Howard Morof - CFO Jim Scapa - CEO

Sterling Auty - JPMorgan Matt Sorenson - RBC Capital Richard Davis - Canaccord Rich Valera - Needham and Company Gal Munda - Berenberg Capital Bhavan Suri - William Blair

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Altair Engineering's First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode to prevent background noise. [Operator Instructions] And as a reminder, this conference is being recorded. Now, I would like to welcome and turn the call to Mr. Howard Morof, Chief Financial Officer of Altair.

Good afternoon. Welcome, and thank you for attending Altair's earnings conference call for the first quarter 2018. I'm Howard Morof, Chief Financial Officer of Altair. And with me on the call today is Jim Scapa, our Founder, Chairman and CEO. After market closed today, we issued a press release with details regarding our first quarter performance, which can be accessed on the Investor Relations section of our website at investor.altair.com. This call is being recorded and a replay will be available on our IR website following the conclusion of the call. During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements 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 today. For a discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our final perspectives, which is on file with the SEC. 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.

Thank you, Howard and thank you all for joining our call today. Our strong first quarter began the year well for Altair and positions us for continued success. We exceeded our revenue guidance with total revenue of 91.7 million, an increase of 19% from a year ago. We produced adjusted EBITDA of 7.7 million, which was above the upper end of our guidance range. In the first quarter, deferred revenue increased 23% from a year ago and calculated billings were 114.6 million, an increase of 20% from a year ago. Our main growth driver, software product revenue was 68.1 million and grew 26%, also above our guidance range, represents 74% of total revenue compared to 70% in the first quarter of 2017. These results demonstrate our customers are investing to leverage simulation driven innovation for success in their markets. Together with our subscription based licensing model, which makes it easy for customers to deploy more of our products along with solutions from many partners in the Altair partner alliance, we are seeing healthy growth in customer usage. Our customer wins in the first quarter of 2018 continue to exhibit positive momentum from our technology, with many customers taking advantage of our licensing model to expand their use of our broad portfolio of solutions. The major European automaker committed to a 30% expansion attributable to extension of our optimization software from their power train organization into chassis and vehicle engineering. Manufacturing applications continue to grow. One US based manufacturing equipment supplier has significantly increased the use of our electromagnetic tools for solving magnetic fields and thermal patterns simultaneously. This is the sort of high end solution that can make truly competitive advances for our customers. Our high performance computing business was awarded a contract of meteorology applications that will bring a single APAC account to over $750,000 of revenue in a two year period. To finish the quarter, we were very pleased to receive a very large expansion order of a European aerospace systems supplier. We've been supporting them across many groups with multiple tools, ranging from pre and post processing to optimization and electromagnetics. This particular award is a true testament to the deep engagement our customers appreciate from the Altair team. We will continue to invest strongly to position ourselves for market opportunities we see that's consistent with our vision. Areas of focus include technologies related to electronics and the Internet of Things, machine learning, solvers, manufacturing simulation and optimization. Based on the positive trends we see across our business, several specific opportunities to grow our market share, we intend to invest some of our revenue and earnings outperformance into the business in 2018 to drive future revenue growth. We will add more resources to R&D to add features to existing products, expand our product portfolio in emerging areas and deploy incremental resources into recent acquisitions. We continue with the growth strategy we outlined during our IPO, which includes both organic and inorganic growth. An element of this is a focus on innovation to deliver new capabilities and products developed organically and by acquisition. We have a history of M&A which supports our organic growth and we will continue to use acquisitions as part of our R&D and growth strategy. Since the end of the first quarter, we completed two acquisitions. One, we acquired all of the intellectual property assets of California based CANDI Controls, Inc. and hired CANDI's experienced software and technology team into Altair's IoT organization to strengthen and expand scope of our Carriots solution offering. We believe this acquisition is important to help our customers' digital transformation and enable their products to thrive in today's rapidly emerging connected ecosystems of smart devices. Number two, we acquired FluiDyna, the developer of disruptive computational fluid dynamics simulation software based on NVIDIA GPU technology and see tremendous potential for its two groundbreaking products, ultraFluidX and nanoFluidX. ultraFluidX simulates external aerodynamics and nanoFluidx simulates geraboxes, both very computationally expensive applications. The FluiDyna codes are extremely fast and efficient, because of the advantages inherent in natively massively parallel GPU based software applications. We believe the addition of ultraFluidX and nanoFluidx will dramatically accelerate the product design process for customers and the deep GPU technical expertise of the FluiDyna engineers will significantly contribute to our team. While the near term financial impact of the acquisitions is not material, the technology and talent we acquired create important new opportunities for us, and enhance our long term growth profile. From a go to market standpoint, we were excited to announce that Altair and GE signed a multi-year software agreement where Altair will be the exclusive distributor of GE's comprehensive system modeling software for fluid and thermal multidisciplinary analysis. Altair will leverage our expertise on commercial software deployment and support, broad industry domain knowledge and global footprint to expand the powerful technologies adoption by customers. Our sales organization continues its development to grow market coverage and capitalize on opportunities. We continue to add direct account managers, channel sales managers and some marketing resources to provide better support for our resellers. I'm also very pleased to have recently welcomed Mary Boyce, Dean of the School of Engineering and Applied Science at Columbia University to the Altair Board of Directors. Dean Boyce's cultural values, deep technical prowess and successful track record of leadership at both MIT and Columbia are clearly aligned with Altair's objectives. In summary, we had a strong first quarter and are optimistic about our outlook. Our growth in billings reflects the increasing value that customers are realizing through our technology. Our recent technology acquisitions in support of our solid organic growth continue to enhance and expand our product portfolio. We are optimistic we can continue our track record of success and generate both improved revenue growth and profitability as we further penetrate the multi-billion dollar markets we address. Now, I will turn the call over to Howard for details on our financial performance during the first quarter as well as an update on our financial guidance. Howard?

Thanks, Jim. We had a strong first quarter with both software product revenue and total revenue above our guidance ranges. Software product revenue was $68.1 million, an increase of 26% from a year ago and total revenue reached $91.7 million, representing growth of 19% from the first quarter of 2017. In addition to the strong underlying growth in the business, our first quarter revenue also realized foreign exchange benefits. On a constant currency basis, software product revenue grew 19% and total revenue grew 13% in the first quarter. Also during the quarter, software revenue growth was supplemented to a small degree by approximately $800,000, specific to one customer contract stemming from one of our acquisitions last year. This revenue stream is not part of our go forward subscription revenue run rate. Adjusted EBITDA was $7.7 million for the quarter, which exceeded our guidance and compares favorably to $2.9 million a year ago. Our revenue mix shift continued on our desired path in the current quarter. Software product revenue grew to 74% of total revenue in Q1 2018 from 70% in the same quarter last year. Software segment revenue, which includes software products and software related services, grew to 85% of total revenue in Q1 of 2018 as compared to 82% last year. Consistent with our expectations, revenue from client engineering services was $12.1 million, virtually unchanged from the prior year. Other or innovation activities revenue increased 28% to $2 million, driven by continued growth in sales and increased royalties from our toggled LED lighting solutions. Turning to billings, which we believe is an important indicator for our business and a valuable metric in evaluating our performance. We calculate billings by adding our revenue to change in deferred revenue, which is primarily related to software from the prior period. In the first quarter, deferred revenue increased 23% from a year ago and calculated billings were $114.6 million, an increase of 20% from a year ago, reflecting continued strong software momentum. This growth was primarily driven by renewals, growth at existing customers and new customer adoption, all of which were further supportive from our recent acquisitions. As a reminder, our deferred revenue can fluctuate on a quarter-to-quarter basis. I would like to turn to the rest of the P&L. I will be discussing income statement metrics, some of which are on a non-GAAP basis. A reconciliation of GAAP to non-GAAP measures has been provided in the earnings release we issued earlier today. Non-GAAP gross margin in the first quarter was 68.3%, an increase of three percentage points from a year ago, largely due to a higher mix of software product revenue. Non-GAAP software gross margin was 77.3%, an increase from 75.3% a year ago. This improvement stems from the combination of the favorable mix shift within the software segment coupled with higher margins on software related services in the current quarter compared to a year ago. CES gross margin was 15.6% compared to 17.1% a year ago, largely resulting from higher compensation costs relative to billings rates to our customers due in part to a continuing tight labor market. Innovation gross margin was 40% compared to 33.8% a year ago, primarily due to improved supply chain efficiencies, growth in sales of our toggled products and increased royalties from related IP. As we have said before, total gross margins are likely to vary on a quarter to quarter basis. For the quarter, operating expenses, excluding stock based compensation and amortization of intangibles assets, were $56.3 million compared to $48.3 million a year ago. The increase was primarily driven by investments in R&D headcount and related employment costs, including the impact of acquisitions as well as continuing investments in growing sales capacity to enhance revenue growth opportunities. In addition to these investments, our first quarter expenses also increased as a result of the change in currency values from a year ago. Operating income, excluding stock-based compensation and amortization of intangibles assets was $6.4 million compared to $1.8 million a year ago. Adjusted EBITDA for the quarter was $7.7 million as indicated earlier compared to adjusted EBITDA of $2.9 million a year ago. Adjusted EBITDA margin in the first quarter increased significantly to 8.4% compared to 3.8% a year ago. The year-over-year improvement reflects increasing gross margins from a greater mix of high margin software revenue and leveraging our operating model. Our continued focus on realizing operating leverage will contribute towards our ability to progress toward our long term adjusted EBITDA margin targets of 20% or greater. We're pleased with our profitability performance in the first quarter, making us more confident that we will see healthy growth in adjusted EBITDA margins for the full year. Non-GAAP net income was $6.1 million or $0.08 per diluted share compared to $1.6 million or $0.03 per diluted share a year ago. On a GAAP basis, first quarter net income was $3.9 million compared to a net loss of $2.2 million a year ago. Turning to our balance sheet, we ended the first quarter with $63.2 million in cash and cash equivalents, which was up substantially from $39.2 million at yearend 2017. The increase in our cash position was driven by seasonally strong operating cash flow generation, which is customary in the first quarter of our year. Total deferred revenue was $162.6 million at the end of the first quarter, an increase of 23% from a year ago as I mentioned previously. We're very pleased with this growth that reflects our strong business activity in the first quarter and our strong result in growth and calculated billings, but I will again point out that quarter-to-quarter changes in deferred revenue can vary due to timing factors. Turning to our cash flow statement, cash flow from operations in the first quarter reached $26.7 million compared to $19.2 million for Q1 2017. Free cash flow, which consists of cash flow from operations, less cash capital expenditures, was $25 million for the first quarter, an improvement from 18.2 million for the first quarter of 2017. This almost $7 million increase in free cash flow is directly attributable to our strong operating performance. As a reminder, our cash flows are strongest in the first quarter each year. We are making good progress on our R&D and sales and marketing investments that we expect to further expand our product portfolio and market coverage in order to capitalize on the significant growth opportunities we see in the market. We are confident these investments will positively impact our business and position us to deliver meaningful operating leverage over the long term consistent with our established targets. Turning to our outlook for revenue for 2018, we are raising our full-year forecast to reflect our continued positive momentum. The increased outlook is driven by software product revenue and includes a modest impact from our recent acquisitions. We are also modestly increasing our adjusted EBITDA outlook for the year, which reflects the positive impact of our performance in Q1 '18, growing scale and continued mix shift towards software revenue, considering the investments in R&D and sales and marketing activities as mentioned. Our ability to continue to invest in her R&D activities and sales capacity, while driving meaningful increases in adjusted EBITDA and free cash flow over the long term are strong indications of the inherent leverage in our business model. Note that we are continuing to analyze the impact of the Tax Cuts and Jobs Act on our effective tax rate, including the interplay of our US based tax credits and NSO detections. Based on our present expectations, we anticipate our effective tax rate to be between 28% and 30%. This is reflective of foreign taxes withheld at the source for which we are not able to realize a benefit in the US, given our valuation allowance position on deferred tax assets. For the full year 2018, we are providing updated guidance as follows. We expect software product revenue to be between $276 million and $280 million, representing growth of 13% to 14% from 2017. We expect total revenue to be between $369 million and $373 million, representing growth of 10% to 12% from 2017. We anticipate GAAP net income to be between $11 million and $13 million. We are anticipating an adjusted EBITDA of between $33 million and $35 million, representing a notable improvement in adjusted EBITDA margin over 2017. We expect non-GAAP net income to be between $19 million and $21 million. This guidance excludes estimated stock compensation expense of approximately $2 million for the year and that we expect fully diluted weighted average share count to be approximately 73.3 million shares. We continue to expect free cash flow to be between $18 million and $22 million for the year. From a profitability perspective, we continue to balance the investments in the business, while delivering steady improvements in profitability towards achievement of our long term operating targets. We believe a balanced approach enables us to more quickly capitalize on the expending number of growth opportunities we see in the market. We're confident these investments will position us for both improved growth and profitability in the future. For the second quarter of 2018, we expect software product revenue to be between $69 million and $70 million, representing growth of 16% to 17% from the second quarter of 2017. We expect total revenue to be between $91 million and $92 million, representing growth of 12% to 13% from the second quarter of 2017. We anticipate an adjusted EBITDA of between $5 million and $5.5 million. We anticipate GAAP net income to be between $0.5 million and $1 million. We expect non-GAAP net income to be between $2.5 million and $3 million. Note that this guidance excludes estimated stock-based compensation expense of approximately $0.5 million for the second quarter and that we expect fully diluted weighted average share count to be approximately 73 million shares for the quarter. In summary, we are off to a strong start in 2018. Our financial performance reflects the positive momentum in our business and the beneficial impact of the ongoing investments we're making to drive continuing growth. We believe we are well positioned to generate meaningful growth from an expanding market and exciting opportunities while also achieving meaningful operating leverage and profitability over the long term. With that, operator, can we now open up the call to questions?

[Operator Instructions] And our first question is from Sterling Auty with JPMorgan.

Just want to start with the strength in the software product revenue in the quarter. Sounded like it was both expansion from new - expansion of existing customers and new customers, but can you give us a sense in terms of where any trends that you're seeing in share gains in the solver part of the portfolio based on all the investments you've made versus just continuation of the strength in your kind of core model and digitalization portfolio.

Sure, Sterling. Yeah. Actually, a lot of our growth is really coming from the solvers these days. And it's a combination, it's the same story we're always talking here, it's a combination of some conversion for sure of existing products that are out there as well as some greenfield where we're just seeing simulation growing in general at many, many companies.

Got it. And then a follow up for Howard, since a lot of software companies are going through the ASC 606 right now, can you just remind investors where you are? Are these 605 results, when does 606 actually come into play? And then you mentioned the modest contribution from acquisitions in the guide, can you give us maybe a little bit more color? Does that mean less than 5 million of the increase coming from acquisitions?

Sure. So these are 605 results. 606 for us, depending upon emerging growth status or not, is either a 1-1-19 or thereafter type application for us. So we're working on the 606 implementation as we speak. And as far as the contribution to the overall revenue, it's certainly not significant, not approaching the number that you had indicated.

Our next question comes from [indiscernible] RBC Capital.

This is actually Matt Sorenson on for Matt. Jim, can you talk a little bit more about the acquisition of CANDI Controls and specifically what the relationship you mentioned in the press release with Google and Microsoft and then how important getting those IoT focused engineers where when considering it.

So, yeah, so CANDI Candy is primarily an equity hire from our point of view. It's a very strong team of people in the Bay Area who have been working for many years, developing technology to go on Edge or Gateway type devices. And for us, what we see is that as the IoT is sort of coming into play, you're going to have lots of devices, sensors on these devices and a lot of data obviously going out. So the cloud for simulation, analytics whatever optimizing, the performance of the devices and making other decisions, but we do see that in many situations, a lot of the state is going to go to more local devices, if you will, Edge computers or Edge Gateway computers and we believe that simulation will actually also be happening on those devices, some data analytics will happen on those devices. So the CANDI guys are - have developed basically the technology that runs those Edge computers and has a layer that allows them to communicate with different protocols that may be in play depending on the vertical markets you're playing in. So we're excited about the IP and we're very excited about the team. That's the primary reason for working with them. In terms of relationships with these other companies, there was no commercial - really commercial relationship, specifically in place, but a lot of the work that was done and will continue to be done is in partnership with both Microsoft and Google. So we're hoping to continue that.

All right. Jim, if I could ask one more acquisition question. Could you just talk about kind of the role the Altair partner alliance served and identifying FluiDyna as an acquisition target and just kind of how you can utilize some of that usage data to maybe derisk potential acquisitions a bit?

So in the case of FluiDyna, it's a little bit different, so broadly speaking, the API gives us a lot of intelligence, if you will, a very strong view into these companies, the products that they have, the usage that they have and so it is actually very, very relevant when we're making acquisitions very often. In the case of FluiDyna, this is a technology that we discovered if you will and we're excited about. It was fairly early on. We made a decision to make a minority investment in the company a few years back, about four years ago and as part of that whole arrangement, we put some money in the company and we've been nurturing the development and actually working closely with some potential customers and we put them in the partner alliance as a way to generate some revenue, particularly around the nanoFluidx product, which is much more mature. So yeah, hopefully that answered.

Our next question comes from Richard Davis with Canaccord.

One of the questions I have on the - you have the kind of compelling pricing and token model, et cetera, based on kind of allocations, but one of the things that I've seen work with customers and that kind of model is that you also help them in terms of goodwill and broader understanding, like understand how they can optimize, understand and set internal thresholds for engineers, how do you kind of manage that dynamic, right? So in other words, like, it's like the old days when you had cell phone minutes, you don't want to go too high, but you also want to encourage people to use the product and that kind of ties into your growth. So help me on that and I just have a quick follow up.

I mean in general, we're seeing our customers almost fully utilizing the units that they have. So there's not a lot of idle units typically with a customer. We do have situations where our customers growing fast and they may have some apprehension that they haven't purchased enough units and we can do something that we call overdraft in some of those instances, but by and large, we work closely with the customers to help them manage their spend and also to manage to have the right number of units, that's a win for both of us.

And then just as a tactical question on the product, so I was talking to a friend of mine who is an engineer over at Lockheed and he was all up about I guess it's called smooth particle hydrodynamics and to what extent, is that a new technology because I'm old enough to remember. I think it was what finite volume methods is or is SPH replacing finite volume or is it just augment to that? I was just trying to figure out kind of market share shifts there?

So first of all, I don't want to get too deep here because I am not that technical especially with CFT. But there are different methods. The SPH method in the case of nanoFluidx in particular, so it's been around a long time first of all. So it's not a new method. And CFT, to be very honest, different types of problems or applications often require a different type of methodology to really bring the best solution. So in the case of nanoFluidx, which is one of the two codes from FluiDyna, it's an SPH code and it's used for solving internal fluid mechanics, if you will, where you have really complex mechanisms moving around inside of their, like gears, so like gear boxes and traditional codes that are out there are typically, they could run literally for days to solve a problem like that. So the nanoFluidx code, which runs - it's a pure codes, it runs purely on the GPUs. It is dramatically faster and really makes that problem with very, very high fidelity, really a solvable problem. So there's a lot of excitement around it. Hope I'm answering that question.

Our next question comes from the line of Rich Valera with Needham and Company.

A question on FluiDyna. Jim, as you noted, you guys had an investment, a minority investment in the company for three, four years. So curious what sort of was catalyst to make the full acquisition now? Do you think that the company is kind of on the verge of an inflection point here? It sounds like you are getting closer to sort of real, maybe commercial readiness of some of these products, just wanted to get any sense behind your decision to further pull the trigger on the full acquisition right now.

Yeah. I mean, first of all, the nano code we think is pretty mature and we've had a lot of customers beginning to use it and get good results. The ultracode, we think is close if you will to more of an inflection point. It's still less mature than where it really needs to be, but we've had a consortium of several of the automotive companies and trucking companies working with us, we have quarterly meetings with them for quite a while now, where they provide us models and we're feeling very optimistic about our ability to solve these problems and in the coming year or two and we're beginning to see some real dollars, if you will, flowing in again some projects that are going on with the code. So we think it's meaningful. The fact that it's GPU based means it's considerably faster than the codes that are out there right now and that's extremely important in an area like this.

And then you guys have talked a fair bit about sort of increasing your resources and I think you really started doing that back at least in '17, if not earlier, just wondered if you can give any color on how you've been seeing that productivity ramp of those folks you've hired. I mean, clearly your numbers sort of speak for themselves on the billings front, but can you kind of give any color on how you're seeing the sort of the cohorts for perhaps that you hired in the first half of '17 come up the productivity curve and how you feel about your ability to continue hiring kind of at a similar pace as you move through '18 and '19.

So, I think in general, we're pretty happy with our ability to bring new guys on and it's a mix, right, it's a mix of new guys as well as we're promoting people out of our technical teams into the sales role and in general I think people are ramping up extremely well and we're continuing to be pretty aggressive. We're getting good results as long as we get good results on hiring these guys and putting them in play and we're going to keep going. So it's going well.

Our next question is from the line of Gal Munda with Berenberg Capital.

First one is just on the M&A front. You've been focused a lot on technology and acquisition of those pieces that might have been missing in terms of your technology over the last few years. The reason to kind of flowed into that category. Thinking forward, do you think that there is a time where some of the acquisitions might be more market driven in terms of consolidation, there's a lot of smaller players that might be subscale in that sense. How do you see that opportunity for you guys or is that something you want to develop organically and would you be interested in that?

I think it's been a mix in the past to some extent. I mean, we acquired those products, which was a - sorry EMSS and that was a real business, ongoing business with good revenue, good revenue growth and profitability. That was in 2014. And the run time business at the end of last year, September of last year was a solid business as well. That was big, but real business. And then, so we do a mix and I think we're very actively looking frankly at a number of different opportunities and I think it's going to continue to be a mix. And it's got to be a good opportunity, right, particularly when you're looking at a business that's an ongoing business, it's got to be the right valuation to bring the business in.

And then can you just talk a bit about the importance of partners that you are seeing, especially in terms of maybe providing some sort of services or also acting as distributors in the future, relative to what your structure is, go to market structure is today. Do you think there's room for more active investment in to the channel from that perspective? Would you see that being beneficial, both to your growth and maybe margin profile in the future? Is that something that - or is that relationship with the client that you want to maintain in house mainly going forward?

So we are actually very focused on the indirect business and really trying to nurture a lot of the existing partners that we see as having a lot of potential for us or investing more in those relationships, maybe a little bit of calling where appropriate and we're adding new partners all the time as well. So we've done some organizing internally to be more attractive on the indirect side and we do see the indirect continuing to be more and more important in our business over the coming years.

So just on a relative basis compared to today, do you think partner expansion is just as important as your growth in investment that you mentioned earlier in one of the questions in to direct sales and marketing, do you think it might be even more important?

I think near term, it's a little bit less important, but I think longer term, it's going to be more important. So we're trying to make the investments both near term and medium term that makes sense for us.

And our next question is from Bhavan Suri with William Blair.

So I had a question here just on sort of the expansion within existing customers. You sort of had really, really healthy expansion there, sort of 50% on the software side over the last couple of quarters. I guess a couple of questions, just sort of how sustainable is that? And then, I want to drill into Mr. Davis's question a little bit, how much of that is driven by sort of, hey, I need more tokens or hyperwork units or is it the sales guys sort of driving crosssell and upsell. So how much of it is sort of natural versus sort of something that's requiring a little bit of sales expense. I'm just trying to understand sort of that balance, because obviously, as I mentioned, leverage points that happen there?

So I think it's a mix, right. I think customers are - it's all requiring additional units by the way in our customers because that's what we sell, but some of it is continuing to use more of the products that they already use and a lot of it is the cross selling and some with the new technologies that we're making available for these customers under their units. Now, we are obviously pointing out the opportunity to these customers to be able to leverage these new products and technologies.

And I guess when you look at the sustainability of that, sort of my first part of that question, sort of how do you feel about sort of 50% growth number, maybe this one is for Howard?

We definitely feel good about it.

I hope you feel good about it.

Yeah. When you ask about what's driving some of the growth, we've had a significant emphasis as we've spoken about on solvers and tremendous investment there organic as well as some of our acquisitions in that space. And we continue to hear that that's really one of the foundational elements that's helping support our expansion opportunities at our existing customers as well as giving us entry into new customers that we haven't had before. Now that doesn't just happen out of 10-year, it takes a properly peopled sales force that's entrenched and well trained and so it all kind of works together.

One thing I'll just mention is expansion is coming from more different customers right. It's a large number of companies that are expanding and we see a lot of continued opportunity there. We're not that penetrated in many, many customers. So there is a lot of opportunity I think to expand and companies are wanting to do more and more simulation. So it's just - it's just a good market to be in right now, good secular market if you will.

And then one last one, I mean, just on the move down market sort of thinking, just sort of how are you feeling about the progress there? Is it in line with expectations? Is it ahead of expectations? And then you touched a little bit on partners, but obviously that's a very partner heavy approach. Just some sense of how you see that business is trending?

So I think the business in general is, I'm never satisfied by the way. So you may have figured that out talking with me, but I think it can go faster, but we're making some changes actually that will hopefully continue to accelerate that.

And ladies and gentlemen, we end our Q&A session for right now and I will like to turn the call back to Mr. Jim Scapa for his final remarks.

Okay. So, thank you. So Altair delivered strong first quarter results that reflect a great start for the company for 2018. We're seeing increasing opportunities to extend our leadership position in the CAE and adjacent markets and are investing to drive faster growth in the future. As you can see from our current performance and recent acquisition activities, we believe we're well positioned to deliver strong growth and increasing profitability in the years ahead, which should generate significant value for shareholders. We're looking towards speaking with you again. Thank you.

And ladies and gentlemen, with that, we conclude our program. You may all disconnect. Have a wonderful day.