Ladies and gentlemen, thank you for standing by, and welcome to Altair's Q3 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chief Financial Officer of Altair, Howard Morof. Howard Morof Good afternoon, welcome, and thank you for attending Altair's earnings conference call for the third quarter 2019. I'm Howard Morof, Chief Financial Officer of Altair, and with me on the call is Jim Scapa, our Founder, Chairman and CEO. After market close today we issued a press release with details regarding our third 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 further discussion of the material risks and other important factors that could affect our actual results, please refer to those contained in our quarterly and annual reports filed with the SEC, as well as other documents that we have filed or may file from time to time. During the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release. Finally, at times in our prepared comments or responses to your questions, we may offer metrics that are incremental to our usual presentation to provide greater insight into the dynamics of our business or our quarterly results. Please be advised that we may or may not continue to provide this additional detail in the future. With that, let me turn the call over to Jim for his prepared remarks.

Thank you, Howard, and welcome to everyone on the call. During the third quarter we made significant progress in key areas of our business, including our product offerings, customer engagement and go-to-market activities. Altair continues to focus on our vision of transforming product design and customer decision-making by leveraging simulation, data science and high-performance computing. The ongoing digital transformation in the market and rapid convergence of technologies is occurring at a breakneck pace. Altair is excited to be in the middle of this revolution and positioned to help our clients be successful in this new economy. Our client roster is a veritable who's who across almost all industries, including most major banks and financial services companies, retailers, transportation companies, energy and consumer electronics giants, health and pharmaceutical entities, weather forecasting and scores of research and educational institutions. Today I will highlight several of our key initiatives, including the next generation of HyperWorks, our data analytics solutions and SIMSOLID, along with some recent business wins. I will discuss progress against our goals, expand on our important acquisition in electronics simulation and verification, as well as the EDEM acquisition we are announcing today. First, let me discuss our financials and revised guidance. Altair continues to grow billings and revenue at a fast pace relative to the market. Total billings including services for the quarter, driven by software product momentum and adjusted for constant currency, grew by 24% over the same period a year ago and 22% to-date. Our recurring software license rate year-to-date remains high at 88%, despite the Datawatch acquisition in December 2018, which had recurring revenues of less than 60%. Since then, we've shifted these data analytics deals to approximately 75% recurring in 2019 and approximately 86% when factoring in multiyear subscription deals. In addition, our Korea subsidiary also made a positive shift toward subscription from approximately 75% recurring revenue last year to 85% year-to-date. Total revenue on a constant-currency basis increased by 17% for both the third quarter and year-to-date, despite the fact that approximately $4 million could not be recognized under 606 in Q3. Revenue is impacted by an 8% year-over-year decline in our software-related services business as the automotive sector showed some signs of slowing, and we continue to transition to more strategic services. On a constant-currency basis, software product revenue growth was 23% for the third quarter and 21% year-to-date. Software product revenue as a percent of total revenue year-to-date grew to 79% from 77% in 2018. This continues a strong and important multiyear trend for our business and directly correlates to improving gross margins. Through Q3 we have achieved our billing targets. However, we see 2 significant downward trends on revenue for Q4, which we under-forecasted coming into 2019. First, while we were excited about transitioning customers to subscription faster than anticipated, it does have a short-term impact on revenues. Additionally, we are seeing more weakness in the automotive market, especially in Germany and Japan, than we anticipated. These two items, when combined with some smaller execution issues related to indirect sales and toggled, have had an impact on our Q4 forecast, and we decided to take a more conservative approach, given this is our second downward revision in two quarters. Even with the reductions for Q4, we project full year 2019 non-GAAP software product revenue growth of between 18% to 19% from 2018. While we are disappointed with our outlook for Q4, we remain highly optimistic for 2020. This optimism is based on strong momentum for some of our exciting new product introductions, the completion of two recent acquisitions which broaden our product line and continued diversification of our customer base, and finally, the growth and maturity of our sales force based on the investments we made in 2019. Later in our prepared remarks, Howard will cover our revised guidance in more detail. Now let me turn to some of our new products that we believe position us well for 2020. This year we launched our newest version of HyperWorks, which represents our next-generation integrated innovation platform to drive design with simulation, concepts to detailed systems. The vision for HyperWorks is that all of our applications are under one common user experience and leverage domain knowledge and AI with advanced solutions for NVH, crash, CFT, manufacturing and more. The transition will be frictionless for long-term users but exciting and very modern for new users. We believe the new HyperWorks is a big deal in our market, and initial feedback from our customers is extremely encouraging. Data analytics is rapidly emerging as an exciting element of our customers' portfolio of tools to design, analyze, predict and optimize performance. We are beginning to see traction for our units-based subscription licensing model in our financial services and banking customers. We recently saw the first large units-based six-figure deal targeting about 100 data prep and science users with a major bank in India. We hold a number of Altair Technology Conferences each year and attracted about 10,000 registrants globally in 2019, a new record. This year, numerous stories were presented about the application of machine learning in engineering. At our October conference in Detroit, 6 of the 41 customer papers presented included the application of data science. Ford Motor Company packed the room with their presentation about using machine learning to make better stamping process decisions to improve manufacturing efficiency and increase part quality. One of the world's largest wheel manufacturers shared that their trials using machine learning could lead to scrap reduction in the range of 50%, which is amazing when you consider they produce 60 million wheels annually. SIMSOLID continues to be a breakout product for Altair. We have seen a powerful surge in customer interest and usage momentum, with more than 8,000 downloads and numerous companies telling us the product is game-changing for its ease of use, speed and accuracy. This represents an unprecedented uptake of new technology in our space. During our global ATC, major automotive OEMs presented their use of SIMSOLID to standing-room-only crowds. Based on the strong interest we continue to see, we are planning to ramp up efforts around development, marketing, training of SIMSOLID. Now let me turn to two new additions to our product portfolio through two strategic acquisitions to bolster our position as the leading provider of solvers for high-end simulation and optimization. Last month we moved to fill a gap in our electronics simulation portfolio with the acquisition of Polliwog, a high-tech EDA software company based in Seoul with best-in-class technology focused on the rapidly growing electronics industry. Polliwog expands Altair's portfolio solution for system-level engineering and analysis of printed circuit boards. This is a large addressable and rapidly growing market because PCBs are a key component of products across many industries, from light bulbs to the most sophisticated and complex devices and systems such as automobiles. Polliwog brought some important customers, including electronics design groups at major consumer electronics companies such as Samsung and LG Electronics. We expect to grow this business substantially, as it expands our electronics portfolio, especially in the areas of power and signal integrity simulation, complementing our advanced thermal, circuit and electromagnetic solvers. Polliwog shares Altair's open architecture philosophy and integrates easily into customer environments and work streams using any of the leading PCB design and ECAD tools. Innovative and practical, PollEx solutions give instant design feedback, a perfect fit for what we call simulation-driven design. Today we are announcing the acquisition of EDEM, the world's leading discrete element method simulation software, to broaden our footprint in large addressable markets such as mining, energy, heavy equipment and process manufacturing such as pharmaceuticals, chemicals and consumer packaged goods. We believe that Altair's existing solutions for machinery and material simulation will be enhanced by offering new tools that provide better integration for customers. This systems-level simulation capability will enable insights to the interaction between materials and their environments to visualize and optimize machinery design, materials handling and manufacturing processes in a broad spectrum of industries. Now I would like to provide some color on our key end markets. Technology is a growing market for Altair and now represents our fastest-growing vertical, increasing over 30% year-to-date. We continue to see strong demand for our innovative tools for managing workloads and workflows, as well as our simulation solutions. In July, Fujitsu was selected to take the lead in building Australia's fastest super computer, and Altair was identified as one of the key suppliers to the project for job scheduling with PBS Works. We are proud to be a part of the team supporting the National Computational Infrastructure within the Australian National University campus at Canberra to support more than 5,000 researchers. The project will help increase compute speeds by 10 times for users such as Geoscience Australia and the Bureau of Meteorology. Today, three of the four major cloud providers use Altair's technologies for EDA simulation in the cloud, and two of them use our tools for designing their own specialized chips in the cloud. At another major technology company, we received a 3x expansion for processor scheduling toward semiconductor chip development, further broadening our market leadership. This is on top of a more than 2x usage increase at another EDA player, which also led to a six-figure expansion deal in the quarter. The Polliwog acquisition is key for us to bring even more expertise and technology to the EDA market. Aerospace continues to be a very important market where Altair is gaining share rapidly. We have historically been strong with our optimization and impact solvers. More recently, we have emerged as the leading aerospace modeling and visualization solution and see the opportunity to further grow our market share for solvers. We recently signed strategic multiyear and multimillion-dollar commitments with a major aerospace manufacturer, as well as one of the largest aircraft companies in the world, and expect the use of solvers and other Altair tools to grow substantially in these accounts. Automotive is our largest market segment, representing 35% of our software revenues and approximately 2,300 customers, or 20% of our global customer base. We categorize all of these companies as automotive; however, many have diversified their businesses during the last 10 years. Unfortunately, this sector is slowing, and year-to-date grew less than 2%, before taking into account currency impacts. We believe this is related to general market headwinds. While the automotive market is increasingly challenged, we also see many new opportunities for our solutions with companies investing in electrification, autonomous, data analytics and digital transformation. We had many nice wins in the automotive sector in the quarter. In China, we had several notable net new and expansion software sales, including three new automotive supplier customers using our software to design battery packs for electric vehicles, as well as new business related to tires, signal-to-noise ratio analysis, antenna placement and transmission design. Altair has invested significantly in our sales organization and capacity this year. Despite significant attrition of data analytics sales executives in the middle part of the year; thus far, we've added over 20% net new quota-carrying account managers and inside salespeople globally for both the data analytics and the engineering markets. We also increased our engagement with resellers, especially in the U.S. We believe stronger recurring revenues, momentum and excitement for new products, including SIMSOLID and PollEx, increased sales capacity and strong marketing campaign initiatives position us well for 2020. Now I will turn the call over to Howard for details on our financial performance and our guidance for the fourth quarter and the rest of the year. Howard?

Thanks, Jim. As a reminder, our reporting and guidance for 2019 is under ASC 606, as are the comparative numbers from 2018. As previously noted, our seasonal billings patterns, coupled with the treatment of revenue under ASC 606, results in heightened seasonality in revenue with higher revenue recorded in our first and fourth quarters of any given year. For ease of reference, we have included a table reflecting summarized results for all four quarters of 2018 on an ASC 606 basis in our most recent 10-K and in our press release. In prior conference calls, we have noted that changes in certain currencies can have an impact on both our revenue and expenses, especially when those changes occur over relatively shorter time periods or when currency changes are more pronounced over time. When this occurs, as it has for Q3 2019 compared to Q3 2018, it is meaningful to measure aspects of our performance on a constant-currency basis. Certainly the current macro environment, coupled with our global presence, may increase the adverse impact currency exchange rates may have on our business for the balance of this year, and our updated guidance reflects, in part, our current assessment of those impacts. The third quarter results were driven by continuing solid demand for our software products. I would first like to note that Q3 results reflect the negative impact of approximately $4 million of revenue that was not recognizable within the quarter due to the fact that under 606, with license commencement dates in very early October, revenue from these arrangements was not recognizable in Q3. But for this item, we would have met our guidance expectations for revenue and modified adjusted EBITDA. Even taking into account the negative impact on timing for the quarter, software product revenue reached $77.8 million, an increase of 21% from a year ago, while total revenue equaled $100.4 million, representing growth of 16% from the third quarter of 2018. Adjusting for the adverse impact of currency fluctuations in Q3 2019, software product revenue grew by an impressive 23% and total revenue grew by 17% compared to Q3 '18. For the 9-month period, software product grew by 21% compared to a year ago on a constant-currency basis. Software-related services declined by 8% for Q3 compared to a year ago, primarily impacted by the headwinds Jim mentioned in our automotive customer base. This decline is also aligned with our anticipation that consulting revenue for the year will continue to be slightly down as we focus our growth strategies on higher-margin software revenue. As previously discussed, acquisition accounting requirements mandate an adjustment to historical Datawatch deferred revenue as of the date of acquisition. Upon acquisition we adjusted deferred revenue down by $9 million, which would have been recognized during the 2019 year. Our guidance for 2019 included this acquisition adjustment for non-GAAP revenue and adjusted EBITDA, which we refer to as modified adjusted EBITDA for this specific purpose. Including the impact of the acquisition adjustment, our constant-currency, non-GAAP software product revenue growth equaled 26% in this quarter. In the current quarter, software product revenue increased to 78% of total revenue, up almost 400 basis points from 74% last year, without any adjustment for currency or acquisition-related data points, continuing the important long-term trend of increasing mix of software product revenue as a key driver of expanding our operating margins over time. For the year-to-date period, software product revenue represented 79% of our total revenue, up from 77% for the prior year. Our recurring software license rate -- that is, the percentage of software revenue that is recurring -- continues to be strong and consistent with our past performance at 88% for the first nine months of the year, positively impacted by the accelerated conversion to recurring revenue mentioned by Jim earlier. Our bottom line results were impacted by the timing of revenue recognition noted previously, as well as a $200,000 negative impact from shifts in foreign currency, resulting in modified adjusted EBITDA below our guidance range at a loss of $100,000. Third quarter calculated billings were $103.6 million, an increase of 22% from a year ago, indicative of the strong growth in our software product business. Currency shifts also impacted current period billings negatively by $1.8 million, and on a constant-currency basis, would have increased by 24% for the quarter. We tend to view calculated billings over longer time periods due to the impact variations in timing of renewals, expansions and new customer arrangements can have quarter-to-quarter. I would like to turn to the balance of the P&L results, 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. Gross margin in the third quarter was 68.4%, essentially flat relative to Q3 '18, and was negatively impacted in the quarter primarily as a result of the timing of revenue recognition in the quarter. On a year-to-date basis, gross margin improved to 71.5% compared to prior year gross margin of 70.8%. For the quarter, non-GAAP operating expenses, which excludes stock-based compensation, amortization of intangible assets and other operating income, were $73.9 million, compared to $60.2 million a year ago. I would note that our non-GAAP operating expenses have remained in a very tight range across our quarters this year as we balance investments in our business against expectations for revenue growth opportunities, both short-term and long-term, including acquisitions that are long-term-focused and the desire to deliver increased operating margins to our stakeholders. Modified adjusted EBITDA for the quarter was negative $100,000, compared to positive $2.4 million a year ago. Turning to our balance sheet, we ended the third quarter with $247 million in cash and cash equivalents and $150 million in undrawn capacity on our U.S. line of credit. Moving to our cash flows, cash flow from operations in the third quarter was an outflow of $1.9 million, compared to an inflow of $3.1 million for the third quarter of 2018. Free cash flow in Q3 2019 was an outflow of $3.3 million and consistent with our business cycle. For the nine-month period, our free cash flow equaled $21.9 million, compared to $35.1 million for the prior year. Our earlier guidance for 2019 was impacted by fluctuations in currencies such as the euro and pound. It is possible that continued shifts in foreign exchange rates for the balance of the year could increase the impact on our operations. For the 9-month period, the impact of currency fluctuations resulted in a reduction of $8.3 million for revenue and $1.7 million for adjusted EBITDA. As Jim mentioned, we are reducing our guidance for the year to take into account 3 primary factors. First, there has been a more rapid than expected shift from perpetual to subscription in both the data analytics business and from our Korean subsidiary. The data analytics business derived from the acquisition of Datawatch has shifted from less than 60% annual recurring revenue in 2018 to around 75% in 2019 recurring revenue so far this year. Our Korean operation has surpassed our goals by shifting from about 75% recurring revenue in 2018 to 85% recurring in 2019 to date. The total anticipated impact on revenue of this transition in 2019 is approximately $9 million, of which about $4 million is attributable to the fourth quarter. While this transition has a negative impact on revenue in the near term, this accelerated conversion carries longer-term benefits to top line growth. Second, weakness in the automotive sector is resulting in an approximate $11-million pipeline reduction, about $3 million of which is attributable to software-related services. The countries most affected by this are the U.S., Germany, France and Japan. Third, although we are pleased with the continued build-out of our go-to-market strategies for indirect business, the pace of the build-out has been slower than anticipated, resulting in $2 million less from this channel than previously expected. Given the margins on software product revenue, the noted reduction in top line impacts our bottom line virtually dollar for dollar. Q4 is historically Altair's most substantial quarter for new business, and as we rolled up our updated pipeline, we found more weakness than we anticipated. Accordingly, we believe it is prudent to take a more conservative view of the growth potential within our pipeline as we guide for the balance of this year. As we begin to look forward to 2020, for which we will be providing specific guidance early next year, we are focused on tighter control over increases to our headcount numbers. We expect targeted hiring for R&D and technical support, coupled with continued growth in our quota-carrying sales force. We will also be looking deeper at reducing non-employee-related expenses such as for facilities, technology, travel and consulting. Turning to guidance, given the timeline of the Polliwog and EDEM acquisitions, we do not expect them to have a meaningful impact on our revenue or modified adjusted EBITDA for Q4 or for 2019. As to Q4 2019, our expectations are software product revenue to be between $83 million and $87 million, representing growth of 5% to 9% from 2018; non-GAAP software product revenue of between $86 million and $90 million, representing growth of 7% to 12% from 2018; total revenue to be between $105 million and $109 million, representing growth of 2% to 6% from 2018; non-GAAP total revenue of between $107 million and $111 million, representing growth of 4% to 8% from 2018; modified adjusted EBITDA of between $9 million and $11 million, a reduction of 12% to 27% from 2018. For the 2019 year as a whole, we expect software product revenue of between $349 million and $353 million, representing growth of 15% to 16% from 2018; non-GAAP software product revenue of between $358 million and $362 million, representing growth of 18% to 19% from 2018; total revenue of between $440 million and $444 million, representing growth of 11% to 12% from 2018; non-GAAP total revenue of between $449 million and $453 million, representing growth of 13% to 14% from 2018; modified adjusted EBITDA of between $43 million and $45 million, a reduction of 10% to 14% from 2018; free cash flow of between $12 million and $14 million. As we reflect on our performance in 2019, some elements of the Datawatch acquisition were more challenging than expected, and market performance has not met our expectations as we have gotten deeper into the year, impacting on our ability to deliver on our commitment to drive improvements in our operating performance. Yet, as you can tell from Jim's comments, we are optimistic that the changes we have made and the successes we have achieved in 2019 provide a strong foundation to support superior long-term growth and thereby expand operating margins as we look forward to 2020 and beyond. With that, operator, can we now open the call to questions?

[Operator Instructions]. Our first question comes from the line of Jackson Ader of JPMorgan. Your line is open.

Let's just start on the automotive sector, if we can. Is any of the difficulty that you're seeing competitive in nature, or is it simply your customers coming up for their annual renewal of HyperWorks units and either not taking as many as they were the year prior or not taking additional units like maybe you would like? A – Jim Scapa: Are we on? Okay. Hi, Jackson. Thanks for the question. So we don't -- I've been actually digging through my whole organization to try and understand if we think there's a competitive thing here, and very, very clearly coming back that that's not the case. We're not reducing -- we're not seeing any reduction in the unit counts. We're still growing, by the way, from what we're forecasting going forward into Q4, for example. It's just we're not growing as fast. And I think that if you think about the competitors in general, we tend to play more in the historical markets that are the mechanical engineering side, and a lot of the investments are moving to electronics and a couple other areas where we actually have a lot of really new products, exciting stuff coming on, and we're starting to see winds. But it's a little bit newer for us, and so I think we're catching up, getting our sales force used to selling into those new teams in some of that, actually.

Okay, that's helpful. Just, then, a quick follow-up on data analytics and Datawatch. So I just need help really understanding the move to the subscription transition, how it kind of -- not snuck up on us, but whether -- I guess, why didn't we see this being this size of a headwind three months ago? What has changed since the last time you kind of took a look at the pipeline there?

So we were beginning to see the transition to subscription, especially on the data analytics side. We really did not see it as much on, for example, the Korea move. It's a little bit accelerated from what we saw before, and I have to be really honest with you. We came to the end of Q3, and we, frankly, we knew that we had hit our billing numbers. We were feeling pretty good about things. And the anecdotal information we were getting from the field was all pretty positive. But as we rolled up the pipelines and really took a look at what's happening, we frankly saw a different picture. So yes, I mean, we were really quite surprised.

The next question comes from Andrew DeGasperi of Berenberg. Your line is open.

I guess first on the $4 million that should have been in Q3, did that get pushed into Q4, or is it potentially moving further out? And then secondly, maybe can you -- can you maybe discuss the confidence you have for 2020 given the pipeline that you have today? Exactly what kind of visibility do you have where you think this is a transitory issue in Q4?

This is Howard. Thanks, Andrew. I'll take the technical question and I'll let Jim address the business. The $4 million was, in fact, billed in Q3. What forced the revenue recognition out of Q3 literally were license commencement dates on those transactions, basically October 1, October 2. So the billings were there, and but for data on a document, would have been recognized in Q3. It really would not have been an issue for us if we were really under our old scheme of 605, but that's what 606 compels you to do.

Okay, so why are we confident about going into 2020? Was that really essentially the question there?

Well, why, considering Q4 and the pipeline, do you feel that --?

Yes. No, that's fair. So I mean, to be very honest, we're feeling good going into 2020 for four or five key reasons. One is the product momentum that we have. I talked a bit about the products that are coming on stream; there's others as well in the computational fluid dynamics space as well. And we think a lot of these products are going to start to hit, if you will, the revenue side, actually generating billings and revenue much more next year than what we saw in this year. We were more optimistic about some of it for Q4 of this year, but we think it's going to hit more in next year. The second, to be honest, is the acquisition integration of Datawatch. There was a lot of work to do there. We're still feeling really great about that acquisition, by the way, but there was certainly a good deal of work to do. We had -- we did a lot of work around synergies and we also lost a number of people on the sales force, especially through the middle part of the year, as some of the RSUs came on. And we've worked really hard to structure that and to bring new people on -- in fact, we've brought so many new people just on the data analytics side that the capacity, we think, is enough for growing -- I'm not making any guidances here, but the capacity is there for about -- well more than 30% growth on the data analytics side next year. The other thing for us is, there's been a lot more diversification in our business. We have historically been much more automotive. If you go back a few years, we were probably 45%. Right now we're about 35% and it's continuing to decline, and we're into a lot of other new markets, energy and sporting goods and all the golf club makers, whatever. And then just finally, to be honest, we've been working hard on the sales organization, not just adding a lot of capacity through the year, especially during the second half, but there's a lot of focus on strategic accounts, reducing the number of accounts per account manager and shifting some of the smaller accounts to the indirect partners that we have. The other thing we've done is we've been building inside sales teams through this year, and they're in every region and every country, and that makes a really big, big impact for us. So it's that combination of things. Yes, why didn't they hit for Q4? I think it just takes time to get that all up and going. Sales guys for us, historically, take about 1 year to fully ramp up. So I don't know if that (inaudible) your answer.

And next question comes from Rich Valera of Needham & Company. Your question please.

Jim, wanted to follow up on your statement that you sort of said you were overindexed in some of the traditional product areas, at least from a sales perspective, but I think you expressed some optimism that you sort of have products on some of the newer areas where the automotive manufacturers are focusing, but maybe you're not up to speed selling them, so could you just click down into that and explain what you were thinking there? Do you feel like you have the product portfolio, or do you need more work on the product portfolio on some of these newer areas, or is it more a matter of sales training and getting folks to sort of sell to different groups inside some of these auto players?

Right. So I think it's a combination, to be honest. Historically we really don't play that much on the CFD side, for example. And we have both a general-purpose CFD code, a product called AcuSolve, and then we also have this external aerodynamics solver. Both those products are really coming up to speed to be really interesting and competitive, both in sort of different ways. One handles the internal flows and one the external flows. And we have historically not pushed products into those accounts, those segments. They're different departments in these companies. And so we're beginning to do more of that, and we're thinking we're going to start seeing more traction around it. Similarly, we didn't have product for some of the PCB-type applications, and with the PollEx product we're feeling pretty excited that we bring something new there. But again, we have to learn how to sell into these departments more effectively. So we've had really strong electromagnetic solutions, and we frankly have a lot of success with electromagnetics over the last couple of years, both for the low- and the high-frequency stuff, both for motor -- electric motor design and antenna design, but we're still learning a bit, and we're still filling out the portfolio in some of these areas. I was just going to finish by just saying, we're feeling like these last couple of pieces that we've brought -- by the way, the DEM product, although not that relevant in automotive, is another, if you will, niche area of CFD. CFD is very interesting, that you have different types of solvers for different types of areas. So the DEM solver among all CFD is probably 5% to 7% of that market, which is a very, very large market.

Got it. So that obviously, you feel, strengthens your CFD portfolio. And then Howard, just wanted to make sure I understood what you said on the reduction -- the $20-million reduction. I think you called out $11 million kind of related to auto. And was that $3 million on the services side and $8 million on the software side? Is that how that broke down?

On an overall basis, it's a little more on the software than on the services for Q4. If you'd have a -- $3 million is more an annual number on the services side, whereas $11 million is really the total pipeline kind of reduction for Q4. You'd probably peg about $10 million on software and $1 million on services for the quarter.

And again, for us, Q4 is our largest quarter for new and expansion, so the reduction doesn't mean we're not still growing, but Q4 is a big growth month -- growth quarter for us normally.

Got it. And just one more on kind of that general topic. Just, can you characterize what types of companies are you seeing the hesitation at? Is it at the OEM level, that kind of Tier 1 supplier, at a level below that? Any consistency there, or is it just sort of general -- some general hesitation across a variety of different kind of tiers in this space?

I think I mentioned it somewhere in my prepared remarks. For us, automotive is, like, 2,300 customers. We have 11,000 customers nowadays, and 2,300 are automotive. It's across most of the industry. I mean, if you're in that world, which we are because we're in Detroit, you know that there's been a lot of staff cuts, there's a lot of -- there's very much a general feeling of keeping an eye on expenses and deferring things, so it's something we certainly see.

Our next question comes from Ken Wong of Guggenheim Securities. Your line is open.

So when I look at your non-GAAP software revenue guide for Q4, it's, at the midpoint, $87.8 million. If we were to back out the $4 million that should have hit Q3, I guess, I get a growth rate of roughly 5%. I'm just wondering, is that the right way to think about the software business going forward under these current conditions, or is there something that I might be missing in that particular number that suggests that the growth rate is more robust in future quarters?

No, Ken, that's a pretty fair perspective on that. Keep in mind, with what we've seen in terms of the very recent movement in the pipeline, we've taken a little bit more than typical conservative approach here, based upon what we've seen here over the last little bit, so we're trying to be very thoughtful as we're reacting and responding to what's emerged here.

This is the second quarter that we're guiding down. We're not happy about it, but we think we need to be conservative this side, right?

Got it.

Right.

And then -- go ahead.

The other point -- I just want to make it, is that our business is -- I don't know if I want to say lumpy, but under 606, different from under 605, things -- I don't think you can make estimates based off of one quarter, one way or another.

No, we've said -- Jim's right. We've said it's a little harder to extrapolate one quarter to any other given quarter, and when you look at what we're projecting and guiding to on a non-GAAP basis, you're talking 18% to 19% up from 2018 for the full year. So that's still a fairly healthy growth rate number.

The other thing I'll mention is -- we're not guiding today, and so I'm not going to put numbers up, but we've been, as you might imagine, we're asking similar questions, right? And so we've gone out to the -- to our sales organization, and without -- as my Chief Revenue Officer says, without putting any pressure on anyone yet, we're getting pretty robust growth numbers for next year out of them. So people are very, very optimistic about things coming into 2020, despite what we're seeing in Q4.

Got it. Thanks for the color, Jim. And then maybe another question, as I think about -- earlier, Howard, you mentioned that OpEx has stayed very stable. It looks like it's growing kind of low 20s percent year-to-date. Any sense for kind of how you guys might pace the growth of OpEx given the current climate?

So when you look at OpEx, literally, from Q1 to Q2 to Q3 on non-GAAP OpEx number, you're going to see that it's going to literally pivot within about 1% of $73 million, $74 million quarter to quarter to quarter. The reason why there's an uptick relative to the prior year is, obviously, the prior year did not include the cost that we picked up when we acquired Datawatch. So from the point that we baselined in Q1, we've been really essentially flat, and the variation quarter to quarter is negligible. So we're going to continue that focus on targeted headcount increases and enhanced focus on controlling certain non-employee expenses, as we've mentioned, beyond those that obviously we've listed as well.

Got it. So I guess when I -- I guess, again, in that right now it's growing, you've kind of kept it around the $74-million range, but earlier you did mention tighter control of headcount, reducing non-employee-related expenses, so should we think of that number coming down by -- at least going forward? I know you've given us 4Q guide, but is that something that, as you consider the weaknesses in the business right now, that you would manage the spend to a level that's well below that $74-million level?

Ken, I don't want to specifically guide, obviously, to expenditure levels going forward, but we're not suggesting that we're going to be having significant headcount reductions. We've indicated targeted increases in R&D and tech support areas, and in particular, we'll continue to hire in quota-carrying account executives, just as we have this year. I think what we're trying to be pretty clear about is, thoughtful and diligent around overall costs and not really a significantly different profile going forward than how we're running the business literally today.

Thank you. Our next question comes from Matt Hedberg of RBC Capital Markets. Your line is open.

This is actually Matt Swanson on for Matt. We've spent a lot of time, obviously, talking about the automotive vertical. I was just wondering, from a more general standpoint, is the macro weakness very specific there? I mean, some of the indicators we look at, like PMI, might suggest that there might be some more general headwinds, or if you're seeing anything else from any other spaces.

It's probably a little bit more general, not just automotive, but it's more pronounced automotive for us. Again, remember, we're 35% automotive, so we certainly see that particularly as important for us. But it is a little more general. I wouldn't disagree with that.

Thanks. And then one thing that we've traditionally talked about as one of the strengths of your model, the HyperWorks unit, is the ability for customers to try additional products. Is this something you think can help you in the automotive vertical when you're trying to expand from the mechanical side into some of the other areas that you've discussed?

Well, we had our first PollEx -- in fact, I was just telling my Chief Operating Officer, we had our first PollEx webinar this morning with customers, and I was asking the guys, how'd that go? And they said it really went great. And the very first question that people were asking is, is this available under our units? So yes, I do think it's going to make an impact. The other place that it makes an impact is just the fact that the product is extremely open, so that irrespective of which ECAD tool you're using, you're able to use the solution. It's something that we really like about it, and it has really, really nicely integrated simulation, multidisciplinary types of simulation, all built in, very fast, very, very accurate. But yes, the unit, I think, is going to fly.

Thank you. Our next question comes from Bhavan Suri of William Blair. Your line is open.

I guess I wanted to touch on SIMSOLID really quickly. I'm not sure I understand -- are you starting to see that product start to accelerate and replacing a legacy product? You talked a little about investment there, and I'd love to get some color on the investments you're making on SIMSOLID, whether it's go-to-market or product. Thanks. And I've got one follow-up.

Okay, wow. You're really speaking quickly there, but I think I got it.

I think you got it, Jim.

Yes, I did. So SIMSOLID is definitely accelerating. I mean, the product is truly amazing, and I tried to give a little sense of that in my prepared remarks. I mean, we do these webinars, and we have over 1,000 people coming. We're going to do a lot more of that. Every customer is excited about it. We're integrating it, that technology, into some of our other solutions like Inspire and SimLab. And yes, I mean, I think that product is going to be everywhere. And it's not just a solution that can work for the designers, if you will, because the fact that it can work with really complex designs, very, very complex assemblies, and you get solutions so rapidly, it's -- I know I've said it over and over, but it's a really game-changing product, and I think if you start talking to some customers you're going to get the same response.

Yes. No, we did it at the user conference. I guess, I wanted to touch on Datawatch. I know that we've beaten that to death a little bit, but really, I wanted to touch about sort of customer adoption there, and the pipeline. Have you seen that expand into the manufacturing base? More on the Panopticon and the Angoss side, have you seen the manufacturing customers begin to get value out of the streaming and the machine learning/AI piece there? Or is that still pretty early as you think about sort of getting that in the hands of your actual core existing base? Thank you.

Sure. Thank you. So the Knowledge Studio product definitely -- actually, almost every customer is interested in using the technology. And there's just a huge amount of interest in being able to apply machine-learning algorithms. We are starting to see interest in the data prep as well. To be really honest with you, I have not seen as much on the Panopticon, and I think some of that is because we're still trying to understand where the use case is so that we can bring solutions to customers that make sense. But on the other side of that, we're starting to have wins -- I just read a win this morning, at another bank that we have, and we're seeing the opportunity to bring all the different products into the banks, whereas before they might use just Monarch or just Knowledge Studio or just Panopticon. We think the units model is going to really start to have an impact coming into the next year. And the sales team is finally embracing it. There's just a lot of energy and excitement now that we've finally got all the integration behind us, and we've grown the team. They've been excited to see that we're investing in the sales organization and marketing and other things for the products that they basically love, so yes, feeling really good about that.

Ladies and gentlemen, this concludes today's conference. On behalf of Altair, thank you for participating. You may now disconnect.