Ladies and gentlemen thank you for standing by and welcome to the Altair Engineering Inc. Second Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I would now like to hand the conference over to your speaker today Howard Morof, Altair Chief Financial Officer. Please go ahead, sir.

Good morning. Welcome and thank you for attending Altair's earnings conference call for the second quarter of 2020. 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 yesterday, we issued a press release with details regarding our second quarter performance and updated guidance for 2020, 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 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. 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 yesterday. 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 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?

Thank you, Howard. And welcome to everyone on the call. Altair is doing well in the midst of a global health crisis and economic uncertainty. I am proud to lead an organization which has remained so dedicated and intensely focused on developing great software and helping customers succeed despite the personal hardships brought on by COVID-19. Today I will discuss our recent acquisition of SNYs, new product announcements and customer engagements. I will first summarize second quarter financials. We are pleased to report top line results above the high end of our guidance range and total revenue of $98.6 million for the second quarter. Adjusted EBITDA of $5.7 million was also above our guidance range for the quarter. Software product revenue was 83% of total revenue for the second quarter compared to 79% in the prior year period. Our recurring software license rate was 93% for the second quarter of 2020 versus 91% for the same period in 2019. For the first half of the year software product revenue grew to $190.3 million from $187.7 million the prior year; an increase of 1% and grew by 3% on a constant currency basis. Total revenue equaled $230 million compared to $234.6 million, a decrease of 2% driven by a decline in software related services. Adverse shifts in currency accounted for $3.1 million of negative impacts to revenue for the year-to-date results. New customer activity and acquisition remained relatively strong in the quarter considering the impact of COVID-19. Our software renewals are coming in as expected including in the automotive and aerospace industries and we continue to see growing interest from customers to transition from competing software solutions. Our pipeline for all software products including data analytics continues to increase in line with previous years. It is clear that for our manufacturing customers especially in automotive investing in their new products and delivering next generation features is of paramount importance. Therefore, they continue to aggressively compete for top talent and invest in tools and technologies like Altair's to drive innovation. It is also clear that COVID-19 is accelerating the transition to digital solutions like simulation and data analytics. It's also driving the need for cloud computing and tools to help collaboration and data management for dispersed workforces. Last week we announced the acquisition of SNYs an enterprise software technology company based in Seoul, Korea. They are a leading provider of polyurethane foam link simulation. Their software includes a physics solver which accurately simulates the injection, foaming and gelling processes accounting for the important effects of chemical reactions. An enhanced version of this software will be released within Altair's inspire simulation driven design platform called Inspire PolyFoam. As Altair's newest offering for manufacturing simulation Inspire PolyFoam will provide the same ease of use and productivity as other Inspire solutions. Polyurethane foam is used in a vast array of industries and products including automotive interiors, recreational equipment and medical devices and we are delighted to offer another critical manufacturing simulation and design solution to our customers. On June 3, we announced the most significant software update release in our company's history. All of Altair's software products have been updated with advancements and user experience including intuitive workflows and countless new features and capabilities that empower users to streamline product development. The software update release expands on the number of solutions available for designers, engineers, data analysts, IT and HPC professionals to drive better decisions and accelerate the pace of innovation. It enables access to more physics, data analytics and high performance computing technology and streamline software delivery for prospects and customers. Our teams worked incredibly hard and collaboratively to make this release happen. More than 20 years ago we revolutionized how engineers and organizations licensed our leading simulation software with hyperworks units; a groundbreaking value-based business paradigm. To further evolve our unique business model we’ve recently introduced Altair Units our new unified licensing system that gives access to every Altair product and the power to solve on any scale. We feel the new Altair Units model addresses two important objectives. First, to align revenue growth with usage growth and second, to compete more effectively in mid and low end markets and in the cloud. The new model delivers enhanced inclusivity at various price points and allows customers to maximize their software value. We believe our new pricing package, choices are truly a win-win for our customers and for Altair. Continuing the product release momentum on June 15, we mark the 30th anniversary of Monarch's original launch as a data preparation solution and a new version containing powerful and unique features such as excel trapping and complex PDF extraction. Our customers now have even greater abilities to transform data from multiple sources into competitive business assets. Finally to round out a busy few months of product releases on July 16 we released a new version of Altair knowledge studio that brings even greater speed, flexibility and transparency to data modeling and predictive analytics. Workflows can be optimized in minutes and machine learning powered data modeling provides users with automated feature selection and explanations around algorithm deployment. Additional features to this new release include automated Python code generation, direct data export to Altair Monarch and support for R code 4.0 and higher. We had a significant win in our HBC technology this quarter one of the major Silicon valley companies where our technology is being used to dramatically accelerate chip design. One important and recent win was in APAC where we clearly outperformed two major competitors and a benchmark for high frequency electromagnetic capabilities. It was particularly gratifying that the newly acquired technology from new facade in Spain help make our solution extraordinarily competitive. Customers are increasingly embracing no code and low code solutions for data analytics like those in Altair's portfolio to develop automation workflows for data preparation, data science and operational analytics. In several conversations with major banking customers, we learned they are looking to move away from proprietary legacy software language solutions to modern open architecture languages and while there will continue to be a lot of manual coding in the world of data science, our technology clearly enables a broader group of business users to be productive. In conversations with key technical executives at manufacturing customers we are aligning to bring the power of data analytics to their product development, manufacturing and field service operations. The workflows for gathering and making use of data are not yet mature and we are happy to be playing a role both in developing these workflows and providing the technologies to support them. With the recent new releases of Panopticon, Monarch and Knowledge Studio we are gaining momentum with our solutions for data analytics. We are becoming increasingly optimistic that Panopticon our best-in-class solution for operational analytics and financial services market is finding numerous applications in manufacturing and the industrial IoT. One example is a company providing operations and maintenance solutions in the power generation industry. Continuous monitoring of power generation turbines can have a great impact on maintaining a reliable flow of power to the power plant as well as alerting power generation turbine operators to potential equipment damage. Altair knowledge works is being deployed for an offshore power generation turbine monitoring system that will help assure reliable operation. We remain well-positioned and diligent towards successfully managing through the current environment. Our business continues to generate ample free cash flow and our balance sheet remains strong. We continue to be very positive about Altair's product and sales delivery capabilities and we are confident in our prospects for sustainable long-term growth. The solutions we offer for simulation, high performance, computing and data analytics are by their nature geared to a virtual environment and the shift to these technologies has clearly been accelerated by the pandemic. COVID-19 has also fast-tracked many of our initiatives related to selling and pre and post-sale support which are key to improving our overall margins. We continue to be concerned about the macro economy and the need for physical world activity to normalize but it is clear our customers remain committed to investing in research and development for their long-term competitiveness. We are fortunate to have a very broad and diverse industry base and extremely high recurring revenues which we believe helps to insulate us to a large extent for macroeconomic turbulence. We remain hopeful that good progress will be made this year for global health and prosperity. Altair is supporting a new employee initiative called ABERN or the Altair Black Employee Research Network. This group is closely aligned with our vision for strengthening diversity and inclusion. Membership and participation in ABERN is open to all Altair employees and I am hopeful the combination of Altair's global resources and the employee energy behind ABERN will contribute to improving opportunities for underrepresented minorities. Together we are working to develop programs to support black and other minority students who are academically oriented towards stem with scholarships, mentoring, internships and job opportunities. In closing, I want to express that we have never felt better about the current and future state of our company and products. Now I will turn the call over to Howard to provide more details on our financial performance and our guidance for the third quarter and full year 2020. Howard?

Thanks Jim. First I would like to remind everyone that our seasonal billing patterns coupled with the treatment of revenue under ASC 606 results in heightened seasonality in revenue and associated metrics with higher software product revenue recorded in our first and fourth quarters of any given year. We expect this pattern to continue under present business conditions. We exceeded our revenue guidance for Q2 driven by continued strength and software product revenue and also nicely exceeded our adjusted EBITDA guide. Our second quarter results were driven by demand for our software product. Software product revenue equaled $81.8 million compared to $84.8 million a year ago while total revenue equaled $98.6 million versus $106.8 million last year; both exceeding our guidance for the quarter. Total revenue was impacted by the reduction in software related and client engineering services revenue due to being the first full quarter of COVID-19 related impact on the demand for these services. Additionally, currency shifts accounted for $1.5 million of adverse impact on total revenue predominantly from software product revenue. During Q2 last year, we realized $3 million in revenue from Huawei prior to the imposition of trade restrictions. We are quite pleased that our Q2, 2020 results for software product revenue and adjusted EBITDA were able to absorb the reduction in revenue and bottom line impact that the loss of this revenue stream represents compared to the prior year. Our software related services revenue declined about 30% in the quarter relative to the prior year. However, these results are in line with our expectations announced last quarter given the present business environment. These services are susceptible to reductions as some of our customers adjust their external project spend in response to market conditions as a result of COVID-19. Also as expected, our client engineering services revenue declined by 22% in the quarter compared to the prior year due to reductions imposed by some of our CES customers after Q1 due to COVID-19. In the second quarter, software product revenue increased to 83% of total revenue up 400 basis points from 79% last year without any adjustment for currency related data points, continuing the important long-term trend of increasing the mix of software product revenue. The key driver of expanding our operating margins going forward. Note that for the quarter software product revenue as a percentage of our software segment hit almost 94% of segment revenue up about 230 basis points compared to the second quarter 2019 consistent with the shift we saw in Q1 of this year. Our recurring software license rate that is the percentage of software revenue that is recurring continues to be strong at 93%, an increase of about 2 percentage points compared to 91% for the prior year period. The key driver of this increase is our continued emphasis on increasing recurring revenue, licensing streams including progress within our data analytics business compared to the prior year. Second quarter billings were $98.9 million compared to $108 million from a year ago as a result of decreased billings for software product, client engineering and software related services and foreign currency impacts. We tend to view billings over longer time periods due to the impact that variations in timing of renewals, expansions and new customer arrangements can have quarter to quarter. For the year-to-date billings equal $226.8 million compared to $241.9 million a year ago. Foreign currency effects accounted for $4 million of the variation with software related and client engineering services also contributing to the change. I would like to move to the balance of the P&L results. Gross margin in the second quarter was about 75% reflecting an increase of almost 400 basis points from Q2, ‘19. This increase is mostly driven by the favorable revenue mix shift to software product revenue along with improvements in margins for our other segment. Gross profit in the quarter was adversely impacted compared to the prior year by approximately $1 million directly attributable to the decline in software related and client engineering services revenue. For the quarter, non-GAAP operating expenses which exclude stock-based compensation, amortization of intangible assets and other operating income were $71 million. The proactive steps we enacted as part of our early response to COVID-19 had an immediate impact on reducing our non-GAAP operating expenses in Q2, ‘20 compared to Q1, ‘20 by just over $8 million. By comparison our Q2, ‘19 non-GAAP operating expenses were $74.1 million. We do not expect the recently announced acquisitions of [indiscernible] and [WRAP] to significantly impact our non-GAAP operating expenses for the remainder of this year. Some of the actions we undertook in late Q1 and throughout Q2 will continue to mitigate increases in operating expenses as we look over the balance of the year which we will speak about shortly. Our adjusted EBITDA for the quarter exceeded the top of our guidance range at $5.7 million and reflects a $500,000 increase from last year's second quarter. This increase is driven substantially by the positive shift in revenue mix coupled with efforts associated with reducing expenses in response to the COVID-19 environment and partially offset by a $900,000 negative impact from realized foreign currency transactions. Turning to our balance sheet. Consistent with the typical seasonality in our billings and collection activities, we ended the second quarter with $250 million in cash and cash equivalents and $150 million in undrawn capacity on our U.S. revolver. Our liquidity position remains quite strong and we feel well prepared to navigate the uncertainties in the current business environment associated with COVID-19. Moving to our cash flows. Cash flow from operations in the second quarter was an inflow of $5.4 million compared to an inflow of $6.6 million for the second quarter of 2019. The decrease in cash flow was primarily related to normal variations in working capital elements. Free cash flows held steady at $4.5 million compared to last year. Based on our outperformance in the second quarter, we are increasing our guidance for 2020. We anticipate stable software product revenues that expect to continue to see reductions in software-related services for the balance of this year along with similar challenges for client engineering services, although it is possible that both will start to see minor improvements as we approach Q4 of this year. We continue to believe operating with a cautious and conservative posture is most prudent until we see tangible evidence that global economic conditions begin to improve translating into growth and investment in R&D technology. Adjustments to expenses to reflect the current demand environment have been implemented. These include reducing certain employees compensation levels or similar adjustments as permitted and adjustments to other expenses to correlate with potential declines in billings and cash collections from customers such as reducing the use of outside contractors along with consulting and professional fees. These steps continue to be adjusted as prudent and employee expenses for the balance of the year are expected to increase modestly. As a result of travel restrictions substantially all of our sales, professional services and other activities continue to be conducted remotely also contributing to cost savings. We have partially adjusted cost of revenue to mitigate the loss of software related services revenue primarily through the reduction in use of outside contractors. With our long-term goals in mind we will continue to strategically invest in certain R&D and technical support areas and selectively expand our sales capacity. We have navigated through many different economic cycles over our 30-year history. These cycles have taught us the importance of retaining much of the deeply technical and specialized engineering resources we have dedicated to developing and supporting our broad array of technologies and customers. When we released our Q1, 2020 earnings and updated guidance for the full year in early May, the level of uncertainty regarding the impact of COVID-19 on our customers and our business was quite substantial. Three months down the line we continue to see substantial unknowns especially in terms of when business conditions will normalize for our customers who are most heavily impacted by the economic and business conditions through which we must all navigate. Against this backdrop we have updated our guidance for the year still reflective of a level of caution and conservatism that we believe is called for under today's uncertain and evolving circumstances. For the 2020 year we presently expect software product revenue between $368 million and $380 million representing flat results to growth of 4% year-over-year. Total revenue between $443 million and $455 million representing a decrease of 1% to 3% from 2019 driven primarily by a reduction in software related and client engineering services revenue. Adjusted EBITDA between $33 million and $38 million representing a decrease of $2 million to $7 million from 2019. Free cash flow between $5 million and $15 million. As mentioned before our free cash flow expectations are sensitive to billings and collection patterns following the seasonality of our billing. At Q3, 2020 our expectations are software product revenue between $80 million and $82 million representing growth of 3% to 5% from the third quarter of 2019. Total revenue between $96 million and $100 million representing flat to a decrease of 4% from the same period last year impacted by the reduction in software-related and client engineering service revenue. Adjusted EBITDA between break even and negative $2 million in line to slightly better than adjusted EBITDA of negative $2.3 million last year. Further, detailed guidance tables have been provided in the press release issued after close of market yesterday. Please note that these expectations assume stable foreign exchange rates. Our tax expense expectations for the balance of 2020 calls for cash tax expense of between $4 million and $5 million for the second half of the year based upon projections of tax withheld at source in certain countries applied to funds expected to be remitted back to the United States along with income tax expense in jurisdictions outside of the U.S. As a reminder due to the valuation allowance position that we are in primarily in the U.S. we are not able to capture the value of foreign tax credits or operating losses for GAAP purposes in our financials. Also as detailed in our filings we issued approximately 2.1 million options in June at an average price of $39.48 per share. We expect to issue an additional 2 million options in December of this year a strong incentive to our global senior teams to continue to create long-term value. Our updated guidance takes into account the expected increase in share based compensation expense on the relevant metrics from the issuance of options. We believe that maintaining a very cautious and conservative view is the most appropriate perspective at this juncture. COVID-19 developments are evolving at a rapid pace in an unpredictable manner. Our engineering technologies continue to be critical to the R&D and product design activities of our customers across many industries. Our data analytics products respond to the important need to perform deep analysis on streams of information so that our customers can make better decisions much more quickly which is so important in today's environment. Our licensing model which we have continued to enhance is remarkably well suited to support our customers and allows us to leverage the key benefits we provide to meet the needs of our present and future customers. Our strong balance sheet gives us the flexibility to continue to pursue targeted M&A activities we expect to continue to do so opportunistically. Finally, we have a highly experienced global team dedicated to continuing to support our customers regardless of the business environment. With that operator can we now open the call to questions?

Thank you. [Operator Instructions] Our first question comes from Richard Valera with Needham & Co. You may proceed with your question.

Thank you. Good morning and congratulations on the solid execution in a tough environment. Jim, I was hoping you could just talk about how you see the sort of macro outlook one quarter later into COVID? I don't want to put words in your mouth but it sounds like you have a little bit better feel for how the business is going to fare under COVID. The software renewals sound like they're coming as expected and the services part of the business sounds like it's down about what you expected. So just wanted you to sort of give us a sense of how you're looking at the world three months later than last quarter and if you feel like you have a little bit more visibility then you maybe had a quarter ago?

Thanks Rich. Good morning. 5:30 in California. Yes. Obviously we're a quarter into this and probably through the worst a bit. It's been eye-opening. We weren't really sure how things would proceed for the most part and our customers are continuing to do their business. The engineers in R&D that we work with are continuing to be very productive and as you see in many of the articles that we're all reading in our world people are extremely productive and our team is and so are our customers and I think we've been supporting them really well. I think that as you look at how things are preceded globally we saw things started in China and then move to Korea and then into Italy and Spain and France and through Europe and then finally to the U.S. and South America. And in a lot of the world, I think things are really getting back much more to normal. Obviously in the U.S., Brazil things are still a little less normal I would say and then you've got uncertainty around second waves and all that but as far as the business goes. I think we've even been surprised a bit at how solid all the recurring, all the renewals have been a tiny bit of more attrition than usual as you might expect in some of the smaller accounts that are struggling but in the lion's share of the business it's very, very solid. Services are down but that's primarily the software related services. The revenues are down on the client engineering services as well but actually the customers have held on to the people and that's a real indication to us that they're just continuing to invest in R&D. So I think we've been, we've tried to be conservative here with [guidance]. We've learned things over the last couple of years and I think we understand the importance of conservatism here but we're feeling very, very positive, as positive as you can in the middle of something like this about sort of making our way through it and then coming out the other side much stronger.

Great. Thanks for that color Jim and then wonder if you can talk a little bit about the Altair Units business model? Is that intended to facilitate kind of cloud-hosted usage of your products and in general are you seeing more hosted usage of your products during COVID and if so how does that affect the business model from a growth or profitability perspective?

So the Altair Units is intended to address a few different things. We've created, if you will, these suites with different price points and so it gives us the ability to go into different accounts where they may not want access to all of the products, just a portion of the products and go in with a little more aggressive pricing that fits those markets because we're trying to target small medium accounts. It lets us come into larger accounts and bring more value. If they want to have different pools they can do that as well as go to the enterprise solution or to the mechatronics solution and get off what they might usually get which is a large share of all the products. So for us it's also allowing us to get the right revenue if you will against usage because I think we were tracking higher growth and usage than growth in revenue and we wanted to bring that in line but we think it's still a very high value solution for customers and then finally for cloud yes, the units are primarily hosted and now the customers have the ability to use the same units in the cloud and we have, I think a pretty innovative approach to that as well. We introduced Altair One and that's going to come with a second release of that soon, as far as how much cloud hosting is growing, it's not huge but it's growing and I think it's sort of this inexorable thing that's coming and I think we are bringing the technology basically in front of the way that's coming we think and I think Altair clearly has best in class technology for cloud technology.

Okay. Thanks for that Jim. Congrats. I'll pass it on.

Thank you.

Thank you. Our next question comes from Bhavan Suri with William Blair. You may proceed with your question.

Hey gentlemen thank you for taking my questions, [indiscernible] given the environment. I want to touch a little bit on renewals. Last quarter you mentioned some elongated sales cycles around auto and aero, I guess first how these conversations progress sort of June/July? Have you seen any improvement in sentiment? It feels like you have and I know I'm sort of echoing the previous question but I really want to focus on auto aero and then just to talk about renewals alongside that have you seen customers taking longer to do the expansions like as they come up to renewal they obviously understand the way that they did but are you seeing those sort of conversations take longer. They want pressure from procurement that's what I'm trying to understand?

So on some of the larger deals where we see an, there is an expansion opportunity, we do see them going a tiny bit slower. We had one that actually should have gone in Q2 for example pretty large one that we've already closed and it's a very nice addition for us to the business but it did delay a bit. So there is some of that. There is no doubt about it.

Yes. Sorry Jim, go ahead.

Yes. For the most part I think it's good. We're actually seeing customers who want to use more of our products. They're seeing the value of what Altair brings and both the value and the breadth of products and we're getting more attention for that actually in this environment but it does, if you want to get your extra deal you have to be a bit patient and we are.

Yes. Makes sense. It's for a long term. Cool. One other quick question on [indiscernible] something you didn't comment on the quarterback. It's a product high and I know you're excited about just nothing consultants and sort of how that's going?

I'm not sure I followed your question. So I apologize. Could you repeat it?

Yes. You obviously have the simulation product and I'm probably going to sim solid to solve them I said that I would get it wrong but I was wondering how uptake of that product is going to give. We're pretty excited about what it's going to do in the simulation-driven design space. It's something you usually comment on the comments in the comments that's how I was getting it.

Yes. So I mean some solids continuing to drive usage for us. It also drives a lot of interest for us which brings the opportunity to sell the other products as well. We integrated it inside of Inspire. The Inspire platform is our simulation driven design platform. It's got a lot of different simulation capabilities inside and customers we're really looking forward to it being in there and we're continuing. We just did the [SNYs] deal and that brings us polyurethane foaming. We've got a whole suite of manufacturing simulation as part of Inspire and a lot more stuff coming really fast actually. We're pretty excited. So yes I mean I think some salad solid is on [trial] -- one interesting thing to note is we were looking at the footprint, if you use some solid versus traditional FBA the footprint has been about [1 100th] the amount of space if you will for all the data, all the files and the product and the new version is now it's 1 400th it's four times smaller than in the past. So that product is I mean it's a game changer.

Great. Thanks for that color. That was helpful and good luck. Thank you for taking my questions guys.

Thank you.

Thank you. Our next question comes from Brian Essex with Goldman Sachs. You may proceed with your question.

Hey guys good morning and thank you for taking the question. Jim, just real quick question to follow up on Altair One, I thought that you said it would be out shortly. What kind of costs are associated with preparing for that launch and I guess I just wanted to maybe get a better understanding of particularly as you provide scalable computing resources for users on the platform is that your infrastructure or would that be just you managing that access to third-party infrastructure?

No. All of what we're doing is designed for third party infrastructure. You may have seen a big deal that we announced with Oracle but we can move it, we can move those workloads to any platform if customers will not actually take the entire Altair One solution set they're going to be able to run it within their enterprise as well. All that technology is Altair technology but we are running it on public clouds.

Great. Fantastic and maybe Howard just to follow up on, you noted in your prepared remarks progress with data analytics, maybe could you provide an update with regard to data watch and the progress with that business particularly with regard to migration over to unit-based pricing? Is that pretty much done and have we kind of lapped the runoff there where this might be actually contributing to growth at this point?

Yes. I know. Terrific progress there in terms of the conversion of the business model away from what was legacy, paid up perpetual type business. So I would say by and large left there's still, I would say a little bit to go over the balance of this year relative to the prior year but the positioning of the product you've seen just a slew of announcements about the enhancements and such in the product suite is terrific. It's encompassed beautifully within our Altair Units released now to really enable our enterprise customers to access all of the technology. So there is no drag on that business at this point at all whatsoever. Just an awful lot of opportunity and excitement.

Right. Great. Thank you. Very helpful color. Thanks a lot guys.

Thank you. Our next question comes from Andrew DeGasperi with Berenberg. You may proceed with your question.

Thanks. Good morning Jim and Howard. I just wanted to quickly touch base on the software renewal comments of how to coming in as expected. I just wondered, if you saw increase in churn and how that may be a trend ended over the quarter and through June and then separately how did that new business essentially develop both new and existing customers?

Howard do you want to answer that question?

Sure. Absolutely. So as far as churn, churn's really not, I won't say it's not part of our vocabulary but it's just really not fundamentally a part of our business or our business model. It was a reminder, our customers use on average something in the neighborhood of 20 different applications over the course of a cycle. So we typically don't see churn whatsoever and this environment is really no different. There is immense value to what we offer and as we continue to add into the portfolio continue to drive more and more usage. I think we have spoken about the stretching of the sales cycle a little bit and for us that's certainly not overly challenging because typically that's when we're talking about expansion opportunities within existing customers which continues to drive greater opportunities for us. So nothing negative there.

One thing, I could add there, I'm not sure if this was part of the question or not. I'm having some extra static here for some reason but renewals are ahead of last year in a way obviously because we add in the prior year’s new stuff. So renewals are coming in as expected. Expansion is almost consistent with prior years actually. It's a little bit down but it's not hugely down and then new is down more 35% - 40% or something. So that maybe gives you a little bit of a sense of what we're saying and generally it's a pretty strong environment for us. We're feeling very positive about things and as the business continues to evolve to more and more software as a percentage of the total and our recurring revenues are holding in their really strong first half of this year, they're record levels actually. So we're feeling fine actually, real solid.

Thanks. That's helpful and there's a follow-up Howard, maybe on the guide for the year. I was just wondering how does, what does this imply for Q3 and Q4 in terms of linearity?

So the movement in terms of the top line per se when we reduced the top line was really just our view on being conservative and in particular on the services side of our business which you can see the resulting Q2 here with software related services and CES. And the shift upward on our range on software product is really an indication of what we think, is really the driver and as Jim said our recurring software license rate, the percentage of revenue as well that is software product was really quite strong. So when you look at our expectations for Q3, you're talking about software product revenue growing 3% to 5% from the third quarter of last year. So that's what we've guided to. We believe we're being pretty respectful and conservative of the environment and we continue to see nice opportunities to expand our customer penetration and attract new.

Thank you. That's helpful.

Thank you. Our next question comes from Jackson Ader with J.P. Morgan. You may proceed with your question.

Good morning guys. Thanks for taking my question. Just a quick follow-up on the Altair Units model. First is, do the suites still allow for tinkering with other tools outside of maybe just the products that are within that particular suite and then second are the suites centered around a physics discipline? Do you have a CFD suite or is it end markets type you have an aero suite or an auto suite?

So to answer the last question first. There is not an aero suite or an auto suite. That's not how we did it. We have basically industrial designers, mechanical designers, concept engineers, mechanical engineers, mechatronics engineers, data analysts and enterprise suite. So that's how we've organized it and each of those actually is additive to the solutions that are available in the previous. So yes, so that's how it goes and that actually fits well within most of our customers. Obviously we have customers that are pure data analytics customers you think of the financial services. We have added some products that such as compose or which makes sense because you can develop Python or our technology can compose but customers like a traditional manufacturing customer that might want to use data analytics tools both in the engineering solution, engineering departments and in financial departments or marketing or other can then use the enterprise solution across the board. Does that makes sense or have I lost you?

No. It does makes complete sense. And I think the first part of my question was obviously it's just centered around the idea that your traditional Units model has just always allowed for people to play around with your other solutions maybe outside of their core. So I was just making sure that was still the case. Quick follow-up on a lot of discussion on renewals and net new and it's great to hear that renewals are holding up. I'm just curious is it possible that renewals are also holding up at your competitors and so that may be impacting your ability to take share because in August of 2020 may not be the best time for an engineer to benchmark a new product to test new tools at a competitor and so you just, they just say to themselves I'm just going to make deals with what I have for right now and not to add a part-time job on top of my full-time job.

So first of all I always like to say that market that we play in and that our competitors play in is actually a pretty darn good market. So I think all the ships are rising let me say it that way and you're right that there are certain teams that are going to say this is not the time for change. We frankly speaking we are also seeing a lot of teams that are feeling a lot of stress now in terms of their spend and they're trying to evaluate which tools should they be using and in some cases frankly in a quite a few cases they're deciding to make those moves.

Okay. Thank you.

Thank you. Our next question comes from Mark Schappel with Benchmark. You may proceed with your question.

Good morning. Thank you for taking my question. Jim, I realized that your SMB business is relatively small at this stage but it is something that is an initiative at the company? Are you seeing any more buying hesitation with smaller customers than you with your larger customers in that market?

Probably. I have to admit that I'm maybe not as informed as I should be. We are more and more going in direct to the very small customers much more so than we were doing before and so for us it's a new space and so we're actually seeing probably more activity than we were seeing before because we've been somewhat aggressive there in terms of partnering and also some of the business development activities that we've done but there's no doubt that smaller companies are more impacted by the current situation than some of the larger companies that can be more resilient to this.

Great. Thank you. And then with respect to what you saw in different geographies, could you just talk a little bit more about where you're seeing weakness and where you're seeing strength?

Yes. I was looking at the numbers this morning just to because I thought somebody might ask this question and actually the growth or the flatness of the business is pretty consistent across the board actually between the Americas, EMEA and APAC. So in general I think we're seeing things somewhat equivalently. The America is a little stronger I'm going to say, a touch stronger and I'm not even quite sure why that is but in general it's fairly consistent across the board. And that might be looking backwards instead of looking forwards by the way because I think things hit overseas harder earlier in the year and then they've come to the U.S. So I think it's going to sort of balance out.

Thank you.

Thank you everyone. I'm not showing any further questions at this time. I would not like to turn the call back over to James Scapa for any further remarks.

Okay. Well, I just want to express appreciation for everyone's support and a lot of appreciation for my team across the world. People have really worked hard over the last many months here and the team has really pulled together. It's actually been a very exciting time. I do have concern that everyone is getting a little battle fatigue and I keep reminding people that they need to take some time off but in general things are going well and I really appreciate all the investor support as well. So thank you very much.

Thank you. Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now connect.