Altair Engineering Inc. (NASDAQ:ALTR) Q2 2023 Earnings Call Transcript

Altair Engineering Inc. (NASDAQ:ALTR) Q2 2023 Earnings Call Transcript August 4, 2023 Operator: Good day, and thank you for standing by. Welcome to Altair’s Second Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your speaker today, Dave Simon, Senior Vice President for Investor Relations. Please go ahead. Dave Simon: Good afternoon. Welcome, and thank you for attending Altair’s earnings call for the second quarter of 2023 ended June 30, 2023. I’m Dave Simon, Altair’s SVP for Investor Relations. And with me on the call are Jim Scapa, Founder Chairman and CEO; and Matt Brown, Chief Financial Officer. After market closed today, we issued a press release with details regarding our second quarter 2023 performance and guidance for the third quarter and full year 2023, which can be accessed in 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.

Engineering, Industry, Services

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? Jim Scapa: Thank you, Dave, and welcome to everyone on the call. Altair had a solid second quarter of 2023 with software product revenue, total revenue and adjusted EBITDA, all above the high end of our guidance. Our Q2 performance aligns well with our guidance for the full year and demonstrates our continued success and strength as a company. Adjusted EBITDA for Q2 2023 grew year-over-year to $17.1 million. Software product revenue as a percentage of total revenue for the second quarter continued a strong positive trend at 88.8% compared to 88.1% in the second quarter of 2022. Software product revenue as a percentage of total revenue for the first half of 2023 increased to 89.5% as compared to 88.2% in the first half of 2022. The recurring software license rate for the first half of 2023 was 94%, an increase from 93% in the first half of 2022. Total billings for Q2 2023 was $147.8 million, a year-over-year increase of 17.8% in reported currency and 19.6% in constant currency. Software product revenue on a constant currency basis grew by 9.4% in the second quarter versus a year ago and 9.7% for the first six months of 2023 compared to 2022. We saw strength in the quarter in our renewal base with customers choosing to renew and expand their usage of Altair units. This growth was across many products and especially in the aerospace, defense, technology and automotive verticals. We believe our second quarter performance positions the company well for the rest of 2023 and for next year. Altair’s portfolio for software for engineering simulation continues to demonstrate leadership and innovation. Many new and significant products are in the last stages of development and planned for release at the beginning of Q4 2023, and we are excited about their potential impact in the market. We continue to integrate AI within our simulation products, especially within our solvers. Last week, Altair acquired an exciting MBSE requirements management solution called OmniV developed by two former General Motors executives. The advantage of OmniV is it is easy to learn and use and naturally connects requirements to simulation and test validation solutions to achieve program goals. OmniV is more accessible for product engineers, designers and developers to use, whereas other MBSE solutions are more abstract and geared for system engineers. OmniV covers both process development and requirements connectivity in one vendor-agnostic solution. It connects to PLM solutions, including Teamcenter, Enovia and Windchill and to other MBSE tools, including Cameo, IBM DOORS NG and Jama Software, making OmniV easy to integrate into any engineering enterprise environment. This technology enhances our ability to support the fast-growing use of digital twin solutions, simulation and test data management and AI with an open architecture that provides a traceable ecosystem to track performance, cost and mass of a product. We believe the addition of OmniV to our already powerful offering helps to position Altair as having the most comprehensive digital twin solution in the market. OmniV will be available via Altair units, integrated into Altair’s digital twin solution set and accessible via Altair One Alters Cloud Innovation Gateway. This year, we are focusing on more enterprise selling and engaging at higher levels with our most important customers to build long-term relationships and increased scope and scale in these accounts for the future. The aerospace vertical had some notable wins for Altair in the quarter. The space exploration company increased its software licensing commitment by more than 50%, resulting in a seven-figure annual licensing agreement. Applications range across several physics disciplines, while driving tremendous value from Altair units, which gives broad access to our deepest simulation technologies as well as our entire software portfolio, including data analytics and AI solutions. In addition, we are engaged with the same company in a variety of leading-edge consulting projects to push forward new product development opportunities with simulation-driven design. In another aerospace win, a major aircraft component supplier has committed to a 44% increase over a seven-figure multiyear software licensing deal. This account is especially meaningful as it is at the forefront of using simulation in Lewis [ph] of physical testing for certification, which is both a major challenge and opportunity in commercial aircraft development. In the area of data analytics and AI for business applications, a new BFSI customer signed on to a six-figure annual software license related to loan servicing within two months of its exposure to the Altair suite of tools. A major European city has committed to Altair SLC as its solution for analyzing demographic data with a goal of improving social services and a large U.S. manufacturer of building products signed a multiyear six-figure annual software license for its accounting and finance teams to expand usage from data preparation to wide applications available in the Altair RapidMiner platform under Altair units. We see great momentum in the convergence of simulation with AI, a major automotive manufacturer in APAC has licensed additional Altair units, specifically for using data science to design antennas. Altair has, for many years, been a leader in simulation software for antenna development, and we have significant domain expertise in correlating test data with simulation results for more robust design guidance. Using Altair RapidMiner, we helped this manufacturer reduce a test data analysis process from two weeks down to just a few minutes and use data science to drive rapid design exploration and optimization. We continue to encourage diversity and inclusion to support the next generation of engineers and scientists. Last quarter, we announced a STEM education scholarship program with Columbia University. We are pleased to have recently added the University of Michigan Dearborn to our Altair #OnlyForward Scholarship program. These scholarships focus on supporting underrepresented minorities and women, which is especially meaningful as we seek to play a role in developing outstanding and diverse talent. These scholarships will support students with a demonstrated interest in increasing diversity in STEM fields. Each recipient must be a full-time student pursuing a four-year degree in engineering or computer science and a member of one of the following organizations; National Society of Black Engineers, Society of Hispanic Professional Engineers or Society of Women Engineers. Scholarship recipients will be chosen by a committee of faculty and leadership in the college of engineering and computer science this fall with nine recipients, each receiving $25,000. Altair was named for the third consecutive year to Newsweek’s Most Loved Workplaces list as one of the top 100 companies measured by employee happiness and satisfaction at work. Credit for the string of awards goes to our global management teams who are outstanding stewards of Altair’s foundational values. We have worked hard since our founding in 1985 to create and maintain a workplace where employees can thrive in a supportive inclusive environment. Our ability to maintain these values over 38 years of major shifts in technologies, geopolitics and how we work is key to Altair’s success. Altair was also named as one of the 2023 Fortune Best Workplaces for Millennials. This award acknowledges companies that excel at providing younger employees with a sense of purpose in the workplace. These workplace awards, combined with our STEM education commitments and strong global internship program are great indicators of our focus on talent development and sustainable work-life balance. Additionally, Altair was named the overall leader in the manufacturing data analytics sector in the latest report by global technology intelligence firm, ABI Research for advanced data collection, normalization and analytics capabilities. The report evaluated 10 data analytics vendors that enable industrial and manufacturing firms to proactively monitor their equipment and optimize their operations with the use of data analytics. ABI Research determined rankings by evaluating capabilities for data collection, streaming analytics, data normalization, core analytics, user experience, commercial success and time to value. The report emphasizes Altair’s platform, versatility and depth and made note of our huge array of modeling techniques and wide variety of options to display and share IoT sensor data. With our deep expertise and understanding of manufacturing complexities and machine learning, we have developed solutions to easily build analytical applications with our low-code platform to support faster, more effective decision making. Earlier this week, the winners of the 2023 Altair Enlighten Award were announced, presented in association with the Center for Automotive Research, the Enlighten Award program showcases how the automotive industry’s leading minds are applying advanced technologies and responsible AI to create a better, greener industry. Congratulations to the winners of the 11th Annual Enlighten Awards. Polestar, Nikola, ArcelorMittal, Volteras, Toyota, BASF, US Farathane, Adient, Multimatic and Marelli. 2023 is an important year of complex transitions for Altair in the midst of a lackluster macroeconomic environment hampered by inflation and uncertainty to set ourselves up for very strong growth in 2024 and 2025. We are managing expenses aggressively to achieve a 20% adjusted EBITDA margin this year and to position the company for continued adjusted EBITDA increases for the next three years to five years. Shifting our organization to focus more on selling our entire portfolio in key vertical markets and customers, completing the software development of several strategic and significant initiatives and establishing partnerships with key system integrators and hyperscalers to elevate our position and grow our share of wallet across key accounts. As we take stock of where we are at the halfway point in the year, we are very satisfied that we have been extremely successful in every one of these endeavors. All while we continue to meet the quantitative financial objectives we established for 2023. As a result, we feel the company is going to be well positioned to take significant advantage of the strong demand we anticipate beginning in 2024. Now, I will 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 2023. Matt? Matt Brown: Thank you, Jim. Hello to everyone on the call, and thank you for joining us. Q2 was another solid quarter for Altair, once again exceeding the high end of the guidance range on software product revenue, total revenue and adjusted EBITDA. Our strong first half performance has been fueled by growth across a number of verticals and particularly in aerospace, defense, technology and automotive, where demand for our products is robust. As I dive into the details of our financial results, remember some of our revenues and expenses are transacted in currencies other than the U.S. dollar. And therefore, our reported results may be significantly impacted by changes in foreign exchange rates. To aid in the review of our results, throughout my remarks, I will make reference to growth rates in both reported and constant currency. Total billings for the quarter were $147.8 million, an impressive year-over-year increase of 17.8% in reported currency and 19.6% in constant currency. In Q2 2023, we saw particular strength in our renewals base. We had meaningful expansions in some of our top-tier accounts as customers are broadening their usage of applications across several physics disciplines. In addition, we had notable new customer wins for our data analytics products as customers are realizing the power of Altair SLC and the Altair RapidMiner platform. This strength in billings led to software product revenue in Q2 2023 of $125.3 million, a year-over-year increase of 7.2% in reported currency and 9.4% in constant currency compared to Q2 2022. Total revenue in Q2 2023, which includes services and other revenue was $141.2 million, a year-over-year increase of 6.4% in reported currency and 8.4% in constant currency compared to Q2 2022. Our recurring software license rate, which is the percentage of software product billings that are recurring, continues to be strong at approximately 94% for the first half of 2023. Non-GAAP gross margin, which excludes stock-based compensation, was 80.0% in the second quarter compared to 79.3% in the prior year, an increase of 70 basis points. Software product mix and an increase in our software product gross margin drove this increase. Our software product revenue, which carried higher gross margins was 88.8% of total revenue in Q2 2023 compared to 88.1% in the prior year. Over the long term, we continue to expect a general mix shift towards software product revenue as growth there will outpace services and other revenue. And as a result, we expect our non-GAAP gross margin to continue to increase modestly in the near term. Non-GAAP operating expenses, which excludes stock-based compensation and amortization of intangible assets, were $96.9 million compared to $90.3 million in the year ago period. The year-over-year increase was in line with our expectations and was driven by increases in research and development and sales capacity, partially offset by decreases in general and administrative costs. Adjusted EBITDA in Q2 2023 was $17.1 million or 12.1% of total revenue compared to $16.4 million or 12.4% in Q2 2022. Turning to our balance sheet. We ended the quarter with $418.3 million in cash and cash equivalents, an increase of approximately $40.0 million from the prior quarter. The increase was driven primarily by cash from operating activities, and we continue to be pleased with our cash flow generation. Free cash flow through the first half of 2023 was $83.0 million. Let’s turn to guidance for Q3 and full year 2023. We’ve provided detailed guidance tables in our earnings press release, including reconciliations to comparable GAAP amounts. We are continuing to see an FX impact relative to 2022 as foreign exchange rates have changed throughout last year. To continue to provide more clarity on the FX impact to our expectations, we’ve provided growth rates in both reported currency and constant currency in our guidance tables. For Q3, we expect software product revenue in the range of $111 million to $113 million, a year-over-year increase of 7.0% to 8.9% in reported currency and 5.8% to 7.7% in constant currency. For full year 2023, we are maintaining our previous outlook for software product revenue in constant currency and slightly decreasing our outlook in reported currencies due to changes in foreign exchange rates to a range of $548 million to $558 million, a year-over-year increase of 8.2% to 10.2% in reported currency and 9.1% to 11.0% in constant currency. As expected, services and other revenue has begun to stabilize in 2023 compared to the sharp declines we saw in 2022. While services and other revenue was down year-over-year in the first half of this year, we expect it to be roughly flat in the second half of the year. As a result, we expect total revenue for Q3 2023 in the range of $126 million to $128 million, a year-over-year increase of 5.6% to 7.2% in reported currency and 4.4% to 6.1% in constant currency. For full year 2023, we are maintaining our previous outlook for total revenue in constant currency and slightly decreasing our outlook in reported currency due to changes in foreign exchange rates to a range of $611 million to $621 million, a year-over-year increase of 6.8% to 8.5% in reported currency and 7.5% to 9.3% in constant currency. Moving to adjusted EBITDA. For Q3 2023, we expect adjusted EBITDA in the range of $3 million to $5 million or 2.4% to 3.9% of total revenue compared to $6.8 million or 5.7% of total revenue in Q3 2022. For full year 2023, we are maintaining our previous outlook for adjusted EBITDA in constant currency and slightly decreasing our outlook in reported currency due to changes in foreign exchange rates to a range of $119 million to $129 million or 19.5% to 20.8% of total revenue compared to $108.6 million or 19.0% of total revenue in 2022. And finally, for the full year 2023, we are maintaining our outlook from the last quarter for free cash flow, which we expect to be in the range of $108 million to $116 million and represents a substantial increase year-over-year. As a reminder, our cash flow expectations are sensitive to billings and collections patterns, which fluctuate seasonally. In particular, our historical pattern has shown a larger free cash inflow in the first half of the year, primarily from collections on billings from Q4 and Q1 and a smaller free cash inflow in the second half of the year. We’re expecting that pattern to continue this year. We are pleased with the outperformance we’ve seen in the first half of the year and look forward to a strong second half. With that, we’d be happy to take your questions. Operator? See also 20 Countries With The Most Snapchat Users in 2023 and 20 Countries With the Most YouTube Users in 2023.

Q&A Session

Operator: [Operator Instructions] Our first question comes from the line of Matt Hedberg with RBC Capital Markets. Matt your line is now open. Matt Swanson: Yes. This is actually Matt Swanson on for Matt. This is kind of a question for Jim and Matt. But Jim, you mentioned – I think the word you used was lackluster to describe the macro environment right now. And I think that’s kind of been reflected in PMI. So I mean, could you talk a little bit about how resilient the budgets, those R&D budgets that you’re selling into are in this type of macro? And then maybe, Matt, if you could extrapolate a little bit more on how you’re thinking about the macro for guidance. Jim Scapa: Sure. Hi Matt Swanson. Yes, lackluster, from my point of view, just means fireworks aren’t really going off. So it’s not a down market in the sense of 2009, but it’s kind of a sideways market from my point of view. And when I think about R&D budgets, I think everybody is watching costs more than they are in a more dynamic market, frankly. And I think the economy tends to ebb and flow and it’s cyclical a little bit. And I think 2023 in general is on the lower part of that cycle. It’s why I’m anticipating 2024 and 2025 to be basically that cycle. Again, it’s not – I mean you can see our numbers. We had very solid billings growth. We’re seeing a lot of potential actually in the market and actually increasing potential towards the second half of this year. As I think we start to emerge, if you will, from a little bit of a lackluster feeling. But every customer is certainly just as we are managing our costs very closely; I think our customers are doing that as well. For us, that creates opportunities; we’re seeing many very significant customers coming to us, very much more interested than they were before and maybe making a switch to our platform. And of course, that’s very, very promising. But those take a little bit longer. And I think we’re going to start seeing the results of that in 2024, more so than in 2023. So yes, I hope that was clear. Matt Brown: Yes. And Matt, I would just add on to answer the second part of your question there. What Jim just described is embedded in the guide for the year. So where you’re seeing us coming out and guiding the midpoint in constant currency for software product revenue growth at about 10%. That’s not quite what we saw last year, right? So it’s reflected a little bit. But having said that, we’re looking all the time at the pipeline, and we feel very good about our positioning and the way that our pipeline is shaping up for the year. And in particular, I think we’re doing all the right things to make sure that we’re investing for a really fantastic future as well. So we feel very, very good about the position that we’re in and looking forward to continue to capitalize on that far into the future. Matt Swanson: Yes. No, both parts of the answers are really helpful. And then, Jim, thank you for the additional color on some of your AI initiatives that you’re going through right now. If I could just ask about it maybe a slightly different way for some indirect benefits. One being, are you seeing any increased conversations on the HPC business and people trying to figure out the compute side? And then the second would be, if this is finally at the moment, we start to see more generative design, which might increase the pace of design cycle, more designs, what does that mean to the simulation business? Is that possibly a catalyst sometime I know we’re extrapolating a lot on AI right now in general. But... Jim Scapa: Yes. No, it’s a great question. I actually asked that question this morning because we have a customer that went through a whole benchmark – there’s a number of little players in the space coming out with AI solutions, physics-based AI solutions and Altair launched our physics AI solution like a quarter ago or two quarters ago, and they selected us. And I – the first question I asked is, did they select us because of our units’ model or because we’re bigger or because of the technology. And he said because of the technology, we are clearly in the lead, which was a great answer. I loved hearing that answer. But then I asked, is that going to reduce the amount of simulation that make too because we dramatically are reducing the time it takes to validate designs and he said, no, absolutely not. They’re just doing more of it, which is obviously the answer I want to hear, but I think it’s a true answer. So I mean, I just think the technology as it always has, is continuing to get better and people are going to do more and more simulation, whether they’re using AI embedded or integrated or as part of it, I think they’re going to – the use of this kind of algorithmic technology is only going to continue to grow in my view. So I think we’re in a great spot. We have a lot of really amazing stuff coming. This has been an absolute year of investing, which is what I tend to do in these, if you will, lackluster cycles and then come out swing in. So yes, we’re very excited about the product as well. Matt Swanson: Thank you. Jim Scapa: Sure. Operator: Our next question comes from the line of Ken Wong with Oppenheimer. Ken Wong: Great. Thanks for taking my question. Jim, just touching on just the macro a little bit. I think when you’re closing out your prepared remarks, you mentioned take advantage of strong demand that you anticipate in 2024. Was that just kind of general, again, expectations that you’ll start to see more fireworks? Or is there something in your pipeline, something that you guys are in, like internally that gives you the comfort in saying that strong demand in 2024. Jim Scapa: I think it’s both. I’ve been doing this for a long time. And so I have a pretty good feel for what happens macro to Altair, if you will. But we do see a lot of really big opportunities that are building in the pipeline that are a little bit longer, take a little bit longer to gel. And we feel excited about where things are going. So it’s a combination. Ken Wong: Okay. Perfect. And then, Matt, if I could, just as we look at the outlook, I realize that your revenue is probably a little lumpier than, let’s say, a traditional SaaS company. But I guess 3Q does look a little lighter, a little more back-end loaded into Q4. Any slippage, some timing stuff or help just help us walk through the thinking behind that 3Q, 4Q dynamic?

Matt Brown: Yes. Hey Ken, no problem. So first off, so what we’re seeing this year has been playing out generally how we’ve been guiding since the beginning of the year. So we’ve been guiding software product revenue growth of about 10% at the midpoint in constant currency. And so far, we’ve been – we’ve seen constant currency growth of about 9.7% in the first half, and we’re expecting about 10.3% at the midpoint in the second half. So actually a pretty reasonable first half, second half dynamic there. So in other words, not specifically back-end loaded, certainly not with respect to first half, second half. And then when you look specifically at the Q3, Q4 dynamic, it really just comes down to a somewhat difficult nature of guiding Q3. So in Q3, you’ve got the summer holiday. It’s historically been our smallest quarter of the year. So we’re only $7 million can make a seemingly large impact on percentages. And so you sometimes get a strange set of comparisons there. But again, when you look at the pipeline for the second half and what we’re seeing in the second half in total, we feel really good about how the year is shaping up. So nothing more to read into it than that. Ken Wong: Okay, fantastic. Thank you guys. Operator: Our next question comes from the line of Dylan Becker with William Blair. Dylan Becker: Yep. Hey guys thanks for taking the question. Jim, maybe on kind of the vendor consolidation team to, obviously, customers love the units model. But I guess the dynamic that you guys are seeing healthy renewals. Wondering if you could kind of help us parse through is the momentum coming from, again, expansion across new teams for design – different design workflows. Is it customer switching and seeing that consolidation play out? Is it elevated compute intensity? I guess, kind of help us think through what maybe some of the core drivers are there? Jim Scapa: So I mean there’s an overarching activity happening in our most important markets. Aerospace is very, very active right now and aerospace and defense in general, is probably the strongest sector right now that we see technology may be number two. And – but even in automotive, there’s still a lot of competitive drive to get to new products, to get to electric and all of that. So there’s still a lot of sort of overarching demand just because people – our customers are trying to get to new products. What was the second part of your question? Sorry. Dylan Becker: I think kind of – I guess, spending consolidation and how that plays into the unit model too… Jim Scapa: The consolidation piece. Yes. So I mean when you’re in this down part of the cycle as I’m describing it, it takes a little bit of a while. There’s a lot of religion in our world of technical computing and simulation and all that. But as customers are looking deeper, how do we do all the work we need to do, but how do we do it more efficiently, more effectively, more cost effectively. As the cycle sort of gets towards the end, they start really looking more closely at what can we do competitively? Is there a different partner that we should be working more with? And we’re in every one of these accounts already. All these accounts are very competitive. But customers are deciding, who’s the better partner, right? And so I think there’s more opportunity right now for us. Dylan Becker: Okay. All right. Super helpful. Thanks for that. And then maybe, Matt, again, kind of touching back on the guidance framework. It looks like the seasonality is kind of aligning with the prior year period. And I think Jim made a comment around kind of more of an enterprise emphasis from the sales force. Is that naturally maybe a function to kind of this a little bit of a shift in the model of just aligning with kind of the purchasing decision – decisioning for those larger scale customers? Matt Brown: I mean with respect to the Q3, Q4 dynamic, no, not really, actually. It really is just a function of some timing of deals when you’re trying to project when deals are going to close in late September versus early October and, again, a fairly smaller base, at least from us, it’s our smallest seasonal quarter, that just can drive some of those dynamics. So no, it actually doesn’t have much to do with the dynamic that Jim touched on. Dylan Becker: Okay. All right. Super helpful. Thanks guys. Nice job. Matt Brown: Okay. Thank you. Operator: Our next question comes from the line of Josh Tilton with Wolfe Research. Luke Mott: Hi. This is Luke Mott on for Josh. Thanks for taking my question. You said earlier you expect adjusted EBITDA to increase for the next three to five years. Any details you can provide on that? Or what will drive it? And any more color you could give around the magnitude of those increases would be very helpful. And then I have a follow-up. Thank you. Jim Scapa: You get that one, Matt, sorry. Matt Brown: No problem. Yes. So a lot of what we’ve been saying over the last couple of years here around our ability to just continue to incrementally add to our adjusted EBITDA margin is something that we believe we can continue into the future, certainly in the next three to five years, but frankly, and beyond. And the way that we’re doing that is we’re continuing to increase our proportion of software revenue as a percentage of total. And that is having a benefit to our gross margins, which is reflected, for example, in this quarter, where we were able to increase our non-GAAP gross margins year-over-year. But we expect that, that’s going to continue. So that’s one helpful driver. And then, of course, the other is we’re continuing to manage our OpEx expenses.

So we – without putting any kind of quantifiable metrics on it, which we’ll do after we, as we get through the end of this year. Really, the game plan is what you’ve seen over the last couple of years here, where we’re going to continue to drive revenue growth fueled primarily by software revenue growth and keep our costs in check. Luke Mott: Great. Thank you so much. And then just kind of circling back to some of the earlier questions and commentary around your existing automotive accounts. I was wondering for some of those legacy customers, how much more room you see for cross-sell or upsell there? And how much more room there is to run not just within the simulation side, but also with the data products? Jim Scapa: Yes. I think there’s a lot of – we’ve been looking at customers like the large OEMs in Detroit for years, and our business just continues to grow year-on-year for 25, 30 years. And I think that’s going to continue. There’s a huge amount of opportunity on the data side, a lot of opportunity on the designer side as well with products like SimSolid and Inspire. So if you look at the number of designers compared to the number of simulation engineers, it’s five, six, seven to one. So lots of opportunity there. A lot of opportunity on the data side as well and even on the manufacturing plant floor, you saw our ABI survey. If you look at the companies, we were compared against. And if you look at, they do a kind of I don’t know if I should say Magic Quadrant, but like Magic Quadrant, and we’re way at the upper right-hand corner and there’s a lot of well-known names that you might have thought of in that space that we beat out. And so I think there’s a huge amount of opportunity there. Luke Mott: Thank you. Jim Scapa: Sure. Operator: Our next question comes from the line of Charles Shi with Needham & Company. Charles Shi: Hi, good afternoon. First, I want to clarify a little bit maybe this is an accounting question maybe to Matt. It looks like the third quarter guidance, you’re still seeing foreign exchange as a tailwind, but it will [ph] lower your annual guidance and there seems to be some foreign exchange-related headwind? How do I reconcile the two is? What was the assumption that was a little bit of, I guess, back, let’s say, three months ago in terms of the foreign exchange rate and that the currencies are exposed to? Thank you. Matt Brown: Hey Charles, I’m not sure I caught all of that. Are you referring to the change in guidance at the midpoint from full year guidance that we gave last quarter to this quarter? Charles Shi: Yes. Matt Brown: Okay. Got it. So yes, so what we’re pointing out there is that as a result of changes in FX rates that we witnessed over the last quarter, the change in guidance in reported currency from a software product revenue and total revenue perspective is now down by $3 million on a reported currency basis, but it’s exactly what it was on a constant currency basis that we gave last quarter. So no change in constant currency. That impact flows down to EBITDA, but it’s partially offset actually by some FX benefit that you get in expenses. And so while the impact to revenue is $3 million, the impact to adjusted EBITDA is only $1 million because you get sort of a natural hedge there in expenses. Again, that’s all in reported currency. In constant currency, the guide is the same guide that we gave last quarter for full year. Charles Shi: Got it. So maybe the next question to Jim. Jim, I heard your discussion with a response to another question in terms of lackluster versus fireworks going up. I want to be a little bit more specific and I want to ask you about automotive. Well, this may be my favorite question every quarter. But what do you see about 2024 in terms of that vertical still your largest one, although contributions coming lower, but is 2024 a lackluster or you think the fireworks are going to go up. This is a high-level question. Direction of color is very – will be really want to hear that. Thank you. Jim Scapa: Well, I never should use that word. I mean, I think, generally, we’re going to start seeing an uptick in the spending for a lot of these companies. I think they’ve been holding a little bit tighter through this year, and I think they’re going to loosen up next year. And it’s not just about the sales that they make because the amount that they spend on engineering is actually a very tiny percentage of their total revenue and total expenses even. But I do think budgets have been – are a little bit more restricted. They’re also figuring out how to play the data game right now. So a lot of companies are selecting their solution corporate-wide for data analytics and data science. We’re in a lot of these conversations in a lot of companies.

And I think that as they start to figure out what are the applications and how can they really have an impact. There’s a lot of hype, there’s a big hype cycle around generative AI, but there is real meaningful opportunities to apply this technology and have an impact on their businesses. And I think we’re really well placed understanding their domain. So I think we’re going to start seeing more and more growth coming out of this year personally. I don’t have a crystal ball any more than you do. So I could be wrong here, but I do have a lot of experience. And I think that our products that we’re developing it are really going to position us and not just the products but our go-to-market approach. We’ve much more meaningfully organized towards specific verticals. All that’s really coming together in a very nice way for us as well. A lot of work going on this year to sort of reorient the company and we’re just seeing the results of that, I think, is going to continue to grow the pipeline coming into next year, and it’s just a big opportunity. Charles Shi: Thanks, Jim. Really looking forward to 2024. Thank you. That’s all my questions. Jim Scapa: Thank you. Operator: Our next question comes from the line of Blair Abernethy with Rosenblatt Securities. Blair Abernethy: Thanks very much. Just Jim, I wonder if you can give us a sense of how SimSolid Cloud is doing. I know it just launched in April, but just want to get some color about how that’s doing in the market. Jim Scapa: Okay. So it’s still very, very early days for SimSolid Cloud, but SimSolid is really going well, actually. And we just have a lot of companies that are beginning to really recognize the power of SimSolid. A lot of companies have done significant evaluation. We understand the concerns that they have, for example, around how we do adaptivity and we’ve been really tuning that for designers, so that there’s a lot more automation and setting parameters and all that. So we’re seeing this is one of the products that we’re excited about really continuing to take off, continuing to take us into a lot of places we haven’t been before. So SimSolid Cloud, it’s a good opportunity in the small, medium accounts. We’re trying to partner with some of the hyperscalers around that. It’s also a great opportunity to sort of evaluate the software even for a large corporation. They want to run a couple of models quickly in the cloud. But for now, I think the bigger business opportunity for us is still, if you will, on-prem, quite frankly. Blair Abernethy: Okay. Great. Thank you. And then just a question on the recent acquisition of OmniV announced last week. Just maybe just some rationale as to why you purchased this? And did they have much in the way of customers or revenue prior to the acquisition? Jim Scapa: Sure. So I mean, all customers are starting to think more about systems level design and building out digital twins to model an entire system, and we’re in the thick of that in many, many accounts. So that’s just a really important piece of the business. We had a gap there, you guys often ask me, what are you trying to fill, and I never want to answer those questions for you. But this was a gap. We didn’t have a requirements management solution. And we have been working with several years now. And we do believe that this is a tool that’s quite differentiated now. Customers love it that have started to see it. It’s very, very easy to learn how to use and to implement. And it does the two main things that customers need. It helps you set up the process and auto creation of your system models. And then it very, very nicely connects to simulation and test data for validation, which is exactly what you need to do with these tools. So you’re setting up upfront here are the requirements and then here’s how you’re going to validate these requirements. So it’s just a key element. I think the products that are out there in the market today are somewhat difficult for product engineers to really grasp I’m going to say. And I think this product is going to take off actually. Blair Abernethy: That’s great. Thanks very much for the call. Jim Scapa: Sure. Thank you. Operator: Our next question comes from the line of Mark Schappel with Loop Capital Markets. Mark Schappel: Hi, thank you for taking my question. Jim, it’s nice to see the growing success that you’re having with cross-selling your data analytics products into your simulation installed base. I was wondering if you could give us a sense of how much of this success you would attribute to, say, the changes you made to the sales teams at the beginning of the year and – or versus just customers becoming more comfortable with combining simulation with data analytics? Jim Scapa: Yes, it’s a great question. It’s a combination of things. I mean any of these things require – you have to sell it within your own organization, then the teams have to actually learn what these tools do. Our technical teams have mostly been trained now with RapidMiner with Monarch with Panopticon. So even the simulation guys are all very well versed in using and applying these tools. The sales guys similarly need to understand the use cases and how to sell these products. And I think we’ve come a long way in the last 2.5 years where they can do that. We did do some crossing creating these vertical teams and crossing some of the leadership from the data teams into the different verticals. And I think that leadership is making a pretty big difference.

But it’s also – the customers are as we get into customers and as we solve a problem over here, and they go, Oh, wow, you just saved us. We went from two weeks to two hours doing this thing or that thing. Could we apply it here or could we apply it there? So we’re starting to see the customers sort of at the grassroots level, beginning to grasp it and get it. And the real power for us is that the RapidMiner platform is a true no code platform. There’s a lot of other products will remain nameless. But a lot of other products that sort of claim to be no code you never can get to the end unless you get a Python program and they’re writing some code. And RapidMiner really is a no code platform. It’s just extremely easy to implement, and it’s very broad and deep. So I just think we’re in a great spot. We understand the domain, and we’ve got just an offer that crossing cross-training and all of that happening in our organization that it’s starting to get traction. Mark Schappel: Great. Thank you. That’s helpful. Jim Scapa: Thank you. Operator: Our next question comes from the line of Andrew DeGasperi with Berenberg. Unidentified Analyst: Hi, this is Stephanie on for Andrew. Thank you for taking the question. In terms of your acquisition strategy, do you expect any shift in the way you think about acquisitions and further what areas specifically are you looking at? Thank you. Jim Scapa: Sure. Thank you for the question. I generally try not to tell you what I’m looking at. That doesn’t usually work for me. And I don’t see a big change. I mean, I think we are very clear internally in the areas that are interesting to us, and we’re paying attention. We look at a lot of different companies. And – but at the same time, we’re value players as well. And we’re very focused on the quality of the technology and also the culture of [indiscernible] so a lot of stuffs that we’re looking at, quite frankly, right now, we have a lot of different opportunities. And we’re going to continue to probably mostly just tuck things in and continue to grow the solution side. So sorry for not answering the question, but that’s probably the best I can do. Unidentified Analyst: Got it. Thank you. Jim Scapa: Thank you. Operator: That concludes today’s question-and-answer session. This concludes today’s conference call. Thank you for participating. You may now disconnect.