Q2 2024 Altair Engineering Inc Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Altair Engineering Inc. Q2 2024 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telescope. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Stephen Vontag, Investor Relations. Please go ahead.

Speaker Change: Speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session you will need to press star one one on your telephone.

Speaker Change: You will then hear an automated message advising your hands right.

Speaker Change: To withdraw your question. Please press star one again.

Speaker Change: Please be advised for today's conference is being recorded.

Speaker Change: I would now like to hand the conference.

Speaker Change: To your speaker today.

Speaker Change: Steven I'll Tag Industrial Relations. Please go ahead.

Stephen Palmteg: Good afternoon, welcome, and thank you for attending Altair's earnings conference call for the second quarter of 2024 ended June 30. I am Stephen Palmteg, Altair's Head of 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, we issued a press release with details regarding our second quarter 2024 performance and guidance for the third quarter and full year 2024, which can be accessed on our investor relations 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.

Speaker Change: Yeah.

Speaker Change: Good afternoon, welcome and thank you for attending <unk> earnings Conference call for the second quarter of 2024 ended June 30th.

Speaker Change: I'm, Steven <unk> <unk> head of Investor Relations and with me on the call are Jim Scapa, founder Chairman and CEO.

Speaker Change: Matt Brown, Chief Financial Officer after market close today, we issued a press release with details regarding our second quarter 2020 for performance and guidance for the third quarter and full year 2024, which can be accessed on our investor Relations website at Investor Altair Dot Com. This call is being recorded.

Speaker Change: Play will be available on the IR section of our web site. Following the conclusion of this call.

Stephen Palmteg: During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations.

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

Stephen Palmteg: These risks are summarized in the press release that we issued earlier today. For a further discussion of material risks and other important factors that could affect our actual results, please refer to those contained in our quarterly and annual reports filed with the SEC, as well as other documents that we have filed or may file from time to time. During the course of today's call, we will refer to certain non-GAAP financial measures.

Speaker Change: These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date, we disclaim any obligation to update any forward looking statements or outlook. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. These.

Speaker Change: 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 other documents that we have filed or may file from time to time.

Stephen Palmteg: A reconciliation of GAAP to non-GAAP measures is included in our press release. Finally, at times, in our prepared comments or responses to your questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. With that, I will turn the call over to Jim for his prepared remarks. Jim?

Speaker Change: During the course of today's call, we will refer to certain non-GAAP financial measures a reconciliation of GAAP to non-GAAP measures is included in our press release finally at times in our prepared comments or responses to your questions. We may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business.

Speaker Change: Or our quarterly results.

Speaker Change: Please be advised that we may or may not continue to provide this additional detail in the future.

Speaker Change: Is that when we turn the call over to Jim for his prepared remarks, Jim.

Jim Scapa: Thank you, Stephen, and welcome to everyone on the call. During the second quarter of 2024, Altair maintained its strong trajectory. Total quarterly revenue was $148.8 million, with Software revenue accounting for $135.4 million, both surpassing the high end of our guidance for the quarter. Adjusted EBITDA of $17.3 million, above the midpoint of our guided range. Altair's Q2 results underscore the robustness of our software product lineup, which continues to empower customers with industry-leading computational intelligence. Software revenue, on a constant currency basis, grew 10.6% year-over-year in the second quarter.

Jim Scapa: Thank you Steven and welcome to everyone on the call during the second quarter 2024, I'll turn maintained its strong trajectory.

Jim Scapa: Quarterly revenue was $148 8 million.

Jim Scapa: With software revenue accounting for $135 4 million.

Speaker Change: Both surpassing the high end of our guidance for the quarter.

Speaker Change: Adjusted EBITDA was $17 3 million above the midpoint of our guided range.

Speaker Change: <unk> Q2 results underscore the robustness of our software product lineup, which continues to empower our customers with industry, leading computational intelligence.

Speaker Change: Software revenue on a constant currency basis grew 10, 6% year over year in the second quarter software revenue as a percentage of total revenue grew to 91% compared to 88, 8% in the second quarter of 2023.

Jim Scapa: So our revenue as a percentage of total revenue grew to 91% compared to 88.8% in the second quarter of 2023. Altair's success in the quarter spanned broadly across technologies and industry verticals, with notable strength in aerospace and defense. Last month, we unveiled exciting product enhancements with the release of Altair HyperWorks 2024, which includes substantial advancements in artificial intelligence. This further solidifies our platform status as a leading environment for AI-powered, simulation-driven innovation. HyperWorks 2024 includes improvements in AI-driven engineering, design of mechanical and electronic systems, and design and optimization driven by simulation.

Speaker Change: Altair success in the quarter spanned broadly across technologies and industry verticals with notable strength in the aerospace and defense.

Speaker Change: Last month, we unveiled exciting product enhancements with the release of Altair Hyperworks 'twenty 'twenty, four which includes substantial advancements in artificial intelligence.

Speaker Change: This further solidifies our platform status as a leading environment for AI powered simulation driven innovation.

Speaker Change: <unk> 2024 includes improvements in AI, driven engineering design of mechanical and electronic systems and design and optimization driven by simulation.

Jim Scapa: It's the only platform that offers a unified, modern user experience across any geometry, physics, and complexity at every stage of the product development lifecycle, from design to end service. With AI-embedded workflows, photorealistic graphics, and a unified backend data system. Altair Hyperworks is the foundation upon which many of the world's most innovative digital engineering practices are being built. In June, we announced that Altair was named a leader in the Gartner Magic Quadrant for data science and machine learning platforms for offering Altair RapidMiner.

Speaker Change: It's the only platform that offers a unified modern user experience across any geometry physics and complexity at every stage of the product development lifecycle from design to in service.

Speaker Change: With AI embedded in workflows photo realistic graphics, and a unified back end data system.

Speaker Change: Altair Hyperworks is the foundation upon which many of the world's most innovative digital engineering practices are being built.

Speaker Change: In June we announced that Altair was named a leader in the Gartner Magic quadrant for data science and machine learning platforms for our offering Altair rapid miner.

Jim Scapa: Gartner's Magic Quadrant, especially for data-related technologies, is widely regarded as an influential tool in the IT industry and serves as a key reference point for many organizations when evaluating technology vendors. The evaluation is based on specific criteria that analyzes a company's overall completeness of vision and ability to execute.

Speaker Change: <unk> <unk> magic quadrant, especially for data related technologies is widely regarded as an influential tool in the industry.

Speaker Change: And serves as a key reference point for many organizations on evaluating technology vendors.

Speaker Change: The evaluation is based on specific criteria that analyzes the company's overall completeness of vision.

Speaker Change: And ability to execute.

Jim Scapa: Being named a leader in this ranking report validates what we have known for years: Altair has one of the market's most unique and comprehensive offerings for data analytics and machine learning. For us, this placement is a testament to our unmatched vision and business model, which has defined us since our inception as pioneers at the forefront of technological innovation and computational intelligence. I am proud of where Altair stands today and look forward to the strides we continue to make each day.

Speaker Change: Being named as a leader in this ranking report validates what we have known for years Altair has one of the markets most unique and comprehensive offerings for data analytics and machine learning.

Speaker Change: For Us this placement is a testament to our unmatched vision and business model, which has defined us since our inception as pioneers at the forefront of technological innovation and computational intelligence.

Speaker Change: Im proud of our Altair stands today.

Speaker Change: Forward to the strides we continue to make each day.

Jim Scapa: In July, we announced the acquisition of Metrix Design Automation, a Canadian company with a game-changing simulation-as-a-service business model for semiconductor electronic functional simulation and design verification. The Metrix Digital Simulator, DSIM, when combined with Altair Silicon debug tools, will deliver a world-class advanced simulation environment with superior simulation and debug capabilities in the EDA and semiconductor space.

Speaker Change: In July we announced the acquisition of metrics design automation.

Speaker Change: Indian company with a game changing stimulation as a service business model for semiconductor and electronic functional simulation and design and verification.

Speaker Change: The metrics digital simulator DSO.

Speaker Change: When combined with Altair Silicon debug tools will deliver a world class advanced simulation environment with superior simulation and the <unk> capabilities in the semiconductor space.

Jim Scapa: Our cloud-based business model has the potential to transform the semiconductor space by making high-caliber EDA design tools much more affordable and accessible for companies looking to aggressively scale out simulations to accelerate design cycles. Today, integrated circuit design verification has high licensing costs and may require hundreds and sometimes thousands of seats to run a single-chip simulation. Additionally, these tools run on desktop machines and are not typically cloud-native or cloud-enabled.

Speaker Change: The cloud based business model has the potential to transform the semiconductor space by making high caliber EDA design tools much more affordable and accessible for companies looking to aggressively scale out simulations to accelerate design cycles.

Speaker Change: Today integrated circuit design verification as higher licensing costs and may require hundreds and sometimes thousands of seats to run a single chip simulation.

Speaker Change: Additionally, these tools are on desktop machines and are not typically cloud native or cloud enabled.

Jim Scapa: The Altair Metrics solution delivers the flexibility to run as a desktop app on your own servers or in the cloud and can run very large regressions, with customers paying only for what they use. Customers will be able to run simulations concurrently and at scale, removing massive amounts of time and cost from the traditional design cycle. By combining our best-in-class software with Metric's cloud-based simulation as a service, we are excited to bring this groundbreaking technology to our EDA and semiconductor customers.

Speaker Change: The alternative metrics solution delivers the flexibility to run as a desktop app on your own servers or in the cloud.

Speaker Change: And can run very large regressions with customers.

Speaker Change: Only for what they use.

Speaker Change: Customers will be able to run simulations concurrently and at scale, removing massive amounts of time and cost from the traditional design cycle.

Speaker Change: By combining our best in class software with metrics cloud based simulation on service. We are excited to bring this groundbreaking technology to our EBITDA and semiconductor customers.

Jim Scapa: We are unique in our ability to merge simulation with industry-leading work workload and workflow optimization technology, serving as a true partner for companies embracing innovative tools and resource delivery models in this highly specialized and high-stakes industry. Customers now have a choice in design verification. DSIM will be available through Altair One, Altair's Cloud Innovation Gateway, where it will also be available for desktop download.

Speaker Change: We are unique in our ability to emerge simulation with industry, leading work workload and workflow optimization technology.

Speaker Change: Serving as a true partner for companies embracing innovative tools and resource delivery models.

Speaker Change: In this highly specialized and high stakes industry.

Speaker Change: Customers now have a choice in design verification.

Speaker Change: Sun will be available through Altair, one out there is cloud innovation gateway, where it will also be available for desktop download.

Jim Scapa: Altair's software portfolio continues to demonstrate leadership across industries. This quarter, we were thrilled to highlight the role our technology is playing throughout the development cycle for many teams in their quest for victory in the 37th America's Cup, beginning August 22. Our work with America's Cup teams demonstrates the power of Altair's computational intelligence vision on a global stage like no other.

Speaker Change: Altair software portfolio continues to demonstrate leadership across industries.

Speaker Change: This quarter, we were thrilled to highlight the raw power technologies, playing throughout the development cycle for many teams in their quest for victory and the 37 Americas comp beginning August 22.

Speaker Change: Our work with Americas Cup Tears demonstrates the power of the Alturas computational intelligence vision on a global stage like no other.

Jim Scapa: These are world-class organizations always looking to find new ways to innovate and succeed, just as Altair is. Their use of Altair's solutions and expertise is helping design state-of-the-art AC-75 yachts. Altair is the official computational science and artificial intelligence partner for the New York Yacht Club American Magic team, as well as an official supplier of Lunarosa Prada Pirelli. And we are excited to watch the races and experience the outcome of these remarkable athletes and technologists.

Speaker Change: These are world class organizations always looking to find new ways to innovate and succeed just as Altair is.

Speaker Change: Their use of out their solutions and expertise is helping design state of the art AC 75 yards.

Speaker Change: I'll turn it as the official computational science and artificial intelligence partner for the New York Yacht Club American Magic team as well as an official supplier of Luna Rossa product rally and we're excited to watch the races and experienced the outcome of these remarkable athlete.

Speaker Change: And technologists.

Jim Scapa: In the second quarter, we partnered with Hewlett Packard to enrich the Altair Material Data Center with HP's proprietary material information, enhancing its utility for designers, engineers, and scientists. This aims to overcome traditional 3D printing challenges and improve component design for multi-jet fusion and metal jet printers.

Speaker Change: In the second quarter, we partner with Hewlett Packard to enrich the Altair material data center with Hp's proprietary material information and.

Speaker Change: <unk> its utility for designers engineers and scientists.

Speaker Change: The sales to overcome traditional three D printing challenges and improve components designed for multi jet fusion and metal jet printers.

Jim Scapa: Collaboration bridges the often siloed functions of design and production of 3D printed parts. Now engineers with access to the Altair Material Data Center will be able to use HP material data to design efficient components, conduct structural analysis using finite element analysis, and predict and fix manufacturing defects during design and simulation. The collaboration will also benefit users of Altair Inspire Print 3D, which accelerates the creation, optimization, and study of innovative, structurally efficient, additively manufactured parts by providing a fast and accurate toolset for the design and process simulation of parts made by metal binder Jennings.

Speaker Change: The collaboration bridges, the often siloed functions of design and production of <unk> printed parts.

Speaker Change: Now engineers with access to the Altair material data center will be able to use HP material data to design efficient components conduct structural analysis using finite element analysis.

Speaker Change: And predicting checks manufacturing defects during design and simulation.

Speaker Change: The collaboration will also benefit users of Altair inspire <unk>, three day, which accelerates the creation optimization studies of innovative structurally efficient additive manufactured parts by providing a fast and accurate tool set and the design and process simulation.

Speaker Change: Parts made by metal Binder jetting.

Jim Scapa: Customers within our automotive vertical continue to adopt our cutting-edge technology. In the quarter, a motorsports company with aspirations of joining the F1 grid signed a six-figure, three-year deal to leverage our comprehensive suite of simulation and high-performance computing solutions. The organization believes in our simulation-driven design philosophy.

Speaker Change: Customers within our automotive vertical continue to adopt our cutting edge technology.

Speaker Change: In the quarter, our Motorsports company with aspirations of joining the F. One grid signed a six figure three year deal to leverage our comprehensive suite of stimulation of high performance computing solutions.

Speaker Change: The organization believes our simulation driven design philosophy.

Jim Scapa: And we'll use some SOLID and INSPIRE throughout the design process for rapid design exploration. The value, breadth, and flexibility of the Altair Unit Software Licensing model continue to be an important factor in securing new deals. For example, in the banking, financial services, and insurance vertical, we welcomed one of the largest property and casualty insurance companies in the United States as a new customer.

Speaker Change: And we will use some solid and inspire throughout the design process for rapid design exploration.

Speaker Change: The value of breadth and flexibility of the Altair unit software licensing model continues to be an important factor in securing new deals.

Speaker Change: In the banking financial services and insurance vertical we welcomed one of the largest property and casualty insurance companies in the United States.

Speaker Change: New customer.

Jim Scapa: This organization will leverage Altair SLC, our powerful SAS language compiler, to construct advanced machine learning models, perform data preparation, and execute data transformation. Their decision emphasizes the quality of our data analytics and AI platform but also highlights the significant potential for growth in this sector. In addition, a Canadian bank leveraging our data analytics platform expanded its six-figure annual spend with Altair by over 200%. We also maintain strong performance within the aerospace and defense vertical.

Speaker Change: This organization will leverage Altair as I'll say, our powerful SaaS language compiler to construct with advanced machine learning models form data preparation and execute data transformations.

Speaker Change: Their decision not all emphasizes the quality of our data analytics and AI platform, but also highlights the significant potential for growth in this sector.

Speaker Change: In addition, our Canadian bank, leveraging our data analytics platform expanded at six figure annual spend the balance here by over 200%.

Speaker Change: We also maintained strong performance within the aerospace and defense vertical.

Jim Scapa: We signed an eight-figure, three-year contract with a multinational aerospace company, our largest deal ever. The commitment was driven by Altair HyperMesh, part of the Altair HyperWorks design and simulation platform, which continues to provide superior capabilities for structural modeling and analysis. At PiperMesh, we continue to expand our presence in mission-critical workflows at some of the world's most important companies. In addition, a European aerospace, defense, and security company signed a seven-figure agreement representing a 49% year-on-year growth compared to 2023.

Speaker Change: We signed an eight figure three year contract with a multinational aerospace company our largest deal ever.

Speaker Change: The commitment was driven by Altair hypermasculine part of the Alterra Hyperworks design and simulation platform, which continues to provide superior capabilities for structural modeling and analysis.

Speaker Change: The Kuiper matched we continue to expand our presence in mission critical workflows at some of the worlds most important companies.

Speaker Change: In addition, our European Aerospace Defense and Security Company signed a seven figure agreement, representing a 49% year on year expansion compared to 2023.

Jim Scapa: This agreement grows Altair's presence in simulation, high-performance computing, and data analytics, underscoring the convergence of these domains and Altair's unique ability to deliver a comprehensive solution. This year, Altair established a new vertical focused on healthcare and life sciences, where we already had significant business in the areas of HPC and simulation, and won our first data analytics deal in Q1 2024. During the second quarter, we saw several new sales, and our pipeline of data science activities significantly grew in this vertical, especially for our SAS language solutions and our graph database technology.

Speaker Change: This agreement grows our presence in simulation high performance computing and data analytics underscoring the convergence of these domains and Altair is unique ability to deliver comprehensive solutions.

Speaker Change: This year Altair established a new vertical focused on health care life Sciences, where we already have significant business in the areas of HBC and stimulation and won our first data analytics deal in Q1 2024.

Speaker Change: During the second quarter, we saw several new sales and our pipeline of data science activities significantly grow in this vertical.

Speaker Change: Especially for our SaaS language solutions, and our craft database technology.

Jim Scapa: Our indirect sales channel remains an important contributor to our overall revenue and a priority moving forward. A clear testament to this commitment is the addition of three new channel partners during the second quarter. FACTSpan, based in Seattle, will offer customers Altair's full suite of comprehensive data analytics and AI solutions found in the Altair RapidMiner platform. The DevO team and Symantec partners will extend the reach of Altair's data analytics and AI solutions to customers across the EMEA region, and A-TECH will bolster Altair's expansion into the North, West, and Central African regions, dynamic areas primed for swift adoption of technological

Speaker Change: Our indirect sales channel remains an important contributor to our overall revenue and our priority moving forward.

Speaker Change: A clear Testament of this commitment is the addition of three new channel partners during the second quarter.

Speaker Change: That span based in Seattle will offer customers <unk> full suite of comprehensive data analytics and AI solutions. Now then the Altair rapid minor platform.

Speaker Change: Tableau team and semantic partners will extend the reach of out there is data analytics and AI solutions to customers across the EMEA region.

Speaker Change: In APAC will bolster altair is expansion into the north west and Central African regions.

Amir: Amir areas private for Swift adoption of technological solutions.

Jim Scapa: The first half of 2024 was a strong start to the year. We are confident Altair is well positioned for future growth, and we remain committed to delivering best-in-class technology to our customers. I will now turn the call over to Matt to provide more details on our financial performance and our guidance for the third quarter and full year 2024.

Speaker Change: The first half of 2024 was a strong start to the year.

Speaker Change: We are confident Altair is well positioned for future growth and we remain committed to delivering best in class technology to our customers.

Matt: I will now turn the call over to Matt to provide more details on our financial performance and our guidance for the third quarter and full year of 2024.

Matt Brown: Thank you, Jim. Hello to everyone on the call, and thank you for joining us. Altair had a strong Q2, exceeding the high end of the guidance range for software revenue and total revenue, and Adjusted Evita was above the midpoint of our guidance. Our first half performance was driven by growth across multiple products and verticals, with especially strong performance in aerospace and defense, where demand for our products continues to be robust. Altair's solutions are fundamental to our customers' mission-critical workflows spanning design, simulation, and data analytics.

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

Matt: <unk> had a strong Q2 exceeding the high end of the guidance range for software revenue and total revenue.

Matt: And adjusted EBITDA was above the midpoint of our guidance range.

Matt: Our first half performance was driven by growth across multiple products and verticals.

Matt: With especially strong performance in aerospace and defense.

Speaker Change: Where demand for our products continues to be robust.

Matt: Our care solutions are fundamental to our customers' mission critical workflows spanning design simulation and data analytics.

Matt Brown: As we look forward, we remain committed to innovation and product excellence, striving to exceed our customers' expectations. As a reminder, some of our revenues and expenses are transacted in currencies other than the U.S. dollar. Therefore, our reported results may be impacted by changes in foreign exchange rates. To aid in the review of our results, throughout my remarks, I will reference growth rates in both reported and constant current.

Matt: As we look forward, we remain committed to innovation and product excellence striving to exceed our customers' expectations.

Speaker Change: As a reminder, some of our revenues and expenses are transacted in currencies other than the U S dollar.

Matt: And therefore, our reported results may be impacted by changes in foreign exchange rates.

Matt: To aid in the review of our results throughout my remarks, I will reference growth rates in both reported and constant currency.

Matt Brown: For the second quarter, calculated total billings were $154.5 million, a year-over-year increase of 4.5% in reported currency and 7.1% in constant currency. Software revenue in Q2 was $135.4 million, a year-over-year increase of 8.1% in reported currency and 10.6% in constant currency compared to Q2 2023. The year-over-year increase in software revenue was driven by high retention rates and new and expansion business, with notable strength in aerospace and defense, where customers are increasingly leveraging the convergence of capabilities in our software. For instance, one aerospace customer is using ROM AI for multidisciplinary optimization of an avionic system, while another is using RapidMiner for predictive maintenance and root cause analysis.

Matt: For the second quarter calculated total billings were $154 5 million.

Matt: A year over year increase of four 5% in reported currency and.

Matt: And seven 1% in constant currency.

Matt: Software revenue in Q2 was $135 4 million.

Matt: The year over year increase of eight 1% in reported currency.

Matt: And 10, 6% in constant currency.

Matt: <unk> to Q2 2023.

Matt: The year over year increase in software revenue was driven by high retention rates.

Matt: And new and expansion business with notable strength in aerospace and defense.

Matt: Our customers are increasingly leveraging the convergence of capabilities in our software.

Matt: For instance, one aerospace customer is easy ROM AI for multi disciplinary optimization of an avionics system.

Matt: While another is using rapid miner for predictive maintenance and root cause analysis.

Matt Brown: Our unique ability to deliver these comprehensive AI-powered engineering solutions gives us great confidence in the long-term trajectory of our software offering. Additionally, our Strengthened software continues to be broad-based, with gains across the Americas, EMEA, and APAC. Total revenue in Q2, which includes engineering services and other revenue, was $148.8 million, a year-over-year increase of 5.4% in reported currency and 7.8% in constant currency compared to Q2 2023. Non-GAAP gross margin, which excludes stock-based compensation, was 80.9% in the second quarter compared to 80.0% in the prior year period, an increase of 90 basis points.

Matt: Our unique ability to deliver these comprehensive AI powered engineering solutions.

Matt: Gives us great confidence in the long term trajectory of our software offerings.

Matt: Additionally, our strength in software continues to be broad based with gains across the Americas EMEA and APAC.

Matt: Total revenue in Q2, which includes engineering services and other revenue.

Matt: Was $148 8 million.

Matt: The year over year increase of five 4% in reported currency.

Matt: And seven 8% in constant currency compared to Q2 2023.

Matt: non-GAAP gross margin, which excludes stock based compensation was 89% in the second quarter compared to 80% in the prior year period.

Matt: An increase of 90 basis points.

Matt Brown: The year-over-year increase in non-GAAP gross margin in Q2 was driven by the mixed shift toward software revenue, where gross margins are higher than our engineering services and other revenue margins. Software revenue was 91.0% of total revenue in Q2, compared to 88.8% in the prior year. We expect software revenue growth will continue to outpace that of engineering services and other revenues, and therefore continue to push our blended gross margins higher. GAP operating expenses were $128.2 million, compared to $126.6 million in the prior year period, reflecting growth of just 1.2% due to the continued and sustained year-over-year reduction in stock-based compensation, non-GAAP operating expenses, which exclude stock-based compensation and amortization of intangible assets, were $105.3 million compared to $96.9 million in the prior year period, reflecting the planned investments we're making in product development and sales capacity to capitalize on the large and exciting opportunities we're seeing ahead of us.

Matt: The year over year increase in non-GAAP gross margin in Q2 was driven by the mix shift towards software revenue, where gross margins are higher than our engineering services and other revenue margins.

Matt: Software revenue was 91 point year a percent of total revenue in Q2 compared to 88, 8% in the prior year.

Matt: We expect software revenue growth will continue to outpace that of engineering services and other revenue.

Matt: And therefore continue to push our blended gross margins higher.

Matt: GAAP operating expenses were $128 2 million.

Matt: Compared to $126 6 million in the prior year period.

Matt: Reflecting growth of just one 2% due to the continued and sustained year over year reduction in stock based compensation expense.

Matt: non-GAAP operating expenses, which exclude stock based compensation and amortization of intangible assets.

Matt: $105 3 million compared to $96 9 million in the prior year period, reflecting.

Matt: Reflecting the planned investments, we're making in product development and sales capacity to capitalize on the large and exciting opportunities. We're seeing ahead of us.

Matt Brown: Adjusted EBITDA in Q2 was $17.3 million, or 11.7% of total revenue, compared to $17.1 million, or 12.1% in the prior year. Moving to our balance sheet, we ended the quarter with $507.0 million in cash and cash equivalents.

Matt: Adjusted EBITDA in Q2 was $17 3 million or 11, 7% of total revenue compared.

Matt: Compared to $17 1 million or 12, 1% in the prior year.

Matt: Moving to our balance sheet, we ended the quarter with 507 <unk> million in cash and cash equivalents.

Matt Brown: An increase of approximately $88.7 million from the prior year period and $39.5 million from year end. These increases in cash and cash equivalents were despite us paying $81.7 million for the settlement of our 2024 convertible notes in the second quarter. Free cash flow continues to be strong and was the primary driver of our cash and cash equivalents balance. Free cash flow was $97.0 million for the six months ended June 30th, compared to $83.0 million in the prior year period.

Matt: An increase of approximately $88 7 million from the prior year period.

Matt: $39 5 million from year end.

Matt: These increases in cash and cash equivalents were despite S. Pain 81, 7 million for the settlement of our 2024 convertible notes in the second quarter.

Matt: Free cash flow continues to be strong.

Matt: And was the primary driver of our cash and cash equivalents balance.

Matt: Free cash flow was 97.0 million.

Matt: For the six months ended June 30th compared.

Matt: Compared to $83 <unk> million in the prior year period.

Matt Brown: An increase of 16.8 percent. We expect to continue to generate significant free cash flow going forward, and we will continue to allocate capital with focus and discipline to drive long-term shareholder value. Turning to guidance for Q3 and full year 2024, we've provided detailed tables in our earnings press release, including reconciliation to comparable gap amounts, to provide clarity on the FX impact on our expectations.

Matt: An increase of 16, 8%.

Matt: We expect to continue to generate significant free cash flow going forward and we will continue to allocate capital with focus and discipline to drive long term shareholder value.

Matt Brown: We've provided growth rates in both reported currency and constant currency in our guidance tables. For Q3, we expect software revenue in the range of $130 to $133 million, a year over year increase of 9.2% to 11.7% in reported currency and 11.1% to 13.7% in constant currency for full year 2024. We are raising our previous outlook in constant currency for software revenue and also adjusting for changes in foreign currency exchange rates over the past quarter. These amounts are offsetting.

Matt: Turning to guidance for Q3 and full year 2024.

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

Matt: To provide clarity on the FX impact to our expectations.

Matt: We have provided growth rates in both reported currency and constant currency in our guidance tables.

Matt: For Q3, we expect software revenue in the range of $130 million to $133 million.

Matt: A year over year increase of nine 2% to 11, 7% in reported currency.

Matt: And 11, 1% to 13, 7% in constant currency.

Matt: For full year 2024.

Matt: We are raising our previous outlook in constant currency for software revenue.

Matt: And also adjusting for changes in foreign currency exchange rates over the past quarter.

Matt: These amounts are offsetting.

Matt Brown: And therefore, we expect full-year software revenue in reported currency to be a range of 590 to 600 million, a year over year increase of 7.3% to 9.1% in reported currency and 8.9% to 10.8% in constant current. We expect Q3 total revenue, which includes engineering services and other revenue, in the range of $145 to $148 million. A year-over-year increase of 8.2% to 10.4% in reported currency and 10.0% to 12.3% in constant current.

Matt: And therefore, we expect full year software revenue in reported currency to be a range of 590 to 600 million.

Matt: A year over year increase of seven 3% to nine 1% in reported currency.

Matt: And eight 9% to 10, 8% in constant currency.

Matt: We expect Q3 total revenue, which includes engineering services and other revenue.

Matt: In the range of $145 million to $148 million.

Matt: A year over year increase of eight 2% to 10, 4% in reported currency.

Matt: And 10.0% to 12, 3% in constant currency.

Matt Brown: For full year 2024, we are maintaining our previous outlook in constant currency for total revenue. This includes an increase in our full year software revenue outlook in constant currency and an offsetting reduction in engineering services and other revenues. However, due to changes in our foreign currency exchange rates over the past quarter, we are adjusting our full-year outlook and reported currency to a range of $648 to $658 million, a year-over-year increase of 5.8% to 7.4% in reported currency and 7.5% to 9.1% in constant growth.

Matt: For full year 2024, we are maintaining our previous outlook in constant currency for total revenue.

Matt: This includes the increase in our full year software revenue outlook in constant currency.

Matt: And an offsetting reduction in engineering services and other revenue.

Matt: However, due to changes in our foreign currency exchange rates over the past quarter. We are adjusting our full year outlook in reported currency to a range of $648 million to $658 million.

Matt: A year over year increase of five 8% to seven 4% in reported currency.

Matt: And seven 5% to nine 1% in constant currency.

Matt Brown: For Q3, we expect adjusted EBITDA in the range of $16 to $19 million, or 11.0% to 12.8% of total revenue, compared to $15.5 million, or 11.5% of total revenue, in Q3 2023. Changes in foreign currency exchange rates have also impacted adjusted EBITDA. And therefore, we are adjusting our outlook to a range of 136 to 144 million, for 21.0% to 21.9% of total revenue, compared to $129.1 million, or 21.1% of total revenue in 2023.

Matt: For Q3, we expect adjusted EBITDA in the range of $16 million to $19 million.

Matt: Or 11.0% to <unk>.

Matt: <unk> 12, 8% of total revenue.

Matt: Compared to $15 5 million or 11, 5% of total revenue in Q3 2023.

Matt: For full year 2024.

Matt: <unk> and foreign currency exchange rates have also impacted adjusted EBITDA.

Matt: And therefore, we are adjusting our outlook to a range of $136 million to $144 million or 21.0% to 21, 9% of total revenue.

Matt: Compared to $129 1 million or.

Matt: Or 21, 1% of total revenue in 2023.

Matt Brown: And finally, for the full year 2024, we expect free cash flow in the range of $122 to $130 million, which has also been impacted by changes in foreign exchange rates and therefore has been adjusted in line with the change in our full year adjusted EBITDA guidance. As a reminder, our cash flow expectations are sensitive to billings and collections patterns, which fluctuate seasonally. We continue to be pleased with the high free cash flow as a percentage of adjusted EBITDA at approximately 90%. We are excited about our strong Q2 and first half performance to start the year, and we are looking forward to maintaining that momentum in the second half. With that, we'd be happy to take your questions.

Matt: And finally for the full year 2024, we expect free cash flow in the range of $122 million to $130 million, which has also been impacted by changes in foreign exchange rates and therefore has been adjusted in line with the change in our full year.

Matt: Adjusted EBIT guidance.

Matt: As a reminder, our cash flow expectations are sensitive to billings and collections patterns, which fluctuate seasonally.

Matt: We continue to be pleased with the high free cash flow as a percentage of adjusted EBITDA at approximately 90%.

Matt: We are excited about our strong Q2, and first half performance to start the year and we are looking forward to maintaining that momentum in the second half.

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

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. In the interest of time, we ask that you please limit yourself to one question. [inaudible] Please stand by while we compile the Q&A roster. Our first question comes from Matt Hedberg with RBC. Your line is now open.

Speaker Change: Thank you as a reminder to ask a question. Please press star one one on your telephone and wafer your name to be announced.

Speaker Change: Your question. Please press star one again.

Speaker Change: In the interest of time, we have such please limit yourself to one question.

Matt: Please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from.

Matt: Matt Hedberg with RBC. Your line is now open.

Matt Swanson: Yeah, thank you so much for taking my question. This is Matt Swanson. I'm for Matt. It was great to hear about the success in aerospace and defense. And Jim, I think you mentioned the big HyperMesh win, which has always been kind of seen as a best of breed product for the space. And then, Matt, I think in some of your examples, we talked about some of the newer products like RapidMiner. Could you guys just talk a little bit about going to market and the ability to be able to sell both those things and the kind of interconnectedness between your traditional products and some of these newer data-focused ones?

Matt: Yes. Thank you so much for taking my question. This is Matt Swanson on for Matt.

Matt: It was great to hear about the success in the aerospace and defense and Jim I think you mentioned.

Matt: Hyper mesh win which has always been kind of assume that's a best of breed product space in them.

Speaker Change: Matt I think in some of your examples we talked about some of the newer products like rapid miner.

Speaker Change: Could you guys just talk a little bit about the go to market and the ability to be able to sell both those things.

Matt: And kind of interconnectedness from your traditional products and some of these newer newer data focused and just how the sales force is doing ramping on that.

Jim Scapa: Sure. First of all, thank you.

Matt: Sure.

Speaker Change: First of all thank you.

Matt:

Jim Scapa: Yeah, I mean, the go-to-market strategy. First of all, in general, we've moved to this vertical market orientation for all the strategic accounts in the aerospace and defense vertical. We have a global team. That is managed by one individual, and then the account teams are spread throughout the world. When you think about an account... You know, one of the major aerospace accounts. Most of them are using HyperMesh, and it just continues to expand, and now we're expanding out to many of the other products.

Matt: Yes.

Matt: The go to market first of all <unk> and.

Speaker Change: In general we've moved to this vertical market orientation for all the strategic accounts are in the aerospace and defense vertical we have a global team.

Matt: That is managed by one individual in the account.

Matt: Teams are spread throughout the world.

Matt: When you think about that account.

Matt: One of the major aerospace accounts.

Speaker Change: Most of them are using hyper rational just continues to expand and our explore opt to middle of the other products rapid miners are pretty natural next step because if they have a lot of trust data.

Jim Scapa: RapidMiner is a pretty natural next step because if they have a lot of test data or they're trying to process material data, for example, coming in, for example, if they want to project what are values that maybe didn't come in through testing and they want to project those using some AI technology, I just saw that this morning, so it's fresh in my mind. You know, it's just a great tool for doing that.

Matt: Or are there trying to process material data for example.

Matt: Coming in.

Matt: Four four.

Matt: For example, if they want to.

Matt: Project what are.

Matt: And what our values that maybe didn't come in through testing and they want a project those using some AI technology I just saw that this morning.

Matt: Fresh in my mind.

Matt: It's just a great tool for doing.

Jim Scapa: So we're seeing more and more applications throughout our traditional engineering customer base, and I would say that the account teams that are traditionally selling simulation applications are becoming more and more comfortable as they see more of these applications, understand them, and can really just talk about them. We bring experts in, of course, more and more. The other big application is a solution called Physics AI or ROM AI, which stands for Reduced Order Modeling. So when we're doing digital twins, very often, we create these reduced order models that are typically...

Matt: So we're seeing more and more applications throughout our traditional engineering customer base and I would say that the account teams that are traditionally sell them.

Matt: Simulation applications are becoming more and more comfortable.

Matt: They see more of these applications understand loan. Thank you really just talk about what are we bringing experts and of course more and more.

Matt: They're big application as a solution called physics AI for Romney reduced order modeling so what we're doing with digital twins very often we're creating these reduced order models that are.

Matt: Typically.

Jim Scapa: This is an example of a neural net model to simulate a part of the system in the digital twin. Similarly, Physics AI lets you run a number of simulations and run them through the neural nets of Physics AI to build an AI model, if you will. The next simulation just runs the AI model.

Matt: Neural web type models to simulate a part of the system and the digital twin.

Speaker Change: Similarly, physics say I'll, let you run a number of simulations and we'll run it through the neural nets.

Matt: As I say high buildup.

Matt: AI model. If you will the next simulation just simply runs the AI model. So it's really starting to take off we have a lot of technology just in.

Jim Scapa: So, you know, it's really starting to take off. We have a lot of technology just embedded in our tools also that is all built on machine learning and AI. So it's sort of permeating throughout the products, and I think we have, frankly speaking, quite a big lead on our competition in applying this kind of technology. It does take time for everyone to come up to speed, the tech support guys, the sales guys, but we've been at this for five, six years now.

Matt: Better than our tools also that is all built on machine learning and AI.

Matt: So it's that sort of permeated throughout the the products.

Matt: I think we got frankly speaking quite a big lead on our competition.

Matt: While this broad technology. It does take time for everyone to come up to speed. The tech support guys. The sales guys, but we've been at this for five six years now.

Jim Scapa: So we are, you know, we're just really running with it. We've been running these seminars, AI for Engineering, and we have, in some cases, thousands of people signing up for them. So it's been very, very positively received.

Matt: So we are encouraged.

Matt: Or just really running with it we've been running these days.

Matt: Some of ours AI for engineering.

Matt: We have in some cases thousands of people signing up for them. So it's been very very positively received.

Jim Scapa: That's super helpful. And then my follow-up question was actually kind of on that getting up to speed standpoint and just the idea of the kind of the push and pull of AI with your customers right now. It was great to hear about those updates that came out for Hypeworks 2024 around AI, but I'm just curious, like, is AI something that your customers are looking for as, you know, a must-have when you enter into a new deal process? Or are you really just selling it?

Speaker Change: That's super helpful. And then my follow up question was actually kind of on that getting up to speed standpoint, and just the idea of kind of the push and pull of AI with your customers right. Now it was great to hear about those updates that came for the <unk> 'twenty 'twenty four around AI, but I'm just curious.

Speaker Change: So yes, it's something that your customers are looking to us.

Speaker Change: When you enter into a new deal process.

Jim Scapa: I think it's what's putting us in the lead. Yeah, I think so, and I think it's what's putting us really in the lead at this point. We see our position in many of these accounts where, you know, typically, there are multiple vendors in each one of these accounts, ourselves and competitors. But we see our position sort of rising across the board, actually. And a lot of the reason for that is the AI technology that we're bringing in.

Speaker Change: Or are you really.

Matt: Okay.

Speaker Change: I hope so and I think that's what's putting us really on the lead at this point we see.

Matt: Our position.

Matt: And many of these accounts were.

Matt: Typically there is multiple vendors in each one of these accounts ourselves and competitors.

Matt: But we see our position sort of rise.

Matt: Across the board actually in a lot of the reason for that is the AI technology that we're bringing in I think.

Jim Scapa: So yes, I think it's very important.

Matt: So, yes, I think it's very important.

Speaker Change: Thank you.

Matt: Sure.

Operator: Thank you. Our next question comes from Blair Abernethy with Rosenblatt Securities. Your line is now open.

Matt: Thank you. Our next question comes from Blair Abernethy.

Blair Abernethy: With Rosenblatt Securities. Your line is now open.

Blair Abernethy: Thanks for taking the questions, guys. Jim, just wanted to drill in a little bit more on your comments about the channel and adding some new capacity there. Are you looking at emphasizing the channel more now that you have more product? Just kind of what are your thoughts there? And I'm not sure what the current percentage revenue from the channel is for Altair. We are in time.

Blair Abernethy: Thanks for taking the questions guys.

Blair Abernethy: Jim just wanted to drill in a little bit more on your comments about the channel.

Speaker Change: We're adding some new capacity there are you are.

Blair Abernethy: Are you looking at emphasizing the channel more now that you have more product just kind of what are your thoughts there and I'm not sure what the current percentage revenue from the channel is for Altair.

Jim Scapa: We are trying to emphasize the channel more. It's particularly important on the data side, to be honest with you, but it's also important on the simulation side in many of the regions that we probably historically have not gone to market indirectly as much. So some of the larger markets where we were selling a lot directly, we were underserving, I would say, the small-medium account.

Speaker Change: We are trying to ups side of the channel awards, particularly important on the data side to be honest with you, but it's also important on the stimulation side.

Speaker Change: And many of the regions that we probably historically.

Speaker Change: Market indirectly as much.

Speaker Change: Some of the larger markets, where we were selling lot directly.

Speaker Change: We were underserved or I would say the small medium accounts.

Jim Scapa: We need to get to those through indirect channels, and that's what we're doing. The other thing very, very important for us is systems integrators on the data side, particularly when a customer wants to do something like a data modernization program. Moving their SAS estate into Python, in some cases, or into a mix of Python, R, and SAS. We're really well positioned for those deals, but they have to be done through systems integrators.

Speaker Change: We will to get to those through indirect channels. So that's what we're doing.

Speaker Change: The other thing very very important for us as systems integrators on the data side.

Speaker Change: Clearly.

Matt: When a customer wants to do like data modernization program.

Speaker Change: Move.

Speaker Change: Moving to SaaS the state.

Speaker Change: Into Python in some cases or into a mix of Python and R. M.

Matt: And SAS.

Matt: We're really well positioned for those for those deals, but they have to be done through systems integrators and the other one.

Jim Scapa: And the other one that heavily relies on systems integrators is graph technology. We have a lot of activity happening with that in pharma and in aero and defense. And in those opportunities, very often, it's a system integrator that's heavily involved in the implementation. So, yes, indirect is really important.

Matt: Heavily relies on systems integrators, the graph technology.

Matt: A lot of activity capital with pharma in Maryland.

Matt: And in those in those opportunities very often that's a system integrator.

Matt: Heavily involved in the implementation.

Matt: So yes indirect is really important for us.

Jim Scapa: Okay, great. Thank you. And just one other, if I could call out the HP partnership and your material solutions, is that strictly a product? An arrangement, or is there some go-to-market there as well?

Speaker Change: Okay, great. Thank you and just one other.

Speaker Change: Should be called out the HP partnership.

Speaker Change: What's your materials solutions is that is that strictly a product.

Speaker Change: Yes.

Speaker Change: Arrangement or is there some go to market there as well.

Jim Scapa: There's no go-to-market there, at least that I'm aware of. Maybe, maybe I'm missing something, other than the fact that now their material data is available in our material database model, which is really important. We have about 400 different providers. HP is a new one that's been added, but a very, very important one.

Speaker Change: There is no go to market poorly that I'm aware of maybe maybe I'm missing something.

Speaker Change: Other than the fact.

Speaker Change: Now there are there material data is available.

Speaker Change: In our materials database modeler.

Speaker Change: Which is really important we have about 400 different providers HP as a new open that's added but a very very important one.

Jim Scapa: You know, that solution has been maturing, and I think it's going to really take off. We're going to move it into a units model approach, coming up pretty soon here, and I think that's going to be very, very transformational. I think most of our existing customers are going to start using it, and when they do, I think it's going to really change the game. It's a gorgeous product, and it uses AI as part of it as well, so there are some new things coming, all of which are rather cool.

Speaker Change: That solution has been maturing.

Speaker Change: And I think it's going to really take off we're going to move it into our units model approach.

Speaker Change: Coming up pretty soon here and I think that's going to be very very transformational.

Speaker Change: I think most of our existing customers are going to start using it.

Speaker Change: And what.

Matt: But when they do I think it's going to it's going to really change the game.

Speaker Change: It's a gorgeous product and it uses AI as part of it as well. So there are some new things coming.

Speaker Change: That are that are rather cool.

Blair Abernethy: That's great. Thanks very much.

Speaker Change: That's great thanks very much.

Speaker Change: Sure.

Operator: Thank you. Our next question comes from Charles Shi with Needham Company. Your line is open.

Speaker Change: Thank you. Our next question comes from Charles <unk> with Needham <unk> Company. Your line is open.

Charles Shi: Hi Jim, Matt, thanks for taking my questions. I know we're in the middle part of the year, still a little bit away from 2025. But Jim, Matt, any initial thoughts on next year at this point, given there seems to be some renewed concerns about the macroeconomic environment? Particularly, we're seeing use of Stellantis, for example; I'm sure it's probably one of your large customers in the automotive sector. Seems to be that there are some rumored layoffs there.

Speaker Change: Hi.

Speaker Change: Jim Matt Thanks for taking my questions.

Speaker Change: I know we're in the.

Speaker Change: Middle part of the year.

Speaker Change: By the way from 'twenty to 'twenty five.

Speaker Change: Jim Matt any initial thoughts.

Speaker Change: Next year at this point.

Speaker Change: Given that seems to be some.

Matt: We renewed concerns about the macroeconomic environment.

Speaker Change: Particularly we are seeing news.

Speaker Change: <unk>.

Speaker Change: Atlantis for example, I'm sure, it's probably one of your large customers in automotive Bob.

Speaker Change: It seems to be.

Speaker Change: There is some room at the layoffs there.

Charles Shi: I'm not so sure if this is an isolated case or not, but I want to get your thoughts on the middle part of 2024, any initial view on 2025, the macroenvironment, the automotive industry, and what you think about the Altair business.

Speaker Change: Not so sure if the vessels isolate the case or not but that.

Speaker Change: Wanted to get your thoughts in the middle part of 2024 any initial view on plenty of quantified that macro environment.

Speaker Change: Automotive.

Speaker Change: And what do you think of it on a per business.

Jim Scapa: No, that's a good question. I, you know, in general, I feel like these companies have no choice but to continue to innovate aggressively. And so, you know, my feeling is that these downturns aren't necessarily bad for my business because I think I bring a lot of value to the customers, and I think customers are going to choose to work with Altair more and more as time goes on. But of course, you know, when they're, you know, if there is an overall malaise or whatever, I suppose it can have some effect.

Speaker Change: No.

Speaker Change: That's a good question.

Speaker Change: In general I feel like these companies have no choice, but to continue to innovate across the globe.

Matt: So my feeling is.

Matt: Sure.

Matt: These downturns are necessarily bad for my business, because I think I bring a lot of value to the customers.

Matt: And.

Matt: I think the customers are.

Matt: Choose.

Matt: To work more and more with Altair as time goes on.

Jim Scapa: But generally, I'm not that concerned. I feel really, really optimistic coming into 2025. The product lineup that we're bringing, you know, at the end of this year into next year, is just second to none across the board on the simulation side, all the modeling and visualization, all the work we've done on the modeling and visualization is essentially complete, and we are seeing ourselves very, very competitive against, really, really everyone. Similarly, on the data side and the HPC stuff, we're launching a product called NABOPS.

Matt: But of course.

Matt: Whether if there is.

Matt: And overall malaise or whatever I suppose it can have some effect, but generally im not that concerned I feel really really optimistic coming into 2025, the product lineup that we're bringing.

Matt: At the end of this year into next year.

Matt: That's just second to none across the board on the simulation side, all the modeling and visualization all the work we've done on the modeling and visualization is essentially complete.

Matt: We are seeing ourselves very very competitive against.

Matt: Really really everyone.

Matt: Similarly on the data side and on the HBC stuff, we're launching critical Nabobs, we've got here.

Jim Scapa: We've got a huge number of customers lined up. It lets you get to the cloud, basically, it works with any of the different cloud providers. Every customer is interested in being able to do that, managing cost and performance. So I just think we're in a great spot. Of course, macro can have some overarching effects, but it's my job to plow us through whatever, and I'm pretty confident.

Matt: Huge number of customers lined up that lets you get to the cloud basically it works with any of the different cloud providers. Every every customers interested in being able to do that managing cost outperformance. So I just think we're in a great spot.

Matt: Of course macro can have some overarching effect, but that's my job.

Matt: To plow us through whatever and I'm pretty confident about it.

Charles Shi: Got it. Thanks, Jim. Maybe there is a second question.

Matt: Got it thanks, Jim maybe a second question.

Speaker Change: Glad to see you at the design automation conference.

Speaker Change: I can feel like a pair has a bigger presence at that.

Speaker Change: Industry trade show and.

Jim Scapa: Glad to see you at the Design Automation Conference. I feel like Altair has a bigger presence at the EDA industry trade show. Do you want to ask, maybe first off, can you kind of help us give us a reminder of what the Altair business is about and Altair's exposure to semiconductors at this point? Yeah, and it's interesting to see Altair announced that it is acquiring this company called Metrix Design Automation. But I also want to check with you because that company, the founder, Joe Costello, is very famous for his different thinking around the business model, charged by the minute, rather than charged by the seed.

Speaker Change: I do want to ask.

Speaker Change: Maybe first off can you kind of.

Speaker Change: Help us give US a reminder, what what are the all payer business at higher exposure to the semiconductors at this point.

Speaker Change: And it's interesting to see a pair.

Speaker Change: Asked about acquiring this company called the metrics design automation, but also wanted to.

Speaker Change: Check with you because that company the founder Joe Costello is very famous for.

Speaker Change: He has a different thinking around the business model are charged by the mednet rather than charged by the see that there has been good as pitch to the EDA industry, but that does echo some of the new point based business model.

Jim Scapa: That has been his pitch to the EDA industry. But that does echo some of the new point-based business model you have been promoting for over the years. So I wonder if we can get a comment from you on that as well. Thank you.

Speaker Change: How big are promoting for over the years. So why don't I Wonder if you kind of get a comment from you on that as well. Thank you.

Jim Scapa: Yeah, we've been building out a portfolio of electronics, starting with printed circuit boards, and now more and more in the semiconductor space. Obviously, we're not a major player there yet, but we come with a lot of, I think, interesting technology that Zsim probably tested the hell out of it, and it's very, very competitively performing, you know, against the best-in-class logic simulator. And we have really nice digital debug technology, honestly, best in class there.

Speaker Change: We've been building out our portfolio in electronics, starting with printed circuit boards and now more and more.

Speaker Change: Semiconductor space.

Speaker Change: Obviously, we're not a major player there yet, but we're coming with a lot of I think interesting technology that do some prior we tested the hell out of it.

Speaker Change: Very very.

Matt: <unk> performed well.

Matt: So the vessel class logic simulators, and we have really nice digital debug technology, possibly vessel class there.

Jim Scapa: We plan to integrate that stuff, make it available so people can run desktops on their servers or in the cloud with business models and technology that make them very interesting. And, you know, the market, I think, for semiconductor design is exploding, starting from universities and small companies. And I do think that, you know, there's been a bit of a duopoly there with very expensive software that is sort of anathema to the creative power of the market to be able to go out and innovate.

Matt: <unk>.

Matt: Great desktop and make it available so people can run desktop on their servers or the cloud.

Matt: With.

Speaker Change: With business models and technologies.

Speaker Change: So it makes it very interest flow.

Matt: There is the market I think for semiconductor design.

Matt: Is exploding starting from universities and small companies and I do think that.

Speaker Change: There has been a bit of a duopoly there with very expensive software.

Speaker Change: Is sort of anathema to.

Matt: The creator power.

Speaker Change: Market to be able to go out and innovate.

Jim Scapa: So I think we're going to bring some disruption there. I don't mean that we're going to completely change the world in six months, but I think we are going to see a lot of traction around the stuff we're bringing. And, you know, you also have this move to 3DIC, and Altair is very well positioned. Some really nice technology in that direction as well. So I think it's gonna be more and more important. What we do, obviously, we play big on the HPC side there as well. So bringing all that together, that convergence, if you will, is going to be important, and I think some of the, [inaudible]

Speaker Change: I think we're going to we're going to bring some disruption there.

Speaker Change: Hello network.

Speaker Change: We chose the world in six months.

Speaker Change: I think we are going to see a lot of traction around the software for home.

Speaker Change: And you also have this move to <unk> on the Alterra is very well positioned with some really nice technology in that direction as well. So I think it's going to be more and more important what we do obviously, we play big on the HPE side, there as well.

Speaker Change: So, bringing all of that that converge.

Speaker Change: Hello.

Speaker Change: There's going to be important rollout some of the expertise and technology, we bring on the AI side as well as is going to bring some interesting intervention.

Speaker Change: I think that.

Speaker Change: Particular market the EDA market is ripe for some disruption.

Speaker Change: We're going to try and bring some.

Operator: Thank you. And our next question comes from Steve Tusa with J.P. Morgan.

Speaker Change: Thank you.

Speaker Change: And our next question comes from Steve Tusa with Jpmorgan. Your line is open.

Steve Tusa: Your line is open. Hey, good evening. Hey there. Good evening.

Steve Tusa: Hey, good evening.

Steve Tusa: Hey, good evening.

Steve Tusa: Just a question on guidance and margins. I would assume that part of the margin tweaked down is due to foreign exchange. Can you just confirm that? Or is there something else in the business that you're seeing on the call side?

Steve Tusa: Just a question on the on the guidance and the margins I would assume that part of the margin tweak down is due to foreign exchange can you just confirm that or is there something else in the business that youre.

Speaker Change: Youre seeing on the cost side.

Matt Brown: Yeah, it is. Thank you for the question.

Speaker Change: Yes. It is.

Speaker Change: Thank you for that it's really a question. If you look at the full year guide and we have a table that's there.

Speaker Change: Helpful. In getting you to bridge from sort of one one quarter to the next full year guide from an EBIT perspective in constant currency is unchanged. So youre correct that the only impact to EBITDA is due to FX.

Matt Brown: If you look at the full year guide, and we have a table that's there, that's helpful in getting you to bridge from sort of one quarter to the next. The full year guide, from an EBITDA perspective, in constant currency, is unchanged. So you're correct that the only impact on EBITDA is due to FX.

Speaker Change: Okay great.

Speaker Change: And then as far as the aerospace strength is concerned it kind of has juxtaposed against.

Steve Tusa: Okay, great. And then as far as the aerospace strength is concerned, it kind of is juxtaposed against, I know you're not like direct competitors on certain fronts, but juxtaposed against Dassault, who called out aerospace and defense as being headwind is, is there anything to kind of like directly read again, read through there to, you know, to market share these just on like, you know, very, obviously, they're, they're a large company with many different product lines, but is there anything to kind of read through from that to, you know, like a direct, you know, project win or direct, you know, deal win for you guys?

Speaker Change: I know youre not like direct competitors on certain fronts, but juxtaposed against.

Speaker Change: So who called out aerospace and defense as being headwind is is there anything to kind of like directly read again read through there too.

Speaker Change: It's a market share or do you just don't like Barry.

Speaker Change: Obviously, there are a large company with many different product lines.

Speaker Change: Is there anything to kind of read through from that too.

Speaker Change: Direct.

Speaker Change: Project win or our direct.

Speaker Change: Deal win for you guys.

Jim Scapa: I don't think there's anything direct between Altair versus Dusso, if you will, but I do think some of the players are rising and some are..., and others are perhaps flipping some. So without calling out names, you know, I'm not sure. What else I can say there, but you know, it's part of why I don't concern myself with some of the macro because I think it can create new opportunities, and I think Altair is rising irrespective of where the tide is going. Great.

Speaker Change: I don't think Theres anything direct pellets here versus stuff. So if you will but I do think some some of the players.

Speaker Change: Arising in silver.

Speaker Change: Flipping so I would say alturas game.

Speaker Change: And others are perhaps.

Speaker Change: Slipped some.

Speaker Change: So without calling out names.

Speaker Change: I'm not sure.

Speaker Change: What else I can say there but.

Speaker Change: Part of why I adore concern myself with some of the macro because.

Speaker Change: Typically it can create new opportunities.

Alterra: Alterra has his rifle.

Speaker Change: We are the tightest scaling.

Steve Tusa: Great. Thanks a lot. Congratulations.

Speaker Change: Great. Thanks, a lot congrats.

Speaker Change: Thank you.

Operator: Thank you. And our next question comes from Mark Schappel, from Luke Capital Markets. Your line is now open.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: And our next question comes from Mark.

Mark Scheffel: Scheffel with loop capital markets. Your line is now.

Mark Schappel: Hi, thank you for taking my question. Nice job on the software rather than print. Jim, I have a question for you on metric design.

Mark Scheffel: Alright. Thank you for taking my question nice job on the software revenue French.

Speaker Change: Jim question for you on metric design.

Mark Schappel: I appreciate your comments on that and your prepared remarks. You mentioned that you thought the technology was groundbreaking. I mean, would you consider their technology groundbreaking in the EDA space in the same way that

Speaker Change: Get your color on that on your prepared remarks, you mentioned that you thought the technology, which ground breaking I mean would you consider their technology groundbreaking breaking in the EDA space in the same way that maybe some solid as disruptive.

Jim Scapa: No. So I said it's groundbreaking, the business model that they're applying here because, you know, with the cloud, you can scale up to thousands of simulations. Simultaneously, so you can basically do in a very, very short amount of time what you could do in a much, much longer period of time because you perhaps don't have enough licenses or enough computing hardware to scale out as fast. So the business model and the approach, I think, are what's groundbreaking and, you know, can really accelerate designs.

Speaker Change: Chemical stimulation.

Speaker Change: No.

Speaker Change: So.

Speaker Change: I've said, it's groundbreaking for the business model they are applying here.

Speaker Change: Because.

Speaker Change: With the cloud you can scale up to thousands of simulations.

Speaker Change: Retaining a slate and so you can you can basically.

Speaker Change: Due in a very very short amount of time, which you can do.

Speaker Change: And much much longer period of time, because you, perhaps don't have enough licenses or or computing hardware to to scale out as fast so the business model and the approach I think is what's groundbreaking.

Speaker Change: It can really accelerate designs.

Jim Scapa: The general technology of the logic simulator, I think it's a really excellent Logic Simulator, which I admit before a lot of the testing that we did, we were a little skeptical, but it's really quite strong. In fact, at the DAT conference, one of the gentlemen that does all this evaluations and whatever actually wrote similarly, he was quite surprised with its performance, and we were as well; we tested it with a team overseas. So no, I don't think the simulator itself is groundbreaking. I think it's a very competitive simulator. I think the business model is good. Unknown Speaker.

Speaker Change: But general technology logics simulator I think it's a really.

Speaker Change: Excellent logic simulator.

Speaker Change: Which I admit before a lot of testing that we did we were a little skeptical, but it's really quite quite strong.

Speaker Change: The fact that color fronts.

Speaker Change: Jello that does all of this.

Speaker Change: Evaluations or whatever actually wrote.

Speaker Change: Similarly, he was he was quite surprised with its performance.

Speaker Change: And we weren't as well we've tested it.

Speaker Change: Overseas. So no I don't think the simulator itself is groundbreaking I think it's a very competitive simulator I think the business model is what's groundbreaking.

Mark Schappel: Great, thanks. And then on physics AI, that was a big topic during the user conference yesterday. What kind of uptake rate are you seeing with your physics AI? I think a huge enough percentage.

Speaker Change: Great. Thanks, and then on physics, AI that was a big topic during the user conference and Investor day, what kind of an uptake rate are you seeing with your physics AI tools.

Jim Scapa: I think a huge enough percentage of customers are beginning to use it, so it's getting a lot of attention.

Speaker Change: I think a huge percentage of the customers are beginning to use it so it's getting a lot of uptake.

Speaker Change: Great. Thank you.

Speaker Change: Sure.

Operator: Thank you. And our final question comes from Dylan Becker with William Blair. Your line is now open.

Speaker Change: Thank you.

Speaker Change: And our final question comes from Dawn Becker with William Blair. Your line is now open.

Dylan Becker: Hey, gentlemen, nice job here. Jim, touching on kind of the HyperWorks 24 rollout, any kind of additional color you could give us around, maybe added functionality for customers, how they're thinking about adoption of this, what that can mean for incremental usage or units, kind of the right way of thinking about what that means for the business.

Dawn Becker: Hey, gentlemen, nice job here, Jim let me touching on kind of Hyperworks 24 rollout.

Dawn Becker: Kind of additional color you could give us.

Speaker Change: Maybe added functionality for customers, how they're thinking about adoption and thats, what that can meaningful incremental use and your units.

Speaker Change: The right way of thinking about what that what that means for the business.

Jim Scapa: I think it's sort of a broad release with a lot of really great, great stuff in it. You know, the HyperMesh product, which is our flagship product, has gone through this complete transformation. It's a new user experience. It's all Python, all that.

Speaker Change: No I think it's sort of a broad based release with a lot of a lot of really great great post tough enough.

Speaker Change: One of the hyper less product, which is our flagship product has gone through this complete transfer rate and new user experience.

Jim Scapa: And there's a lot of underlying stuff that you can't see that we are taking out, if you will, because we have two processes running simultaneously, so the performance is dramatically improving. It improved dramatically with the 4.0 release and the 4.1 release, which is right now, and the 4.2 release in a few months. Each one of these is giving us a lot of new performance, and that is extremely important, a lot of robustness as well. So a brand new user experience, and much higher performance. Some of the products have the new graphics engine in them, which is gorgeous. And so it's full-time, real-time rendering. It's really beautiful stuff.

Speaker Change: It's all Python and all of that and there is a lot of underlying.

Speaker Change: Stuff that you can't see that that we are.

Speaker Change: Taking out if you will because we have two processes running simultaneously. So the performance is dramatically improved.

Speaker Change: It improved dramatically with the four hour released before one release, which is right now and I look forward to release in a few months. Each one of these has given US a lot of new performance and that is extremely important a lot of robustness as well so brand new user experience much higher performance.

Speaker Change: Some of the products that the new graphics engine, which is gorgeous.

Speaker Change: And so it's bolt on a real time, rather and it's really beautiful stuff.

Jim Scapa: The Inspire product continues to really, you know, just be groundbreaking for simulation-driven design, and I think over the next, you know, six months to twelve months, I think we're going to see a lot more take-up of Inspire by the design community, and I'm very excited about that as well. Especially some of the new technology for implicit design is, I think, very, very interesting as well. So there's a lot.

Speaker Change: Inspired product continues to really.

Speaker Change: Just be groundbreaking for simulation driven design.

Speaker Change: I think.

Speaker Change: Over the next six months to 12 months I think.

Speaker Change: We'll see a lot more take up of inspire them and that addresses that.

Speaker Change: The design community.

Speaker Change: I'm very excited about that as well, especially some of the new technology per implicit.

Speaker Change: <unk>.

Speaker Change: As I think of the current external as well so there's a lot of that.

Jim Scapa: It's hard to, you know, pinpoint lots of new things in SimSolid. The electronics in SimSolid continues to evolve here, and you know we're continuing to benchmark runs against our traditional electromagnetic solver FICO and getting very, very good results, so we are excited about where things are going.

Speaker Change: It's hard to.

Speaker Change: Pinpoint lots of new things and some solid the electronics electromagnetics and some solid continues to evolve here.

Speaker Change: Well.

Speaker Change: We're continuing to benchmark.

Speaker Change: Run against our traditional electromagnetic solver FICO.

Speaker Change: Very very good results. So we are we're excited about where things are going.

Dylan Becker: Okay, that sounds great. Yeah, appreciate the depth there. Maybe two for for

Speaker Change: Okay that sounds great I appreciate the depth there maybe two.

Speaker Change: For Jimmy maybe where Matt as well too and that kind of push to new verticals, obviously, we've kind of restructured and verticalizing the sales force, but it sounds like there's some key wins in some of those segments as well I guess, how should we think about kind of the evolution of those pockets of strength within some.

Speaker Change: Some of these new markets and how to kind of fully capitalize on the potential in each of those as well.

Jim Scapa: I can answer that. I don't know if Matt has a different answer here, but I think some of them have matured faster, are really hitting their stride, and are spacing the guns for sure. Some of them are continuing to mature, and we're continuing to tune them. Some of the people that we might have selected, whatever, we're making little changes here and there, and kind of learning from the ones that are doing well.

Speaker Change: Okay.

Speaker Change: I can answer that all up that has a different answer here, but.

Speaker Change: I think some of them are.

Speaker Change: Mature faster are really hitting hitting their stride aerospace and defense for sure some of them.

Speaker Change: We are continuing to mature and we're continuing to too low.

Speaker Change: Some of the people that we might have selected whatever.

Speaker Change: We're making little changes here and there okay to learn from the ones that are doing well.

Jim Scapa: We're also adding more folks with domain expertise, for example, in the life science space. We've had to add a couple people that really deep know that, particularly on the data science side. But some of the acquisitions that we've made, for example, the graph database acquisition had a lot of life science expertise in it. So that's really shored up that new healthcare life science vertical, which really looks like it's taken off for us.

Speaker Change: We're also adding more and more folks with domain expertise for example in life Science space.

Speaker Change: We've had to add a couple of people that really deeply know that particular looked at the science side, but some of the acquisitions that we've made for example, the graph database Act.

Speaker Change: The acquisition had a lot of life science expertise.

Speaker Change: And so thats really shored up the new health care life science vertical, which really looks like it's taken off for us. So in general I mean, I think it's come along and it's only a year and a half into this new organization.

Jim Scapa: So in general, I mean, I think it's coming along, and it's only been a year and a half into this new organization. And I think an organizational transformation like this probably takes three, four years to really, you know, completely hit its stride.

Speaker Change: And I think an organizational transformation like this probably takes three or four years to really completely.

Speaker Change: Completely hit its stride.

Matt Brown: Yeah, I mean, the only thing I would add there, Dylan, is just that I think the momentum we're seeing is really, really strong. And Jim called out in his prepared remarks that, in Q2, we signed our largest deal ever. And that has a lot to do with us moving to vertical. So a lot of these verticals are starting to hit their stride. We were pleased with our Q2 software revenue performance, you know, getting 10.6% in constant currency.

Speaker Change: Yes.

Speaker Change: Only thing I would add there is telling us is just that.

Speaker Change: I think the momentum we're seeing is really really strong in <unk>.

Speaker Change: Jim called out in his prepared remarks in Q2, we signed our largest deal ever.

Speaker Change: And that has a lot to do with us moving to vertical. So are these verticals are starting to hit their stride.

Speaker Change: We're pleased with our Q2.

Speaker Change: Software revenue performance getting getting a 10, 6%.

Matt Brown: And we're excited about our guide for Q3 at the midpoint at 12.4% in constant currency. So we're pleased with how momentum is building here and feel very good about it. Okay, great. Sounds good. Thanks, guys.

Speaker Change: Constant currency and we're excited about our guide for Q3 at the midpoint of 12, 4% in constant currency. So just we're pleased with with the with that.

Speaker Change: And momentum is building here and feel very good about it.

Speaker Change: Okay, Great sounds good thanks, guys.

Speaker Change: Thank you.

Operator: This concludes our question and answer session. I will now refer you back to James Scapa for closing remarks.

Speaker Change: Yeah.

Speaker Change: This concludes our question and answer session I would now like to turn it back to Jim Scapa for closing remarks.

Jim Scapa: Okay. Well, thank you very much. I want to just express appreciation to the team because everyone worked really hard on the Altair team. And I appreciate everyone's interest in our company and look forward to

Speaker Change: Okay.

Jim Scapa: Thank you very much.

Jim Scapa: Express appreciation to the team because liberal and work really hard on the Altair team.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: I appreciate it.

Speaker Change: The ones interest and are comfortable.

Jim Scapa: Look forward to continued success here. Thank you.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Jim Scapa: Yeah.

Jim Scapa: [music].