Q4 2023 Altair Engineering Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Altair Engineering fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.
Engineering.
Twenty-three earnings conference call.
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After the speaker's presentation there'll be a question and answer session.
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Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dave Simon, Altair's Senior Vice President for Investor Relations. Please go ahead.
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Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Dave Simon alter your senior Vice President for Investor Relations. Please go ahead.
Good afternoon, welcome and thank you for attending alters earnings conference call for the fourth quarter of 2023.
David Simon: Good afternoon, welcome, and thank you for attending Altair's earnings conference call for the fourth quarter of 2020, the end of December 31st, 2020. I'm Dave Simon, Altair's SVP for Investor Relations. And with me on the call are Jim Scapa, Founder, Chairman, and CEO, and Matt Brown, Chief Financial Officer. After market close today, you should have a pressed release with details regarding our fourth quarter 2023 performance and guidance for the first quarter and full year 2024, which can be accessed on the investor relations section of our website at investor.altair.com. This call is being recorded, and a replay will be available on the Investor Relations section of our website following the conclusion of this call.
December 31st.
23.
Dave Simon authors S. P P for Investor Relations.
Speaker Change: <unk> Chairman and C E O.
Speaker Change: Brown Chief Financial Officer.
Speaker Change: Aftermarket close today.
Speaker Change: Well you Should've press release with details regarding our fourth quarter of 2023 performance.
Speaker Change: For the first quarter and pull your of 2024, which can be accessed of Investor relations section of our website.
Speaker Change: <unk> Dot <unk> dot com.
Speaker Change: Call is being recorded.
Speaker Change: And the <unk> will be available.
Speaker Change: Our section of our website.
Speaker Change: The conclusion of this call.
Speaker Change: During today's call.
David Simon: 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 outlooks. 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. For a further discussion of the material risks and other important factors that could affect their actual results,
Speaker Change: We will make statements related to our business that may be considered forward looking under federal securities laws.
Speaker Change: Payments reflect their views only as of today and should not be considered representative.
Speaker Change: <unk> is there any subsequent date.
Speaker Change: We disclaim any obligation to update any forward looking statements or outlook.
Speaker Change: Statements are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. These risks are summarized in the press release, we issued earlier today.
Speaker Change: For further discussion of the material risks and other important factors.
Speaker Change: Could affect their actual results.
David Simon: 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. The reconciliation of gap to non-gap measures is included in our press release. Finally, there are times when I have 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.
Speaker Change: Please refer to those contained in our quarterly.
Speaker Change: Reports filed with the SEC.
Speaker Change: Well as other documents that we have filed or may file from time to time.
Speaker Change: During the course of today's call, we will refer to certain non-GAAP financial measures.
Speaker Change: Reconciliation of GAAP. The non-GAAP measures is included in our press release.
Speaker Change: Finally, good times on our prepared comments or responses to your questions.
We 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.
Speaker Change: Let me turn the call over to Jim for his prepared remarks yep.
Jim: Thank you, Dave and welcome to everyone on the call the fourth quarter of 2023 carried positive momentum per Altair with record high total quarterly and full year revenue of 171.5 million $612.7 million respectively.
James Scapa: Thank you, Dave, and welcome to everyone on the call. The fourth quarter of 2023 carried positive momentum for Altair with record high total quarterly and full year revenue of $171.5 million and $612.7 million, respectively. Software product revenue and total revenue were both well within our guidance, with adjusted EBITDA above the top end of the guided range. Altair's Q4 results continue our growth path of helping organizations succeed through computational intelligence. Adjusted EBITDA for Q4 2023 increased by 38.3% year-over-year to $53.6 million, or 31.2% of total revenue. Adjusted EBITDA grew 19% for the full year 2023 to 129.1 million, or 21.1% of total revenue versus 108.6 million, or 19% of revenue in 2022. Continuing our trend of increasing adjusted EBITDA margin by 200 to 300 basis points per year over the last four years, software product revenue for the full year 2023 grew by 8.6% compared to 2022 and 9.8% on a constant currency basis. Software product revenue as a percentage of total revenue for the full year 2023 increased to 90% as compared to 89% in 2022. And the recurring software license rate for 2023 was 93%, an increase from 92% in 2022.
Jim: Software product revenue in total revenue, we're both well within our guidance with adjusted EBITDA above the top end of the guided range.
Jim: <unk> Q for results continue our growth path of helping organizations succeed through computational intelligence.
Jim: Adjusted EBITDA for Q4, 2000, twenty-three increased by $38, 3% year over year to 53.6 million or 31.2% of total revenue.
Jim: Adjusted EBITDA grew 19% for the full year of 2023 to $129 $1 million or 21.1% of total revenue versus $108.6 million or 19% of revenue in 2022 continue on our trend of increasing adjusted.
Jim: With a margin by 200 to 300 basis points per year over the last four years.
Jim: Software product revenue for the full year of 2023 grew by 8.6% compared to 2022 and nine 8% on a constant currency basis.
Jim: Software product revenue as a percentage of total revenue for the full year 2023 increase to 90% as compared to 89% in 2022 and the recurring software license rate for 2023 was 93% an increase from 90 <unk> 92%.
Jim: During 2022.
Jim: Al Tears growth continues to be broad based across many geography's technologies and vertical.
James Scapa: Altair's growth continues to be broad-based across many geographies, technologies, and verticals. In the fall of 2023, we released what we believe was the most important update to our products in the last 10 years. Our upcoming release this spring is expected to take another leap forward as we continue to bring all of our solutions for simulation under a common user framework, graphics engine, and backend data model.
Jim: In the fall of 2023, we released what we believe is the most important update to our products in the last 10 years.
Jim: Our upcoming release the spring is expected to take another leap forward as we continue to bring all of our solutions for stimulation under a common user framework graphics engine and back end data model.
Jim: In addition, we believe in many customers agree our investments in engineering AI are positioning us as the leader and that's important and growing domain because of the enormous space of data science talent and technology, we are leveraging across our enterprise.
James Scapa: In addition, we believe, and many customers agree, our investments in engineering AI are positioning us as the leader in this important and growing domain because of the enormous base of data science talent and technology we are leveraging across our enterprise. Despite some recent uncertainties around EV sales, the transition of the automotive sector toward alternative power sources, including purely electric, continues to present an exciting field of opportunities for Altair.
Jim: Despite some recent uncertainties around <unk> sales.
Jim: Transition of the automotive sector towards alternative power sources, including purely electric continues to present, an exciting field of opportunities for Altair.
Jim: In December we announced funding awarded for the UK governments Faraday battery challenge to a consortium of three organizations Altair, Jr, and battery manufacturer Danica.
James Scapa: In December, we announced funding awarded for the UK government's Faraday Battery Challenge to a consortium of three organizations, JLR, and battery manufacturer Danica. The project will leverage Altair's technology to develop vehicles with a new, lighter body that offers more room for the battery without adding additional weight. JLR will apply Altair's C123 process, a unique three-stage concept development process for body and white structures, and will utilize Altair's technologies for structural optimization and electro-thermal simulation.
Jim: The project will leverage Algeria's technology to develop vehicles with a new light.
Jim: Lighter body that offers more room for the battery without adding additional weight.
Jim: <unk> will apply Altair C 123 process, a unique three stage concept development process for body and white structures, and we will utilize the outfitters technologies for structural optimization and electrothermal simulation.
Jim: Also in the electric powertrain space, a heavy duty commercial vehicle manufacturer has substantially increased its commitment to altair simulation tools for improving battery predictive analytics.
James Scapa: Also in the electric powertrain space, a heavy-duty commercial vehicle manufacturer has substantially increased its commitment to Altair simulation tools for improving battery predictive analytics. In AIPAC, a leading manufacturer of electric vehicles has made an eight-figure commitment to use a broad portfolio of Altair simulation and data analytics software in its multi-division product development processes. A U.S. headquartered electric vehicle manufacturer doubled its Altair technology purchases, bringing our annual revenue with them into seven figures. And finally, another U.S. headquartered EV manufacturer signed a three-year, seven-figure agreement with Altair, representing more than 100% growth over the previous three years. We had some good fourth quarter wins in the BFSI vertical and for our data analytics solutions. One of the largest credit unions in the U.S. aimed to renewal with 33% growth, recognizing its increased usage and high value from our data analytics and AI platform, RapidMiner. A major European banking group signed on to a major deployment of Altair SLC across many applications throughout its organization, and a North American consulting organization has agreed to use Altair S Altair's high-performance computing solutions drove substantial activity in the technology vertical. For example, one of the leading companies in the power semiconductor field placed an order for Altair's workload and workflow management software based on experiencing a 20% throughput increase.
Jim: And APAC, a leading manufacturer of electric vehicles is made an eight figure commitment to use broad is a broad portfolio of Altair simulation and data analytics software and it's multi division product development processes.
Jim: A U S headquartered electric vehicle manufacturer doubled its altair technology purchases, bringing our annual revenue with them into seven figures.
Jim: And finally, another U S. Headquartered EV manufacturer signed a three year seven figure agreement with Altair, representing more than 100 per cent growth over the previous three years.
Jim: We had some good fourth quarter wins in the BFS side vertical and for our data analytics solutions one.
Jim: One of the largest credit unions in the us into renewal with 33 per cent growth recognizing it increased usage and high value from our data analytics and AI platform rapid minor.
Jim: A major European banking group signed onto a major deployment of Altair SLC across many applications throughout its organization.
Jim: And in North American consulting organization has agreed to use Altair SLC as a primary tool for its work with many clients and supply chain analytics.
Jim: Altair as high performance computing solutions drove substantial activity in the technology vertical.
Jim: One of the leading companies and the power of semiconductor field placed an order for al Terrace workload and workflow management software based on an experiencing a 20% throughput increase.
Jim: This not only enhances its operational efficiency, but also leads to substantial cost savings give.
James Scapa: This not only enhances its operational efficiency but also leads to substantial cost savings, given the high cost of EBA application software, and EMEA Semiconductor Company renewed with a 127% annual increase. We also received a three-year agreement with seven figures of annual revenue from a U.S. semiconductor manufacturer based on its desire to leverage cloud computing for design and development while effectively managing cloud usage costs. Indirect sales continue to represent an important percentage of our overall revenue.
Jim: Given the high cost of Ada application software.
Jim: And EMEA semiconductor company renewed with a 127% annual increase.
Jim: We also received a three year agreement with seven figures of annual revenue.
Jim: A U S semiconductor manufacturer based on its desire to leverage cloud computing for design and development, while effectively managing cloud usage costs.
Jim: Indirect sales continues to represent an important percentage of our overall revenues.
James Scapa: And we look forward to further success in that regard, especially for our data analytics solutions. We welcomed three new channel partners to the Altair sales team in the fourth quarter. Do It Now is focused on high-performance computing applications in EMEA. Neand in Portugal, and Manojen Applied Insights of South Africa are both focused on data analytics and artificial intelligence.
Jim: And we look forward to further success in that regard, especially for our data analytics solutions. We welcome to three new channel partners to the Altair sales team in the fourth quarter.
Jim: Do it now is focused on high performance computing applications and EMEA.
Jim: And in Portugal, and Matto Jen applied insides of South Africa are both focused on data analytics and artificial intelligence.
Jim: Altair has expanded its relationship with the first technology organization founded by Dean came in.
James Scapa: Altair has expanded its relationship with the FIRST Technology Organization, founded by Dean Kamen, where Altair technology is now available to all teams in the FIRST Robotics Competition kit of parts. More than 3,500 high school teams across 26 countries competing in this year's FIRST Robotics competition will have free access to Altair software. Altair's collaboration with FIRST will bolster students' technical skills and support a diverse community of students by building citizenship, self-esteem, and leadership through hands-on experiences and project-based learning. Furthering our collaboration with FIRST is a perfect example of Altair's commitment to students and the role they have in technology, both today and in the future. Combining our academic focus with work on e-mobility, Altair India recently formalized a strategic partnership with the Indian Institute of Technology, Madras, to establish an e-mobility simulation lab within the Department of Engineering Design. This collaborative initiative under Altair's Corporate Social Responsibility Program includes grant money from Altair, along with simulation and design software, and high-performance computing infrastructure. Exclusively powered by Altair Technologies, the lab's goal is to support startups, researchers, and students in advancing the study and development of electric vehicles.
Jim: Altair technology is now available to all teams in the first robotics competition kit of parts.
Jim: More than 3500 high school teams across 26 countries competing in this year's first robotics competition will have free access to Altair software.
Jim: Al Tears collaboration with first will bolster students technical skills and support a diverse community of students by building citizenship self esteem and leadership two hands on experiences and project based learning.
Jim: Furthering our collaboration with first is a perfect example of al tourists commitment to students and the role they have in technology of today and in the future.
Jim: Combining our academic focus with work on Emobility alter India recently formalized a strategic partnership with the Indian Institute of Technology in Madras to establish an Emobility simulation lab within the department of Engineering design.
Jim: This collaborative initiative under <unk> corporate social responsibility program includes grant money from Altair, along with simulation and designs software and high performance computing infrastructure.
Jim: Exclusively powered by Altair technologies. The lab's goal is to support startups researchers and students in advance on this study and development of electric vehicles.
Jim: We are pleased to be supporting Madras clearer global leader in educating the world's best and brightest young minds.
James Scapa: We are pleased to be supporting IIT Madras, a clear global leader in educating the world's best and brightest young minds. 2023 for Altair was a year of hard work, significant investments in new software technologies, sales team alignment into market verticals, steady focus, and ultimately outstanding execution from our stellar global teams amidst a lot of economic and geopolitical uncertainty. I am proud of the individual and group accomplishments of our people and appreciative of the strong Altairian culture that keeps us moving forward in ways that benefit our customers, employees, partners, and shareholders. We believe the culmination of our organizational advancements combined with the power of our technology portfolio positions Altair well for the future. We are holding an Altair Investor Day on the morning of March 20th in Santa Clara, California, where we will discuss our vision for the future and our plans to capitalize on our growing market opportunity.
Jim: 2023 for Altair was a year of hard work significant investments in new software technologies sales.
Jim: Sales team alignment into market verticals steady focus and ultimately outstanding execution from our stellar global teams I missed a lot of economic and geopolitical uncertain today.
Jim: I am proud of the individual and group accomplishments of our people and appreciative of the strong al Terrien culture and keeps us moving forward in ways that benefit our customers employees partners and shareholders.
Jim: We believe the culmination of our organizational advancements combined with the power of our technology portfolio physicians Altair well for the future.
Jim: We are holding an Altair investor day, the morning of March 20th in Santa Clara, California.
Jim: Where we will discuss our vision for the future and our plans to capitalize on our growing market opportunity.
Jim: We will also introduce what we believe to be a very exciting and disruptive technology.
Matt Brown: We will also introduce what we believe to be a very exciting and disruptive technology for the electronics market. I hope all of our investors and prospective investors, as well as the analysts who cover Altair and the markets we compete in, will attend. 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 2024.
Jim: Or the electronics market.
Jim: Hope all of our investors and prospective investors as well as the analysts who cover Altair and the markets. We compete in will attempt.
Jim: Now I will turn the call over to map to provide more details on our financial performance and our guidance for the first quarter and full year of 2024, Matt.
Matt: Thank you Jen Hello to everyone on the call and thank you for joining us.
Matt Brown: Thank you, Jim. Hello to everyone on the call, and thank you for joining us. We are pleased with our strong fourth-quarter results and continue to demonstrate the importance of our products to our customers, in Leveraging Computational Intelligence to Solve the Important Challenges They Face. Despite the somewhat difficult macroeconomic environment that we discussed throughout 2023, we finished the year with record high revenue and an adjusted EBITDA margin of 21.1%, well exceeding the 20% goal we had long established for 2023. As I dive into the details of our financial results, remember some of our revenues and expenses are transacted in currencies other than the US dollar. Therefore, our reported results may be significantly impacted by changes in foreign exchange rates.
Matt: We are pleased with our strong fourth quarter results, which continued to demonstrate the importance of our products to our customers and leveraging computational intelligence to solve the important challenges they face.
Matt: Despite the somewhat difficult macroeconomic environment that we discussed throughout 2023.
Matt: We finished the year with record high revenue and adjusted EBITDA margin of 21.1% well.
Matt: Well exceeding the 20% goal, we had long established for 2023.
Matt: As I dive into the details of our financial results remember some of our revenues and expenses are transacting currencies other than the U S dollar.
Matt: And therefore are reported results may be significantly impacted by changes in foreign exchange rates.
Matt: To aid in the review my results throughout my remarks, I will reference growth rate in both reported in constant currency.
Matt Brown: To aid in the review of our results, throughout my remarks, I will reference growth rates in both reported and constant currency, starting with Q4. Calculated total billings for the quarter were $196.1 million, a year-over-year increase of 4.4% in reported currency and 3.6% in constant currency. As a reminder, we exited a lower margin hardware business in 2023 that had historically been weighted most heavily in the fourth quarter, therefore impacting the Q4 year over year growth. The increase in billings was led by software across all geographies.
Matt: Starting with Q4 numbers calculated total billings for the quarter were $196 $1 million a.
Matt: A year over year increase of $4, 4% and reported currency and.
Matt: Three 6% in constant currency.
Matt: As a reminder, we exited a lower margin hardware business in 2023 that had historically been waited most heavily in the fourth quarter.
Matt: Therefore impacting the Q4 year over year growth rates.
Matt: The increase in billings was led by software across all geographies.
Matt Brown: And we saw building growth across our verticals, with particular strength in automotive, aerospace, and technology. Software revenue in Q4 was $155.9 million, a year-over-year increase of 7.6% in reported currency and 6.7% in constant currency compared to Q4 2022. Software revenue growth was led by new customer growth and expansion in existing accounts and supported by a robust renewal base that continues to have a very high rate of retention. Total revenue in Q4, which includes services and other revenue, was $171.5 million, a year-over-year increase of 6.9% in reported currency and 6.0% in constant currency, compared to Q4 2022. Non-GAAP gross margin, which excludes stock-based compensation and restructuring expense, was 84.3% in the fourth quarter, compared to 80.2% in the prior year quarter, an increase of 410 basis points.
Matt: And we saw billings growth across our vertical with particular strength and automotive aerospace and technology.
Matt: Software revenue in Q4 was $155.9 million.
Matt: A year over year increase of seven 6% and reporting currency and.
Matt: Six 7% in constant currency compared to Q4 2022.
Matt: Software revenue growth with led by new customer growth and expansion an existing accounts and.
Matt: And supported by a robust renewal base that continues to have a very high rate of retention.
Matt: Total revenue in queue for which includes services and other revenue was $171.5 million a.
Matt: A year over year increase at six 9% in reporting currency and 6.0% in constant currency compared to Q4 2022.
Matt: non-GAAP gross margin, which excludes stock based compensation and restructuring expense was.
Matt: With 84.3% in the fourth quarter <unk>.
Matt: Compared to 82% in the prior year quarter, an increase of 410 basis points.
Matt Brown: The year-over-year increase in non-GAAP gross margin in Q4 was partially due to our exit from the lower-margin hardware business that was present in the year-ago period. However, software mix also contributed slightly to the increase in blended non-GAAP gross margins, as our software revenue, which carries a higher gross margin, increased as a percentage of total revenue. Software revenue was 90.9% of total revenue in Q4, compared to 90.4% in the prior year.
Matt: The year over year increase in non-GAAP gross margin in Q4 was partially due to our exit from the lower margin hardware business that was present in the year ago period.
Matt: Software mix also contributed slightly to the increase in blended non-GAAP gross margin.
Matt: As our software revenue, which carries a higher gross margin.
Matt: Increased as a percentage of total revenue.
Matt: Software revenue with 99% of total revenue in Q4 compared to 94% in the prior year.
Matt: Over the longterm, we continue to expect a general mix shift towards software revenue as growth there will outpace services and other revenue.
Matt Brown: Over the long term, we continue to expect a general mid-shift toward software revenue, as growth there will outpace services and other revenue, non-GAAP operating expenses, which exclude stock-based compensation and amortization of intangible assets. We're 94.0 million, compared to 92.6 million in the year-ago period. Adjusted EBITDA in Q4 was $53.6 million or 31.2% of total revenue, compared to 38.
Matt: non-GAAP operating expenses, which excludes stock based compensation and amortization of intangible assets.
Matt: We're $94.0 million.
Matt: Compared to $92.6 million in the year ago period.
Matt: Ingested EBITDA in Q4 with $53.6 million.
Matt: Or 31.2% a total revenue.
Matt: Compared to $38.7 million or 24.1% in the prior year and.
Matt: An increase of $38 3%.
Matt: This increase compared to the prior year quarter as well as relative to our expectations.
Matt Brown: This increase compared to the prior year quarter, as well as relative to our expectations, was driven by an increase in gross profit in the quarter, combined with a disciplined approach to spending. Now looking at the full year results for 2023, calculated billings for the year were $631.8 million, a year-over-year increase of 4.0% in reported currency, or 4.8% in constant current.
Matt: Was driven by the increase in gross profit in the quarter <unk>.
Matt: Combined with a disciplined approach to spending.
Matt: Now looking at the full year results for 2023.
Matt: Calculated billings for the year, where $631.8 million.
Matt: A year over year increase of 4.0% in reporting currency.
Matt: 448% in constant currency.
Matt: Remember that in Q1 of last year, we highlighted our largest ever data analytics and a ideal in the BSI vertical which was a five year eight figure deal.
Matt Brown: Remember that in Q1 of last year, we highlighted our largest ever data analytics and AI deal in the BFSI vertical, which was a five-year, eight-figure deal. So this significant multi-year deal in 2022 is impacting the 2023 year-over-year billing growth. Software revenue for the year was $550.0 million.
Matt: So this significant multiyear deal in 2022 is impacting the 2023 year over year billings growth rates.
Matt: Software revenue for the year with $550.0 million.
Matt Brown: A year-over-year increase of 8.6% in reported currency and 9.8% in constant currency. And total revenue for the year was $612.7 million. A year-over-year increase of 7.1% in reported currency and 8.2% in constant. Our recurring software license rate, which is the percentage of software billings that are recurring, continues to be strong at approximately 93% for the year. The strength in software revenue helps drive our non-GAAP gross margins for the year to 81.8 percent, compared to 80.0% in 2022, a 180 basis point increase. In addition, non-GAAP operating expenses as a percentage of total revenue declined year-over-year due to reductions in general and administrative costs.
Matt: A year over year increase of 8.6% and reported currency.
Matt: And 9.8% in constant currency.
Matt: In total revenue for the year with $612.7 million a.
Matt: A year over year increase of 7.1% in reporting currency.
Matt: 8.2% in constant currency.
Matt: A recurring software license right, which is the percentage of software billings that a recurring.
Matt: Continues to be strong and approximately 93% for the year.
Matt: The strength and software revenue helped drive or non-GAAP gross margins for the year to 81.8% <unk>.
Matt: Compared to 80.0% in 2022.
Matt: A 180 basis point increase.
Matt: In addition, non-GAAP operating expenses as a percentage of total revenue declined year over year due to reductions in general and administrative costs.
Matt: This helped drive Jesse to defer the year to $129 $1 million.
Matt Brown: This helps drive adjusted EBITDA for the year to $129.1 million, or 21.1% of total revenue, compared to $108.6 million, or 19.0% in 2022, a year-over-year increase of 20.5 million, or 18.9%. We set out a vision three years ago of achieving a 20% adjusted EBITDA margin by exiting 2023. And I'm proud of our entire team for rallying around that goal and executing to exceed this important milestone. In 2023, we saw more than half of our year-over-year increase in total revenue make its way down to adjusted EBIT debt. Turning to our balance sheet, we ended the year with $467.5 million in cash and cash equivalents, an increase of approximately $151.3 million from the prior year. Free cash flow was $117.1 million for the year, exceeding our expectation and driven by the increase in profitability.
Matt: Or 21.1% of total revenue.
Matt: Compared to $108.6 million or.
Matt: 19.0% in 2022 a.
Matt: A year over year increase of $25 million or 18.9%.
Matt: We set out a vision three years ago of achieving 20% adjusted EBITDA margin exiting 2023.
Matt: And I'm proud of our entire team for rallying around that goal and executing to exceed this important milestone.
Matt: In 2023, we saw more than half of our year over year increase in total revenue make it's way down to adjusted EBITDA.
Matt: Turning to our balance sheet, we ended the year with $467.5 million in cash and cash equivalents.
Matt: An increase of approximately $151.3 million from the prior year.
Matt: Free cash flow was $117 $1 million for the year <unk>.
Matt: Exceeding our expectations and driven by the increase in profitability.
Matt: This represents a substantial increase year over year.
Matt Brown: This represents a substantial increase year over year and demonstrates our ability to generate significant free cash flow. Let's turn to guidance for Q1 and full year 2024. We've provided detailed guidance tables in our earnings press release, including reconciliations to comparable gap amounts to provide clarity on the FX impact on our expectations. We've provided growth rates in both reported currency and constant currency in our guidance table.
Matt: And demonstrates our ability to generate significant free cash flow.
Matt: Okay.
Speaker Change: Let's turn to guidance for Q1 and full year 2024.
Speaker Change: We've provided detailed guidance tables, and our earnings press release <unk>.
Speaker Change: Including reconciliation comparable gap amounts.
Speaker Change: To provide clarity on the ethics impact to our expectations, we've provided growth rates in both reported currency and constant currency in our guidance tables.
Speaker Change: Over the past couple of years, we've seen a gradual shift in our revenue seasonality.
Matt Brown: Over the past couple of years, we've seen a gradual shift in our revenue seasonality away from Q1 and into the remaining three quarters, as we've continued to broaden our customer base. We're expecting that trend to continue in 2024 and have therefore guided our Q1 revenue in a prudent manner. For Q1, we expect software revenue in the range of $152 to $155 million, a year-over-year increase of 1.6% to 3.6% in reported currency and an increase of 0.8% to 2.8% in constant currency. For full year 2024, we expect software revenue in the range of $600 to $610 million, a year-over-year increase of 9.1% to 10.9% in reported currency and 8.3% to 10.1% in constant current. We expect services and other revenue to be flat year over year in 2024 compared to the declines we saw over the past couple of years. As a result, we expect total revenue for Q1 in the range of $167 to $170 million. A year-over-year increase of 0.6% to 2.4% in reported currency and negative 0.1% to positive 1.7% in constant growth.
Speaker Change: Way from Q1 and into the remaining three quarters as we've continued to brought in our customer base.
Speaker Change: We are expecting that trend to continue in 2024 and has therefore guided Q1 revenue in a prudent manner.
Speaker Change: Q1, we expect software revenue in the range of 152, two $155 million.
Speaker Change: A year over year increase of 1.6% to 3.6% and reported currency.
Speaker Change: And an increase of 0.8% to 2.8% in constant currency.
Speaker Change: For full year 2024.
Speaker Change: We expect software revenue in the range of $600 million to $610 million.
Speaker Change: A year over year increase of nine 1% to 10.9% and reported currency.
Speaker Change: 8.3% to 10.1% in constant currency.
Speaker Change: We expect services and other revenue to be flat year over year in 2024 compared to the declines we saw over the past couple of years.
Speaker Change: As a result, we expect total revenue for Q1 in the range of $167 million to $170 million.
Speaker Change: A year over year increase of 0.6% to 2.4% in reporting currency.
Speaker Change: And negative 0.1% to positive 1.7% in constant currency.
Speaker Change: For the full year 2024, we expect total revenue in the range of 663.
Matt Brown: For the full year 2024, we expect total revenue in the range of $663 to $673 million, a year-over-year increase of 8.2% to 9.8% in reported currency and 7.5% to 9.1% in constant currency. For Q1, we expect adjusted EBITDA in the range of $37 to $40 million, or 22.2% to 23.5% of total revenue, compared to $43.1 million, or 25.9% of total revenue in Q1 2023. For full year 2024, we expect adjusted EBITDA in the range of $143 to $151 million, or 21.6 to 22.4% of total revenue, compared to 129.1 million, or 21.1% of total revenue, in 2023. And finally, for the full year 2024, we expect free cash flow in the range of $129 to $137 million. As a reminder, our cash flow expectations are sensitive to billings and collection patterns, which fluctuate seasonally.
Speaker Change: $673 million.
Speaker Change: A year over year increase of 8.2298% and reported currency.
Speaker Change: And 7529, 1% in constant currency.
Speaker Change: Four Q1, we expect adjusted EBITDA in the range of $37 million to $40 million or 22.2 to $23 five per cent of total revenue.
Speaker Change: Impair to $43 $1 million or 25.9% of total revenue in Q1 2023.
Speaker Change: For full year 2024, we expect adjusted EBITDA in the range of 143.
Speaker Change: 151 million.
Speaker Change: Or 21.6 to $22, 4% of total revenue.
Speaker Change: Compared to $129 $1 million.
Speaker Change: Or 21.1% of total revenue in 2023.
Speaker Change: And finally for the full year 2024.
Speaker Change: We expect free cash flow in the range of 129 to 137 million.
Speaker Change: As a reminder, or cash flow expectations are sensitive to billing and collection patterns, which fluctuate seasonally.
Speaker Change: We're pleased with over achieving our profitability goals for 2023, and we're excited about the tremendous opportunity that lies ahead as we continue to execute on our future financial targets.
Operator: We are pleased with exceeding our profitability goals for 2023, and we're excited about the tremendous opportunity that lies ahead as we continue to execute on our future financial targets. With that, we'd be happy to take your questions, Operator. As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your touchtone telephone.
Speaker Change: With that we'd be happy to take your questions.
Speaker Change: Operator.
Speaker Change: As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.
Operator: Please stand by while we compile the Q&A roster. Our first question will come from the line of Ken Wong with Oppenheimer. Fantastic.
Speaker Change: Please stay on the line, while we compile the Q&A roster.
Ken Wong: Our first question will come from the line of Ken wrong with Oppenheimer.
Ken Wong: Okay Fantastic. Thanks for taking my question, Jim I I wanted to get your thoughts on kind of how the synopsis anzus merger might impact Altair strategic initiatives I I couldn't help it kind of noticed you you you're talking about introducing an exciting technology for the electronics market and just wanted.
Ken Wong: Thanks for taking my question. Jim, I wanted to get your thoughts on kind of how this synopsis and this merger might impact Altair's strategic initiatives. I couldn't help but kind of notice you talking about introducing an exciting technology for the electronics market and just wanted to kind of pick your brain on how you're thinking about the current competitive landscape. I think I'm on here.
Jim: Kind of pick your brain on on how you are thinking about the current competitive landscape.
Speaker Change: I think I'm on here.
James Scapa: Thanks Ken, I appreciate it. Um, the combination of synopsis and ansys, I think, is a fairly natural combination. I've been talking about, you know, the convergence, not only of HPC and simulation and AI for five or six years, but actually of mechanical and electronics as well. And Altair's been investing in that direction, you know, ourselves, both quietly and noisily for probably the last 10 or 12 years now, and much more aggressively in the last couple. So, I mean, I think it's a good combination. Honestly, for us, because there's a great deal of uncertainty that comes during this period where employees and customers don't really know where things are going, I think it presents some opportunities for us, but that remains to be seen. Okay, that that makes a lot of sense. Thank you for that color.
Speaker Change: Thanks, Thanks I appreciate it.
Ken Wong:
Ken Wong: The combination of synopsis and and.
Speaker Change: Answers I think is a fairly natural combination I've been talking about it.
Speaker Change: Convergence not only of H P C and simulation nai for for five or six years, and actually a mechanical and electronics as well and alter has been investing in that direction.
Speaker Change: <unk> quietly and noisily for.
Speaker Change: For probably the last I don't know 10, or 12 years now and much more aggressively in the last couple here.
Speaker Change: So I mean, I think it's it's a good combination.
Speaker Change:
Ken Wong: Honestly for us because there's a great deal of uncertainty that comes you know during this period where.
Ken Wong: Employees and customers don't really nowhere, where things are going I think it presents some opportunities for us, but but that remains to be seen.
Speaker Change: Got it okay that that makes a lotta sense. Thank you for that color and then Matt I just wanted to maybe dive in a little bit on.
Ken Wong: And then, Matt, I just wanted to maybe dive in a little bit on the cadence of revenue through the year. I mean, one cue looks a little below typical seasonality. Any, any, any thoughts to share there in terms of maybe how either kind of conservatism or any kind of seasonal trends might be playing into how you guys are thinking about it? Yeah, sure. Thanks, Ken.
Speaker Change: The the cadence of revenue to the year, one Q looks a little below typical seasonality any any any thoughts to share their in terms of maybe how can how either kind of conservatism or any kind of seasonal trends might be playing into how you guys are thinking about it.
Speaker Change: Yeah sure. Thanks, Ken.
Speaker Change: Yeah, Yeah, I know that in my in my prepared remarks, as well give a little bit of color on this what we've seen over the last couple of years is somewhat less revenue in Q1 coming in as a percentage of the total and so what we're seeing in in 2024 is that that trend is continuing in a little.
Matt Brown: Yeah, I know that in my prepared remarks as well, I gave a little bit of color on this. What we've seen over the last couple of years is somewhat less revenue in Q1 coming in as a percentage of the total. And so what we're seeing in 2024 is that that trend is continuing a little bit. And it makes sense, given how we're broadening our customer base. So, yeah, we've historically had a concentration historically very heavily in auto, and over time, and in particular over the last few years, we've broadened that so we're somewhat less concentrated there, and as a result, that's causing Q1 revenue, which had historically been our highest revenue quarter, to be more balanced throughout the year. So that's reflected in the guidance. Okay, perfect. Thanks so much, guys. Our next question will come from the line of Dylan Becker with William Blair. Hey guys,
Ken Wong: Bit.
Ken Wong: And it it makes sense given how we're broadening our customer base. So yeah, we we've we've.
Ken Wong: Had a concentration historically very heavily in auto and over time and in particular the last few years, we brought into that so we're somewhat less concentrated there and as a result.
Ken Wong: That's causing Q1 revenue, which had historically been our highest revenue quarter to be more balanced throughout the year. So that's that's reflected in the guide.
Speaker Change: Okay perfect. Thanks, so much get.
Ken Wong: Our next question will come from the line of killing Becker with William Blair.
Ken Wong: Hey, guys gym, maybe for you you kind of touched on this in your prepared remarks, but the 2023 with a pretty pretty active you are pretty busy here for you guys. Okay. The platform upgrade we had a salesforce verticalization, we saw some healthy momentum and partnerships in the industries remain pretty resilient overall.
Operator: Jim, maybe you kind of touched on this in your prepared remarks, but 2023 was a pretty, pretty active year, pretty busy year for you guys. We had the platform upgrade. We had the Salesforce verticalization. We saw some healthy momentum and partnerships, and the industries remain pretty resilient overall. I guess, how do you think about the importance of all of those pieces or components?
Ken Wong: How do you think about the importance of all of those pieces are components setting up a business kind of first sustained momentum as we think about the 20.
James Scapa: Setting up the business kind of for sustained momentum as we think about the 2024 outlook and, obviously, potentially beyond that as well, and maybe the trajectory of some of that layering in and maybe how that kind of plays to the revenue linearity as well. Yeah, sure. Thanks for the question.
Ken Wong: 2024 outlook, obviously potentially beyond that as well and maybe the trajectory I've come without layering and maybe how that kind of.
Ken Wong: Play to the the revenue linearity as well.
Speaker Change: [noise] Yeah sure. Thanks for the question.
James Scapa: Last year we made, you know, we made that change to how we go to market. We released a lot of great products, but for us, it was actually also a very prudent year from an investment standpoint, keeping, you know, keeping sort of control over things with an eye towards, you know, our bottom line to some extent. We come into this year having sort of settled down a lot of those changes where we really, I think, have a really great sense for these vertical teams. People know how to operate between the regions and the vertical teams really nicely.
Speaker Change: Last year.
Speaker Change: We made we made that change to how we go to Marca, we released a lot of great products, but for US. It was actually also a very prudent ear from an investment standpoint.
Speaker Change: Keeping <unk>.
Speaker Change: Keeping sort of control over things with an eye towards what our bottom line to some extent we come into this year, having sort of settled down a lot of those changes where we really.
Speaker Change: Thank you have a really great Samsung about these vertical teams people know how to operate between the regions and the vertical teams really nicely now we've got a couple of new ones coming into this year as well.
James Scapa: Now we've added a couple of new ones coming into this year as well, and I think we're very, very optimistic that they're going to produce extremely well. Similarly, we've done some really good work on the indirect side. So the go to market, I feel very, very positive about, and I feel great about the product. So we're very optimistic about 2024, but we remain prudent in how we sort of look at things.
Speaker Change: And I think we're very very optimistic that they're gonna produce extremely well similar we've done some really good work on the indirect side. So the go to market I feel very very positive about and I feel great about the products. So we're very optimistic about 2024, but we remain prudent and how.
Ken Wong: We sort of look at things.
Speaker Change: Got it okay and that makes a ton of sense and then maybe too it's taken kind of with the idea as we think about kind of proliferation across teams and use cases, I guess as you think about that expansion conversation with customers where are you seeing kind of the the greatest drivers of incremental adoption today is it is it again.
Operator: Okay. That makes a ton of sense. And then maybe, as we think about this proliferation across teams and use cases, I guess as you think about that expansion conversation with customers, where are you seeing the greatest drivers of incremental adoption today? Is it, again, that expansion within teams? Is it the computational intensity?
Ken Wong: And expansion within teams is it kind of the computational intensity is it again platform adoption product usage through the token model I guess kind of trying to help us think about what are the kind of car drivers of expansion cause I think there's a lot of opportunity there as well thanks.
James Scapa: Is it, again, platform adoption, product usage through the token model? Just kind of trying to help us think about what are the kind of core drivers of expansion, because I think there's a lot of opportunity there. I think it's actually kind of across the board.
Ken Wong: I think it's actually kind of across the board. We have this this huge installed base with very very high recurring revenues. So a huge amount of our growth really comes from expansion within that base.
James Scapa: You know, we have this huge installed base with very, very high recurring revenues. So a huge amount of our growth really comes from expansion within that base, probably 60, 65% each year. So, you know, getting more products into those accounts, and bringing some really great new products. The engineering AI, I think, is finally starting to get traction. Digital Twin is getting huge traction as well.
Speaker Change: Really 60 65 per cent each year.
Speaker Change: So you know getting more products into those accounts.
Speaker Change: Bringing some really great new products the engineering.
Ken Wong: Is finally, starting to get traction digital twin is getting huge fraction as well.
James Scapa: And so, you know, we're seeing a lot of opportunity within the installed base. And the vertical teams, in general, are focusing on, you know, a subset, basically the strategic accounts within those verticals for the most part, which means a lot of expansion within those accounts. And that's extremely important for us. That focus is really key.
Ken Wong: So we're we're seeing a lot of opportunity within the installed base and the vertical teams in general are are focusing on.
Ken Wong: Subset.
Ken Wong: Basically the the the strategic accounts within those vertical is for the most part.
Ken Wong: Which.
Ken Wong: Which means a lot of expansion within those accounts and that.
Ken Wong: That's extremely important for us that focus is really cute.
Speaker Change: Great. Thank you Tim.
James Scapa: Great. Thank you, Jim. Sure. Thank you. Our next question will come from the line of Joshua Tilden with Wolf Research. Hey guys, thanks for sneaking me in. Can you hear me?
Tim: Sure. Thank you.
Ken Wong: Our next question will come from the line of Joshua Tilden with Wolf Research.
Joshua Tilden: Hey, guys. Thanks for sneaking me and can you hear me.
Operator: Yep. Hey Josh. Hey guys, two quick ones for me. I think just some of this is kind of the number one question I've been getting asked since results dropped. But I think people are just trying to understand like, what is the level of conservatism that's kind of baked into the outlook for next year that you put out today? And maybe also just within that, like, you know, you talked about a more difficult macro environment this year, like what is the guidance in bed or assumption for how the macro plays out over the next 12 months? And I just got a quick follow. Do you want to take a shot there, Matt or me?
Ken Wong: Yep.
Ken Wong: Gotcha.
Joshua Tilden: Hey, guys two quick ones for me I think just some this is kind of the number one question I've been getting Atkins results dropped but I think people are just trying to understand like what is the level of conservatism, that's kind of baked into the outlook for next year that you put in you put out today and maybe also just within that like.
Joshua Tilden: You know you talk to a more difficult macro environment. This year like what is that guidance and banner assume for how the macro plays out over the next 12 months and then I just got a quick follow up.
Speaker Change: We wanted to make a shopper matter me why don't you start yeah I'll start <unk> you can finish yeah. Josh appreciate your question.
Joshua Tilden: Why don't you start? Yeah, I'll start, and you can finish. Yeah, Josh, I appreciate the question. I think we looked at the year and took a pretty pragmatic and prudent approach to guidance. You know, you can see in the first quarter, we're seeing some of that revenue more balanced throughout the year, but we expect it to pick up in the back half of the year and end up in a pretty good spot. So we're feeling very optimistic, actually, and have lots of reasons to be feeling very, very positive from a go-to-market perspective, from a product perspective, but we're taking a pretty prudent approach to our guide Jim, anything to add there?
Speaker Change: I think we we look at the year end and took a a pretty pragmatic and prudent approach to guidance.
Speaker Change: You know you you you can see in the in the first quarter.
Josh: We're seeing some of that revenue more balance throughout the year, but we expect it to to pick up in the in the back half of the year and ended up in a pretty good spot. So we're feeling very optimistic actually and have lots of reasons to be feeling very very positive from a go to market perspective from.
Josh: Product perspective.
Josh: But we are taking a pretty prudent approach to our guide for 2024.
Speaker Change: Yeah, maybe I'll just add in the last year, we were.
Matt Brown: Yeah, maybe I'll just add, you know, last year, we were investing a bit less. This year, we're coming into this year, we're starting to ramp up a little bit more investment into this year, and we expect that's going to start to pay some dividends here, both on the product side and on the go-to-market side, actually. So you're going to start to see that coming along through the year, we think. But you know, we are trying to... Be cautious, we'll say, with how we put guidance out. Super helpful. And then I think the follow-up question for me is, is there any way we can get a sense of either this year or what's baked into next year? Like, how do we think about the different growth rates of the business in terms of, you know, what the data analytics business is growing versus what the rest of the more, I guess, what people would think of as core simulation growth either for this past year or going forward? Matt, do you want to answer that or me? Sure. Yeah, Josh, it's a great question. And not every year is the same.
Speaker Change: We were investing a bit less last year were coming into this year, we're starting to ramp up a little bit more investment into this year and.
Speaker Change: We expect that's gonna start to pay some dividends here both on the product side and I'm Gonna go to market sorry actually.
Speaker Change: So you're gonna start to see that.
Speaker Change: Coming coming along through the year, we think Bud.
Speaker Change: We are we are trying to.
Speaker Change: Be cautious will side with with how we.
Speaker Change: Let me put guidance, though.
Speaker Change: Super helpful and I think the follow up for me is is there any we can get a sense of either for this year or once baked into next year like how do we think about the different growth rates of the business in terms of what the data analytics business is growing versus what the rest of the more I guess when people think of as core simulation.
Speaker Change: Growth either for this past year going forward.
Speaker Change: Mmm did you want to answer that are sure yeah, Josh that's a great question and and and.
Josh: Not every year is the same so this year and in 2023 <unk>.
Matt Brown: So this year, in 2023, we saw really strong growth in simulation. Simulation led the way. And you may remember that in 2022, data analytics and AI led the way for us there in terms of that segment, and so every year is going to be a little bit different. We expect, though, that a lot of these technologies are converging, and so you're starting to see a real blend of data analytics and AI within simulation. It's actually becoming more and more difficult to distinguish between them.
Josh: We saw just really strong growth and stimulation simulation led the way and you may remember in 2022 data analytic nay I led the way for US there in terms of that segment.
Josh: And so every every year is going to be a little bit different we expect though that.
Josh: A lot of these technologies are converging and so you're starting to see a real blend.
Josh: Of data and analytics and AI within simulation.
Josh: Coming more and more difficult to to distinguish between them actually.
Matt Brown: And in terms of growth drivers, that actually helps them all, critical to the success is that our customers are leveraging our broad portfolio of technologies, and that's helping drive growth. So I think you're going to see contributions to our growth rate from all three and even more so as they continue to converge. Yeah, I quite agree. If I could just add to that, I think the engineering AI and the digital twin stuff is really ramping up fast. And probably, you know, it's hard to measure what simulation and what is, if you will, AI in these accounts, especially with our units model. Super helpful, thank you guys.
Josh: And and in terms of growth drivers that actually helps them all so.
Josh: Critical to the to the successes that our customers are leveraging our broad portfolio of technology, that's that's helping drive growth. So.
Josh: I think you're gonna see contributions to our growth rate from from all three and even more so as they continue to converge.
Josh: Yeah.
Speaker Change: My degree of if I could just add to that I think the engineering.
Speaker Change: The digital twin stuff is.
Speaker Change: Is is really ramping up fast and probably.
Speaker Change: It's hard to measure.
Speaker Change: What what simulation and what is if you will a I.
Josh: On this account, especially with our units model.
Speaker Change: Super helpful. Thank you guys.
Speaker Change: Thank you.
Matt Brown: Thank you. Our next question will come from the line of Matt Hedberg with RBC Capital Markets. Great, thanks for taking my questions, guys. I wanted to follow up on the earlier question about Synopsys, and Synansys. I mean, I guess, you know, Jim, does anything change strategically with Altair in terms of, you know, maybe some additional partnerships or, you know, incremental focus on cadence? Just sort of wondering if anything changes on that front. Hi Matt.
Speaker Change: Our next question will come from the line Hedberg with RBC capital market.
Hedberg: Great. Thanks for taking my questions guys Uhm I wanted to follow up on the earlier question on synopsis finances, I mean I guess.
Hedberg: Does does anything change strategically with all tear in terms of you know maybe some additional partnerships or incremental focus on cadence just sort of wondering if anything changes on that front.
Jim: Hi, Matt.
Operator: I mean, I think we're sort of continuing on a path that we were on already, where we see this convergence of electronics and mechanics. In terms of partnerships specifically, I'm not sure, to be honest with you; I'm not sure what will happen in that direction. I guess there are possibilities there with a lot of different players, in the electronics market and others. For us, we're continuing to invest, and we, you know, unlike others, we might feel, we do believe that there are a lot of opening opportunities in the electronics market that we can play in quite interestingly. I got it.
Matt: I mean, I I think we're we're sort of continuing on a path that we're on already where we see this this convergence of electronics and mechanical.
Matt: In terms of partnerships specifically.
Operator: I'm I'm not sure.
Operator: To be honest with you I I'm not sure what what happens in that direction I guess, there are possibilities there with a lot of different players.
Matt: And electronics market and others.
Matt: For us we're we're continuing to invest in we.
Matt: Unlike others we.
Matt: <unk>, we we do believe that there are a lot of opening opportunities.
Matt: And the electronics market that we can we can plant quite quite interestingly.
James Scapa: That's helpful, Jim. Thanks. And then maybe you just touched on this in the prior question, but obviously, you've been invested in high-performance computing for seemingly for decades, it feels like. And obviously, we're all kind of like watching NVIDIA do its thing. You know, like you said, it may be hard to know where that line is between customer spend on simulation and AI, but given your model, but is there any way that you think going forward that you might start to see some tailwinds and maybe some accelerations that maybe you haven't seen previously given sort of, you know, years and years of investment on your part? I hope you're right.
Speaker Change: Got it alright, that's helpful to me Thanks, and immediately you just touched on this entire question but.
Matt: You say you've been invested in high performance computing seemingly for for decades of like.
Speaker Change: And obviously, we're all kind of like washing and video do its thing.
James Scapa: Like you said, it's it may be hard to know where that line is between customer spend on on an accumulation nai, but giving you even your model but is.
James Scapa: Is there any way that you think going forward that you might start to see some tailwind for maybe some accelerations, but maybe it seem previously given sort of you know years and years and the best one on your part.
Speaker Change: I hope you're right [laughter].
James Scapa: I'm not sure that is the honest answer, but but we are you know as I said earlier, we are seeing.
James Scapa: I'm not sure, you know, that is the honest answer. But, but we are, you know, as I said earlier, we are seeing, you know, more and more activity around what we call engineering AI. And I think that is going to continue to ramp up and become an important tailwind for us. So the answer is yes, I think that is, and I think we've been absolutely in front of that wave, actually, by several years, actually, and I, and I think it's, it's showing that we go in and benchmark where we're typically winning. So we're very happy. Got it, thanks.
Speaker Change: More and more activity around what we call engineering, a I and I think that is gonna continue to ramp up and become an important tailwind for us.
Speaker Change: So the answer's, yes, I I I think that is and I think we've been absolutely in front.
James Scapa: In front of that wave actually by several years actually.
James Scapa: And I and I think it's it's showing we go in and some benchmark were typically women and so we're we're very happy about that.
Speaker Change: Got it thanks best of luck.
Operator: Best of luck, guys. Our next question will come from the line of Charles Shi with Needham and Company. Hey, Jim, Matt.
Charles Shi: Our next question will come from the line of Charles She which Needham and company.
Charles Shi: Hi, <unk>, thanks for taking my question.
Charles Shi: Thanks for taking my question. My apologies. I do want to ask one more question about the synopsis plus answer.
Charles Shi: My apologies I do want to ask her one more about the synopsis plus answers.
Charles Shi: I think one of your peer companies, well that's the thought, they kind of have this school of thought which I found very interesting, but I want to get your thoughts as well. They kind of said they think that combination could mean the answers, which will become the legacy answers under the data synopsis rule, will become less focused on the simulation and analysis market, but the combined company will be more focused on families, which they think opens up opportunities for them. Do you agree with that school of thought?
Charles Shi: I think a while your peer companies well that's that's all.
Charles Shi: They kind of have this school of thought I, which I found very interest paying <unk> thoughts as well.
Charles Shi: Kind of that they think that combination could me.
Charles Shi: Access, which means it will become the legacy <unk> under the back of synopsis roof.
Charles Shi: <unk> simulation and analysis market that'd be more the combined company won't be more focused on Siamese, which they think it opens up opportunities for them better.
Charles Shi: Do you agree with that a school of thought that hypothetically speaking if that indeed is the case I don't know if that's the case I'm not cause that's not the talking points from those two companies, but if that turned out to be the case what are the opportunities for fault per that's my first question. Thanks.
James Scapa: And hypothetically speaking, if that's the case, I don't know if that's the case or not because that's not the talking point from those two companies. But if that turned out to be the case, what are the opportunities for Altair? That's my first question. Thank you. Okay. I don't know if that's the case either.
James Scapa: Okay I don't know if that that's the case either I think it's quite natural when there's a combination.
James Scapa: I think it's quite natural when there's a combination that the leadership and the experience of the leadership of the combined company are going to tend to drive the direction and the thinking and the strategy. So in this case, I think it could defocus Ansys a bit and the legacy Ansys market. But, you know, that remains to be seen.
James Scapa: The leadership and the experiences of the leadership of the combined company.
James Scapa: Is gonna attempt to drive the direction thinking strategies. So in this case I think it could.
James Scapa: Do you focus on answer submit and the legacy answers marquette's.
James Scapa: But you know that.
James Scapa: Remains to be seen and then certainly if that happens you know certainly we continue to have opportunities.
James Scapa: And then certainly, you know, if that happens, you know, certainly we continue to have opportunities. But we think there's opportunity, you know, in both the legacy ANSYS markets and in some of the new markets as well. As we, you know, see electronics really shifting quite a bit, and this is the reason I think for the combination, into more of a 3D, you know, world and less of these, you know, huge, large 2D types of ICs. It remains to be seen.
James Scapa: But we we think there's opportunity you know <unk>.
James Scapa: In both the legacy this marquez and then some of the new markets as well as.
James Scapa: As we as we see electronics really shifting quite a bit and this is the reason I think for the combination into more more of a three D.
James Scapa: Type world unless of of these.
James Scapa: Huge large two D types of I see.
James Scapa: <unk> to be seen.
Speaker Change: Got it Uhm somebody got a second question that might be for Matt.
Charles Shi: So maybe a second question, maybe for Matt, you talked about the broadening customer base, changing your seasonality pattern. We definitely see that from your Q1 guide. Can you be a little bit more specific? Because it sounds like you were saying the automotive vertical, the revenue from that vertical has been a little bit Q1 heavy. But what are the other verticals that maybe are more like Q2, Q3, Q4 heavy?
Charles Shi: Can you talk about the the broadening our customer base changing or says analogy pattern I would definitely see that <unk>.
Matt Brown: Can you be a little bit more specific because it sounds like you're saying automotive.
Matt Brown: Vertical the revenue from that vertical.
Matt Brown: Has been a little bit Q1 heavy.
Charles Shi: What are the audit vertical so that maybe like 2223 <unk>, that's we just Wanna <unk>.
Matt Brown: We just want to... better understand how this broadening customer base is changing your revenue profile, which is kind of like a bathtub shape, right? High in Q1, low in Q4, a little bit light in the middle, and kind of difficult for us to forecast. We want to get your thoughts and for us to better understand this. Thanks. Sure. Thanks, Charles.
Speaker Change: <unk> I understand how this broadening customer base is changing your revenue pull apart, which is kind of like a bathtub shaped right heightened <unk> lighting in the middle and that's kind of it's a little bit difficult philosophy to forecast that I'm. The one that got your thoughts on the past to better understand that's text.
Speaker Change: Sure. Thanks, Charles [noise].
Speaker Change: So, namely and I think most significantly it's b S. S. I. So is that vertical has grown.
Matt Brown: So, mainly, and I think most significantly, it's BFSI. As that vertical has grown, the buying patterns are different than what we've seen in some of our older, more legacy verticals. BFSI, for all intents and purposes, didn't exist for us more than five years ago.
Speaker Change: Buying patterns are different than what we've seen in some of our older more legacy vertical C. B S. S I for all intents and purposes.
Speaker Change: Didn't exist for us <unk>.
Speaker Change: More than five years ago. So.
Matt Brown: So, and in particular, over the last couple of years, it's been growing steadily. And so, as a result, as the entire revenue base grows, you start to see some changes in seasonality as that vertical grows. But it's also true for verticals such as technology, for example. We've just seen a gradual shift somewhat away from the auto industry and into these other verticals that tend to have buying patterns that are either a little bit more balanced throughout the year or even much more back-end loaded towards Q4. Thanks, Matt. No problem.
Speaker Change: And in particular over the last couple of years has been growing steadily.
Matt Brown: Uhm.
Matt Brown: So as a result.
Matt Brown: As the entire revenue base grows you start to see some changes in seasonality at that vertical is that vertical gross but but it is also true for for vertical such as technology. For example, so we've just seen I've seen a gradual shift somewhat away from auto and into these other verticals that.
Matt Brown: Tend to have buying patterns that are either a little bit more balanced throughout the year or even more much more back end loaded towards Q4.
Matt Brown: Alright, Thanks man.
Speaker Change: No problem.
Matt Brown: Sure.
Matt Brown: If I could just add one one thing to that maybe it's not directly addressing the question, but we are seeing a tremendous amount of opportunity and arrow in defense and electronics and technology.
James Scapa: If I could just add one thing to that, maybe it's not directly addressing the question, but we are seeing a tremendous amount of opportunity in aero and defense and electronics and technology. And I think that's very broad-based and is going to happen, across the verticals as well, not just BFSI. Our next question will come from Stephen Toussaint with J.P. Morgan. Hey, good evening. Hi there.
Stephen Toussaint: And I think that's that's very broad based on I'm Gonna Apple.
Stephen Toussaint: Across the verticals as well not just be if that's all right.
Stephen Toussaint: Our next question will come from the line of Stephen Tusa with J P. Morgan.
Stephen Toussaint: Good evening.
Stephen Toussaint: Hi, there.
James Scapa:
Operator: Just a question on the EBITDA margins. You did 200 basis points of improvement in 23. You got into some pretty solid revenue growth for 24, but I think about 100 basis points. What's the difference between the years?
Stephen Toussaint: Just a question of EBITDA margins, you did 207 treatment and.
Stephen Toussaint: In 23, and your body notes in pretty solid revenue growth spurt 24 that I think about it.
Stephen Toussaint: <unk>, what's the difference between fears are you invest in a little bit more this year, maybe just some color on the margins of that is expected.
Stephen Toussaint: Are you investing a little bit more this year? Maybe just in color on the margin performance expected? So hi, Steven, thanks. It's 210 bits. Don't short me, but it's 10.
Speaker Change: So so <unk> is 210 bits don't short, meaning that is 10.
Matt Brown: So yeah, I mean, we're obviously very happy about the margin expansion from 22 to 23. And it's something that we've been able to demonstrate over the last few years of having really nice margin growth. 2024 is a year in which we see a lot of opportunity ahead of us, you know, in the back half of 2024 and beyond. And so for that reason, we're just making sure that we're investing in the right areas. So we want to make sure that we're investing in areas for growth and, in particular, in sales capacity and in product development so that we can really capitalize on what we see as some pretty meaningful opportunities out there. So not every year is going to be like the rest.
Steven: So yeah I mean, we're obviously very happy about the margin expansion.
Matt Brown: From 22 to 23, and it's something that we've been able to demonstrate over the last few years.
Matt Brown: Having really nice margin growth.
Matt Brown: 2020 fours a year in which we see a lot of opportunity ahead of us.
Matt Brown: In the back half of 2024 and and beyond.
Matt Brown: For that reason, we're just making sure that we're investing in the right areas. So we wanted to make sure that we're investing in areas for growth.
Matt Brown: Particular sales capacity and in any product development. So that we can really capitalise on what we see is a pretty meaningful opportunities out there. So that every year is going to be like the rash. We are of course still committed to.
Matt Brown: We are, of course, still committed to growing margins meaningfully, but not every year is going to be like the rest, and this is the year in which we think it makes a lot of sense to lean into the opportunities that we have. So I guess, I guess I was thinking you guys would be, you know, kind of leveraging the fixed costs at this stage a little bit more normally, like, you know, perhaps what you were showing in 23. Is that, is that going to be kind of a year-to-year decision from here, is that what you're saying? I think when you look over a long period of time, you're going to see the average growth in So, you know, I would probably urge you not to get too hung up on one short period of time or another. I think, over time, this will play out in the way that we've described.
Matt Brown: Two growing margins meaningfully.
Matt Brown: But but not every year is gonna be like the wrath and this is a year in which we didn't get it makes a lotta sense to lean into the opportunities that we have.
Matt Brown: So I guess I guess I was thinking you guys would be kind of leveraging the fixed costs, you just need a little bit more.
Matt Brown: Normally like perhaps what you were showing and 23.
Matt Brown: That can be kind of a year to year decision from here is what you're saying.
Matt Brown: I think when you look over a long period of time, you're gonna see the average growth.
Matt Brown: In in adjusted EBITDA margin consistent with what we've communicated in the past.
Speaker Change: So yeah.
Matt Brown: I would I would probably urge you not to get too hung up on <unk> on one short period of time or another I think over time. This will play out in the in the way that that we've described.
Speaker Change: Okay, Great and then just one other follow up with just getting back to this.
James Scapa: Okay, great. And then just one other follow-up, just getting back to this discussion of consolidation. I mean, I guess, are you guys saying that, you know, you're not, are you concerned at all? Are you comfortable with, you know, competing with these larger companies and these more integrated resources that you guys can, you know, continue to deliver and, and grow as a standalone company that you're really not interested in, in, you know, perhaps partnering up in, in, you know, in more of a way to, to compete because Let me take that one, Matt.
Speaker Change: Consolidation I mean, I guess are you are you guys.
Speaker Change: Oh, you're not are you concerned at all are you comfortable with that.
Speaker Change: Competing with the larger companies.
Speaker Change: He didn't have any resources any medicine, you know continue to deliver in.
Speaker Change: And grow as a Standalone company that made you really not interested in in you know, perhaps partnering up and and and you know more of a wait a second.
Speaker Change: To compete because it just feels like there's landscaping is changing a little bit here.
Speaker Change: Let me take that one man.
Speaker Change: I think we're open to.
James Scapa: I think we're open to all kinds of possibilities, you know, Stephen, but we do think that we're positioned pretty well to compete, quite frankly. So, you know, we're open, but we're also heads down and focused on competing. Great answer.
Speaker Change: All kinds of possibilities.
Speaker Change: But we do think that we're positioned pretty well to compete quite frankly, so we're open but we're also heads down and focused on competing.
Speaker Change: Right answer thank you.
Operator: Thank you. My next question will come from the line of Mark Schapell with Loop Capital Markets. Thank you for taking my question.
Mark Schapell: Our next question will come from the line of Mark Schappell with Luke capital markets.
Mark Schapell: Thank you for taking my question.
Mark Schapell: Jim, starting with you, from an overall demand perspective, I was wondering if you've seen any changes in the demand environment over the past 90 days or so, mainly in terms of, say, buying behavior, sales cycles, and also, maybe you could just talk a little bit about what you're seeing in Europe. Yeah, so in general, I think we're seeing greater strength in the pipeline, you know, basically over the last 90 days, and we're obviously very pleased with that. Um... And this is part of why we're investing. And we're investing, you know, on the product side as well, because we think there are some very, very interesting opportunities there to bring some differentiation into the market and with some of the changes we see happening in some of these markups. Europe You're talking about what in Europe? Let me ask more specifically.
Mark Schapell: Starting with you from an overall demand perspective I was wondering if you could just comment on whether you've seen any changes in the demand environment over the past 90 days or so mainly in terms of buying behavior yourself cycles and also maybe you could just talk a little bit about what you're seeing in Europe.
Mark Schapell: Yeah. So in general I I think we're seeing greatest Trump pie.
Mark Schapell: Pipeline.
Mark Schapell: You know basically over the last 90 days.
Speaker Change: You know, we're we're obviously very pleased with that.
Mark Schapell:
Mark Schapell: And this is part of why we're investing and we're investing.
Mark Schapell: On the product side as well because we think there are some very very interesting opportunities there.
Mark Schapell: And to bring some differentiation into the market them with some of the changes we see happening and some of these markets.
Mark Schapell: Europe.
Speaker Change: You're talking about about what in Europe, Let me ask you more specifically.
James Scapa: Just overall demand and the industrial base you're seeing over in Europe, I think it's very strong in general for us. Okay, great. And then, along with that, maybe you could just talk a little bit about the strength of the aerospace industry you saw in the quarter. I know earlier in 2023, aerospace was particularly strong, and I was just curious if that strength is continuing to keep. Yeah, the aerospace market for us is one where, you know, moving to a vertical organization really helps because we have much more focus on, you know, the applications and needs of those accounts and sharing information and all that across our enterprise. So that's absolutely a strong vertical.
James Scapa: Just just overall demand in in like an industrial base, you're saying over in Europe's carpet.
James Scapa: I think it's very strong.
James Scapa: Well for us.
James Scapa: Okay, great. Thanks, and then along with that of my maybe you could just talk a little bit off the strength of the at the aerospace industry. You saw on the quarter I know earlier and 2023 aerospace was particularly strong and I was just curious if that strength is is continuing into care for.
James Scapa: Yeah, the aerospace market for US is that that's that's that's one where I'm moving to the vertical organization really helps because we have much more focus on.
James Scapa: The applications and neither of those accounts and I'm sharing information and all of that cross our enterprise. So that's that's absolutely a strong vertical we've also put renewed emphasis on defense as well we brought in some new team members, it's fun side, and we hope they're gonna make.
James Scapa: We've also put renewed emphasis on defense as well. We've brought in some new team members on the defense side, and we think they're going to make quite a difference here. And those are part of the investments that we're making. Great, thank you. That's all. That concludes today's question and answer session. I'd like to turn the call back to James Scapa for his closing remarks. Thank you, Liz.
James Scapa: Quite a difference here and those are part of the investments that we're making.
James Scapa: Alright. Thank you that's all.
James Scapa: Yep.
James Scapa: That concludes today's question and answer session I'd like to turn the call back to gym scatter for closing remarks.
James Scapa: Thank you Liz.
James Scapa: So, just in conclusion, I just want to make sure I invite everyone. We actually have two events coming up. We mentioned our Investor Relations Day, which is on March 20th in Santa Clara, California. And then the second one is coming up sooner than that, which is on March 6th and 7th. It's our annual future.industry event. It's a virtual event, and typically, we have 10,000 to 15,000 attendees coming to that event, hopefully even more this year. So I think that's a nice opportunity to see what's new with our products and our platforms and also to hear from a number of our customers about how they're using the products. So I just wanna thank everyone on my team for having another great year in 23 and really looking forward to 2024. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
James Scapa: So just in conclusion I just want to make sure I invite everyone. We actually have two events coming up we mentioned our Investor Relations day, which is on March 20th.
James Scapa: Santa Clara, California.
James Scapa: And then the second one is coming up sooner than that which is on March 6th seven it's it's our annual future dot industry event, so virtually banned.
James Scapa: And typically we have 10 to 15000 attendees coming to that hopefully the more of this year.
James Scapa: So I think that's a nice opportunity to see what's new in our products on our platforms and also to hear from a number of our customers.
James Scapa: And how they're using the products. So I just want to thank everyone on my team for for having another great year on 23, and really looking forward to 2024. Thank you.
James Scapa: This concludes today's conference call. Thank you for participating.
James Scapa: You may now disconnect.
James Scapa: Mmm Mmm.
James Scapa: [music] [music].