Q3 2023 Altair Engineering Inc Earnings Call
Okay.
Good day, ladies and gentlemen, thank you for standing by.
I'll come to Alterra third quarter, 2023 earnings conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to Crestar. One one on your telephone you will downie and automatic message advising you and its ways. Please note that today's conference is being recorded I will now.
I'll hand, the conference I'll, let you speak of hosts for today, Dave Simon Senior Vice President of Investor Relations. Please go ahead.
Good afternoon, welcome and thank you for attending all tiers earnings conference call for the third quarter of 2023.
Tempur 30th 2023.
And Dave All Perez SVP for Investor Relations.
With me on the call are Jim Scapa, founder Chairman and CEO.
Matt Brown Chief Financial Officer.
After market close today, we issued a press release with details regarding our third quarter 2023 performance.
For the fourth quarter and full year 2023.
Which can be accessed on the Investor Relations section of our website.
Roster 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.
It 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.
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, we have filed or may file from time to time.
During the course of today's call we.
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.
You may offer metrics that are incremental to our usual presentation.
Greater insight into the dynamics of our business or our quarterly results. Please be advised we may or may not continue to provide this traditional 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.
The third quarter of 2023 was excellent for Altair with software product revenue total revenue and adjusted EBITDA all above the high end of our guidance.
Our Q3 performance demonstrates the power and veracity of our vision for the convergence of computational science and.
AI across industries, and verticals, including engineering scientific discovery and business.
Adjusted EBITDA for Q3, 2023 more than doubled year over year to $15 5 million.
Software product revenue as a percentage of total revenue for the third quarter grew to 88, 9% compared to 86, 9% from the third quarter of 2022.
Software product revenue as a percentage of total revenue for the first nine months of 2023 increased to 89, 3%.
Pair to 87, 8% in the first nine months of 2022.
The recurring software license rate for the first nine months of 2023 was 94% an increase from 93% through the first the same period in 2022.
Software product revenue on a constant currency basis grew by 14, 5% in the third quarter compared to the third quarter of 2022 and 11, 1% for the first nine months of 2023 compared to the same period in 2022.
<unk> growth continues to be broad based across many geographies technologies and verticals.
We are releasing a landmark set of product solutions across our entire portfolio, representing some of the most important and powerful software updates we have delivered in many years.
Included with these releases are next generation user experiences modern AP is tightened integrations between products seamless access to high performance computing and increased computation speeds.
Over the past year, our employees from all parts of the organization has embraced a shift to focusing on verticals as well as cross Pollinating, our data science expertise with our traditional simulation design go to market teams.
This convergence has created new growth opportunities with our customers by helping them acquire digital twin technology to improve their products scale compute power faster.
And use data analytics and artificial intelligence to accelerate their digital transformation efforts.
As part of this effort we are pushing the boundaries of what we know it's possible by integrating our products and truly transformative ways across all three of our major software platforms.
Altair Hyperworks, our design and simulation platform Altair rapid miner, our data analytics, and AI platform and Alterra HBC works or high performance computing and cloud platform as well as Altair, one our cloud innovation gateway.
Altair <unk> 2023, empowers engineers with a comprehensive suite of design and simulation solutions that harness the power of computational science HBC and AI.
It's new modern user experience and Python Apis throughout the platform.
Power developers and users to create unified best in class solutions, leveraging technology from the entire Altair Hyperworks portfolio.
Hydro <unk> was upgraded with a user centric design, providing unmatched pre and post processing capabilities through AI powered tools and Nextgen design and optimization workflows.
Hypermarket Cfd complements these capabilities by streamlining CFT workflows within a unified environment.
Some lab has expanded capabilities as an integrated multi physics solution for electronic design automation.
Hansen user friendly nuts, while advancing electronic and EBITDA product development.
Our new product introduction of simulation data management is an exciting and timely solution for customers looking to leverage AI, driven simulation, where historical simulation runs become key sources of valuable data.
We see significant momentum among all customers to implement digital twins for both design and service applications.
Twin activate the foundation of Altair is digital twin solution continues to evolve as a differentiated solution, especially with our strong ROM AI capabilities.
In addition, the integration of <unk>.
Recently acquired for requirements management gives our platform are strong and complete digital twin offering for customers.
Some solid continues to gain market share in all our established and many new accounts as the technology rapidly matures and adds new functionality.
This release enhances some solids ability to automatically set parameters leveraging machine learning, which is key for the design community.
Inspires release beautifully integrate implicit modeling for optimizing lightweight lattice structures building on technology from our 2022 acquisition of Gen. Three day.
This software is further enriched by a new cutting edge visualization and rendering graphics engine, which will also be released in future versions of hyper mass and some lab.
Alterra rapid minor 2023, now delivers generative AI capabilities for domain experts and data scientists and deeper support for coding data scientists.
The platform also continues to integrate advanced automated functionality, including decision trees auto clustering auto machine learning auto feature engineering and auto forecasting.
Customers can build and use rich real time, dashboards more intuitively than ever with a new streamlined user interface and those with intellectual property and the SaaS language, we will be able to write test and run SaaS co directly from their Python development.
<unk>.
Furthermore, Altair rapid miner with generative AI enables non programmers to create large language models and refine models for new or proprietary use cases, all without needing to write code.
Users can access all 300000, plus hugging face models with one click and fine tune models with billions of parameters.
<unk> with some of the biggest models on the market.
Generative AI and Altair rapid minor also simplifies and accelerates workflow design.
Users simply stated desire data transformations and the platform will suggest and configure the appropriate workflow.
Altair <unk> 2023 has undergone one of the biggest technology changes in decades.
Through the adoption of web scale distributed technologies, we give HBC centers around the world.
Scale and adaptability demanded by modern distributed workflows.
Furthermore, we are improving our dynamic cloud scalability based on real time demand by implementing a unified interface for monitoring cloud deployed nodes.
This ensures efficient cloud spending by enabling global cost controls and providing enhanced visibility from your preferred Altair workload manager.
By targeting specific workloads with cloud resources, we ensure expenditure matches business needs.
Altair, one 2023 lets customers easily configure build and deconstruct theyre HBC infrastructure on demand with any of the popular cloud providers avoiding vendor lock in an uncontrolled cost.
Altair material data center and our simulation data management are built on the Alterra one platform for consistency traceability and collaborative decision making across the enterprise.
On Altair, one users can interact with Altair support access our new enhanced AI powered support documentation and manage their software licenses and users.
In addition to these exciting product releases, we have added additional technology to our structural optimization portfolio with the acquisition of Hanmi Quest.
The company was founded by the late Professor Gary Bonder plants are giants in the field of structural optimization.
It's advanced structural analysis and optimization software is used by many customers in the automotive sector to develop lightweight efficient designs.
We believe this acquisition further enhances altair is optimization market leadership.
Yeah.
The aerospace vertical was particularly strong for us in the third quarter.
Notably Altair extended its longtime collaboration with Airbus with a recently signed a new multi year agreement.
This agreement allows Airbus to access the complete altair portfolio, including our simulation HBC data analytics and AI software solutions. Additionally.
Additionally, it will accelerate Airbus is deployment of Altair, some solid are game changing matchless stimulation technology.
In addition, an aircraft engine manufacturer signed a six figure license agreement focused on data analytics and machine learning to detect anomalies related to electromagnetic interference.
In aerospace systems supplier committed to using Altair rapid miner to drive its data driven digital transformation for engineering manufacturing and aftermarket services.
A major aerospace company renewed with a double digit increase on its annual seven figure spend with Altair stimulation tools regarded as a core technology for its product development and verification processes.
Finally, an aerospace supplier sourced a six figure deal specific to al Khair monitor our real time software licensing monitoring and management system.
The automotive vertical driven by several innovative applications contributed to our third quarter software sales growth.
A European automaker worked with us to use AI for improved <unk> performance.
And APAC automaker use rapid miner to improve its supply chain efficiency and a formula one team expanded six figure annual spend with altair by over 30% with applications, mainly focused around structural optimization.
Finally, we had a six figure expansion with an EV manufacturer, including work targeted at vehicle dynamics.
And the heavy equipment vertical we won a multiyear seven figure commitment representing double digit year on year expansion compared to 2022 and also going forward.
This relationship is a great example of a global company leveraging a large portion of the alterra portfolio to address longer term goals for electrification digital twin and overall data driven enterprise strategies.
We are excited about its products and look forward to playing a continued role in helping this company succeed.
In the technology vertical we won two new semiconductor customers in Europe, and a seven figure expansion with a major U S technology supplier for applications related to high performance computing.
Regarding workplace culture Altair added to our growing list of 2023 awards by again being named one of Newsweek magazine's most loved workplaces and the U S and in the UK.
This year. We were also named one of Fortune magazine's 40 best workplaces in technology.
We appreciate the recognition from these highly respected award programs.
We look forward to closing out a solid 2023, despite a relatively challenging macro environment now.
Now I will turn the call over to Matt to provide more details on our financial performance and our guidance for the fourth quarter and full year of 2023.
Matt.
Thank you Jenn and Hello to everyone on the call and thank you for joining us.
Q3 was an impressive quarter for Altair with our financial results exceeding the high end of the range for every metric we guided to for the quarter.
Once again fueled by strength in software revenue across a number of verticals.
Fiscal 2023 continues to progress in a positive way.
And we are well positioned to achieve our financial goals for the year.
As I dive into the details of our financial results remember some of our revenues and expenses are transacted in currencies other than the dollar.
And therefore, our reported results may be significantly impacted by changes in foreign exchange rates.
To aid in the review of our results throughout my remarks, I will make reference to growth rates in both reported and constant currency.
Total billings for the quarter were 124 4 million.
Our year over year increase of one 2% in reported currency.
And 0.1% in constant currency.
Software product revenue in Q3 2023.
With $119 1 million.
A year over year increase of 14, 8% in reported currency.
And 14, 5% in constant currency compared to Q3 2022.
In Q3, we saw particular strength in expansions within our renewal base <unk>.
Including the cross sell of our data analytics and AI solution into traditional engineering customers as Jim mentioned, a few minutes ago.
These wins are encouraging and support our view that customers are expanding the use of applications across our product portfolio to drive better designs and decision making.
From a vertical perspective, we continued to see meaningful growth in automotive aerospace and technology.
Demand for our products is strong.
Total revenue in Q3 2023.
Which includes services and other revenue.
Was 134 point in euro million.
Our year over year increase of 12, 3% in reported currency.
And 11, 9% in constant currency compared to Q3 2022.
Our recurring software license rate, which is the percentage of software product billings that are recurring.
Continues to be strong at approximately 94% through the first three quarters of 2023.
non-GAAP gross margin, which excludes stock based compensation was 81% in the third quarter.
Compared to $78.
6% in the prior year.
An increase of 150 basis points.
Software product mix and an increase in our software product gross margin drove this increase.
Our software product revenue, which carries higher gross margins.
With 88, 9% of total revenue in Q3 2023.
Paired to 86, 9% in the prior year.
Over the long term.
We continue to expect a general mix shift towards software product revenue.
As growth there will continue to outpace services and other revenue.
And as a result, we expect our non-GAAP gross margin to continue to increase modestly in the near term.
non-GAAP operating expenses, which excludes stock based compensation and amortization of intangible assets.
Were $93 9 million compared to $91 7 million in the year ago period an.
An increase of just two 4%.
This year over year change was driven by increases in research and development and sales capacity Paul.
Partially offset by decreases in general and administrative costs.
And represents the smallest year over year quarterly percentage increase in operating expenses.
The Covid pandemic impact in.
In 2020.
Adjusted EBITDA in Q3, 2023 was $15 5 million.
Or 11, 5% of total revenue.
Impaired to $6 8 million or five 7% in Q3 2022.
The year over year increase was driven by the increase in revenue.
While maintaining a disciplined approach to costs.
In September we celebrated the one year anniversary of our acquisition of rapid miner.
In addition to the exciting new product capabilities that Jim spoke about.
Altair rapid minor 2023 release.
We also realized cost synergies ahead of expectations.
Turning to our balance sheet.
We ended the quarter with $431 2 million in cash and cash equivalents.
An increase of approximately $12 9 million from the prior quarter.
This increase was driven primarily by cash from operating activities.
And we continue to be pleased with our cash flow generation.
Free cash flow through the first three quarters of 2023 with $97 8 million.
Looking ahead to guidance for Q4 and full year 2023.
We have provided detailed guidance tables in our earnings press release, including reconciliations to comparable GAAP amounts.
We are continuing to see an FX impact relative to 2022 at.
Foreign exchange rates changed throughout last year.
To provide more clarity on the FX impact to our expectations.
We have provided growth rates in both reported currency and constant currency in our guidance tables.
For Q4, we expect software product revenue in the range of $153 million to $159 million.
A year over year increase of five six to nine 7% in reported currency and five one to nine 3% in constant currency.
For full year 2023.
We are maintaining our previous outlook for software product revenue in constant currency at the midpoint.
And slightly decreasing our outlook in reporting currency due to changes in foreign exchange rates.
To a range of $547 million to $553 million.
The year over year increase of 8.0 to nine 2% in reported currency.
And nine four to 10, 6% in constant currency.
For Q4, we expect total revenue, which includes services and other revenue to be in the range of $169 million to $175 million a.
On a year over year increase of five three to nine 1% in reported currency.
And $4 nine to eight 6% in constant currency.
For the full year 2023.
We are maintaining our previous outlook for total revenue in constant currency at the midpoint.
And slightly decreasing our outlook in reported currency due to changes in foreign exchange rates.
To a range of $610 million to $616 million a year.
Year over year increase of six six to seven 7% in reported currency and seven 9% to 9.0% in constant currency.
Moving to adjusted EBITDA.
For Q4 2023.
We expect adjusted EBITDA in the range of <unk> $44 million to $50 million.
Or 26.0 to 28, 6% of total revenue.
Compared to $38 7 million or.
Or 24, 1% of total revenue in Q4 2022.
For full year 2023, we.
We are maintaining our previous outlook for adjusted EBITDA in constant currency at the midpoint.
And slightly decreasing our outlook in reported currency due to changes in foreign currency exchange rates.
To a range of 120.
To $126 million.
For $19, 7% to 25% of total revenue.
Compared to $108 6 million or 19% of total revenue in 2022.
And finally for the full year 2023, we are maintaining our outlook from last quarter for free cash flow, which we expect to be in the range of $108 million to $116 million.
And represents a substantial increase year over year.
As a reminder, our cash flow expectations are sensitive to billing and collections patterns.
Which fluctuate seasonally.
In particular, our historical pattern has shown a larger free cash inflow in the first half of the year, primarily from collections on billings from Q4 and Q1.
And a smaller free cash inflow.
In the second half of the year.
We are expecting that pattern to continue this year.
I'm very proud of the steady execution. Our team has made so far this year in so many areas across the company.
Our performance through the first three quarters gives us confidence we are on track to meet our financial goals for the year.
With that we'd be happy to take your questions.
Operator.
Thank you.
Ladies and gentlemen at this time I would like to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
First question coming from the line of Charles <unk> with Me Hamon Company. Your line is open.
Yeah.
Hey, good afternoon.
Jim My math.
Maybe I wanted to start with.
Q3 weeks out.
The Q4 guidance, which kind of relative to what you've guided.
A quarter ago, there was a good amount of upside to Q3, but there seems to be a little bit downside to Q4, but on balance it looks like at least on constant currency basis, you Didnt really change your outlook. So really just wanted to.
There's puts and takes across those two quarters, although it's just a timing issue of the revenue or you are seeing something house.
My first question. Thanks.
Yeah, Hey, Thank you for the question I can take that so one of the things that we've just been very proud of this year is it just the steady execution against what we viewed as our our outlook in software product revenue at the midpoint showing growth of 10%. So.
We had that outlook to start the year and we've been able to just sort of reaffirmed that each quarter as we go laugh.
Last quarter as you probably recall, we really tried yet tried to emphasize the fact that we're looking at the second half really the second half as a whole.
So when you look and see how we performed.
That view is still intact and we feel like.
They're really good news is we got some benefit in Q3 above what we were expecting.
And that helps Derisk Q4.
And in total our second half view remains consistent in constant currency.
It's something that we're pretty happy about.
Thanks, Matt.
So maybe next question maybe for Jim Jim I think there has been quite a good amount up.
Not so positive headlines related to the automotive industry.
Regarding maybe some demand softening maybe more on the EV side.
So.
That strikes.
Stripes I mean, it looks like you can put some cost pressure automakers where they.
Thank you. My question is could you see do you see some of the macro affecting vertical.
Automotive or do you see some of the strikes probably cannot cause some issues with your customers in terms of when they plan for the next years budget for that.
Yes, that's relevant for our test business.
Sure sure Charles Thank you.
In general I, just don't see.
The work that we do is really being affected much by.
Bye bye any of that quite frankly, I think these companies are continuing to need to innovate.
They are continuing to embrace <unk>.
Emulation and data science.
More and more frankly, because they recognize.
This is the path to actually doing things for less cost and faster.
So we're just not we're just not affected in the way that you might anticipate.
And I think that frankly speaking I think that the auto companies have managed.
Their finances quite a bit better than they used to in the past and so I just don't see that kind of strain.
Acting us at all.
Thank you.
Thank you.
Our next question.
And our next question coming from the line of Julian Becker with William Blair. Your line is open.
Am I missing the question.
Yes.
Dylan Becker your line is open please check your mute button.
Maybe we should go to the next question. Thank you.
Sure John.
Our next question.
And our next question coming from the line of Blair Abernethy from Rustenburg Rosenblatt Securities. Your line is open.
Alright, Thanks, guys can you hear me.
Yes, we can.
Hi.
Great quarter.
I guess couple of things I wanted to drill in on Jim Jim can you just.
Give us a little more color on this cross selling that you were able to pull off on the on that Dave.
Data science in the manufacturing and just kind of some a little more color on how you did that.
How big is that opportunity is not easily had rapid minor for a year just wanted to get a sense of.
How accretive that can btu.
Yes, I think it's really huge to be honest with you and it's really just incipient trade right now.
We're just saying.
Huge amount of interest.
Applying our physics AI technology for example, ROM AI technology wanting to do digital twin.
Implementations, and we're frankly, very very well positioned with great technology great expertise.
And a lot of experience now we're just seeing everywhere. We look are these kind of projects.
And.
What we're being told is that our technology is best in class.
And we continue to invest in it and I just think we're starting to outpace the competition.
It's an area that maybe others were dismissing earlier.
But it's.
Really coming to fruition I think it is huge absolutely huge.
And as the Altera units playing.
Roland This as you would have expected it to it plays a really really big role because.
Especially.
Everyone's watching their expenses pretty closely over this last year.
That plays well for us because we look like a very high value play and as they do.
<unk> as we do projects small POC is here there and everywhere.
They are they are quickly seen benefits.
We're not we're not the kind of company that's trying to boil the ocean.
We're doing lots of singles and doubles and those are turning into much bigger opportunities.
Companies are starting to see.
Rapid minor is the right solution to take across the enterprise so.
Yeah, we feel really good about things right now and our team has really embraced everything if you look.
A year ago.
If you looked at the traffic.
Communication traffic inside of Altair.
You saw 10.
10% is much discussion around opportunities in the data science area. So it's really taken hold.
Okay, great. Thanks for the color.
Shifting gears.
I would like to ask you about.
Your take on China.
How your business is doing there obviously we've seen.
Lots of other commentary in the market and just kind of want a sense or maybe remind us too just how big of a market. This is for you guys.
Yes.
We don't breakout.
At least as far as I know, we don't break that out as a percentage, but it's relatively small compared to.
Some of the other players that you are familiar with.
In our space.
And quite frankly.
The surprise.
Announcements.
Came over the last day.
Really just don't affect us.
We've been basically following their requirements.
Department of Commerce right from the very very beginning.
Our revenues have been affected pretty significantly over the last couple of years simply because they continue to add more companies to the banned list.
I think perhaps other companies have been more aggressive.
Maybe less vigilant.
Making sure that that.
They stuck to the rules.
<unk>.
It's finally.
Coming in.
Okay, great. Thanks, Thanks very much.
Thank you.
Thank you one moment please for our next question.
And our next question from Dylan Becker with William Blair. Your line is open.
Okay.
Dominic.
National.
Alright got to move on.
Our next question.
Our next question coming from the line of Mark <unk> with loop capital markets. Your line is open.
Hi, Thanks for taking my question.
Jim starting with you last quarter.
Position. This year is somewhat of a transition year basically just set the firm up to take advantage of.
A stronger demand environment.
We're seeing in 2024 I was wondering if you still hold that view.
It looks like the.
It looks like kind of a strong product releases that were just announced.
In the last quarter or a big part of that.
Yes.
We're really confident in.
And the product for me, it's all about products and innovation.
<unk> model that we have the culture of the company or the customer engagement that we do.
And I think that sort of trumps everything and obviously macro is.
A big factor.
I see us continuing to rise to be perfectly honest with you relative to competition.
Think this set of releases is just phenomenal I'm super excited about it.
And.
I'm still very optimistic about next year obviously.
Warren Israel is a new.
It is a new twist.
Things in Europe continue in some of the challenges with China and all that.
Spoken about earlier.
But on balance.
I think our business is going to continue to grow next year.
We're going to continue to outpace the competition.
Great and then one more question I appreciate your commentary regarding the cross selling.
Analytics sensors into the design customers I was wondering if you just provide some additional color around that whether youre seeing any particular uptake in say certain industries or geographies more so than others.
It's super broad based actually I was just looking at.
And a whole bunch of the wins that we have and it's interesting for me, we're seeing the data analytics technology, playing in our in some of our HBC customers that we werent selling simulation to be poor.
And I think that's going to continue to grow pretty substantially.
We're seeing HBC.
Actually rising in some of the accounts, where we didn't see it earlier.
And obviously a lot of the electronic stuff that we're bringing to the floor I think is starting to.
We have an impact, but but everyone is very very interested in applying data science.
And I think we're.
At this point, we are the leading company.
And moving in that direction, others are chasing now but.
There has been many years work here done.
That's helpful. Thanks.
Yes.
Thank you one moment please for our next question.
And our next question coming from the line of.
Matthew Hedberg with RBC capital markets. Your line is open.
Great. Thanks for taking my questions guys Jim.
Just mentioned.
HBC business and I actually wanted to follow up on that.
Do you think there is a longer term opportunity you guys have been investing there for years.
For you to leverage even more generative capabilities.
Sure.
I mean, the answer is yes.
I think I've made this comment before I started investing on the data science side.
Because I started seeing supercomputing.
At the Supercomputing conference.
Starting to move from just being.
All about simulation to more and more data science.
Absolutely.
See growing.
The amount of H PC Thats being done is is growing by leaps and bounds of course, a lot of it is moving to cloud or hybrid infrastructures and all that a lot of it is moving to the edge as well.
We're building technology.
You basically run where and when you want to manage costs very effectively managed the cost or software licenses very effectively and thats what companies need. They are all very challenged by all this complexity and I I think we're in a really great spot.
Okay, that's fantastic and then.
Great. Thank you Matt.
Jim You said.
I think you gave some commentary on next year, you expect to continue to grow I guess for either of you.
How are you thinking about spending or investing.
In front of calendar 'twenty four cycle do you expect to sort of increased investments in certain areas just trying to get a sense maybe of the margin trajectory as well.
Yes.
We held pretty tight this year.
I think we're going to do similarly coming into next year, Although we are going to open open.
Open up in a couple of areas that we see is really critical for us to continue to invest in.
But on balance, we're still continuing to try and grow the margins.
And continue to invest where needed so we're getting more and more capable I think.
Moving moving our resources, where we need them to be but but you do have to continue to invest as well I don't know if Matt wants to add something there probably does yes only thing I'd add is just.
Agree with everything Jim just said, but in addition, I mean, one of the things that were.
Super proud of is the is the year on year increase now in our Opex.
<expletive> in my prepared remarks, but what we're seeing is is the smallest year on year quarterly percentage increase that we've seen in a number of years now so we've been very disciplined this year.
As we were starting to digest some of the acquisitions that we made late last year.
And so that's starting to play out in the way that we had anticipated in Q3 and Q4. So we're happy about that and we're going to continue to be disciplined, but then of course spend and invest where necessary. So.
We've got.
Lots of different places in mind Darrin, but.
You need it to be disciplined in our approach and have a really good outlook for 2024 as well.
Got it congrats on the results guys.
Thank you.
Thank you and our next question coming from the lineup.
Jeff Shelton with Wolfe Research your line is now open.
Hi, This is <unk> on for Josh when we were looking at the continued strengthen channel shows I think it's roughly $20 million in the quarter is it fair to think that down market sentiment for purchases have not changed materially. Despite the current macro outlook or is indirect indirect channel just realizing maybe better cross.
Ill opportunities down market. Thanks.
Yes.
You want to talk about that matter.
I can start.
Yes go ahead sorry.
We've been investing in and the indirect channels more and more over the last really four or five years.
I think we're just getting better at it and we're investing more in and working with partners. We recognize the importance of that we want to get it to a certain percentage of our business.
I think it's going in the right direction, we still have work to do but what's going on there right.
Great and then just a brief follow up if I may.
In terms of kind of what I'm seeing and strong backlog in Q3. It seems like there are at least pretty decent amount of large deals or renewals that were signed to support kind of decent outlook into the next couple of quarters.
Just kind of expand on how youre thinking about what you're viewing in terms of renewal the renewal base and whether you can kind of maintain this amount of <unk>.
Backlog based on that same more hesitant sentiment on the macro outlook.
I'll answer part of that maybe maybe marijuana sales through the balance, but I mean, our renewals are rock solid in almost all of them are growing.
So we feel very very confident about the renewals and the expansion.
Continuing to.
Go in the right direction for us and come in.
All of them seem very very secure for us.
I don't know what you want to add to that Matt.
Yes, and I would just add our our deferred revenue plus backlog is very strong and has continued to grow.
It supports our outlook. So it's something that we're pleased with it gives us good confidence and visibility into the numbers.
Thank you.
Thank you.
And our next question coming from the line of.
Mike Coyle from Oppenheimer. Your line is now open.
Hey, this is Matt on for Ken Wong.
Thanks for taking my question.
Thanks for the color on the strength in our renewal book.
I was wondering if you guys could give us.
An update on how net new deals and new customer wins are trending thanks.
Do you want to answer that Matt or.
Sure Yes.
So net net new is is is coming along nicely as well.
When we.
Look out at our at our pipeline the opportunities that we're seeing are in the enthusiasm that we're seeing for our products has really never been higher.
Jim mentioned, a couple of minutes ago, the internal traffic that we see across our entire portfolio is something that we're just super excited about cross sell opportunities.
And not only just expansion within renewals, but also brand new opportunities that just did not exist a year ago. So so we're happy about that we're pleased about it.
And again it just supports our underlying underlying guidance for the year.
So very happy about that Jim I don't know if you add more color.
No I think thats women. Thank you.
Thank you.
And I'm not showing any further questions in the Q&A queue at this time and thank you ladies and gentlemen. This does conclude today's conference and thank you for participating you may now disconnect.
Thank you.
Okay.
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