Q2 2019 Earnings Call
Ladies and gentlemen, please standby your conference call, we'll be getting militarily. Once again. Thank you for your patience and please continue to standby.
At this time all participants are in a listen only mode. Later, we will conduct a question answer session and instructions given at that time.
If anyone should require operator assistance. Please press star then Daryl I can touch on telephone.
As a reminder, this conference maybe recorded I would now like to turn the conference over to Howard Mora, Chief Financial Officer, you may begin.
Good afternoon, welcome and thank you for attending alters earnings conference call for the second quarter 2019.
Im Howard more off Chief financial Officer of Altior and with me on the call is Jim Scapa, our founder Chairman and CEO .
After market close today, we issued a press release with details regarding our second quarter performance, which can be accessed on the Investor Relations section of our website at Investor Dot Altair Dotcom.
This call is being recorded and a replay will be available on our IR website. Following the conclusion of the call.
During today's call, we will make statements related to our business that may be considered forward looking under federal securities laws.
These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date.
We disclaim any obligation to update any forward looking statements for outlook.
These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations.
These risks are summarized in the press release that we issued today.
For a further discussion of the material risks and other important factors that could affect our actual results. Please refer to those contained in our quarterly and annual reports filed with the SEC as well as other documents that we have filed or may file from time to time.
During the course of today's call, we will refer to certain non-GAAP financial measures.
A reconciliation of GAAP to non-GAAP measures is included in our press 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 for our quarterly results.
Please be advised that we may or may not continue to provide this additional detail in the future with that let me turn the call over to Jim for his prepared remarks.
Jim.
Thank you Howard and good afternoon, everyone.
Today, we will discuss our second quarter results and the outlook for the rest of 2019.
We will talk about the ongoing good momentum of our business the trending macro environment progress with the Datawatch and some solid acquisitions and share some customer success stories.
Our total revenue for the second quarter was $106.8 million, an increase of 14% from a year ago powered by software product growth of 20% well within our guidance range.
We produced modified adjusted EBITDA in the second quarter of 7.4 million at the upper end of our guidance.
Billings driven by software product momentum and adjusted for constant currency grew by 18% over the same period a year ago.
I'm, often asked about the business environment, especially as it relates to the automotive industry. So I want to touch on those.
Clearly trade disputes with China, and others is resulting in a stronger dollar and other macroeconomic challenges.
Manufacturing companies are affected more than others by those.
Since Altira has a substantial concentration of customers in manufacturing, we expect some headwinds to services and a slight impact on software growth for the rest of the year.
Especially since a healthy percentage of our business is international.
Our software business continues to grow robustly, even in the context of the challenges mentioned above.
We expect software growth for the year on a constant currency basis to exceed 20%. Although there was a stronger shift to subscription licensing for datawatch products than we anticipated, which slightly reduces the revenue they contribute.
Overall, we continue to be very positive about our software business and our ability to continue gaining market share.
We expect a small decline in services for the year, which will grow software revenue as a percentage of our total revenue and will modestly improve our gross margin in line with our long term goals.
Our revised guidance, which reduces total revenues by about approximately $10 million for the fiscal year incorporates our updated view of currency impacts the more rapid than expected transition to a subscription model for our Datawatch software licenses.
And a modestly more conservative view of licenses due to potential challenges for our manufacturing customers.
We are managing expenses prudently across the company to adhere to our near and long term EBITDA targets.
Even in the context of the more challenging global outlook.
However, it is important to know that we will continue to hire salespeople and technical experts in particular skill areas such as computer Science electronics systems design and data science, where we see growing opportunities.
Regarding expenses the stronger dollar bring some benefits as our business operations are significantly international expenses will be reduced as well.
In addition, we have derive significant synergies of over 20% from the Datawatch operation.
I'd like to focus now on our Datawatch in some solid businesses and then discuss our global progress more generally.
We continue to be quite pleased with the Datawatch acquisition.
The product teams envision are clearly SAP now and we have engaged with most of the customers who seem eager to work with Altair as their partner going forward.
We've had a number of meetings with key banking healthcare and financial services customers, who see Alterra is a strong new player in the data analytics market as we bring technical depth strong customer service and a very compelling business model to market.
Our manufacturing customers show strong interest in applying data science technology throughout their organizations.
The implementation of Algiers units based subscription licensing model to data intelligence products is complete and we are actively marketing units based licensing the traditional datawatch enterprise customers, such as banks and insurance companies as well as to our manufacturing customers in automotive aerospace and elsewhere.
We believe this will be very compelling.
In past calls I have focused on data prep and machine learning wins today I would like to focus on the panopticon products are real time data streaming and visualization solutions.
As we continue to support a more global footprint for the Datawatch business, we are especially pleased to announce an important win with a European and global banking and financial services company.
They are integrating panopticon dashboards into the bank's internal portal to support analytics for electronic foreign exchange trading operations.
A similar application and comparable lease size deal was one with a very large APAC bank over 1.5 trillion in assets with an eye toward global deployment.
With these positive signals, we are expanding the data intelligence sales organization globally.
And integrating it within our local country operations.
The organization will maintain its focus on financial verticals, while acting as an overlay support for Altira strategic account managers covering manufacturing customers.
The sales teams are very engaged and motivated.
Seeing opportunities for themselves and the company.
We are hiring rapidly into data intelligence sales pre sales and marketing around the world and expect the ramp up and increased recurring revenues this year to carry us strongly into 2020.
We are equally equally pleased with our some solid business.
At the time, we acquired the product we believe that have the potential to disrupt the simulation market.
Today, we are pleased to note that its growth is the fastest in our portfolio with inspire following in second place demonstrating the significant opportunity for simulation with designers and design engineers.
Some solid speed and accuracy, especially for complex assemblies is remarkable and it continues to generate excitement within healthcare and with customers.
We're no recently performed a series of benchmarks showing up to two orders of magnitude or 100 times lead time reduction with some solid over traditional simulation technology.
I would like to relate a story from one of our energized account managers in Germany about how he sold some solid to a customer who initially that not even want to meet him.
They had evaluated several see tools and plan to purchase NASS trend.
Apparently the other products all had convergence issues and NASS trend only required 40 hours to run the test problem.
Our sales guys said, some solid could solve the problem in two minutes and convince the customer to take a demo copy of some solid.
By the time, our sales Guy returned home from the meeting you had an email from the customers are saying he has learned the soft software set up and run his problem in less than 60 minutes and that accurate results.
He also promised to tear up the Po for NASS trend and write long for some solid.
These wins support our decision to expand some solid small, but brilliant development team and we are working closely with several key customers who already use some solid extensively in their analysis departments and want us to automate some parameters settings before they set it loose in their design communities.
We are responding quickly and expect to satisfy these requirements by year end.
The second quarter was strong with many wins and new accounts for our core engineering simulation and high performance computing solutions and growing momentum for our recently acquired data science products.
Solvers continue to drive growth and gain market share and Sim lab, our multi physics solution is also growing especially in the electronics and high Tech markets.
Companies across all verticals are rapidly shifting decision, making strategies and investments to apply more algorithms and math based technologies like simulation and machine learning.
To drive geometries, and other key parameters in manufacturing logistics marketing and elsewhere.
To optimize their businesses.
Altira is well positioned for this future for the platform and business model.
Where customers can leverage our broad integrated suite of best in class solutions to create simulation and data driven digital tailwinds from concept to reality.
Architecture engineering construction applications.
Results in some of the most visually inspiring uses of simulation driven design.
We saw many strategically important wins in Europe in Q2, including well known players in Italy, and Denmark for our structural simulation CST and optimization software and look forward to seeing the resultant design work.
Another interesting new company, new customer for us as a home appliance manufacturer in Africa.
They are using Altair software for structures electromagnetics and fluids to accelerate their product development cycle.
Our E motor development initiatives are resulting in good revenue on a number of fronts.
In automotive were working with a major European OEM to develop a new E motor product portfolio.
Two different E motor suppliers in Asia have turned to our flux product for their simulation needs and in California as small startup in the fast moving he motor space is using flux for custom DC motor design.
Our high performance Computing group made some great sales in the second quarter. As a reminder, we acquired runtime and 2017 and expanded our ability to optimize the use of HPC for compute intensive applications by adding technology relevant to the EDA and semiconductor market segments.
In APAC, a longstanding defense client wrote a new six figure agreement for the full PBS works suite.
A long time semiconductor customer in the US also signed a six figure deal plus a major technology logo signed on for a substantial software licenses.
To support hardware development.
And in the largest HPC deal of the quarter and other well known technology company signed on for a seven figure contract.
During the past two months I attended our user conferences in the UK, India and China.
All were extremely well attended and like all our conferences and Webinars. This year. The number of participants is growing significantly.
The level of energy is on our customer base for our solutions and business model was inspiring.
I also came away impressed with the high level of interest in data intelligence.
We had a very strong second quarter, we are thoughtfully managing expenses and positioning to grow through this period of macro uncertainty.
And take advantage of our strengths customer relationships product BRAF business model and technical prowess.
Now I will turn the call over to Howard for details on our financial performance during the second quarter and guidance for the rest of 2019.
Howard.
Thanks, Jim.
We are very pleased with the performance of our business in the second quarter of 2019.
As a reminder, our reporting and guidance for 2019 is under an FC 606.
And our comparative numbers from 2018.
As we previously noted our seasonal billings patterns, coupled with the treatment of revenue under assay six hotels.
Results in heightened seasonality in revenue with higher revenues recorded in our first and fourth quarters of any given year.
For ease of reference we have included a table of results for 2018, reflecting summarized results for all four quarters on an ASP 606 basis and our most recent 10-K and within our press release information.
While the conversion from AMC 6.5 to assay six of Saics makes our quarterly results more challenging to predict our annual recurring revenue units based licensing model does drive a high degree of predictability over annual cycles.
In prior conference calls, we have noted that changes in certain currencies can have an impact on both our revenues and expenses.
Especially when those changes occur over relatively shorter time period.
Or when currency changes are more pronounced overtime.
When this occurs as it has for Q2 19 compared to Q2 18, it is meaningful to measure aspects of our performance on a constant currency basis.
Certainly the current macro environment, coupled with our global presence may increase the adverse impact currency exchange rates may have on our business for the balance of this year and our updated guidance reflects in part our current assessment of those impacts.
Our second quarter results were driven by very strong software revenue growth.
For the quarter software product revenue reached $84.4 million, an increase of 20% from a year ago, while total revenue equaled $106.8 million representing growth of 14% from the second quarter of 2018.
Adjusting for the adverse impact of currency fluctuations in Q2, 19 software product revenue grew by an impressive 23% and total revenue grew by 18% compared to Q2 18.
For the six month period software product grew by 21% compared to a year ago on a constant currency basis.
Software product revenue was at the upper end of our guidance range, even as our conversion of Datawatch customers to recurring revenue licensing models was modestly ahead of our expectations.
Software related services declined by 9% compared to a year ago as utilization declined due to the completion of certain projects and the delay of induction of new projects.
We anticipate services revenue for the year to continues to be flat to slightly down as we focus on our growth strategies on higher margin software revenue.
As mentioned last quarter acquisition accounting requirements mandate, an adjustment to historical datawatch deferred revenue as of the date of acquisition.
Upon acquisition, we adjusted deferred revenue down by $9 million, which would have been recognized during the 2019 year.
Our guidance for 2019 included this acquisition adjustment for non-GAAP revenue and adjusted EBITDA, which we referred to as modified adjusted EBITDA for this specific purpose.
Including the impact of the acquisition adjustment our constant currency software product revenue growth equaled, 26% in next quarter.
In the current quarter software product revenue increased to over 79% of total revenue up 350 basis points from last year without any adjustment for currency or acquisition related data points, continuing the important long term trend of increasing prominence of software product revenue to total revenue.
Our recurring software license rate and is the percentage of software revenue that is recurring continues to be strong and consistent with our past performance at 91% for the first half of the year.
Our positive software momentum contributed to strong profitability in the quarter with modified adjusted EBITDA of $7.4 million at the upper end of our guidance range, which includes the deferred revenue adjustment mentioned a bit ago.
The net impact from shifts in foreign currency imposed a $713000 negative impact on our results for the quarter and $1.5 million for the six months.
Second quarter calculated billings were $108 million, an increase of 17% from a year ago indicative of the strong growth in our software product business.
Currency shift also impacted current period billings negatively by $914000 and on a constant currency basis would have increased by 18% for the quarter.
We tend to view calculated billings over longer time periods due to the impact variations and the timing of renewals expansions and new customer arrangements can have quarter to quarter.
I would like to turn to the balance of the PNM results some of which are on a non-GAAP basis.
A reconciliation of GAAP to non-GAAP measures has been provided in the earnings release, we issued earlier today.
Gross margin in the second quarter was 70.9% substantially improved from Q2 18 by 250 basis points as a result of the increasing level of software product revenue.
The improvement in Q2 19 contributed to year to date gross margins of 72.8% compared to prior year gross margins of 71.7%.
This improvement offset lower gross margins related to our software related services revenues, which were impacted by the lower utilization I mentioned as well as lower margins in our other segment.
The higher cost of revenue for the other segments, primarily toggled is due to the timing of sales price decreases compared to future reduced unit costs that we expect to achieve later in the year.
These items are transitory in nature.
For the quarter non-GAAP operating expenses, which excludes stock based compensation amortization of intangible assets and other operating income were $74.1 million compared to $61.7 million a year ago.
These expenses held tightly compared to Q1 19, moving by only 1% in total.
Operating expenses include the operations of Datawatch, which are more skewed to sales and marketing compared to R&D with some incremental GNS expenses.
As highlighted before modified adjusted EBITDA for the quarter was $7.4 million, an increase of 40% compared to $5.3 million a year ago.
Modified adjusted EBITDA margin in the second quarter, with 6.9% compared to 5.7% a year ago.
As Jim mentioned, we regularly evaluate the nature of our investments and will proactively realign those investments to respond to emerging opportunities or challenges.
Considering the recent potential concerns across selected elements of our customer base with macroeconomic and trade matters. We are managing our expenses prudently in order to support our near and long term goals.
Even as we continue to hire and invest in sales marketing and R&D areas, we see as necessary and opportunistic.
Investment may include continuing M&A activities, we believe are beneficial to our long term growth prospects.
Our focus is on driving growth and software product revenue as the key to improving our operating margins, while gaining economies of scale for our field organization and general and administrative operations.
Turning to our balance sheet, we ended the second quarter with $251.8 million in cash and cash equivalents.
We had $150 million undrawn and available on our US line of credit as of June Thirtyth 2019.
On June 14th we announced the closing of a 230 million convertible debt offering including the exercise in full of the underwriter's option.
With a coupon rate of 1.25% and a five year, 30% conversion premium we feel this was a judicious means of increasing our liquidity and cash reserves, providing substantial capacity to continue funding M&A activities without adversely impacting liquidity levels and without imposing a substantial cash interest burden on operations.
Moving to our cash flows cash flow from operations in the second quarter like an inflow of $6.6 million compared to an inflow of $10.6 million for the second quarter of 2018.
Free cash flow in Q2, 19 was an inflow of $4.5 million consistent with our business cycle.
For the six month period, our free cash flow equaled $25.2 million compared to $34.1 million for the prior year consistent with the expected impact. We noted during Q1 19 for changes in certain working capital flows in Q2 19.
Our seasonal pattern to allow us to realize a substantial portion of free cash flow in our first and second quarters of each year.
I would caution against extrapolating free cash flow result on a quarter to quarter basis.
With the impact of the shifting revenue mix and foreign exchange impacts driven by the factors, Jim and I have discussed we are adjusting our annual guidance for total revenue to now be $460 million to $464 million a decrease of $10 million at both the top and bottom end of the range.
And for software product revenue to now be between $366 million to $370 million, a decrease of $7 million at both the top and bottom end of the range.
Even with the slight reduction in revenue guidance, we are continuing to expect software product revenue growth of 20% to 22%. This year and total revenue growth of 16% to 17% notwithstanding the adverse impact of currencies our acquisition accounting adjustments.
Our initial guidance for 2019 was impacted by fluctuations in currencies, such as the euro and pound given the movements in these and other currencies compared to 2818, our guidance remains anticipatory of the negative impact on annual revenues of approximately $7 million to $10 million with a two to 3 million dollar headwind to modified adjusted EBITDA for 2019.
It is possible that continued shifts in foreign exchange rates for the rest of the year could increase the impact on our operations.
For the six month period, the actual impact of currency fluctuations equals a reduction of $6.9 million for revenue and $1.5 million from modified adjusted EBITDA.
We are maintaining our guidance for modified adjusted EBITDA at 62% to $66 million.
As we believe that positive impacts of currency exchange rates through our operating costs and the careful management of our expenses.
We can mitigate the adjustment to our topline expectation.
Our expectations for annual free cash flows remained unchanged from last quarter at $27 million to $29 million for 2019.
To conclude I would like to emphasize that for the full year 2019, we continued to be very pleased with our growth compared to 2018 and progress towards our long term goals our updated expectations for growth are as follows.
Software product revenue represents growth of 20% to 22% from 2018.
Total revenue represents growth of 16% to 17% from 2018.
Modified adjusted EBITDAC increases by between 24 and 32%.
As to Q3 2019, our expectations are as follows.
Software product revenue to be between 79, and $81 million representing growth of 23% to 26% from 2018.
Total revenue to be between 103, and $105 million representing growth of 19% to 21% from 2018.
Modified adjusted EBITDA of between three and $5 million.
We are optimistic about our ability to drive exciting revenue growth driven by software product momentum for the remainder of 2019 with solid profitability and cash flow for the year.
With that operator can we now open the call to questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then one on your Tasha telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.
Do you have any background noise fancy. Please state your line I mean whats. Your question Hasnt stated our first question comes from those ancillary of William Blair. Your line is now open.
Hey, Jim Thanks for taking my question.
I guess I wanted to touch first a little bit on the commentary around macro here you know the software product numbers are pretty good you're still piloting pretty solid product growth for the year.
I guess, just a little color on sort of what are you seeing from customers.
Is it EMEA is the UK.
As the China and sort of.
It's reflected some of it and services, which is fine, but but more importantly sort of what are you seeing on the product side in terms of fewer units hyperworks units or is it just slower additions or due to the hiring help us understand a little bit of what's going on but what what the customers actually telling you. Thank you.
Sure so.
When we're all talking about the macro side I mean.
Honestly, I am saying or sensing if you will.
Oh, no slowdown in the automotive industry globally for sure we're not actually seeing an impact.
Two.
The.
The strength.
Or pull for software actually out of that market. It saw its it's more a little bit of conservatism, but put most of that conservatism.
That you see in Joe's just making the adjustment is more around datawatch and services quite frankly.
We we actually thought about being more conservative and just.
We're just not seeing a change to the core business strong.
So we.
We actually Didnt and the fact that believe it or not.
But you can't help but notice what's happening in the auto industry in the auto industry is cyclical.
And we certainly do have ammo.
A higher amount of exposure there. So just just being careful I guess is the right answer I think.
Got it got it okay.
Okay, and then and then you talk about sales investments when I look at the product inspiring and sort of.
The whole idea around that displacing some of the legacy products, whether from the sole solidworks whatever and then some solid.
Are they getting a disproportionate part of the investment or is the sales investment across the board and everything from competition, where dynamics to some solid too.
So the topic in product just left our sense sort of how you think about where that field investment is going thank you.
Okay. So.
Sales investment I think is going across the board still it's not particularly focused there is.
And increasing marketing I would say investment around some solid a little bit just trying to.
Bring attention to something that is just clearly ill really special and we are beginning to ramp up marketing on on the data intelligence products as well.
But in general I think the sales investment was across the board. We are also growing.
The sales the salesforce for Datawatch products or data intelligence products as well, so weve kind of stabilized through the year. We we've done our assimilating on the business and now we're in sort of growth mode, and we're adding sales guys pretty aggressively around the world for the data intelligence products, where we really needed to put people in place and also presales.
Got it got it thanks guys. Thanks, taking my question. Thank you.
Thank you and our next question comes from Sterling Auty of Jpmorgan. Your line is now open.
Yes, Thanks, Hi, guys and lot of moving parts between ANSI Sixteensix FX acquisition accounting et cetera, what's the best way to think about.
The kind of normalized growth in in basically buying from your customers and a year over year basis in that in that software line.
I have to admit I don't think I understood your question Sterling.
Could you may be restated analysts Howard.
Try again, I apologize, but try again on me.
No problem so.
If we think about you've got the acquisition accounting impacts of moving to FC six so six.
Hi, constant currency or you have the FX impacts now given the flood the fluctuation.
And then you have the accounting impacts of Datawatch et cetera, Im just wondering if we just try to take a step back and think about what the growth in your software business is net of all those impacts what does it look like or what should we be looking for going forward.
It's probably in the mid mid teens basically.
A little a little below I'm going to say 13, 14%.
On a range.
Okay. Thanks, and that gives me did I understand thanks, Jeff and then I'll now thanks.
Yes, Sir.
What we're talking about that but the core.
And so the business when you look at just the software product alone.
Current quarter on a constant currency basis, 666 hour six how it's really apples to apples, 23% year over year and for the first half 21% year over year, So a little bit of acceleration from Q1 into Q2, which is but just trying to net out right trying to net out. The you know the the acquisition capsule and so trying to net that out I I think it's probably in the range of the 14% to be honest with you.
Which I think is Isaac Thats right.
I think Thats fair I think Thats fair and then one follow up when you talk about.
Managing expenses and also the EBITDA targets.
Where is the greatest flexibility for you to manage those expenses without jeopardizing the growth the growth moving forward.
You probably realizes theres just a lot of the leverage in our in our business, we're we're pretty sizable and.
As we scale, we're going to continue to grow margins relatively easily.
So.
We were just just.
Across the board a little bit.
Tucking in them and it's just just very very easy for us to do it. It's it's not a it's not a huge pain at one one more point on that Sterling and that is how currency. We're obviously substantially global so while there there may be currency impacts on the topline those same shifts you now have a positive offsetting kind of a natural hedge on and certainly a fair part of our.
Expenditures out outside of the us as well so some of that is kind of a natural FX hedge against ill.
Top line as well.
Got it thank you.
Thank you and our next question comes from Ken Wong of Guggenheim Securities. Your line is now open.
Great. Thanks, Thanks for taking my question I, just wanted to drill into the Datawatch business, a little more you talked about how most of the cuts seems to be coming out of out of that business and.
I guess on the surface my feeling my thinking is that the the exposures to the end markets are more financial services and.
Health care less the traditional manufacturing base that you guys have so is the.
Just to cut coming from that existing Datawatch base or is it just expectations for slower adoption from your core just help help us kind of.
I've unraveled out a little bit.
And it's actually having a couple of things.
One of the biggest things is that is that.
It's been.
We really pushed hard to shift the model from our perpetual model to a subscription model and I would say that thats going a bit.
Faster, which is mostly good.
Okay.
But but and that's great for how we're going to enter 2020.
But if it's.
Just on balance it has a little bit of an effect on on the actual number for the year.
So a lot of it is really just the shift in the model, but some of it is also the fact that we have some moving parts here. We're we're moving to this units based model. We are finally done doing that even.
Even today, we we quoted a very large come customer.
And with the unit's model and we're we're beginning to experiment with that one.
It looks very promising for us but that also.
You know is a shift so shifting to subscription shifting to this units based model a bit not in every case not in every sale, but we are beginning to try and look at enterprise level customers that line.
And pound and I think it's.
Its currency as Wally I guess.
Okay got it and then on that first point about shifting from perpetual to more subscription I mean to the extent that thats moving faster.
Any any rough quantification of how that might be a headwind to numbers because I think optically at a $7 million probably isn't as bad if that really is part of what's going on here.
I think what we're going to see is with both salesforce expansion that we're doing this year.
And and coming into the year with a higher percentage of subscription.
We're going to see a very.
Very strong growth for the data intelligence business in 2020.
We're feeling good.
Got it got it.
Got it and then maybe maybe the next thing just on FX.
Can you give us a rough sense of what that incremental headwind looks like on revenue and EBITDA compared to what you guys had modeled for currency rate last quarter.
Bob.
We're not going to putting out tight bookends around the act can buy but I think now we certainly saw a $7 million ish of of.
Constant currency negative impact in the first six months of this year versus last year.
Yes ill hop.
Trying to really project out where FX.
We'll land cross all the currencies that we navigated crosses.
Yes.
Yes, hi.
Could it be a similar amount who knows I mean, but remember last year you now towards the back end of 2018.
Now the U.S. dollar strengthened relative to the front end of 2018 so.
Alan you might not be as pronounced in and so on the Isle for US again kind of a key point is if there's an impact on the top line cross there's there's much less of an impact on the bottom line given the natural hedge considering how global we are.
I'm not saying there isn't an impact by fair Theres definitely kind of a natural hedge there. So I don't want to say, we don't care, because we certainly do but it's not.
It's not that much of an extreme impact.
Got it alright fair enough. Thanks, a lot.
Thank you and our next question comes from Gal Munda of Berenberg capital markets. Your line is now open.
Hi, This is actually France on for Joe.
We just had a question about.
The lower guidance.
Is there any way you could quantify or roughly speaking about how much of the decreases coming from each of the factors.
Forward currency subscription transition and conservative views on manufacturing.
And I just have one more follow up visits.
The four core.
Yes. The short answer is we're we're more comfortable with kind of a collective view rather than pegging, a dollar amount to each of those particular factors.
But clearly there's there's a significant element of each that we bake into the guidance, but I think it's important to note that notwithstanding the contributing factor.
Four factors to a reduction in the topline.
The fact that we've continued to maintain our guidance for modified adjusted EBITDA.
Isn't important to counter counterbalancing factor there based upon how we can manage the business in the <unk>.
Yes for example, financial hedge on some of the currency stuff as well.
I mean, we still feel great about the business just just want to make that point, we're we're growing in all like like Crazy.
On the EBITDA is growing somewhere between I don't know 25, and 30 some percent loan.
For the full year in our in our plan so.
From where we said, we're having a great year.
Great. Thank you for that and just one quick follow up on the install it.
Could you give us a little bit more color about how that adoption is going.
You did mention that was one of the fastest growing.
Segments.
Is it a material contributor to growth rate now and just a little bit more color on those would be appreciated.
Thanks to its thank you.
It's actually making that shift I think now.
What we do is we actually measure usage.
And the usage.
Over the last five months has grown about 10, x., which is pretty amazing actually.
Inspire actually is growing really fast to its about a two X growth over last year, but when we look at some solid.
It it's.
But we actually rank the positions of the different products and it. It has moved from essentially nowhere you know and if you think of it like a race to.
Pretty significant position.
That's not in the top three but it's still in a pretty soon.
All important place.
Among all of the software products. So it is it is really taking off and.
We had.
One aerospace customer.
Well known name.
Who.
We looked at their usage on their usage as Jos just absolutely skyrocketing as wall.
And it's in serious numbers at this point.
No serious number of users.
Serious.
Numbers of ours that are that are being and numbers of runs.
All of these guys are making.
So it's it's catching fire.
And it should it's it's really.
That's that's a that's a difference maker.
Thank you very much for that.
Thank you and our next question comes from Rich Valera Needham and company. Your line is now open.
Hi, Good afternoon. This is Nate its going on for rich. Thanks for taking my question.
So you've touched on sales force a bit already but I do have a question for you Jim on last quarter's call you'd mentioned that sales force had been.
Historically more AD hoc comedy recently began.
Use integrating some sales data to work on prediction and tar improve you're targeting and so I was wondering if you could highlight any developments here.
Yes, thats continuing we.
We're implementing a new system across the board we've been training I think we probably trained almost 100% of the Salesforce and.
How were.
Qualifying prospects on all of that in on how we bring them and so there's there's just a lot more process to what we're doing so we're feeling really great about the mechanics of how the sales forces are actually operating.
Unless I'm answering your question.
Yes, no thats helpful. And then is it possible at all to quantify the.
The success rate or.
Or efficacy of any of the initiatives that you have gone the salesforce.
I think it's a little bit early.
Probably next year, we're going to start to see.
Much more we hope certainly.
Much more effect from this but perhaps also later in the year.
Okay. Thank you and then.
Just switching gears back to Datawatch. So there was theres been a number of comments comments already made but I just did want to revisit some of the challenges noted on the.
Q1 call.
Namely expanding footprint.
And the cultural differences and I was wondering if you could expand on how any of those progressed throughout the quarter.
I think we're pretty much over most of that to be honest and I think the teams are.
Pretty assimilated that it's certainly not 100% but.
We are feeling really positive about about the teams and I think we're understanding each other significantly better.
And we're we're basically in growth mode. Now I think most of these guys are feeling like they're part part of Alterra they understand the culture.
They are beginning to experiment with.
With the approach that we've taken on the business model that we take.
And we've hired some new people on to the marketing side focused on the data intelligence products as well and kind of getting that going as well. So I would say that we're we're past those growing pains and now sort of just moving moving forward.
Got it thank you very much.
Thank you and again, ladies and gentlemen, do you have a question at this time. Please press Star then one on your Tushar Telecom.
Our next question comes from Matt Hedberg RBC capital markets. Your line is now open.
Hey, guys. Thanks.
Jim I wanted to just circle back one more time on the macro because.
Obviously, you incorporated into the reduction in guidance, but but to me it seems like it's more of a precautionary.
Tone and I just wanted to confirm you're not you're not really been seeing any change in buying behavior.
It's more cautionary is that is that fair.
Actually that's that's true we're still seeing seeing a lot of strength in the market, we do sense, though that the auto industry is beginning to slow down there is no doubt about it and we could we could stick our heads in the sand and ignore that but but that isn't how we run our business so that.
One other thing is that during these periods, where if you will you have you have these these downturns a bit.
A lot of these companies actually begin investing more in technology, and new technology and that tends to play for us. The other thing that tends to happen is they consolidate a bit and we're actually very well position. We were last time and online as well, which was okay much more serious but.
We we tend to gain market share and gain power during those periods and then come out really just rock and the strong. So yes, right now we're not actually other than a little bit on the services side I would say, we're not really seeing any impact.
To the the pull for our products if you will for software products.
A lot of the pullback is a little bit currency and then frankly, the datawatch is shifting.
A bit.
Two to more subscription loan than what we had expected.
Okay, and you mentioned auto which is obviously your biggest end market.
Im curious about like aerospace and others I mean.
Is there.
Are those still I know, we talked about a little bit on the last call, but maybe just touch on some of the other the other key kind of keyboard wild I guess that one in particular.
Okay I mean.
I think with with all the trade.
Stuff going on I think manufacturing in general.
You know has has some turbulence to it also tariffs than in currencies and all of that.
Aerospace in particular no.
It's really pretty stable.
Again, I'm talking about their industries nodding.
As as they may relate to us in the future, but the reality is actually the strength of.
Our our own.
Business is still especially the core business is really is really very solid.
Okay almost perplexing.
Yeah.
And maybe if I could just one more just on data whats your Howard.
If I recall I believe when you acquired Datawatch I believe about 60% of the revenue was occurring I'm wondering if you could kind of give us a sense for what that mix looks like today and I mean.
Is it 100% that's sort of the end game.
Well, yes, obviously, we'd love for a 100% to be the endgame because thats certainly the goal.
Even within the.
Non datawatch business at Alterra, we're not quite 100% recurring we have a low.
Yes, a little bit of perpetual.
But how were the intent and the objective through taking them to a recurring revenue model and getting them.
And now plugged into the Hyperworks units model is to is to really move move the needle and the good news is we're being very successful about that and the customer base is being very receptive to that so you know in it it it bears out what we believe which is that.
Yes. This these types of technologies will lend itself very well to our type of of.
Business philosophy and strategy that we think is very customer centric and customer friendly and customer beneficial.
Got it thanks guys.
Thank you.
And ladies and gentlemen, this does conclude our question and answer session I would now like to turn the call back over to Jim Davis for any closing remarks.
Just want to say thanks to everybody for their interest on attention. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program you may all disconnect everyone have a great day.