewed favorably and giving a broader opportunity maybe with some of the less technical.

Design focused engineers are you thinking at all about potentially expanding that functionality offering kind of maybe other tools across the platform with this more kind of like premium based approach as an additional way to onboard some of these users and then maybe maybe for Matt as a follow on to that is there any kind of metrics there or anything.

You could share around adoption or usage.

Of the three solution and how maybe some of those conversion to paid has trended as well thanks guys.

So among strategy around.

When you're talking about the Altium.

<unk> solution that we put out in the market.

Theres a lot of interest so that is super positive.

It's way too early to tell.

Sort of measure at this point.

But we are.

We're trying to grow the visibility of our of our offering.

And we think Theres a lot of value in what we're what we're offering there.

So.

Yes, I mean, that's a <unk>.

Strategy too.

So to get visibility its strategy to again get some some.

Is there a very large community.

And we expect to see a good deal of traction there we're seeing a lot of traction also just for the solution.

In large enterprise customers sort of separate from the LTM.

Premium Moyer for now.

<unk>.

The whole the whole offering for PCB continues to sort of evolve.

We're feeling real good about it.

Yes, as far as tracking metrics is just too early.

We're excited about the opportunity and we do think it's a really promising market.

Honestly in all likelihood, it's probably not something that we're going to be providing metrics on in the future.

But at this point it is really just too early.

Great. Thanks, guys for squeezing of sand and congrats again on the quarter.

Thank you.

And I'm not showing any further questions in the queue.

Back over to Jim Scapa for any closing remarks.

Really just want to express appreciation to my team great year.

Matt first year CFO did a fantastic job.

And really everyone else on my team did as well and also appreciation to the.

The support from all the industrial community as well.

So thanks, everyone.

We're very very excited about the future.

I feel like we're in a great place. So thank you.

And this concludes today's conference call. Thank you for participating.

Disconnect everyone have a great day.

Okay.

Yes.

[music].

Good day, and thank you for standing by to the <unk> fourth quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.

Speaking of presentation, there will be a question answer session.

A question during the session you need to press star one on your telephone.

Please be advised that today's conference is being recorded and require any further assistance. Please press star zero.

Like to hand, the conference over.

Speaking today, they've Simons chief administrative officer.

Please go ahead.

Good afternoon, welcome and thank you for attending all tiers earnings conference call for the fourth quarter and full year 2021 ended December 31 2021.

And David Simon Chief administrative officer of Altair, and with me on the call or Jim Scapa, founder, Chairman and CEO , and Matt Brown, Chief Financial Officer.

After market close today, we issued a press release with details regarding our fourth quarter.

Full year 2021 performance and guidance for the first quarter and full year 2022.

It can be accessed on the Investor Relations section of our website, an investor that Altair Dot com.

This call is being recorded.

And a replay will be available on the IR section of our website.

And the conclusion of this call.

During today's call, we will make statements related to our business that may be considered forward looking under federal securities laws.

These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date.

We disclaim any obligation to update any forward looking statements or outlook. These.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations.

These risks are summarized in the press release that we issued earlier today.

For a further discussion of the material risks and other important factors that could affect our actual results. Please refer to those contained in our quarterly and annual reports filed with the SEC.

As well as other documents that we have filed or may file from time to time.

During the course of today's call, we will refer to certain non-GAAP financial measures.

A reconciliation of GAAP to non-GAAP measures is included in our press released.

Finally.

At times in our prepared comments or responses to your questions.

We may offer metrics that are incremental to our usual presentation to.

Greater insight into the dynamics of our business or our quarterly results.

Be advised that we may or may not continue to provide this additional detail in the future.

With that let me turn the call over to Jim for his prepared remarks, Jim.

Thank you, Dave and welcome to everyone on the call.

Today, I will discuss our strong results for 2021, the recent acquisitions of world programming and casino.

Some additional awards the company received.

The overall momentum we are experiencing early in 2022.

Algeria had an excellent fourth quarter and full year, 2020 , one with all of our key numbers for Q4 and full year.

In above our guidance ranges are.

Our vision for driving smarter decisions with computational science and artificial intelligence is resonating with customers our products continue to gain market share and we are expanding our footprint across all verticals.

Total revenue for Q4, 2021 was 148 million.

<unk> software product revenue of $1 $22 million for.

Adjusted EBITDA for the quarter was 24 million, representing a 17% adjusted EBITDA margin.

Total revenue for the full year 2021 grew 13, 2% to $532 2 million.

Imperatives of $469 9 million in 2020 and.

In software product revenue for the full year 2021 grew 15, 8% to $453 7 million compared to $391 7 million in 2020.

Software product revenue for 2021 represented 85, 3% of total revenue compared to 83, 4% during 2020.

And our recurring software license rate remains high at 92% for the year.

Adjusted EBITDA for the full year of 2021 was $85 3 million representing growth of 49% compared to $57 3 million in 2020.

Free cash flow grew 100% from 2021 to $53 8 million from $26 8 million in 2020.

Our adjusted EBITDA margin for the full year of 2021 grew to 16% a significant improvement over adjusted EBITDA of 12% from 2020.

In December of 2021, Altair acquired World programming.

A U K based technology company specializing in data analytics software used by many of the worlds leading companies.

World programming brings great technology, it's Alex here as well as a world class team of mathematicians statisticians data scientists programmers and thought leaders.

Models built using a SaaS language.

WPS analytics will be incorporated into our carrier data analytics solution suite and available under Alterra units.

WPS analytics technology integrated into the powerful low code Altair solution creates a strong and unique offering to address the requirements within enterprises programming data scientists.

And business analysts, including the ability to develop compile and interpret SaaS language programs.

WPS hub combined with Altair is ml ops environment.

It's straightforward and simple the production is machine learning models programs written in the language of SaaS and modern data analytics applications.

The acquisition of World programming aligns with Altair is open architecture philosophy.

Given customers easy access to technologies, and a flexible and intuitive environment.

We see the acquisition as a significant opportunity to help companies transition to modern open solutions and languages, while preserving significant investments made developing critical enterprise business applications and the SaaS language.

And leverage the best elements of this older technology.

As the Altair broadens, our data analytics offering under the Alterra units business model, we believe customers will increasingly appreciate the value we deliver.

In Algeria will grow to be a very significant player in this market.

We recently announced the acquisition of Cassini and next generation cloud native platform for industry four <unk>.

Casinos technology manages the entire product lifecycle from concept to customer through four key product pillars.

Engineering manufacturing quality and service.

By bringing data people and processes together in an end to end digital environment, creating a digital thread and providing a 360 degree view of the conceptualized product data.

Along with their technology, we bring on board a talented team with deep experience in both the mechanical and electronic sector.

Cassini software will be integrated into the all tier one cloud innovation platform.

<unk> customers, a comprehensive digital thread view of activities and the <unk> value chain.

Especially with respect to simulation.

Our tier ones best in class top down and bottom up simulation data management capabilities.

Mentored with Cassini technology.

We will provide a closed loop product validation platform to harness the power of physics and data science based stimulations.

Simulation results sensor data and AI reduced order models.

Our tier one and cassini each bring different and important aspects of these requirements.

Both are cloud native and both teams are passionate about the vision.

After being awarded Newsweek's, most loved workplace and Inc. Magazine's best led company earlier in 2021.

Our string of workplace and corporate awards continued in the fourth quarter of 2021.

Health care, Germany was named a top 20 to 22 employer by <unk>, a leading employer review and branding side and the dark region.

The economic times, the world's second most widely read English language business newspaper named to help your India Best brand for 2021 2022.

We were recently named the top workplace in the USA for 2022 and.

An investor's business daily ranked Altair number 50 on its list of best 100 ESG companies.

We are proud of these awards as they recognize the enduring strength of our culture and values.

And the hard work our global teams put forward.

To help the world would be a better and more sustainable place for all.

Customers increasingly recognize the value and power of Altair is data analytics suite.

Product set.

Our data analytics team had several notable wins in the fourth quarter, including two seven figure multiyear software licensing deals in the banking and financial services industry.

The majority of our new enterprise customer wins leverage the unit's model.

Many existing customers see the high value benefits of units.

<unk> licensing, including concurrent users floating licenses and access to all products and are asking to switchover.

As examples our major bank with active users across a range of <unk> applications.

Including data preparation.

Real time analytics and visualization.

Link committed to converting all its existing licenses to alterra units.

Retail customer with hundreds of users also converted their existing licenses to alterra units.

This trend is important as we grow our footprint in the market and expand the portfolio of solutions available to customers.

Beyond resulting in increased revenue these units conversions and new deals demonstrate how our licensing model can help us disrupt the traditional data analytics market and separate us from the competition.

Momentum surrounding the convergence of computational science and AI with engineering is accelerating.

In APAC, a major automotive manufacturer purchased licenses to our data analytics suite.

Giving their manufacturing engineering team the ability to easily connect collect and build simulation models.

And automotive supplier and longtime Altair simulation software customer began using Altair is data analytics tools within at CAE team to leverage past company data to create predictive models for use cases.

Including cost modeling and part quality predictions based on manufacturing conditions.

Another supplier is using our data analytics tools to compare manufacturing processes utilizing historic data and selecting the best best matches to create faster and more accurate quotes for new parts.

When historical <unk> technical data is used in these types of applications organizations, often experience significantly improved financial performance.

These are just a few examples that show simulation and data analytics converging.

Resulting in true computational intelligence.

The vision for simulation driven design continues to evolve.

The inspire platform supports significantly more geometry creation and manipulation with every release and we believe is becoming the solution of choice for mechanical conceptual design.

Our math on systems digital twin studio released new capability to perform complex spice simulations and our Spice solver.

Now also available integrated within our Hp's C work flow technology are highly cost efficient IC design.

We believe our solution to design antennas and simulate complex wave propagation <unk> and Adas applications for radar leads the market.

Our major customer in Europe has been embracing the inspire platform, including some solid.

A strong basis for re architected their design process driven by stimulation.

This customer had previously selected <unk> as the platform for <unk>.

High level simulation and is now implementing inspire and some solid and their new overall computer aided design and analysis workflow.

Some solid capabilities and performance are advancing quickly and.

And its usage continues to grow and a large proportion of our manufacturing customers.

And one in APAC country fourth quarter saw some solid across the transportation sector.

With wins at a commercial vehicle manufacturer passenger vehicle OEM and at a tier one supplier focused on plastics applications.