Good day, and thank you for standing by. Welcome to Altair's First Quarter 2021 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. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I would now like to turn the conference over to your speaker today, Dave Simon, Chief Administration Officer. Please go ahead..

Good afternoon. Welcome and thank you for attending Altair's earnings conference call for the first quarter of 2021 ended March 31, 2021. I'm Dave Simon, Chief Administrative Officer of Altair. 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 first quarter performance and guidance for the second quarter and the full-year 2021 which can be accessed on the Investor Relations section of our website at investor.altair.com.

This call is being recorded and a replay will be available on the IR section of our website following the conclusion of this call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws.

These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook.

These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from our expectations. These risks are summarized in the press release that we issued earlier today.

For a further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our quarterly 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 or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future.

With that, let me turn the call over to Jim for his prepared remarks.

Jim?.

Thank you, Dave, and welcome to everyone on the call. Altair had an excellent first quarter 2021. Our vision of the convergence of simulation HPC and AI driving enterprise decisions is emerging as a clear imperative embraced by customers.

This technical direction which we identified early and have invested in significantly is important and manifest in all of the markets we serve. AI is becoming pervasive in our lives.

Altair is integrating AI into all of our software applications and we are rapidly evolving our solution platforms to allow customers to implement this technology to benefit from the latest knowledge and algorithms throughout their organizations. We are pleased to report record quarterly results with total Q1 revenue of $150.2 million.

Software product revenue for the quarter was $129.5 million versus $108.4 million from Q1 of 2020 reflecting year-on-year growth of 19.5%. Adjusted EBITDA was $37 million compared to $21.7 million in Q1 of 2020, an increase of more than 70% from the first quarter of 2020. All were well above our guidance ranges.

Our business continues to shift toward a very high proportion of software versus services, expanding our gross margins and strength to invest for the future.

Our modified Altair Units business model along with a more structured go-to-market process is delivering better revenue for value in our major accounts and enhancing our ability to more effectively compete in the middle market. Software product revenue was 86.3% of total revenue for the first quarter compared to 82.5% in the prior year period.

Our recurring software license rate was 94% for the first quarter of 2021 versus 93% in the first quarter of 2020. We are excited about our results from Q1 and we are looking forward to the balance of the year.

While the coming months continue to hold some uncertainty related to the challenges with COVID-19, especially in India and other parts of APAC and EMEA, we are seeing many signs of a robust economy with customers investing to develop new products and looking to Altair experience products and solutions to accelerate their innovation and help them be competitive.

Our results show continued strong momentum due in large measure to the strength of our constantly growing software portfolio. In 2020, we made enormous progress with broad multidisciplinary product releases for simulation, HPC and data analytics.

SimSolid which we acquired two years ago is clearly emerging as the leading technology for structural simulation for designers. We had 10 major releases of SimSolid since the acquisition and the number of users and customers for this technology is growing daily.

As the technology continues to mature, its performance and accuracy especially when dealing with more complex structures and assemblies is unparalleled.

Many of the hundreds of customers using SimSolid have presented technical papers or otherwise spoken publicly about their use of SimSolid including from the automotive, heavy equipment, electronics, architecture, oil and gas and other industries.

SimSolid now has a broad solution offering including statics, modal, dynamics, thermal, thermal stress, fatigue, linear superposition and linearized stresses. The code has been enhanced with an industry best designed connections library including spot welds, laser welds, 3D seam welds, bushings, adhesives joints and ribbons.

We've also improved the workflow integration of SimSolid notably within our inspired design platform, but also by more seamlessly connecting to a number of third-party codes.

In the first quarter, we won a strategically important account for SimSolid in the aerospace and defense industry, where we believe there is significant room for expansion both in this account and in the aerospace industry as a whole. We recently published this case study from a General Motors division.

Their design teams desire to perform structural analysis to evaluate their own designs. The non-Altair simulation software initially utilized proved problematic.

SimSolid provided them with an alternative which dramatically decreased modeling time and allowed the designers to evaluate complex components and large assemblies, which was not possible with the previously used software.

For modal analysis at the component level, GM found a correlation factor of 97% with SimSolid compared to traditional simulation methods. This was combined with a 75% reduction in time taken to complete the analysis.

We believe the accuracy, time savings and workflow efficiencies of SimSolid combined with all the capabilities added since the acquisition will help continue its momentum as the product with the fastest-growing usage in our software portfolio. Altair's been a pioneer in engineering simulation and MCAD simulation-driven design for more than 30 years.

More recently, we are bringing a simulation-driven design philosophy to the electronics industry with an end-to-end solution. Delivering electronics that delight consumers requires more than just linking the ECAD and MCAD worlds. It requires physics analysis at the speed of design and collaboration across disciplines throughout development.

Altair PollEx offers solutions for printed circuit board design review, verification, analysis and even rule-based design for manufacturing, design for assembly and design for electrical.

It introduces a simulation-driven methodology for signal integrity, power integrity and thermal for printed circuit board design; and importantly integrates with all major ECAD and simulation tools. In an interconnected world most devices are wireless with several antennas.

Altair's 5G simulation tools uniquely combine antenna design with radio coverage and planning analysis and provide the broadest set of scenarios for 5G applications.

Using PollEx and Altair's electromagnetic tools combined with Altair's other physics-based simulation tools and machine learning and to reduce modeling time helps users achieve improved connectivity and functionality.

For smart product development, performance optimization, sensors, actuators and motors also provide challenges for architecture integration. They often need to be miniaturized and integrated into the PCB without sacrificing reliability or adding to manufacturing costs.

Altair's model-based development tools can help drive faster assessment of system performance by enabling the flexible configuration of sensor systems and simulating the subsystems and control strategies for each function of the device. Circuit simulation plays a strategic role in the schematic capture phase of EDA workflows.

Altair offers electronic circuit simulation tools and an open integration platform for modeling simulating and optimizing multi-disciplinary system of systems.

Altair's enhanced proprietary version of SPICE based on an open-source industry standard with access to the library of digital component suppliers delivers a more interactive schematic in which easy changes of component values, tolerances frequency response or time periods enable an accurate verification of the electronic circuit performance.

And finally to develop complex embedded systems like sensor and actuator controls vision systems and IoT devices, design engineers need software for model-based firmware development.

Altair's tools let you design analyze and simulate your embedded system using block diagrams and state charts then automatically generate compact and optimize code to run on an extensive selection of microcontrollers.

The breadth and depth of technology, Altair's offering for modern simulation-driven design of electronics is being embraced by our existing customers especially in automotive. We believe this will lead to increased business opportunities for us.

The first quarter brought many new expansion wins in the area of high-frequency electromagnetics across industries; including aerospace, defense, railway, 5G technology, automotive and others. Applications range from antenna placement and design to radio and radar coverage.

Altair has a complete solution for electric drive systems coupling eMotor concept design, multi-physics simulation system integration and control design and PCB verification and analysis. We had two interesting wins in the first quarter that demonstrated our value toward electric drive system development.

One was with a global manufacturer of industrial pumps and the other with a manufacturer of ventilation systems. In both cases, the ability of Altair software to simultaneously address electric motor, sensor control and power converter development was key to building the business.

On the data analytics front, we are continuing to promote and see acceptance of the Altair Units model especially at large enterprise customers. We launched an early-access release of the SmartWorks platform to a limited customer base with strong positive initial responses.

SmartWorks combines capabilities necessary to develop apps and orchestrate EDGE devices for IoT and smart product development with end-to-end capabilities for data analytics, from data ingestion to live system deployment. We are excited about the opportunity SmartWorks brings to Altair to serve a very large and growing addressable market.

Matt Brown is fully on board as our CFO and doing a great job to help Altair grow into a substantially larger revenue and EBITDA profile company. Our 2021 Investor Day is Thursday May, 27 and we look forward to sharing some insights around our technology addressable markets and long-term outlook with you then.

Now I will turn the call over to Matt to provide more details on our financial performance and our guidance for the second quarter and remainder of 2021.

Matt?.

Thanks Jim. We're thrilled with our first quarter 2021 results coming in above the high end of the range on every metric we guided to for the quarter. We delivered record software product revenue of $129.5 million, an increase of 19.5% compared to Q1 2020.

We also achieved record total revenue of $150.2 million, an increase of 14.2% compared to Q1, 2020 and we had record high adjusted EBITDA of $37 million or 24.6% of total revenue, an increase of 70.5% compared to Q1 2020. Total billings for the quarter were $145.8 million an increase of 14% compared to Q1 2020.

Our results relative to prior year were primarily driven by strong software product billings where we saw solid new and expansion results, as well as healthy retention on our renewal base. We saw year-over-year increases balanced across all three geographic regions as well as across our product offerings.

Our recurring software license rate which is the percentage of software product revenue that is recurrent continues to be strong and approximately 94% for the quarter as we continue to emphasize growth in our recurring revenue streams.

Relative to our expectations for the quarter, we saw some of our software transactions, which were originally expected to close in the second quarter closed earlier than originally anticipated, driving some of the upside relative to the Q1 guidance.

And as anticipated, the year-over-year strength in software product billings was partially offset by declines in client engineering services and other billings. It's worth reminding you of the seasonal nature of our business where our first and fourth quarters have higher software billings and revenue and we expect that pattern to continue.

In addition, a significant portion of our billings in revenues are billed in currencies other than the US dollar and are therefore impacted by changes in FX rates. Relative to Q1 2020, our billings and revenues were favorably impacted by changes in FX rates of approximately $5 million during the quarter.

Non-GAAP gross margin, which excludes stock-based compensation and restructuring expense improved to 79% in the first quarter compared to 74% in Q1 2020, an increase of 500 basis points, primarily as a result of the favorable trend in our software revenue mix which carries higher gross margin.

Software product revenue as a percentage of total revenue increased to 86.3% compared to 82.5% in the year ago period, an increase of 380 basis points. This increase in software-related revenue mix was expected as we saw an increase in software product revenue combined with the expected year-over-year decline in our services and other revenue.

We expect this mix shift towards software product revenue to continue. Non-GAAP operating expenses which, excludes stock-based compensation, amortization of intangible assets and restructuring charges were $82.6 million compared to $78.2 million in the year ago period.

Adjusted EBITDA was $37 million in the first quarter or 24.6% of total revenue in Q1 2021, an increase of 70.5% compared to Q1 2020.

This increase compared to the prior year quarter as well as relative to our expectations was driven by the increase in software revenue in the quarter combined with disciplined spending and accelerated employee-related cost reduction. Turning to our balance sheet.

We ended the first quarter with $243 million in cash and cash equivalents, an increase of about $2 million from the prior quarter. The quarter-over-quarter increase reflects strong free cash flow during the quarter of approximately $33.5 million partially offset by repayment of the $30 million we had drawn on our revolver.

Our free cash flow of $33.5 million in the quarter is an increase of $7.1 million or 27.1% compared to Q1 2020. As a reminder, Q1 is our seasonally most significant cash flow quarter due to collections on Q4 and Q1 billings. Looking ahead to Q2 and full year 2021, we are looking to continue the great momentum we began the year with.

We are expecting software product revenue for Q2 in the range of $92 million to $95 million or year-over-year growth of 12.4% to 16.1% and we're raising our full-year 2021 software product revenue range to $425 million to $433 million or year-over-year growth of 8.5% to 10.5%.

We continue to expect services and other revenue to be approximately flat year-over-year consistent with our previous guidance. As a result, we are forecasting total revenue for Q2 2021 in the range of $111 million to $114 million or year-over-year growth of 12.6% to 15.7%.

And we're raising our full year 2021 total revenue guidance to a range of $504 million to $512 million or year-over-year growth of 7.3% to 9.0% reflecting our increased software revenue guidance.

Our $2 million increase on the full year revenue guidance reflects our overachievement in Q1, which as I mentioned a moment ago was partially impacted by the timing of some Q1 software transactions that were originally expected to close in Q2 along with a negative currency impact of $5 million relative to our prior quarter's full year guidance.

From a cost perspective, we moved faster than expected in the first quarter on employee-related reduction and realized some benefits in the quarter. As I mentioned in our last earnings call, these reductions are freeing up capacity to reinvest in product technology and sales capacity, which we are also moving forward with at a fast pace.

In addition and as I also mentioned in our last earnings call, we expect marketing costs and travel and entertainment costs, which were significantly impacted by COVID-19 last year particularly in Q2 through Q4 will return to higher levels as more normal activity returns. We're seeing some of that happening already.

So for Q2 2021, we expect adjusted EBITDA in the range of $2 million to $4 million or 1.8% to 3.5% of total revenue compared to $5.8 million or 5.8% of total revenue in the year-ago period, again, reflecting expectations of increased marketing and travel and entertainment spend as well as the impact of the temporary salary reductions that impacted Q2 and Q3 last year.

For full year 2021, we are raising our adjusted EBITDA range to $59 million to $67 million or 11.7% to 13.1% of total revenue compared to $57.3 million or 12.2% of total revenue in 2020. We are also raising our full year 2021 free cash flow guidance to a range of $30 million to $38 million.

As a reminder, our cash flow expectations are sensitive to billings and collection patterns which fluctuate seasonally. We've provided detailed guidance tables in our earnings press release, including reconciliations to comparable GAAP amounts, which was issued after close of market today.

In summary, we are pleased with our quarterly results in Q1, but even more excited about the products and technologies we're offering to our customers and driving forward in our mission to transform enterprise decision-making. With that, we'd be happy to take your questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from Bhavan Suri with William Blair. Your line is open..

Hey, gents. Thanks for taking my question and congrats. That was a fantastic set of numbers in a result there. I guess, I wanted to touch at a high level maybe Jim for you initially. You commented on the adoption of data and AI tools. Rolls-Royce was a great deep dive, I think, David Simon did with us.

But as you think about the broader trends of end-to-end AIML, and then you see the sort of digitization of industries and things like 5G IoT EV, how do you view the current product set being able to capture that market share, or do you think there's more stuff you need to add sort of truly capitalize on those opportunities?.

So, first of all, Bhavan, thank you and nice talking to you today. I’m calling – I’m speaking out of a hotel room by the way today. I have a new grand daughter. And we’re in kind of sitting in business meeting. So it’s been sort of a long week. It's a good question.

I think that we obviously have a lot of work to do to bring these technologies to bear in all of these different places. And so we're working in small ways. Every single product that we have has sort of under the covers elements of neural nets and this sort of technology embedded within it at this point much more so than you might realize.

And then we're also working on sort of generalized tools that customers can use on their own to be applying this sort of technology in their own work. And as we go, I think, we're going to keep learning and together with customers quite frankly and finding more and more applications where we can just accelerate the work that we're doing.

I'm not sure, I'm answering your question, but that's the answer the way I think about it..

No, that's helpful. And at least the components seem to be there. I guess, let's turn to the sales force, because obviously you had a great quarter. You saw some deals come in early. But you and I have talked about restructuring efforts around sales to drive efficiencies in the past. I'd love to understand sort of what process you put in place.

How have those efforts progressed? Because they seem to have sort of spiked and done well, spiked in a positive fashion. But then you've also commented, I think, Matt did in terms of hiring and increase in capacity.

So how do you think about sort of the restructuring efforts? How has capacity played out? And sort of what does the hiring time look like? Thank you..

Sure. So what we're doing is we're organizing. First of all, a huge amount of training is going on with our sales organization. Lots of new methodologies have been brought in and brought across the team over the last two years. We've also brought more tools in that sort of help us to mechanize and just be more process-centric.

And all that is starting to pay dividends. At the same time, we're doing a better job of sort of dividing and conquering the market space. So the direct sales force has much more clarity around, which accounts we're going after where we see growth opportunities and they're typically the larger enterprise-type accounts.

We have a lot of focus on the indirect channels and that's really starting to come together for us. And then we have a lot of mechanization between our marketing and all the marketing activities that we're doing for lead generation moving that through the pipeline, a lot of inside sales activity that we've rolled out across the world.

So, I mean, I think you're beginning to see the results of all that mechanization and sort of creating the swim lanes that everybody knows to operate on. .

Fair enough. That's very helpful. Thanks, Jim. Congrats again. Talk to you soon. Thank you guys. .

Thank you. Appreciate it..

Thank you. Our next question comes from Jackson Ader with JPMorgan. Your line is open..

Great. Thanks for taking my question guys. Jim really nice to -- well, first of all, congratulations on the new grand daughter. I should start off saying that. Thank you..

Thank you. The number is fine by the way..

Wow, excellent. Growing family..

That for a record..

Yes. Okay. So deep dive on the Polliwog products. That was great. I don't think we'd really dug into those in a while maybe even since you guys acquired them a couple of years ago.

But the question is, how easy is it to kind of sell across products into the semiconductor space? If you're selling something like PollEx that might be a little bit more like EDA, is it a completely different buyer or user who you're trying to then sell your electromagnetics solvers into?.

It is for sure. It's different groups, different departments. And these are departments that we've been sort of walking the halls making our way across to. We first got into all the electromagnetics just sort of one layer outside of what we did historically. We've been doing that for about seven years now and we have pretty significant success.

Coming into the groups that are designing all the printed circuit boards and the electronic systems is in fact new departments in customers that we have quite a bit of credibility inside of. I mean, when we go to one of the guys that we've been working with a long time they tend to trust us and so the introductions are getting made.

And I have to be honest. I wasn't sure how the customers would respond to what we're bringing in, but the response has been quite positive. And the reality when you get into these departments there's just a whole -- that's why I laid it out a little bit. They're not just doing the printed circuit board, but there's the packaging. There's thermal.

There's CFD. There's the electromagnetics. There's the system modeling system of systems and the embedded stuff. And I think they've been quite surprised at the breadth and depth of our offering, and so we're getting a good response there. So I'm really optimistic. And it's a whole additional set of customers within our existing accounts. .

Yes. That's great. That's really helpful color. Matt just a modeling question.

How much was actually pulled forward? You said, some deals came in 1Q that you weren't expecting?.

Yeah. Thanks Jackson for your question. First of all, we were super-happy with the way that this quarter worked out for us. Seeing us come in high above the high end of the range was nice to see and again records on revenue and profitability front.

In terms of amounts that we saw closed in Q1 that originally were thinking was in Q2, it's in that few million dollar range. It's not the entire amount by any stretch. So, we saw a nice healthy upside in Q1 above and beyond what was pulled in.

And one thing, I would add too is, yeah, it's an encouraging thing when we see some of those deals closing early, because it really speaks to the health of the pipeline there. So we were happy to see that as well..

Okay. Fair. Thank you..

Thank you. Our next question comes from Ken Wong with Guggenheim. Your line is open. Ken, Wong, your line is open..

Sorry about that. You got me. Jim, I just wanted to check in on just some of the drivers of growth. It sounds like it's fairly broad-based. But perhaps, if we dive in a little just wondering what new activity looked like versus expansion.

What were you seeing on retention trends? Any color there kind of deal sizes? Are those ticking up relative to internal expectations would be helpful?.

Sure. So retention, last year retention there was a little more attrition last year than we're used to. This year very, very little attrition actually. It's just very clear this is a much more robust year even as good as we've ever seen so very, very strong in the retention side this year.

And we weren't sure, if that was going to be the case, but in fact it does appear that way. It is very broad-based. It's coming across – all the verticals are actually very healthy in this year. All regions are growing very, very healthfully as well. What was your last question? I forgot what you were asking me at the end there. .

Yeah. And then, I guess just in terms of just new business activity, are you finding that that top of funnel is kind of tracking to plan? Is it maybe coming in a little better with opening up? Would just love a sense of kind of what the net new run rate's starting to look like. .

Yeah. I mean, the macro picture I think this year is generally very, very positive. As I said in my prepared remarks, there is still, look at what's happening in India. That's a bit crazy.

You do have this chip shortage that is happening in the market, and it affects a number of our customers, but thus far neither one of those seems to be having much impact for us. So in general, pipelines are very healthy and we feel – yeah, very, very positive about this year. .

Got it. Just super helpful. And then Matt, for you just kind of a bit of a follow-up on what Jackson was asking but maybe looking at it from a full-year basis. Just wanted to make sure I heard you correctly. It sounds like so this quarter you had a $5 million tailwind.

And is it for the full year? It sounds like it's potentially reversing to be a $5 million headwind. One I want to clarify that.

And then in terms of just how we think about the guidance upwards it sounds like a few million beat a few million pull-forward in the quarter, but kind of net-net, if we factor in all the FX stuff it feels like it's still kind of a mid-single-digit rate.

Is that the rough math that I should be thinking?.

Not quite. So the FX picture is understandably confusing. But the $5 million tailwind that we realized in Q1 of this year is relative to last year not relative to the guide, right? So you have to separate those two concepts.

The $5 million full-year FX headwind is relative to prior quarter's guide a full year, right? So does that make sense?.

Yes it does. .

Okay. Perfect. So in terms of the full-year guide, yeah, we're feeling really, really good about the year. And so we took full-year revenue guide up by $2 million. That is inclusive of that $5 million headwind.

And so sort of when I think about our guidance relative to the full-year guide that we gave last quarter we're up $7 million when you exclude that FX difference. So yeah, we continue to feel good about Q2 through Q4. We're excited about the opportunities that we have and pipeline looks good and healthy.

And as Jim just mentioned a moment ago, the macroeconomic trends seem to be holding. But of course, we've got our eye on the types of things that are happening in India, and elsewhere but generally feel really good about the year. .

Got it. And then a quick clarification on that.

On first quarter, I guess was there any meaningful headwind/tailwind relative to, what you guys were thinking from an FX perspective at the start of the quarter?.

No. Yeah, so important clarification there not a meaningful FX impact. So when we think about the over performance in Q1 relative to the guide that we gave in Q1, there's that couple-few million dollars that we originally thought was going to close in Q2 that ultimately closed in Q1.

Everything else is just true upside to the quarter, and no meaningful FX impact relative to the guide. So, just a really solid quarter. We were hitting on all cylinders..

Great. Thanks for the clarification..

Thank you. Our next question comes from Gal Munda with Berenberg. Your line is open..

Hi. Thank you for taking my questions. And congrats on the results. The first one is just a little bit clarification of the guidance.

You obviously, especially on the software side I'm thinking, Matt if I think about the outperformance that you delivered in Q1 balancing that with a little bit of a worsening FX outlook for the rest of the year and a few million of pull-forward, there's still a big chunk kind of left out there based on what you raised.

Is that just kind of feeling a little bit more conservative, especially because as Jim mentioned, we're still in a very uncertain environment and we don't know how it's going to be like, or any other factors that I'm not aware of that potentially make you a little bit more cautious for the rest?.

No. So we can make sure that the math is coming across clearly, but our outlook for the rest of the year is still very positive. And when we take in -- there's a lot of different factors that you just mentioned there, but you can sort of sum them up like this. FX-neutral is you get to a $7 million increase relative to the prior guide.

We came in over the top end of the guide on revenue by about $10 million, so you're left with $3 million; and essentially that's kind of what I signaled is the pull-in. So we basically have a situation where we're guiding up, based on the over performance in Q1 and we're still really feeling very good about the rest of the year.

So I think the math works out pretty well. .

But Gal, just to add I think you did sum it up correctly that that balance is just a little bit of conservatism around some of the things that are happening and some of the uncertainty. So for the most part, I think what Matt is saying is we went up by more than two because of the FX piece, but we didn't go all the way to the 10.

And there's a little bit of conservatism there. .

Got you. That’s really helpful. And then just as a follow-up. Jim, last year, pretty much at the same time last year you talked a little bit about end-market weakness, the fact that people are still focused on the old programs and kind of old tag that they're working on. Today it was a market different the way you talked about all the new use cases.

I'm wondering this acceleration grows how much of it has to do with the fact that there's activity happening R&D activity on the new stuff like electric vehicles and things like that and that really has helped to increase the usage and it's now generating that growth that you're seeing versus kind of just doing more of the same what happened over the last decade or so?.

I mean, I think there's a lot of activity in the R&D world in general. I mean, we're coming off of COVID obviously and sort of a weird year. But in general, all the customers are hiring. People are designing much more complex connected devices, lots of activity in the automotive industry because it's so competitive lots of activities.

There's lots of new aircraft companies. I don't know if you've been paying attention. And there's a lot of really interesting -- I mean it's a fun time. And I think we have the right tools for the right moment.

I did want to -- my prepared remarks went a little deeper into the electronics offering because I think that sometimes the community may not recognize that we've been investing for almost 10 years to build basically this end-to-end solution portfolio. We're not doing integrated circuit design, but we are very focused on these electronic systems.

And that's just a perfect fit with everything that we do as an organization. It's sort of that next layer out. And the breadth of the offering that we have and we've poured investment into it in the last three years especially we feel great about. .

It's very helpful. Thank you so much and congrats, again..

Thank you..

Our next question comes from Matt Hedberg with RBC Capital Markets. Your line is open..

Yeah. Hi. It's Dan Bergstrom for Matt Hedberg. Thanks for taking our questions. Jim, you just mentioned chip shortages in the Q&A here not much impact. And then maybe to connect that with the last question, you've also talked about headwinds in the automotive industry for most of last year.

Recently in the news here, we're hearing stories about automotive makers seeing some disruption due to trouble sourcing chips.

I guess the question is, are you seeing that at all with automotive customers? Does it even impact you, or is that just part of the headwinds you're seeing in that sector overall?.

So we are actually not seeing headwinds related to that. I will be honest that I have some concerns, how would that affect us. But I've done a lot of pulse checking and it doesn't seem to be affecting us at all. So it is certainly affecting our customers. But from what we see it's just not have any impact on the design side of things. .

Great. Very helpful. And then maybe a question on return to work and what you're seeing, you touched on that in the prepared remarks. You've kind of talked to a hybrid work model for yourself. Just curious what you're hearing from customers on the topic? It sounds like you're expecting some increased travel here based on the prepared remarks. .

I think we're going to see a little bit of increased travel. It depends region-by-region. Some of the APAC regions rely even more heavily than other regions on sort of face-to-face contact a little more in certain other markets like Germany. I'm not seeing huge international travel coming back this year.

I think it will start to come back next year mainly because there's such a difference in terms of where -- Israel is completely vaccinated. The US has been doing really well, but starting to slow down. And other markets it's very, very hard to get a vaccine at this point and India is just really in dire straits.

So I don't see a lot of international travel. I think that you're seeing like in banking where Jamie Dimon is saying everyone's going to come back to the office, it's a little bit old-school. I think that most of the automotive companies or aerospace companies I think are going to have some level of hybrid for their engineering build.

They'll come back a lot more. Certain activities have to be done onsite I think eventually again. But I think it's going to be relatively hybrid. Not a big impact for us if anything it just pushes more and more to the virtual world, which is good for us. .

Great. Thank you..

Yeah..

Thank you. Our next question comes from Brian Essex with Goldman Sachs. Your line is open..

Great. Thank you for taking the question and congratulations on the results, another great quarter. Jim, maybe for you, I mean, the sales motion that you walked through in a previous question seemed very familiar where you're penetrating a division or you're penetrating a business unit.

And the question I have is, as you improve your channel presence, do you see or do you anticipate seeing that sales penetration point changing where maybe you can come in at a different level maybe the c-level or slightly below that where you sell the vision of the Altair platform and more efficient consumption across the platform? Just wondering if that might really accelerate the sales efficiency on that front.

.

We do need to sell at higher levels and we are selling at higher levels for sure than we used to. And I'm sure you've heard this before. You have to sell top-down and bottom-up to be successful. A lot of companies are very top-down sellers.

But if the products aren't really performing if you will, eventually the rank and file are going to throw it out or it's just going to sit on the shop and not get used. So, historically, if you go way back we're very much bottom-up sellers. Through the years we've been getting better and better at selling at more senior levels.

And I think we're getting more and more proficient at it now yes. .

And then maybe for Matt to beat you over the head with the guidance again. On the profitability side, so you beat EBITDA by I think over $10 million. You're raising the full year guide by about $1 million, but you also talked about investment initiatives.

So, maybe if you could point us in the direction of where you might be investing, how much you might be reinvesting, and how much cushion might be in that number given that obviously you can control where you spend more than perhaps you can control what your customers buy. So, maybe a little bit more certainty there. .

Yes. I mean so when we think about the profitability and how that played out in Q1 obviously super-happy with the result. Much of that the over-achieve in the form of revenue makes its way down to EBITDA.

And our expense expectations were slightly better than expected based on just the speed with which we moved through the restructuring activities that we began about midway through the quarter. So, real happy about the results there.

And really the way that we're thinking about it is we're now looking at raising the full-year revenue guide by $2 million raising the full year EBITDA guide by $1 million. And what that really means is sort of the outlook from an expense picture has not changed much based on our prior guide.

There's some timing movement between reinvestments and the restructuring activities that we're undertaking. But big picture we're really just saying we had roughly 12.3% adjusted EBITDA margin at the midpoint in our last guide. We're taking that up now to 12.4% at the midpoint.

And so in other words, not seeing a big change in the form of our expense picture versus what we had guided to last quarter..

Got it. That’s helpful. Thank you very much..

Thank you. [Operator Instructions] Our next question comes from Mark Schappel with Benchmark. Your line is open..

Hi, thank you for taking my questions and congratulations on the quarter and Jim, congratulations on your new granddaughter. So, Jim a question for you. It was good to hear the positive commentary around SimSolid in your prepared remarks.

And the idea of introducing engineering simulation in the upfront design process has been something that's been talked about for decades now but rarely has been followed through with. It sounds like that's changing. And according to your comments it sounds like SimSolid's a good part of that change.

I was wondering if you could just talk a little bit more about what you're seeing with organizations product development organizations embrace upfront design. Are you seeing it more in certain industries than others? And look I'll just let you talk about that..

Okay. Thanks for the -- thank for the congratulations all the way around. Yes. So, you are right. So, you've obviously been around this industry because people have talked about simulation upfront for a long time and people have tried to do it for a long time.

I think there's a great desire for simulation to be part of the design groups and I think SimSolid is actually kind of a catalyst because you don't have to do all this complex modeling in order to do this work. It handles the assemblies amazingly and it's very accurate and it's just blazing fast.

But it's not just fast because there's other things that do things fast but you get chunky results. Here you're getting very, very accurate results. And so it's sort of transformative. And we have a lot of large customer organizations who are intending to really roll this across their design teams in a way that I've not seen before.

So, this is part of why I decided to put that in my talk track today. I think we are beginning to see some movement, if you will, coming. So, it's exciting. .

Great. Thank you. That’s all for me..

Thank you..

Thank you. And there's no other questions in the queue. I'd like to turn the call back to Jim Scapa for any closing remarks. That’s all the questions we have. I'd like to turn the call back to Jim Scapa for closing remarks..

Okay. Well, thanks everybody for joining the call. Really, really appreciate it and look forward to speaking with you all soon. .

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day..