Thank you all for joining us. I have the privilege of chatting with Matt Brown, CFO of Altair. David Simon is down in the front, second row here. Does lots of things at Altair, but we'll drag you up here maybe towards the end here. Now, Matt, Matt, it'll be the Matt and Matt show. So thanks, everybody, for joining us. We'll start out with some questions. If there are some for Matt, we'll queue them up now in your head. We've got a microphone, we'll pass that around. But we're really excited to talk with Altair. We've known these guys for a long time. You guys are coming off of a really, you know, with a lot of uneasy macro out there. You guys delivered a really strong quarter, and especially when you put it out versus some of your kind of, quote-unquote, peers that had some other pressure. You guys delivered a really, really solid quarter. Maybe start with that underlying stability of the business in unstable times. Talk to that and why, you know, you're maybe seeing some better trends than others. Yeah. So, yeah, you're right. We had a really, really nice Q3. But sort of more broadly speaking, I think, yeah, we benefit from being in a market where we are selling to, you know, very highly trained engineers solving complex problems- Yes ... in complex industries, where those budgets tend to be in sort of tougher macroeconomic times. Those budgets tend to be the last place you'd want to cut. Yeah. Yeah. In many cases, you know, our core customer on the simulation side, they're working on very difficult engineering challenges for products that may not be introduced for some number of years. And so, you know, from our customer's perspective, continuing to invest in that innovation is really critical to them and to their survival. So we sort of benefit from being predominantly in that market. And then I think more specific to Altair, you know, one of the things that makes us a very stable grower is our business model. So we are, you know... Roughly 94% of our billings are recurring in nature. We're selling on an annual lease subscription basis. The products tend to be very sticky, so when they do come for renewal, that tends to be a pretty predictable renewal and opportunity for growth. And our customer concentration is also very diverse. So we, you know, our largest customer is less than 2% of our revenue. So I think all of those factors combine to make for a pretty diversified customer base, and that helps us be stable through what can be sometimes, you know, uncertain macro conditions. So when you think—that's a, it's a really good perspective. When you think about your sort of end markets, you know, I guess, do you typically see a Q4 budget flush? Is that something that you guys typically see with some of your customers, and has that—is that a kind of a thing for you guys? Well, so seasonally, Q4, and Q1 are our largest quarters, and that has just been the historical norm. And as our customers kind of come up for renew, you know, you get on this sort of annual cadence, and so Q4 does tend to be a larger quarter for us. I wouldn't say, though, that it's a budget flush, but that does tend to be seasonally one of our larger quarters, yeah. Yeah, it especially when you're talking to customers where you've had decade-long relationships or more, and, you know, they're working on projects that can span multiple years, it feels like it's probably Q4 is obviously a sales incentive time, but, but yeah. Okay. Yeah. Helpful perspective there. Yeah. One of the questions I always get is the competitive environment. I think everybody just associates you with Ansys from solvers and simulation. You guys are so much more than that. Talk a little bit more about the competitive dynamics. Who are you running? Obviously, a lot of it's upselling your base- Yeah ... of course. Yeah. Maybe just level set folks that are maybe newer to the story on the competitive dynamics of, you know, pre- and post-processing, kind of coarse solvers, and obviously, we can get into the analytics side of it as well. Yeah. So, our biggest vector for growth tends to be expansion within- Yep. Existing accounts. The market that we are in tends to be highly fragmented, so it wouldn't be unusual for our customers to leverage both our technology and our peers' or competitors' technologies. Again, the market can be fragmented. You may have dozens or more software providers within a typical PLM stack. And so, you know, one of our sort of, you know, key to our culture and our method of interacting with our customers is that we ensure that our products play very nicely with our peers and our competitors. Now, there is opportunity, of course, for competitive wins. And for us, one of the ways that we think we have an advantage there is by offering a pretty broad range of technologies within a given portfolio, and the way that we sell allows our customers to access that technology across the portfolio, and so we can encourage that expansion, and in some cases, consolidation to Altair- Yeah for various challenges that they're trying to solve. Yeah, the go-to-market with now Altair Units has been rebranded a few times. Yeah. Really has always been a unique aspect of the model that really feels disruptive to me. When you consider buying point-based products for individual SKUs. So yeah, that is really good to hear. Let's talk about. I think when I look at this business over the prior two to three years, the focus on analytics has been profound. Yeah ... and really different from a lot of your peers. That business Datawatch took a while to get integrated, but it really feels like it's kinda humming along now. Yeah. Talk about sort of why, you know, the why it's such an interesting opportunity, and it's not on units yet, is it? Or did it--has- It is. Okay, when did- Yeah, in the last year, we have now our data analytics solutions- It's all on Units. All on Units. Okay. Okay. Yeah. 'Cause I think a lot, you know, a lot of people, you know, think about, you know, where you guys started in kind of pre-post processing, and analytics seems very complementary to that as well. So kind of talk about why analytics is such a big growth vector for you guys. Yeah, it's something that we've been focusing on for quite some time now. You know, it was back in 2018 that we acquired a company called Datawatch, that had some very nice point solutions, Monarch for data prep and Panopticon for data streaming and visualization. We also made some investments, you know, internally. We acquired a company called World Programming, that offered a SAS language compiler tool that was associated with primarily BFSI space, and in that data analytics space as well. And then most recently, we acquired a company, this is in September of last year, called RapidMiner. Yeah. And that was, for us, sort of game changing because we had a lot of very nice point solutions on the data analytics side, but RapidMiner helped pull those things together into a platform. And, that's become a differentiator for us now because our customers realize that by leveraging the RapidMiner platform, they can gain all sorts of business insights, that they would not have been able to gain otherwise, by leveraging our tools. We've been talking for some time about this convergence- Yeah ... of simulation and high-performance computing and data analytics. It wasn't always so obvious as it is now. I think it's becoming more obvious that data analytics is important in simulation. And for us, we're seeing increasingly seeing opportunities where our core simulation customers on the engineering side are wanting to make use of data analytics to analyze their synthetic data that they're generating in their simulations that they're running, as well as an opportunity in, say, the digital twin realm, where you can pull real-world data and then gain insights by marrying the two of those. So for me, I think it's critical to the idea of a digital twin. You have to have those capabilities on the simulation side and the data analytics side to bring those things together. So I think you sort of... I don't think you saw the—did you see these questions ahead of time? 'Cause you really dovetailed right nicely into RapidMiner. But yeah, that I think when we heard about that on the last call, it really did pique our interest- Yeah ... in terms of what you guys are doing there with creating LLMs and partnering with Hugging Face. And I guess, you know, maybe double-click on that, why there seems to be so much excitement, both inside the company and the customer base. And then ultimately, how, you know, as a CFO, how do you think about monetization? Because I think a lot of people talk about AI, but then ultimately, like, how do you know, is it gonna affect revenue? Yeah. So AI is important for us in a couple of really critical ways. So I'll get to RapidMiner in a second, but even if you just look at sort of our core simulation products, we have been incorporating AI, also known as machine learning, within our simulation tools for some time. We have a module called PhysicsAI, for example, which will allow an engineer to use the PhysicsAI module to learn from the prior simulation runs that this engineer's been doing, right? And let's say that this, you know, he's working on stress on a beam. Using PhysicsAI, you can then change the design parameters on that beam, you can change the stress load, you can change the material thickness, and PhysicsAI will predict the results in real time. So it's very, very fast. You can then, after you've optimized for what you believe the best designs are, you can then go run a full simulation validation run, and it will, in most cases, validate what the PhysicsAI has just generated, to then do your full validation. It makes that work so much more efficient, makes it faster, more effective. That's just one of the ways that we're sort of incorporating machine learning into our core simulation products. On the RapidMiner side and on Hugging Face, for us, it's really important that we are sort of leveraging the best sort of open tools that are out there- Yeah ... for whether you're talking about LLMs or any other kind of data analytics models. And by being able to pull in models from Hugging Face, we're just sort of opening that environment to our customers. And so, that open access, again, is sort of in line with our culture, the way that we've operated for some time. And you know, for us, you know, leveraging data analytics tools, I think, is about ease of use and overcoming the barrier of the friction of expertise. Yeah. So RapidMiner allows you to be in a no-code, you know, low-code, no-code environment where you don't have to be a data scientist to actually use it. Incorporating in the models from Hugging Face is critical to that, too. So to the point on monetization, does it just get down to more units, more units? Oh, sure. Yeah. Yeah. In terms of monetizing, what we really wanna stress, and what we've always been about is increased usage- Yeah Then leads to increased revenue. So and that's true whether you're talking about a brand-new opportunity for a customer where you're selling just the data analytics platform, or whether you're talking about, say, an existing engineering customer that has not leveraged our data analytics tools in the past, we feel like we can offer a compelling solution to that individual as well. That means they're increasing the usage within their suite, and increased usage then results in an increased contract in the renewal. Okay. So yeah, I think, I think, one of the things that we're all looking for is, you know, you know, some unique opportunities to leverage data, and, and, to make, you know, more informed product decisions. It feels like you guys have an opportunity, and I think we'll, you know, to the extent you guys can... It'll probably- I don't know, it'll be interesting to see as a CFO or a management team, how you call out success there. Yeah. Yeah. Maybe it just shows up in growth numbers. I mean, the lines are becoming increasingly blurred, but it does ultimately make its way to cash. Yeah. I think at the end of the day, that's what I care about. Yeah. But the thing that's so encouraging and fun for us at Altair is seeing the different ways that our customers are leveraging our technologies. They're using our technologies in ways that I never would have dreamed of. You know, we have... And they're all very interesting challenges, and it can go, and it can span sort of, you know, basic use cases or, or sort of recreational golf club manufacturing to, you know, rockets and anywhere in between. We have a customer; we made this case study public, but we have a helicopter manufacturer who is using digital twin technology to model its radar antenna. So it found that the rotation of the rotor blades was causing vibration that was disrupting the radar antennas within its helicopters. They were able to simulate the impact of that vibration on the radar antenna, and then bench test a radar antenna vibration with real-world data now, and have, then effectively, that's your digital twin, right? Marry that data up and then optimize the design for that vibration. So yeah- Exciting stuff ... it's incredible. Yeah, it is. It's really incredible. It is. Yeah. We can see those use cases. Yeah, it's- It's amazing ... crazy optimistic about the future of innovation. Absolutely. Yeah. From a go-to-market perspective, does anything change then from, you know, having a common data model to having kind of AI and data analytics across the entire platform? Does that change any go-to-market focus of the company as it becomes more sort of prevalent? Yeah, I think it does. I think it's helpful in that, you know, we moved to a vertical go-to-market motion earlier in the year. And so for us, we focused on auto and aero, technology and BFSI. And previously, our sales teams had been mostly organized around product, so simulation- Yeah ... separate from HPC- Yeah ... separate from data analytics and by country. By organizing in verticals, it really gives us a chance to cross-sell specific use cases within that domain. Having a common data model helps facilitate that, right? Yeah. You, you can then, you know, in the—in this most recent HyperWorks release, for example, having a common data model is really critical to be able to pull over different models from Inspire, from SimLab, across to HyperWorks. It makes that very seamless, makes it much faster and more effective, for the users, which is what we're, what we're all about. We're trying to facilitate just better decision-making. Yeah. So your growth over the years, Altair's been, I mean, you guys have been around for, as it's over 30 years now, isn't it? Yeah. It's been a while. Yep. You've got quite a bit of history- Yeah ... and you've obviously got a lot of innovation. As a CFO, how do you think about kind of that layer cake of growth? W hen you're thinking about looking at pipeline and renewals and cross... I mean, how do you sort of build that guidance philosophy based on kind of a layer cake approach to... Well, you know, historically, if you look at an industry average, you might be talking 6%-7% growth, and obviously, you guys are growing faster than that, but- Yeah ... but, yeah. I think for us, you know, it starts with having that very nice base, the diversified base that I sort of started with. We have lots of customers, and those customers rely on our products to do innovation that's really critical to them. So it helps that we're selling something that is very sticky by nature. That provides a nice foundational baseline, gives us confidence in renewals as they come due. Of course, there's always some amount of churn, but our churn historically has been very light. Yep. Generally, most of our growth comes from expansion within existing accounts, and then, of course, the remainder is from net new. But we think that there's opportunities, and real significant opportunities in both of those areas. So in expansion, we're working on things like developing use cases specific to a vertical on cross-selling other pieces of our technology that those customers may not have used in the past as a consolidation sort of opportunity for them. And then in brand-new opportunities, we feel like we've got products that are very compelling and can provide opportunities for those brand-new customers to then have more effective design. Another sort of vector for growth for us is being able to continue to capitalize on what we think is an expanding pie of simulation. So what I mean by that is bringing simulation sort of earlier in the design process- Yep, yep. I think is an opportunity that we have and that we've been continuing to leverage. Our SimSolid product does a fantastic job of catering to a designer. And that's really sort of opening up brand-new opportunities for us. I'm gonna ask a couple more, and then we'll see if there's some questions about the competitive landscape, and maybe you want—people wanna double-click on that a bit more. But as a CFO, you've gotta be thrilled with the gross margin progress the company's made. Yeah. You guys have been mixing towards software, and that's been a natural uplift to gross margins. Talk about, you know, how you look at gross margins driving overall profitability. Is there more room to be had on that gross margin line item? Yeah, there is. And so the way that I think about our blended gross margin is we're just now getting above 80%. And when you double-click into that, what that's really comprised of is software standalone gross margin that's in the upper 80s- Yep. ... 88%-89%, and then everything else that's at something like 20%, right? Yeah. The way that we've been able to grow our blended gross margin is actually twofold. We're growing mix, and so trending more towards software- Software. ... product revenue- Yep. ... which is helping. That's driving higher blended gross margin. But also, if you look at our standalone software gross margin, that's growing too. And the reason that that's growing is because as that revenue growth continues to increase, we're able to keep cost of sales growing at not quite that pace. Most of our cost of sales in that line is customer tech support, some small amount of royalties. But what that means is we can grow that a little bit slower, and I expect, you know, over the long term- Yeah. ... that standalone software gross margin is going to get up above 90% and maybe even a bit higher than that. So what that all means then is, over the long term, we're still going to be able to add to our blended gross margin, see blended gross margin rise up above 80%. On those. Especially, those two vectors are a good way of thinking about it. Yeah. Yeah. I always think about the mix shift, but I guess I don't think about improving standalone. Yeah. Even a common data model, that's gotta help, and maybe even the vertical sales focus, also. Yeah, and we've also moved to a global tech support footprint too. Okay. That's helped as well. All things to help. Maybe one last question here, and then I'll, I'll pause a second. You know, when, when you think about... You didn't offer kind of calendar 2024 guidance on the last call, but if you... Are there some building blocks or some guardrail, guardrails that you would, you would sort of tell us to think about when we're kind of thinking about sort of like, call it medium-term growth? Yeah. So for us, one of the things that makes us feel really good about not just 2024, but I would say any out into the future, is 2023 for us was a significant year in building. So we talked a little bit about the change in our sales approach and organizing within verticals. That's hard work- Yes. ... that needed to be done. That was done at the beginning of the year. You saw we, we had a very significant product release that we recently put out. Those releases were, in some cases, years in the making, so were very significant. A lot of work went into that. And then back in administration, we spent a lot of time. You know, we had a, an ERP implementation. We had new internal reporting. So a lot of work was done. So for us, we felt like 2023, a decent year growth-wise, you know, projecting, you know, roughly 10% constant currency at the midpoint for software product revenue, but it was a, an important year for us to build. And so that gives us a ton of optimism where it feels like: Okay, we, we've got the sales motion in place. We've got the products in place. Yeah. We've got an internal infrastructure team that's in place. Yeah. We're feeling very positive- Yeah. ... and optimistic. Now, in terms of what 2024 means from a macro perspective- Yeah. ... that's, of course, gonna impact us like it does everybody else, but we feel like we've put ourselves in the best possible position. Controlling what you can control. Controlling what we control. Yeah. It puts us in the best possible position for what 2024 could be. And I, you know, frankly don't know what 2024 is going to be from a macro perspective. Yeah. I'm interested to... Maybe we could poll the audience and get, like, a show of hands on where we think. Well, it feels like whatever it is, I mean, it feels like you guys have been operating through a really tough macro, for the last several years anyway. So it- Yeah. ... I'd like to think that there's only a chance for improvement- Yeah ... if PMI starts to tick up. I mean, I think we're feeling pretty good, and, like I said, you know, putting ourselves in the best possible position for whatever 2024 throws at us. Sure. Sure. Yeah. I'm gonna pause here a second. Are there any questions from the group here for Matt? No? No, no, no. Well, raise your hand in a second here, so I'll come... I'll open it back up again. When you think about capital allocation as a CFO, how do you—like, what are the most important aspects of... Just I'll leave it there, capital allocation? Yeah. So for us, we're cash flow positive, so we generate, you know, in excess of $100 million in free cash flow a year. And so that, you know, provides me a great deal of comfort. We have, you know, roughly $430 million of cash on the balance sheet. We have a convert. We've got a portion of that convert that comes due. I like that we're earning 5.5% in the bank. Yeah, that feels pretty good. That's nice. Yeah. I like that. That's kind of nice. But I expect that our, our capital allocation strategy will be largely what it has been in the past, which has trended towards M&A. Yeah. So that's gonna be our primary use of cash is investing back into the business. We've done a pretty good job of finding the right pieces of technology, right talent to incorporate within our business, where we feel like it makes sense from a buy versus make perspective to go invest that capital and get a return. I'm happy to say you know, when we look back at you know, somewhat recent history at our more sort of significant acquisitions, those acquisitions are performing very nicely. They're performing a really nice return. That track record gives us some confidence to go forward under that same model and find those sort of you know, diamonds in the rough that we can incorporate. Adjacencies there? Yeah. So it feels like, in terms of like it, it's more of like sort of maybe acquihires or important tech, like RapidMiner, where you're like, this fills a key gap in sort of what we're doing and from a differentiation perspective. Yeah, that's right. Yeah. I'm gonna go back to competition. I mean, you know, one of your larger simulation competitors has had some issues in China. How do you... you know, I guess, do you have any exposure to-- I forget if, if you- We do have some exposure in China. It's not a material amount of exposure. I would say probably less than some of our peers. The thing about China for us is we've been operating under this pretty consistent regulatory environment for years now. Yeah. So the Department of Commerce has, you know, consistently had a restricted entity list that we've adhered to. So we go and, like most other companies, have a robust vetting process that includes looking for flagged entities, and when a flagged entity comes, we just don't sell to them. There was nothing new in Q3 in terms of regulation. There were no new vetting requirements that came from the Department of Commerce. So I think each company has had to adapt, and we maybe adapted early. Yeah. We've always been operating under that, under that way, so we were not impacted in Q3. I think broadly speaking, if you ask most experts, expectation is that the Department of Commerce will probably continue to get more restrictive- Yeah, yeah. Generally. But we didn't see any kind of a shift in policy in Q3. In Q3. Yeah. You said it's low exposure, like single digits, is that what we're talking about? Yes, single digit- Yeah. -exposure. Yeah. Okay. Okay. Let me... I've got two more. If there are any? Oh, yeah, go ahead. [audio distortion] for a simulation customer with the analytics side of that, right? Like when $100 on simulation that we get today on this annual basis, if you cross the analytics and get another $15, how is the calculation? Yeah, the question maybe is if you're selling $100 of simulation, what does it mean from an analyst? What was it? From a cost of analytics. Cost, yeah, yeah. Cost analytics, absolutely. So I personally think that that opportunity is huge. It's, it's more of a timing, I think, question, and so how fast does that come? I've got no doubt that, you know, when we talk to our customers and when we talk to our, you know, our own internal experts and others, data analytics continues to be something that is important to simulation, and I think will continue to be even more important out into the future. So I think the cross-sell opportunity is massive, but it takes time to develop. And I think domain expertise matters a lot, and I think specific use cases matter a lot. When we can go to an auto, you know, a top auto customer and have a reference account that says, "Hey, did you know that, you know, this, our other customer, you know, is leveraging our technologies in these ways, and maybe you could do the same?" I think that's extremely powerful a nd that's where we can really add a lot of value. Cool. Thanks for the question. Maybe this is a... It, it may be a tough question to answer, Matt, but I'll see if- Uh-oh. I put it on the list. But if you think over the next couple of years, as a management team, what do you think is one of the most important decisions you'll have to make? And if you don't have an answer to that, that's fine. But I was curious, like, when you think about, like, these are, like, whether it's like- What's the toughest decision? Yeah. I don't know that I, I don't have a great answer. I'll see if I can come up with a non-answer for you. I think, honestly, any, any, any answer I came up with, it would probably almost certainly be wrong. Yeah. You know, like, I'm not sure we could predict- Yeah ... the best, the next toughest question. It's sort of like I try to teach my kids, like I- I try to teach my kids how to think, not what to think. Yeah. I think Altair has done a fantastic job of putting ourselves in a position that when that decision comes, we can make the most informed one. That's a great answer! Thank you. That's a great answer. I did my best on... But I think about it as a parent, too. You're right, you can't-... We have a freshman in college, and we're not- we don't see him as often, but it's like we hope that foundation of decision-making- Yeah ... is right. But yeah, that's a, that's a great answer. Thank you. We're out of time here. I was gonna ask you about your most important growth drivers, but I think we've covered a lot of them through this conversation. Yeah. It just feels like ultimately it's about durability, predictability, expansion, margins. It feels like it's a lot of that, so yeah. Yeah, absolutely. Well, from all of us at RBC, Matt and David, thank you for joining us as well. Best of luck. Thank you. Yeah, I appreciate it.