Altair Engineering Q3 2023 Earnings Call Transcript

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November 2, 2023

There are 9 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Altair's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please note that today's conference is being recorded.

Operator

I will now hand the conference over to your speaker host for today, Dave Simon, Senior Vice President of Investor Relations. Please go ahead.

Speaker 1

Good afternoon. Welcome, and thank you for attending Altair's earnings conference call for the Q3 of 2023 ended September 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 close today, We issued a press release with details regarding our Q3 2023 performance and guidance for the Q4 and full year 2023, which can be accessed on the Investor Relations section of our website at investor.

Speaker 1

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.

Speaker 1

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 report 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.

Speaker 1

Finally, at times in our prepared comments or responses to your questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business for our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. With that, let me turn the call over to Jim for his prepared remarks. Jim?

Speaker 2

Thank you, Dave, and welcome to everyone on the call. The Q3 of 2023 was excellent for Altair With software product revenue, total revenue and adjusted EBITDA all above the high end of our guidance. Our Q3 performance demonstrates the power and veracity of our vision for the convergence of computational science and AI across industries and verticals, including engineering, scientific discovery and business. Adjusted EBITDA for Q3 2023 more than doubled year over year to 15,500,000 Software product revenue as a percentage of total revenue for the Q3 grew to 88.9% compared to 86.9% in the Q3 of 2022. Software product revenue as a percentage of total revenue for the 1st 9 months of 2023 increased to 89.3% as compared to 87.8% in the 1st 9 months of 2022.

Speaker 2

The recurring software license rate for the 1st 9 months of 2023 was 94%, an increase from 93% through the same period in 2022. Software product revenue on a constant currency basis grew by 14.5% in the 3rd quarter Compared to the Q3 of 2022 and 11.1% for the 1st 9 months of 2023 compared to the same period in 2022. Altair's growth continues to be broad based across many geographies, Technologies and Verticals. We are releasing a landmark set of product solutions across our entire portfolio, representing some of the most important and powerful software updates we have delivered in many years. Included with these releases are next generation user experiences, modern APIs, Titan's integrations between products, seamless access to high performance computing and increased computation speeds.

Speaker 2

Over the past year, our employees from all parts of the organization have embraced a shift to focusing on verticals as well as cross pollinating our data science expertise with our traditional simulation and design go to market teams. This convergence has created new growth opportunities with our customers by helping them apply digital twin technologies To improve their products, scale compute power faster and use data analytics and artificial intelligence to accelerate their digital transformation efforts. As part of this effort, we are pushing the boundaries of what we know is possible By integrating our products in truly transformative ways across all three of our major software platforms. Altair HyperWorks, our design and simulation platform Altair RapidMiner, our data analytics and AI platform And Altair HPC Works, our high performance computing and cloud platform as well as Altair 1, our Cloud Innovation Gateway. Altair HyperWorks 2023 empowers engineers With a comprehensive suite of design and simulation solutions that harness the power of computational science, HPC and AI.

Speaker 2

Its new modern user experience and Python APIs throughout the platform empower developers and users to create unified best in class solutions leveraging technology from the entire Altair HyperWorks portfolio. HyperMesh was upgraded with a user centric design providing unmatched pre and post processing capabilities through AI power tools and next gen design and optimization workflows. HyperMesh CFD complements these capabilities by streamlining CFD workflows within a unified environment. SimLab has expanded capabilities As an integrated multi physics solution for electronic design automation, enhancing user friendliness, while advancing electronic and EDA product development. Our new product introduction of Simulation Data Management is an exciting and timely solution for customers looking to leverage AI driven simulation where historical simulation runs become key sources of valuable data.

Speaker 2

We see significant momentum among all customers to implement digital twins for both design and in service applications. TwinActivate, the foundation of Altair's digital twin solution, Continues to evolve as a differentiated solution, especially with our strong ROM AI capabilities. In addition, the integration of OmniV, recently acquired for requirements management, gives our platform a This release enhances SimSolid's ability to automatically set parameters leveraging machine learning, which is key for the design community. Inspire's release beautifully integrates implicit modeling We're optimizing lightweight lattice structures, building on technology from our 2022 acquisition of Gen3D. This software is further enriched by a new cutting edge visualization and rendering graphics engine, which will also be released in future versions of HyperMesh and SimLab.

Speaker 2

Altair RapidMiner 2023 Now delivers generative AI capabilities for domain experts and data scientists and deeper support for coding data scientists. The platform also continues to integrate advanced automated functionality, including decision trees, auto clustering, auto machine learning, auto feature engineering and auto forecasting. Customers can build and use rich real time dashboards more intuitively than ever With a new streamlined user interface and those with intellectual property in the SaaS language will be able to write, Furthermore, Alta RapidMiner with generative AI enables non programmers to create large language models and refine models for new or proprietary use cases, all without needing to write code. Users can access all 300,000 plus Hugging Face models with one click and fine tune models with Billions of parameters competing with some of the biggest models on the market. Generativeai in Altair RapidMiner also simplifies and accelerates workflow design.

Speaker 2

Users simply state the desired data transformations and the platform will suggest and configure the appropriate workflow. Altair HPC Works 2023 has undergone one of the biggest technology changes in decades. Through the adoption of webscale distributed technologies, we give HPC centers around the world This ensures efficient cloud spending by enabling global cost controls and providing enhanced visibility from your preferred Altair workload manager. By targeting specific workloads with cloud resources, We ensure expenditure matches business needs. AltairONE 2023 lets customers easily configure, Build and deconstruct your HPC infrastructure on demand with any of the popular cloud providers, Avoiding vendor lock in and uncontrolled cost.

Speaker 2

Altair Material Data Center and our Simulation Data Management are built on the AltairOne platform for consistency, traceability and collaborative decision making across the enterprise. On Altair 1, users can interact with Altair Support, access our new enhanced AI powered support documentation and manage their software licenses and users. In addition to these exciting product releases, we have added additional technology to our structural optimization portfolio with the acquisition of OmniQuest. The company was founded by the late Professor Gary Vonderplatz, A giant in the field of structural optimization. Its advanced structural analysis and optimization software is used by many customers in the automotive sector to develop lightweight, efficient designs.

Speaker 2

We believe this acquisition further enhances Altair's optimization market leadership. The aerospace vertical was particularly strong for us in the 3rd quarter. Notably, Altair extended its long time collaboration with Airbus with a recently signed new multi year agreement. This agreement allows Airbus Additionally, it will accelerate Airbus' deployment of Altair SimSolid, our game changing meshless simulation technology. In addition, an aircraft engine manufacturer signed a 6 figure license agreement focused on data analytics and machine learning to detect anomalies related to electromagnetic interference.

Speaker 2

An aerospace systems supplier committed to using Altair RapidMiner to drive its data driven digital transformation for engineering, Manufacturing and Aftermarket Services. A major aerospace company renewed with a double digit increase on its annual 7 figure spend with Altair simulation tools regarded as a core technology for its product development and verification processes. Finally, an aerospace supplier sourced a 6 figure deal specific to Altair Monitor, our real time software licensing monitoring and management system. The automotive vertical, driven by several innovative applications, contributed to our 3rd quarter software sales growth. A European automaker worked with us to use AI for improved NVH performance.

Speaker 2

An APAC automaker used RapidMiner to improve its supply chain efficiency and a Formula 1 team Expanded its 6 figure annual spend with Altair by over 30% with applications mainly focused around structural optimization. Finally, we had a 6 figure expansion with an EV manufacturer, including work targeted at Vehicle Dynamics. In the heavy equipment vertical, we won a multi year 7 figure commitment representing double digit year on year expansion compared to 2022 and also going forward. This relationship is a great example of a global company Leveraging a large portion of Altair's portfolio to address longer term goals for electrification, Digital Twin and overall data driven enterprise strategies. We are excited about its products and look forward to playing a continued role in helping this company succeed.

Speaker 2

In the technology Vertical, we won 2 new semiconductor customers in Europe and a 7 figure expansion with a major U. S. Technology supplier for applications related to high performance computing. Regarding workplace culture, Alter added to our growing list of 2023 awards by again being named 1 of Newsweek Magazine's Most Loved Workplaces in the U. S.

Speaker 2

And in the U. K. This year we were also named 1 of Fortune Magazine's 40 Best Workplaces and Technology. We appreciate the recognition from these highly respected award programs. We look forward to closing out a solid 2023 despite a relatively challenging macro environment.

Speaker 2

Now I will turn the call over to Matt to provide more details on our financial performance and our guidance for the Q4 and full year 2023. Matt?

Speaker 3

Thank you, Jim. Hello to everyone on the call and thank you for joining us. Q3 was an impressive quarter for Altair With our financial results exceeding the high end of the range for every metric we guided to for the quarter. Once again fueled by strength in software revenue across a number of verticals. Fiscal 2023 continues to progress in a positive way and we are well positioned to achieve our financial goals for the year.

Speaker 3

As I dive into the details of our financial results, remember some of our revenues and expenses are transacted in currencies other than the 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 124,400,000 A year over year increase of 1.2% in reporting currency and 0.1% in constant currency. Software product revenue in Q3 2023 was 119,100,000 A year over year increase of 14.8% in reported currency and 14.5% in constant currency compared to Q3 2022. In Q3, we saw particular strength in expansions within our renewal base, including the cross sell of our data analytics and AI solutions into traditional engineering customers, as Jim mentioned a few minutes ago.

Speaker 3

These wins are encouraging and support our view that customers are expanding the use of applications across our product portfolio to drive better designs and decision making. From a vertical perspective, we continue to see meaningful growth in Automotive, Aerospace and Technology, where demand for our products is strong. Total revenue in Q3 2023, which includes services and other revenue, was $134,000,000 a year over year increase of 12.3% in reported currency and 11.9% in constant currency compared to Q3 2022. Our recurring software license rate, which is the percentage of software product billings that are recurring, continues to be strong at approximately 94% through the 1st 3 quarters of 2023. Non GAAP gross margin, which excludes stock based compensation, was 80.1% in the 3rd quarter compared to 78.6% in the prior year, an increase of 150 basis points.

Speaker 3

Software product mix and an increase And our software product gross margin drove this increase. Our software product revenue, which carries higher gross margins, was 88.9 percent of total revenue in Q3 2023 compared to 86.9% in the prior year. Over the long term, we continue to expect a general mix shift towards software product revenue as growth there will continue to 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 exclude stock based compensation and amortization of intangible assets, were $93,900,000 compared to $91,700,000 in the year ago period, an increase of just 2.4%.

Speaker 3

This year over year change was driven by increases in Research and Development and Sales Capacity, partially offset by decreases in general and administrative costs and represents the smallest year over year quarterly percentage increase in operating expenses since the COVID pandemic impact in 2020. Adjusted EBITDA in Q3 2023 was $15,500,000 or 11.5 percent of total revenue compared to $6,800,000 or 5.7 percent in Q3 2022. The year over year increase was driven by the increase in revenue, while maintaining a disciplined approach to costs. In September, we celebrated the 1 year anniversary of our acquisition of RapidMiner. In addition to the exciting new product capabilities that Jim spoke about in our Altair RapidMiner 2023 release, we've also realized cost synergies ahead of expectations.

Speaker 3

Turning to our balance sheet. We ended the quarter with $431,200,000 in cash and cash equivalents, an increase of approximately $12,900,000 from the prior quarter. This 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 1st 3 quarters of 2023 was $97,800,000 Looking ahead to guidance for Q4 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 changed throughout last year.

Speaker 3

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 Q4, we expect software product revenue in the range of $153,000,000 to 159,000,000 A year over year increase of 5.6% to 9.7% in reported currency and 5.1% to 9.3% in constant currency. For full year 2023, We are maintaining our previous outlook for software product revenue in constant currency at the midpoint and slightly decreasing our outlook in reported currency due to changes in foreign exchange rates to a range of $547,000,000 to $553,000,000 a year over year increase of 8.0% to 9.2% in reported currency and 9.4 to 10.6% in constant currency. For Q4, we expect total revenue, which includes services and other revenue, to be in the range of $169,000,000 to 175,000,000 A year over year increase of 5.3% to 9.1% in reported currency and 4.9% to 8.6% in constant currency. For the full year 2023, We are maintaining our previous outlook for total revenue in constant currency at the midpoint and slightly decreasing our outlook in reported currency due to changes in foreign exchange rates to a range of $610,000,000 to 616,000,000 A year over year increase of 6.6% to 7.7% in reported currency and 7.9% to 9.0% in constant currency.

Speaker 3

Moving to adjusted EBITDA. For Q4 2023, we expect adjusted EBITDA in the range of $44,000,000 to 50,000,000 or 26.0 percent to 28.6 percent of total revenue compared to 38,700,000 or 24.1 percent of total revenue in Q4 2022. For full year 2023, we are maintaining our previous outlook for adjusted EBITDA in constant currency at the midpoint and slightly decreasing our outlook in reported currency due to changes in foreign currency exchange rates to a range of 120 to $126,000,000 or 19.7 percent to 20.5 percent of total revenue compared to $108,600,000 or 19.0 percent of total revenue in 2022. And finally, for the full year 2023, we are maintaining our outlook from last quarter for free cash flow, which we expect to be in the range of $108,000,000 to $116,000,000 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.

Speaker 3

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 are expecting that pattern to continue this year. I'm very proud of the steady execution our team has made so far this year in so many areas across the company. Our performance through the 1st three quarters gives us confidence we're on track to meet our financial goals for the year. With that, we'd be happy to take your questions.

Speaker 3

Operator?

Operator

Thank you. Our first question coming from the line of Charles Lee with Needham and Company. Your line is open.

Speaker 4

Hey, good afternoon, Jim and Matt. So maybe I want to start with Your Q3 results and the Q4 guidance, which kind of relative to what you guided a quarter ago, there was a good amount of Sorry to Q3, but there seems to be a little bit downside to Q4. But on balance, it looks like at least on constant currency basis, you didn't really change your outlook. So really just wonder, these puts and takes across those two quarters, are those just a timing issue of the revenue or you are seeing something else? That's my first question.

Speaker 4

Thanks.

Speaker 3

Yes. Hey, thank you for the question. I can take that. So one of the things that We've just been very proud of this year is just the steady execution against what we viewed as Our outlook in software product revenue at the midpoint showing growth of 10%. So We had that outlook to start the year and we've been able to just sort of reaffirm that each quarter as we go.

Speaker 3

Last quarter, as You probably recall, we really tried to emphasize the fact that we're looking at the second half, really as a second half as a whole. And so when you look and see how we performed, that view is still intact. And we feel like The really good news is we got some benefit in Q3 above what we were expecting and that helps derisk Q4. And in total, our second half view remains consistent in constant currency. So it's something that we're pretty happy about.

Speaker 4

Thanks, Matt. So maybe our next question maybe for Jim. Hi, Jim. I think there has been quite a good amount of not so positive headlines related to the automotive industry. I mean, Regarding maybe some of the demand softening, maybe more on the EV side, but also the strikes UAW strikes, I mean, it looks like it can put some cost pressure on automakers.

Speaker 4

Whether I think the question is, could you see do you see some of the macro Affecting vertical in automotive? Or do you see some of the strikes probably going to cause some issues with your Customers in terms of when they plan for the next year's budget for areas that's relevant for Altais business. Thanks.

Speaker 2

Sure, Charles. Thank you. In general, I just don't see The work that we do is really being affected much by any of that, Quite frankly, I think these companies are continuing to need to innovate. They are continuing to embrace Simulation and data science more and more frankly, because they recognize This is the path to actually doing things for less cost and faster. And So we're just not affected in the way that you might anticipate.

Speaker 2

And I think that Frankly speaking, I think that the auto companies have managed their finances quite a bit better than they used to in And so I just don't see that kind of strain affecting us at all.

Speaker 1

Thank you.

Operator

Thank you. One moment for our next question. And our next question coming from the line of Dylan Becker with William Blair. Your line is open.

Speaker 2

Am I missing the question?

Operator

Dylan Becker, your line is open. Please check your mute button.

Speaker 2

Maybe we should go to the next question. Thank you.

Operator

Sure. One moment for next question. And our next question coming from the line of Blair Urbarnettini from Rosenblatt Securities. Your line is open.

Speaker 5

Hi, thanks guys. Can you hear me?

Speaker 2

Yes, we can.

Speaker 5

Hi, great quarter. I guess a couple of things I wanted to drill in on, Jim. Can you just give us a little more color on this cross selling that you were able to pull off on the Data science into manufacturing, just kind of some a little more color on how you did that, How big is that opportunity? Now that you really had RapidMiner for a year, just want to get a sense of how accretive that can be to you?

Speaker 2

Yes, I think it's really huge to be honest with you and it's really just incipient right now. We're just seeing a huge amount of interest in applying our physics AI technology, for example, Raum AI Technology wanting to do digital twin implementations and we're frankly very, very well positioned With great technology, great expertise and a lot of experience now, we're just seeing everywhere we look are these kind of projects. And what we're being told is that our technology is best in class and We continue to invest in it and I just think we're starting to outpace the competition and it's an area That maybe others were dismissing earlier, but it's really coming to fruition. I think it's huge, absolutely huge.

Speaker 5

And is the Ultera units playing a role in this as you would have expected it to?

Speaker 2

It plays a really, really big role because So especially everyone's watching their expenses pretty closely over this last year and That plays well for us because we look like a very high value play and as they do implementations and as we do projects, Small POCs here, there and everywhere, they're quickly seeing benefits. We're not the kind of company that's trying to boil the ocean. We're doing lots of singles and doubles and those Turning into much bigger opportunities and companies are starting to see RapidMiner as the Right solution to take across the enterprise. So, yes, we feel really good about things right now. And our team has really embraced everything.

Speaker 2

If you look a year ago, if you looked at the traffic, the Communication traffic inside of Altair, you saw 10% as much discussion around opportunities in the data science area. So it's really taken hold.

Speaker 5

Okay, great. Thanks for the color. Just shifting gears, I would like to ask you about Your take on China, how your business is doing there? Obviously, we've seen lots of other commentary in the market. Just kind of want Maybe remind us to how big of a market this is for you guys?

Speaker 2

Yes. I mean, we don't break out At least as far as I know, we don't break that out as a percentage, but it's relatively small compared to some of the other players that you're familiar with in our space. And quite frankly, I think the surprise announcements That came over the last day really just don't affect us. We've been Basically following the requirements of the Department of Commerce right from the very, very beginning, our revenues have been affected Pretty significantly over the last couple of years simply because they continue to add more companies to the band list. I think perhaps other companies have been more aggressive and maybe less vigilant And making sure that they stuck to the rules and It's finally coming in.

Speaker 5

Okay, great. Thanks very much.

Speaker 2

Thank you.

Operator

Thank you. One moment please for our next question. And our next question from Dylan Becker with William Blair. Your line

Speaker 6

is open.

Speaker 3

All right. Got to move on.

Operator

One moment for our next question. And our next question coming from the line of Marks Capital with Loop Capital Markets. Your line is open.

Speaker 7

Hi, thanks for taking my question. Jim, starting with your last quarter, you Position this year as somewhat of a transition year basically to set the firm up to take advantage of a stronger demand environment you We're kind of foreseeing in 2024. I was wondering if you still hold that view. And it looks like kind of The strong product releases that were just announced in the last quarter are a big part of that.

Speaker 2

Yes. I remain really confident in the product. For me, it's all about Products and innovation, the business model that we have, the culture of the company, the customer engagement that we do. And I think that sort of trumps everything. Obviously, macro is a big factor.

Speaker 2

But I see us continuing to rise, To be perfectly honest with you relative to competition, I think this set of releases is just phenomenal. I'm super excited about it. And I'm still very optimistic about next year. Obviously, the war in Israel It's a new twist. Things in Europe continue and some of the challenges with China and all that, like I I've spoken about earlier.

Speaker 2

But on balance, I think our business is going to continue to grow next year and We're going to continue to outpace the competition.

Speaker 7

Great. And then one more question. I appreciate your commentary regarding The cross selling of data analytics into the design customers. I was wondering if you could just provide some additional color around that, whether you're seeing any particular uptake in Certain industries or geographies more so than others?

Speaker 2

It's super broad based actually. I was just looking And a whole bunch of the wins that we have and it's interesting for me, we're seeing the data analytics technology playing in our And some of our HPC customers that we weren't selling simulation to before. And I think that's going to continue to grow pretty substantially. We're seeing HPC actually rising in some of the accounts where we didn't see it earlier. And obviously, a lot of the electronic stuff that we're bringing to the fore, I think is starting to have an impact.

Speaker 2

Everyone is very, very interested in applying data science. And I think we're At this point, we are the leading company moving in that direction others are chasing now, but There's been many years of work here, Don.

Speaker 7

That's helpful. Thanks.

Operator

Thank you. One moment please for our next question. And our next question is coming from the line of Matthew Hedgesberg with RBC Capital Markets, your line is open.

Speaker 6

Great. Thanks for taking my questions guys. Jim, as you just mentioned, Your HPC business, and I actually wanted to follow-up on that. Do you think there is a longer term opportunity? I mean, you guys have been investing there for years For you to leverage even more generative AI capabilities in the future?

Speaker 2

I mean the answer is yes. I think I've made this comment before that I started investing on the data science side Because I started seeing supercomputing, the supercomputing conference was starting to move from just being All about simulation to more and more data science and I absolutely see growing The amount of HPC that's being done is growing by leaps and bounds. Of course, a lot of it is moving to cloud or hybrid infrastructures and all that. A lot of it is moving to the edge as well. Sure.

Speaker 2

And all that, a lot of it is moving to the edge as well. And we're building technology That lets you basically run where and when you want to manage costs very effectively, manage the cost of software licenses very effectively. That's what companies need. They're all very challenged by all this complexity and I think we're in a really great spot.

Speaker 6

That's fantastic. And then for either you or Matt, Jim, you said I think you gave some Commentary on next year, you expect to continue to grow. I guess for either of you, how do you think about spending or investing In front of calendar 'twenty four cycle, do you expect to sort of increase investments in certain areas? Just trying to get a sense maybe of the margin

Speaker 2

Yes, we I mean we held pretty tight this year and I think we're going to do Similarly coming into next year, although we are going to open up in a couple of areas that we see is really critical for us to But on balance, we're still continuing to try and grow the margins And continue to invest where needed. So we're getting more and more capable, I think, at Moving our resources where we need them to be, but you do have to continue to invest as well. I don't know if Matt wants to add something there. He probably does.

Speaker 3

Yes. I mean, only thing I'd add is just I agree with everything Jim just said. But in addition, one of the things that We're super proud of is the year on year increase now in our OpEx. I mentioned it in my prepared remarks, but What we're seeing is the smallest year on year quarterly percentage increase that we've seen in a number of years now. So we've been very disciplined this year As we were starting to digest some of the acquisitions that we made late last year, and so that's starting to play out in the way that we had anticipated in Q3 and So we're happy about that and we're going to continue to be disciplined, but then of course spend and invest where necessary.

Speaker 3

So We've

Speaker 4

got lots of

Speaker 3

different places in mind there and but continue to be disciplined in our approach and have a really good outlook For 2024 as well.

Speaker 6

Got it. Congrats on the results, Kash.

Speaker 3

Thank you.

Operator

Thank you. And our next question coming from the line of Josh Tilton with Wolfe Research. Your line is open.

Speaker 8

Hi. This is Arsenio on for Josh. When we were looking at the continued strength in channel sales, I think it's roughly $20,000,000 in the quarter. Is it fair to think that down market sentiment for purchases have not changed materially despite the current macro outlook? Or is The indirect channel just realizing maybe better cross sell opportunities down market?

Speaker 8

Thanks.

Speaker 2

You want to talk about that matter, maybe I can start if you want.

Speaker 3

Sure. Yes. Go ahead and start.

Speaker 2

I mean, we've been investing in the indirect channels More and more over the last really 4, 5 years. And I think we're just getting better at it and we're investing more and Working with partners, we recognize the importance of that. We want to get it to a certain percentage of our business. And I think it's going in the right direction. We still have work to do, but I think it's going in the right direction.

Speaker 8

Great. And then just a brief follow-up, if I may. In terms of kind of what I'm seeing in strong backlog in Q3, it seems like there were at least Pretty decent amount of large deals or renewals that were signed to support kind of decent outlook into the next couple of quarters. Just kind of expand on how you're thinking about what you're viewing in terms of the renewal base and whether you can kind of maintain this amount of Backlog based on that same more hesitant sentiment on the macro outlook?

Speaker 2

I'll answer part of it and maybe Matt wants to answer the balance. But I mean our renewals are Rock solid and almost all of them are growing. So we feel very, very confident about The renewals and the expansion continuing to go in the right direction for us and come in and All of them seem very, very secure for us. I don't know what you want to add to that Matt.

Speaker 3

Yes. And I would just add our Deferred revenue plus backlog is very strong and has continued to grow and supports our outlook. So it's something that we're pleased with. It gives us Confidence and visibility into the numbers.

Speaker 8

Thank you.

Operator

Thank you. And our next question coming from the line of Ahmad Khalil from Oppenheimer. Your line is open.

Speaker 6

Hey, it's Ahmad on for Ken Wong. Thanks for taking my question. Thanks for the color on the strength in the renewal book. I was wondering if you guys could give us an update on how net new deals and new customer wins are trending? Thanks.

Speaker 2

Do you want to answer that Matt or not? Sure.

Speaker 3

Yes. Net new is coming along nicely as well. When we look out at our pipeline, Yes. The opportunities that we're seeing are and the enthusiasm that we're seeing for our products has really never been higher. Jim mentioned it a couple of minutes ago, The internal traffic that we see across our entire portfolio is something that we're just super excited about cross sell opportunities And not only just expansion within renewals, but also brand new opportunities that just did not exist a year ago.

Speaker 3

So we're happy about that. We're pleased about it. And again, it just supports our underlying guidance for the year. So very happy about that. Jim, I don't know if you had more color there.

Speaker 2

No, I think that's fine. Thank you.

Operator

Thank you. And I'm not showing any further questions in the Q and A Q at this time. And thank you, ladies and gentlemen. This does conclude today's conference and thank you for participating. You may now disconnect.

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Earnings Conference Call
Altair Engineering Q3 2023
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