Q3 2022 Altair Engineering Inc Earnings Call
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
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Good day, and thank you for standing by.
Welcome to Alterra <unk> third quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
To ask a question during the session you'll need to press star one one on your telephone.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, David Simon Senior Vice President Investor Relations. Please go ahead.
Okay.
Good afternoon, welcome and thank you for attending all peers earnings conference call for the third.
Third quarter of 2022 ended September 32022.
I'm, Dave assignments, all peers SVP for Investor Relations.
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 third quarter performance and guidance for the fourth quarter and full year 2022.
Which can be accessed on the Investor Relations section of our website.
Investor Altair Dot com.
This call is being recorded.
The replay will be available on the IR section of our website.
Following the conclusion of this call.
During today's call, we will make statements related to our business that may be considered forward looking under federal securities laws.
These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date.
We disclaim any obligation to update any forward looking statements or outlook.
These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations.
These risks are summarized in the press release that we issued earlier today.
For a further discussion of the material risks and other important factors that could affect our actual results.
Please refer to those contained in our quarterly.
Reports filed with the SEC.
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.
We may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future.
With that let me turn the call over to Jim for his prepared remarks, Jim.
Thank you, Dave and welcome to everyone on the call Altair.
<unk> had a strong quarter for software sales showing exceptional momentum year to date, despite significant macroeconomic uncertainty throughout the year.
Total revenue on a constant currency basis for the first nine months of 2022 grew by 10, 4% over the same period in 2021.
Software product revenue as a percentage of total revenue.
First nine months of 2022.
<unk> had a strong positive trend 87, 8%.
<unk> to 84, 7% during the same period in 2021.
And our recurring software license rate remained high at 93%.
22 year to date.
Software product billings in the third quarter grew by more than 21% year over year on a constant currency basis, adding to the strong first half of the year.
Through the first nine months of 2022 software product billings grew by more than 22%.
Constant currency basis, and most impressively at approximately this rate in the Americas EMEA and APAC.
Altair continues to focus on growing our software business driving our mix shift towards software and higher gross margins.
Client engineering services has trended down significantly this year. However, we do see this trend beginning to abate entering the FERC fourth quarter.
Software related services business declined slightly in 2022.
We also continue to expand our profitability.
Adjusted EBITDA for the first nine months of 2020 to $69 9 million or 17% of revenue versus $61 3 million or 15, 7% of revenue.
The same period for 2021, reflecting growth of 14% in a year on which exchange rates dramatically reduced our revenue numbers.
The year over year constant currency headwind to adjusted EBITDA in the first nine months of 2022 was more than $4 million.
In September we completed the acquisition of rapid minor a leader in advanced data analytics and machine learning software.
Rapid miners low code platform has been downloaded more than 1 million times.
Used by hundreds of thousands of people of all skill levels to develop production scale data pipelines.
All models.
This acquisition significantly strengthens Altair its data analytics portfolio gives altair a best in class end to end cloud native solution.
Rapid minor pioneered the concept of visual explainable data science and was the first platform to introduce automatic data science.
Analytics automatic feature engineering deep learning and more.
Provides hundreds of powerful dragging dropped building blocks to transform and augment data.
Accelerating work for coders and non coders alike.
Rapid miners flexible delivery models provide users and enterprises with the scale they need from a user's desktop.
Premise service.
Cure multi tenant cloud.
It's best in class cloud offering Leverages the same highly rated user experience at their desktop platforms.
Existing users can easily migrate to the cloud and new users of all levels and learn the application quickly.
Altair plans to quickly integrate several of our other analytics tools, including decision trees scorecards from knowledge studio ml ops from Smart works on our SaaS language development on compiler environment.
Sure I'll say.
And customers will soon be able to access existing altair and rapid minor products easily through alturas unique.
Licensing model.
We believe the addition of rapid minor to the previously acquired technology from data watch and World programming.
<unk> depth of Altair is data analytics portfolio our market reach.
Our deeply technical and passionate team worldwide and the units business model positions us as a leader in supporting data science and analytics requirements for clients across any market vertical.
Specifically in manufacturing.
Rapid minor brings deep technology and experience, including industry specific machine learning techniques and data source connections, including OSI soft Pi <unk> and many more.
When combined with Altair is knowledge on technology and engineering and simulation. We believe also becomes clear leader for data science and product engineering and manufacturing.
While we are excited with this acquisition and other important acquisitions. We've made so far this year. We're also continuing to push innovation organically.
In Q3, we released stimulation 2022, one with many powerful new updates to enable efficient innovative products.
Flying advanced simulation.
Cloud based computing and optimization for cleaner more sustainable product life cycles.
Stimulation $2022, one helps companies meet corporate social responsibility objectives drive better design decisions and brings the power of open source technology to users around the world.
In addition to many new capabilities enhancements have been introduced to I'll turn spire for an improved design creation and optimization experience as well as updates to our chair some solid for lightning quick simulation driven design.
And our new Hyperworks workflow streamlines the process of building a reduced order model early conceptual optimization.
Along with simulation 2000, 22.1, we announced the release of open Adios.
With open Latinos Altair aims to accelerate the global pace of innovation and address the ever increasing multi disciplinary challenges faced by all industry is.
And true to Alterra is open architecture philosophy.
<unk> allows everyone to contribute drive their own renovations develop and share their models and experiment by getting inside the code.
The release was not with significant community enthusiasm with 43000 visitors to open radio Dot org.
14000, executable downloads and over 140 of the source.
During the first three weeks after the release.
For more than 30 years <unk> has been a successful commercial software product utilized around the globe to help.
Major automotive Oems developed five star rated crash performance vehicles.
Aerospace company stimulate hard landings, and bird strikes and consumer electronics manufacturers annualized impact the bounds like cell phone drops.
Audio is a leading technology for solving transient dynamic he bonds with outstanding robustness accuracy and scalability.
Finally opened around us can read and run models written with Lf final syntax, enabling a community to contribute on harmonized model building.
With this move open Ronnie is positioned to be the most successful of all powerful open source software for accurate simulation of complex multi physics dynamic <unk> bonds.
We believe this will enable a highly engaged community.
Faster advances in technology and speed up research focused on solving today's most complex challenges.
Bringing together many elements of our broad technologies, we announced Altair is digital twin solution offering tool sets for preproduction post production and in service applications.
He has tool sets leverage the dynamic convergence of simulation and data science and we look forward to seeing further customer successes in this arena.
Reaffirming the power of our technology I'm excited to share that Alpha has been ranked the number one generative design software supplier based on a study conducted by Abi research competitive ranking in this domain.
This is a great recognition of our disruptive technology innovation and leadership within the scope of generative design.
Noting that when we introduced destruct many years ago, we were setting a path for the powerful intersection of engineering simulation and design.
It is especially gratifying for us on our stimulation technology was chosen by company is clearly on the forefront of enabling a more sustainable world.
In Q3, we saw some notable customer successes.
Our European maker of solar trackers, one of the largest such companies in the market has chosen Altair simulation suite as it moves forward with new product development and services related to solar energy and distribution grids.
We believe our many customers and wind solar and other renewable fields will increase their positive impact at an accelerated pace over the next few years with our solutions.
We often speak about ESG impact as it related to the sustainability gains in our engineering and manufacturing customers.
Made through the application of stimulation and optimization.
I would like to highlight some activity in our banking financial services and insurance sector, which represent a different type of positive social uplift.
This past quarter, we closed two deals in India related to data analytics for lending to micro small and medium enterprises.
Providing efficient short term working capital to such enterprises developing nations is a key factor in nurturing healthy and sustainable livelihoods and disadvantaged areas.
Leveraging the power of data analytics to increase access to equitable financing the smart business and an intelligent approach the localized economic development.
Along the same lines in Q3, we provided data analytics technology lender focused on family housing in rural areas small towns and areas peripheral to cities, where it has been previously difficult to efficiently deploy relatively small capital support for <unk>.
Housing at scale.
We are proud that our data analytics tools will help families and disadvantage economies realize their lifelong dreams of homeownership.
Also in the financial services market, a major European Bank signed a renewal and expansion agreement with us.
Adding that a large percentage of its usage is for real time data streaming and visualization of their trading desk dash dashboards.
And a major U S bank has substantially increased its data analytics usage.
Unit licensing model, resulting in a 73% year on year increase for Altair.
Application success is for data analytics also continue to build momentum in our manufacturing and engineering customer base.
A major aerospace manufacturer is working with our AI tools to improve helicopter blade manufacturing.
And in APAC, a leading electronics manufacturer is now using Altair is data analytics and AI tools.
Prove its product performance with a digital twin strategy.
Turning to high performance computing.
That business continues to grow well, especially related to technology companies engaged in chip manufacturing, where we have a very healthy pipeline.
One major player awarded Altair, seven figure contract representing over 150% year on year growth.
We also inked a seven figure deal representing significant growth in our European Chip design company.
One of our long term goals is to continue increasing the percentage of our sales attributable to indirect sales channels.
We made several recent announcements about new channel partners.
Including flow numeric and Switzerland, Amdocs soft in the UK and Germany.
The tree and the Nordic region, neutron and South Africa, virtual CAE in Brazil, and <unk> consulting in France.
As we support these high quality organizations, we look forward to accelerated growth as we build our bright future together.
13.3% in constant currency.
The strength in buildings and especially in software doings was supported by increased demand across all geographies.
In particular strength, and our BSI technology and aerospace vertical.
All leading to software product and total revenue at the high end of our guidance range for the third quarter.
Software product revenue was $103.8 million.
Or an increase of 1.4% compared to Q3 2021 and reported currency.
Total revenue, which include services and other revenue was $119 $4 million or a decrease of 1.6% compared to Q3 2021 and reported currency.
Ah reoccurring software license right, which is the percentage of software product billings that a recurring <unk>.
Continues to be strong at approximately 93% for the first nine months of the year.
As a reminder, a significant portion of our revenues are building currencies other than the U S dollars.
And are therefore impacted by changes and FX right.
This was particularly true the past nine months.
As we saw the dollars significantly strengthen against other major currencies.
Relative to Q3 2021, our software product revenues and total revenues were unfavourably impacted by changes in FX right.
Of approximately $8.9 million and nine $6 million respectively.
Therefore on a constant currency basis in the third quarter of 2022, we saw year over year software product revenue growth in total revenue growth of 10.1% and six 3% respectively.
non-GAAP gross margin, which excludes stock based compensation and restructuring expense.
Was 78.6% in the third quarter <unk>.
Compared to 75.2% in the prior year.
An increase of 340 basis points.
As our software revenue mix, which carries higher gross margins.
Increased as a percentage of total revenue.
In addition are non gaffe gross margin specific the software product revenue continued to improve.
As our support costs trended down.
Software revenue was $86, 90% of total revenue in Q3 2022 <unk>.
Compared to 84.3% in the prior year.
Over the long term, we continue to expect a general mix shift towards software product revenue as.
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.
$91.7 million compared to 77 $9 million in the year ago period.
Adjusted EBITDA in Q3 2022.
Six $8 million.
Or 5.7% of total revenue.
Compared to $14.8 million or 12.2% in.
In the prior year quarter.
Adjusted EBITDA was higher than expected in the quarter due to slightly higher than expected revenue.
Combined with our disciplined spending.
For the nine months ended Q3 2022.
Justin EBITDA grew 14%.
To $69.9 million.
Or 17.0% of total revenue.
From $61.3 million or 15.7% of total revenue for the nine months ended Q3 2021.
Turning to our balance sheet, we ended the third quarter with $311.9 million in cash and cash equivalents.
A decrease of approximately $104.3 million from the prior quarter.
The quarter over quarter decrease is primarily due to cash used in our acquisition of rapid minor.
And other strategic investment.
Partially offset by free cash flow generated in the corner.
We generated free cash flow of $5.2 million in the third quarter.
When excluding the payment in the first quarter of the legal settlement assumed as part of the World programming acquisition.
Regenerated free cash flow of $85.7 million for the first nine months ended 2022.
Compared to $48 $8 million in the nine months ended 2021.
An increase of more than 75% year over year.
Turning to guidance for Q4 and full year 2022.
We are continuing to see a significant FX impact relative to prior year and our previous guidance.
In the past several months the U S. Dollar has continued to strengthen meaningfully against other major currencies.
Which has a significant impact on our results and reported currency.
However on a constant currency basis, we are encouraged by the strength of our pipeline and resilience of our business model.
With that backdrop, we are expecting software product revenue for Q4 in the range of $126 million to $131 million.
Four year over year increase of 3.0% to 7.1%.
The year over year percentage increase is being negatively impacted by more than 10 percentage points due to changes in foreign currency exchange rate.
For full year 2022 software product revenue, we are raising the guidance at the midpoint in constant currency.
We are now expecting full year 2022 software product revenue to be in the range of $488 million to $493 million.
Four year over year increase of 7.5% to 8.7%.
The year over year percentage increase is being negatively impacted by approximately seven percentage points due to changes in foreign currency exchange rates.
At the midpoint when compared to the guidance, we gave last quarter.
This represents an increase of $4.2 million.
Offset by a decrease of $6 $2 million due to changes in foreign currency exchange rates over the last three months.
We continue to expect services and other revenue to be down in 2022 compared to 2021 consistent with our previous guidance.
As a result, we expect total revenue for Q4 2022.
In the range of $143 million to $148 million for.
Four year over year increase of 1.6% to 5.1%.
The year over year percentage increase is being negatively impacted by approximately 10 percentage point due to changes in foreign currency exchange rates.
For full year 2022 total revenue.
We are also raising the guidance at the midpoint in constant currency.
We are now expecting our full year 2022 total revenue.
Be in the range of 555.
To $560 million.
Four year over year growth of 4.3% to 5.2%.
A year over year percentage increase is being negatively impacted by approximately six percentage point due to changes in foreign currency exchange rate.
At the midpoint when compared to the guidance. We gave last quarter. This represents an increase of $3.7 million <unk>.
Set by a decrease of $6 $7 million due to changes in foreign currency exchange rates over the last three months.
From a cost perspective, we continued to be disciplined in our approach and our especially mindful of the economic uncertainty heading into next year.
While we're investing in areas that are driving the business forward.
We're reducing our spend as a percentage of revenue and administrative departments.
Which is helping to drive increases and adjusted EBITDA.
For Q4, 2022, we expect adjusted EBITDA in the range of $22 million to $25 million or $15 for the 16.9% a total revenue <unk>.
Compared to $24.0 million or 17.0% of total revenue in the year ago period.
And for full year 2022, we are also raising guidance for adjusted EBITDA at the mid point in constant currency.
We are now expecting adjusted EBITDA to be in the range of $92 million to $95 million.
Or 16.6% to 17.0% of total revenue.
Compared to $85.3 million or 16.0% of total revenue in 2021.
At the midpoint when compared to the guidance, we gave last quarter.
This represents an increase of $1 million.
Offset by a decrease of $1.5 million due to changes in foreign currency exchange rates over the last three months.
Compared to prior year.
R 2022 expected adjusted EBITDA is being negatively impacted by more than $7.5 million.
Due to changes in foreign currency exchange rates.
And finally, we are also raising the guidance for full year 2022 free cash flow by 4 million at the mid point to a range of $14 million to $18 million.
Which includes the $65.9 million payment for the existing litigation judgment against World programming that we assumed as part of our acquisition and it was paid in January .
Excluding this payment we're expecting free cash flow for the year of approximately $82 million at the midpoint.
Compared to $53.8 million in 2021 <unk>.
Representing an increase of 52%.
As a reminder, or cash flow expectations are sensitive to billions in collections pattern.
Which fluctuate seasonally.
In particular are historical pattern has shown free cash inflow and the first half of the year, primarily from collections on billings from Q4 and Q1 and.
In a smaller free cash outflow in the second half of the year.
We're expecting that pattern to continue this year.
We've provided detailed guidance tables, including reconciliation to comparable gap amount and the impact of changes in foreign currency exchange rates and our earnings press release, which was issued after closing market today.
Wish that we'd be happy to take your questions.
Operator.
As a reminder, if you'd like to ask a question at this time, you'll need to press star one one on your telephone.
Please stand by will be compiled Q&A roster.
Our first question comes from the line dealing Becker with William Blair. Your line is now open.
Hey, guys. Thanks for taking the questions in a nice job here, maybe starting off with you. Jim If you think about the outlook you can kind of perception, you're hearing from the core customer base sounds like the demand environment still remains a pretty healthy despite everything that's going on but Q for Q1, typically fairly seasonal for you guys and important as well too so as those customers are.
A lining budget love to get a sense of what you're hearing how they're prioritizing budgetary allocation to stimulation types of tools and how you can kind of help support the operational efficiency needs that they're trying to address.
Hi billing.
First of all I just wanted to let you know that it's it's late in Thessaloniki, Greece.
You May hear my voice a little rough.
Knights on speaking from a hotel room traveling you're visiting my team here.
So.
As you can imagine I'm asking.
This question like all day long.
Hum of much revenue officer of all my country managers of the people who run the indirect business because I'm reading newspapers, just like you guys are.
It's it's somewhat surprising Jamie.
If I'm really honest, but but the pipeline remains extremely strong.
We're not saying like any.
<unk>.
Of you know.
Ah deals.
Deals being delayed or or slowed down or taken taken back or or any of that just somewhat surprisingly.
Continues to be fairly robust.
The rationale.
Just the customers feel so much pressure too.
Send you to put out a competitive products and.
And we actually help them to reduce cost them. There is there is there.
This whole move.
Towards applying.
Data science and and.
Digital <unk> technology as well, so that's really kind of giving us almost a renaissance that we've sued so continues to be.
Actually very very strong for us.
But that's encouraging you get to hear you touched on the data analytics feet, there and highlighted the rapid minor acquisition in your prepared remarks, I wanted to maybe dig in the value proposition there as well to how you think about that kind of coalescing in and fitting into the broader data analytics <unk> sounds like it really kind of helps round out the functionality.
Sweet, but maybe how you're thinking about when customers are saying, there and maybe how that can help incentivize the the data analytics conversion towards the unit model as well.
The unit model really.
Works when you have so.
Sufficient number of products are.
Available for the customer to us.
<unk> first of all on so I think we've we've finally.
Crossed that threshold, where where we have a really nice array of technology across a lot of different areas.
Areas of interest for the customers.
The rapid minor acquisition brings.
Brings some overlap with what we have before but we think their technology is superior frankly.
They also had a very very deep.
Install base in the manufacturing sector, which of course is very very important for us and just a lot of you you're 20 years of experience with a lot of use cases in the manufacturing sector that.
Really helps us to sort of cement.
What we're trying to do in there and they built.
All the major conductors irrelevant in manufacturing, but lots and lots of smaller connectors as well in the manufacturing space. So very very strong in that direction.
And the last piece as they were working on our own cloud platform.
But frankly speaking what they've built we think is just really world class.
Frankly, better than what we were building.
So.
We just made a decision. This is just a really great team Grace.
Great products.
Really well.
We're gonna Sunset a couple of our products and move some of our technology that is really great I mentioned that during the call decision tree technology for example.
So rapid minor product, but now we have this.
Absolutely best in class array.
From the data prep side, all the way through.
Science.
<unk> gives us best in class visualization tools, and we're just really well prepared for the all digital twin Revolution, because our smart works <unk> platform.
Is also very very strong now.
I can just see a lot of transactions.
I mean, it's just a great great.
Physician for us.
Okay, great. Thanks for taking questions.
Our next question comes from the line of Ahmad Camille Oppenheimer. Your line is now open.
Hey, Thanks for taking my question and congrats on the corner.
I guess, just the more nuanced follow up the Bill in question, Jim What did you say there are differences among your different customer verticals in terms of how they are doing the macro environment.
So.
It's a good question to be honest it seems to be a pretty solid across the board.
I'm not really.
Getting.
And at the beginning of the input at night, perhaps I'm not asking the right questions. So I'm gonna probably need to dig further knowledge of apps, thus, but but frankly speaking I'm just not seeing for example auto.
Or arrow, if you look at our numbers.
Or expansion numbers aren't noon, new account numbers and all the renewals.
They're all robust and you know the tech Tech.
Tech business very very strong and then a lot of stroke.
Across simulation R. H P C business and the data analytics business.
So it's it's.
Fairly across the board frankly right now.
One can never.
No.
There's all kinds of macro things out there of course, but right now.
The pipeline just just feels very reverse all of them.
That's great. Thank you and then one for Vermont.
I don't know if this is disclose I didn't see it in the press release, but as rapid mitre, adding any revenue.
Here.
Yeah, it's it's adding very little this year almost nothing in Q3.
But we're expecting a couple million to come in in Q4.
Thanks, and that's all for me.
Our next question.
It comes from the line.
Abernathy wrote.
And black.
Your line is now open.
Hi, guys are nice quarter.
Can you hear me okay.
Yeah Blair. Thank you.
I'm sorry, it just it was getting cut off there I'm just another question quick question on rapid minor if I could.
As you look down the road sort of three or four years down the road Jim.
Potentially a platform where you can consolidate all of your various state analytics and.
No offerings.
The answer simply is yes, [laughter], so yeah, that's exactly right, especially as of.
The market and customer, especially enterprise customers.
Move to cloud.
It just really gives us a fantastic platform.
For bringing everything and and we were already developing so I mean, everything we've developed such as in our whole ml ops capability that was smart works analytics.
Plug right in to the rapid minor cloud solution.
So in fact that is exactly where are we seeing things calling and.
Pretty quickly actually.
Okay, great it and I'd only one other thing I.
I was just going to mention one other thing I didn't mention earlier with Dylan.
Question rapid miners are great Brown.
Mmm.
It's just extremely well known I I'm here in Greece and.
The University, the other day and and what other data science.
Departments with a lot of students and they had all heard of rapid minor.
So it's just a really really nice to have a brown lab strong.
Because I think it will help us.
Okay excellent excellent and.
What's what's the sort of the.
Just send an X S. Let's just say the next year next few quarters, what sort of a go to market plan with a rapid minor product today and at what stage to choose to move it into the altars units model.
Oh, it's gonna move into the Peanuts model very very quickly here and.
Basically pushing units across the board.
With with all the customers for for data analytics.
We're pretty much moving away from any named Jews or.
Business, most the renewals, we're trying to move them over to to the units model as well.
[noise] way they have access to all the applications just much easier for us to grow grow the business going forward.
And we're making a couple of other adjustments to make that easier.
[noise] accelerate that which which will begin to see.
Basically throughout 2023, and I think it's gonna.
Dramatically.
Mmm dramatically increase the opportunities that we have for grabbing sure.
Okay, Great just just shifting gears a little.
In your prepared remarks, you called out a few larger deals.
Indeed and data analytics.
Analytics side of things and elsewhere and I'm just wondering you know.
Given the cloudy macro environment. What what are you are you seeing it's a change here at all like are you seeing more large deals happening because you've got more product to offer or any sort of changed insurance in terms of the size of things you guys are are booking.
I mean, it's it's a natural transition.
We as a company has been making from selling if you will individual tools to.
Solutions to really selling the whole portfolio and two accounts.
More and more or selling a little higher level more top down into accounts, we still do a lot of bottom up but it's bottom up top down.
And we are selling the entire portfolio and.
And we think that.
Data science and data analytics offering combined with everyone. Also we do as a business is very very attractive now to to customers and our simulation products are really really advancing it sort.
Sort of goes unnoticed, but we've been rearchitecting everything.
And modernizing so there's there's just real strung across the product portfolio.
Okay, great. Thanks, Jim.
Thank you.
Our next question comes from the line of Matthew Mirror Commie RBC capital markets. Your line is now open.
Hi, This is <unk>. Thank you for taking my call.
Re just wanted to ask when looking out at some major themes that you're seeing from your customers and in the market.
What areas of the market do you see an emphasis to invest in either organically or inorganically.
So we're seeing a lot of opportunity and and technology in aerospace and in banking.
Those three sectors are.
Growing really really well and we'll just see a lot of that room and all three of those automotive still has had room because we're just beginning to penetrate we just had a wince on the data analytic side in Europe .
The.
The rapid minor.
Apologies very very interesting and attractive to a lot of customers and and and.
Automotive as well as well as all the manufacturing customers, so, but but if you're asking me, where we were really seeing the most had room, it's suppose first right but.
But if I look at new new accounts, we're seeing a lot of new architectural engineering.
Accounts.
There's a lot of business really across the board.
Mmm.
Perfect. Thank you so much and I'm just gonna follow up on that.
With M&A being a part of you guys a strategy the past few years.
We approach this more uncertain macro does this kind of create some pausing me M&A strategy or do you think this is an opportunity or you know from a valued perspective, creating some more opportunity and M&A.
[laughter].
I think it may create some more opportunity as time goes on.
In general I'm I'm, feeling like I'm like there's no really huge moves <unk> in 2023, I think we have some things to digest now we needed to do some of these moves to fill out the solution saw particularly and data analytics and I think we've.
Done a lot of good work there there's still obviously a pipeline of things that we're looking at but it's it's smaller quite frankly.
And.
We need to digest, and frankly, just put our heads down and.
The business.
Thank you so much and congrats on the get Carter.
Thank you.
Our next question comes from the line of gallon Linda with Wolf Research. Your line is now open.
Hi, everyone. Thanks for taking my questions.
For the first one maybe not for you just thinking about that digestion period that Jim mentioned and the fact that.
<unk> will contribute a little bit to the top line, but also brings into cost base how're, you thinking or how you're feeling about the next year in terms of the cost base. When you look into especially in light of the 23 targets to introduced a year ago.
Yeah, Hey, I'll take for the question.
So when we're looking at rapid minor.
It is such a.
A great piece of technology that we were able to acquire and bring in.
And.
Obviously contribute some top line not a lot, but one of the things that we're doing is looking at cost synergies in terms of other open positions that are already existing within the business.
And there's quite a bit of very technical talent.
That existed rapid minor that we now get the benefit of.
But I do think that there's some opportunity for enforcement cost synergies to fold in now and bring the teams together and may be positions that we would have hired for before we can now fill with just a really really talented team.
And so it's sort of the short answer is.
Rapid minor alone I don't see significantly impacting our our 2023 target and materially one way or the other actually I think we can we can bring it into our portfolio and make it work.
From a cost structure such that it is not a drag on argue with the target.
That's really great. Thank you and then Jim maybe just <unk> as you mentioned continued progress.
In the past you've also talked about the new types of physics teacher trying to introduce and can you talk a little bit more about that and.
Maybe the good question.
The overarching kind of question that I have is.
<unk> do you think maybe it has happened already with when.
When you when you're <unk> and kind of course this week of product at what stage can call. It becomes kind of a normal part of the inclusion of the of the country discussions so it becomes more of a mainstream product rather than a novel.
Do something to show something to walk.
<unk>.
Well, it's not a novelty at this point.
[laughter] and it's it is the fastest growing.
Product from usage standpoint in the portfolio by far.
And continues to.
Really run.
Most of the success, we're having as in the design community.
Coupled with the inspire product or on a standalone business and we're just beginning to start to really poke into the traditional analyst.
Community as well.
We do three releases of some solid a year and every one of them is just chock full of those capabilities.
And it's it's just extremely impressive tool.
So at this point.
Sort of mainstream [laughter], but but it's also.
It is.
It's a great discussion starter similar to the the SaaS language compile capability.
The pipeline.
Is very robust for for those discussions as well and then they bring us to look at the entire portfolio you know use the units model.
So both of those products are are really nice.
Nice for generating activity.
To fill the funnel.
Perfect I answered how frustrating, but it is.
Yeah.
Okay Tonight [laughter].
Our next question comes from the line Mark Schappell with Luke Capital. Your line is now open.
Hi, Thank you for taking my questions and just building on the earlier [noise] question around some solid your gym in your prepared remarks, you noted new innovations in your simulation portfolio particular around <unk>.
Simulation of 2022.
Did you release, any new product significant or meaningful product innovations around some salt this quarter, if I recall correctly multiphysics capabilities were something that were being worked out for them that product.
So there's nothing nothing in that arena, we are.
We have set some breakthroughs in the lab F U F O.
Around electronics for example.
But it's gonna take.
A year or so before we we released something that.
But the market is going to say.
So.
At the same time that we're constantly releasing new capabilities, particularly in the non linear space on contact and all of that so some solid continues to really Ah, so fast or adding developers to it.
We're adding electronics developers now to it.
I'm, just really focused on doing some really interesting things going forward.
Great. Thank you and then Matt and your prepared remarks, you noted that.
You are looking to reduce spending some administrative areas I was wondering if you could provide a little bit more color around that.
Yeah, and that's really much more to just talk about where we plan to invest in wherever you were we plan too.
To cut back as a percentage of revenue and so as we look ahead to the future.
We're just very mindful about the need to.
To continue to invest in product development, that's important for us.
And in sales capacity, that's also important for us but areas like G&A.
As a percentage of revenue, we expect that to just continue to come down.
So absolute dollar spent of course will will increase continue to increase a bit but at least in terms of a percentage of revenue we're expecting that.
To come down faster than we would say in in development or in our in our sales capacity. So.
Yeah.
I think about those those departments I'm I'm thinking about the the typical back office functions that you would expect so finance legal.
H R things of that nature, where really we can just start to make use of our scale.
Great. Thank you.
Our next question comes from the line of Andrew Perry.
<unk> Your line is now open.
Hi, This is Stephanie on for Andrew <unk>. Thank you for taking my question. So are you concerned about any indirect impact from U S. Export control rules that were input three weeks ago.
Transfer to China.
Thank you.
Thanks definitely I mean, we're paying attention then we obviously have to follow the rules.
You know for Altair relative to some of the other let's say more emba oriented companies.
China's a relatively smaller percentage of our business.
And a lot of our business is.
Sort of the commercial enterprises like automotive.
<unk>.
Heavy equipment those sorts of things. So there has been impact for us no doubt as the.
The number of customers that we can or cannot sell to <unk>.
Continues to decline.
There's certainly some impact, but we see business out of out of China will.
Will continue to grow.
Even even throughout.
Even with with those restrictions.
Thank you.
Thank you.
That concludes today's question and answer session I'd like to turn the call back to Jim's cabinet for closing remarks.
Just wanted to say, thank you for everyone's attention and interest in and out there.
Most of my team for all the work preparing everything and having another credit quarter well. Thank you.
This concludes today's conference call. Thank you for you may now disconnect.
Connect.
The conference will begin shortly to raise your hand during Q&A you can dial 911.
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