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Altair Engineering Inc. (NASDAQ:ALTR)
Q2 2019 Earnings Call
Aug 8, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Altair Second Quarter 2019 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Howard Morof, Chief Financial Officer. You may begin.

Howard N. Morof -- Chief Financial Officer

Good afternoon. Welcome and thank you for attending Altair's earnings conference call for the second 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 closed today, we issued a press release with details regarding our second 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 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?

James R. Scapa -- Chairman & Chief Executive Officer

Thank you, Howard, and good afternoon, everyone. Today, we will discuss our second quarter results and the outlook for the rest of 2019. We will talk about the ongoing good momentum of our business, the trending macro environment, progress with the Datawatch and SimSolid acquisitions and share some customer success stories.

Our total revenue for the second quarter was $106.8 million, an increase of 14% from a year ago powered by software product growth of 20%, well within our guidance range. We produced modified adjusted EBITDA in the second quarter of $7.4 million, at the upper end of our guidance. Billings driven by software product momentum and adjusted for constant currency grew by 18% over the same period a year ago.

I'm often asked about the business environment, especially as it relates to the automotive industry. So I want to touch on this. Clearly, trade disputes with China and others is resulting in a stronger dollar and other macroeconomic challenges. Manufacturing companies are affected more than others by this. Since Altair has a substantial concentration of customers in manufacturing, we expect some headwinds to services and a slight impact on software growth for the rest of the year, especially, since a healthy percentage of our business is international.

Our software business continues to grow robustly, even in the context of the challenges mentioned above. We expect software growth for the year on a constant currency basis to exceed 20%, although there is a stronger shift to subscription licensing for Datawatch products than we anticipated, which slightly reduces the revenue they contribute.

Overall, we continue to be very positive about our software business and our ability to continue gaining market share. We expect a small decline in services for the year which will grow software revenue as a percentage of our total revenue and will modestly improve our gross margin in line with our long-term goals.

Our revised guidance, which reduces total revenues by about approximately $10 million for the fiscal year, incorporates our updated view of currency impacts, the more rapid than expected transition to a subscription model for our Datawatch software licenses, and a modestly more conservative view of licenses due to potential challenges for our manufacturing customers.

We are managing expenses prudently across the Company to adhere to our near and long-term EBITDA targets, even in the context of the more challenging global outlook. However, it is important to note, we will continue to hire sales people and technical experts in particular skill areas such as computer science, electronics, systems design and data science where we see growing opportunities.

Regarding expenses, the stronger dollar brings some benefits. As our business operations are significantly international, expenses will be reduced as well. In addition, we have derived significant synergies of over 20% from the Datawatch operation.

I'd like to focus now on our Datawatch and SimSolid businesses and then discuss our global progress more generally. We continue to be quite pleased with the Datawatch acquisition. The product teams and vision are clearly set now and we have engaged with most of the customers who seem eager to work with Altair as their partner going forward.

We've had a number of meetings with key banking, healthcare and financial services customers who see Altair as a strong new player in the data analytics market as we bring technical depth, strong customer service and a very compelling business model to market. Our manufacturing customers show strong interest in applying data science technology throughout their organizations.

The implementation of Altair's units-based subscription licensing model to data intelligence products is complete and we are actively marketing the units-based licensing to traditional Datawatch enterprise customers such as banks and insurance companies as well as to our manufacturing customers in automotive, aerospace and elsewhere. We believe this will be very compelling.

In past calls, I've I have focused on data prep and machine learning limbs. Today, I would like to focus on the Panopticon products, our real-time data streaming and visualization solutions. As we continue to support a more global footprint for the Datawatch business, we are especially pleased to announce an important win with a European global banking and financial services company. They are integrating Panopticon dashboards into the bank's internal portal to support analytics for electronic foreign exchange trading operations.

A similar application and comparable size deal was one with a very large APAC bank over $1.5 trillion in assets with an eye toward global deployment. With these positive signals, we are expanding the data intelligence sales organization globally and integrating it within our local country operations. The organization will maintain its focus on financial verticals while acting as an overlay support for Altair's strategic account managers covering manufacturing customers. The sales teams are very engaged and motivated seeing opportunities for themselves and the Company. We are hiring rapidly into data intelligence sales, pre-sales and marketing around the world and expect the ramp-up can increase recurring revenues this year to carry us strongly into 2020.

We are equally pleased with our SimSolid business. At the time we acquired the product, we believe that had the potential to disrupt the simulation market. Today, we are pleased to note that its growth is the fastest in our portfolio with INSPIRE following in second place, demonstrating the significant opportunity for simulation with designers and design engineers. SimSolid speed and accuracy, especially for complex assembly, is remarkable and it continues to generate excitement within Altair and with customers.

We've now recently performed a series of benchmarks showing up to two orders of magnitude or 100 times lead time reduction with SimSolid over traditional simulation technology. I would like to relate story from one of our energized account managers in Germany, about how he sold SimSolid to a customer who initially did not even want to meet him. They had evaluated several CAE tools and planned to purchase NASTRAN. Apparently, the other products all had convergence issues and NASTRAN only required 40 hours to run the test problem. Our sales guy said SimSolid could solve the problem in 2 minutes and convinced the customer to take a demo copy of SimSolid. By the time our sales guy returns home from the meeting, he had an email from the customer saying he has learned the software, set up and run his problem in less than 60 minutes and had accurate results. He also promised to tear up the PO for NASTRAN and write one for SimSolid.

These wins support our decision to expand SimSolid's small but brilliant development team and we are working closely with several key customers who already use SimSolid extensively in their analysis departments and want us to automate some parameter settings before they set it loose in their design communities. We are responding quickly and expect to satisfy these requirements by year-end.

The second quarter was strong with many wins and new accounts for our core engineering simulation and high performance computing solutions and growing momentum for our recently acquired data science products. Solvers continue to drive growth and gain market share. And SimLab, our multi-physics solution is also growing, especially, in the electronics and high-tech markets.

Companies across all verticals are rapidly shifting decision-making strategies and investments to apply more algorithms and math-based technologies like simulation and machine learning, to drive geometries and other key parameters and manufacturing, logistics, marketing and elsewhere to optimize their businesses.

Altair as well positioned for this future with the platform and business model where customers can leverage our broad integrated suite of best-in-class solutions to create simulation and data-driven digital twins from concept to reality. Architecture, engineering, and construction applications result in some of the most visually inspiring uses of simulation-driven design. We saw many strategically important wins in Europe in Q2 including well known players in Italy and Denmark for our structural simulation CFT and optimization software and look forward to seeing the results in design work.

Another interesting new company new customer for us is a home appliance manufacturer in Africa. They're using Altair software for structures, electromagnetics and fluids to accelerate their product development cycle. Our e-motor development initiatives are resulting in good revenue on a number of fronts. In automotive, we are working with a major European OEM to develop a new e-motor product portfolio. Two different e-motor suppliers in Asia have turned to our Flux product for their simulation needs, and in California, a small start-up in the fast-moving e-motor space is using Flux for custom DC motor designs.

Our high-performance computing Group made some great sales in the second quarter. As a reminder, we acquired Runtime in 2017 and expanded our ability to optimize the use of HPC for compute-intensive applications by adding technology relevant to the EDA and semiconductor market segments.

In APAC, a long-standing defense client wrote a new 6-figure agreement for the full PBS Works Suite. A longtime semiconductor customer in the US also signed a 6-figure deal plus a major technology logo signed on for substantial software licenses to support hardware development. And in the largest HPC of the quarter, another well-known technology company signed on for a 7-figure contract.

During the past few months, I attended our user conferences in the UK, India and China. All were extremely well attended and like all our conferences and webinars this year, the number of participants is growing significantly. The level of energy I saw in our customer base for our solutions and business model was inspiring. I also came away impressed with the high level of interest in data intelligence.

We had a very strong second quarter, we are thoughtfully managing expenses and positioning to grow through this period of macro uncertainty and take advantage of our strengths, customer relationships, product graph, business model and technical prowess.

Now I will turn the call over to Howard for details on our financial performance during the second quarter and guidance for the rest of 2019. Howard?

Howard N. Morof -- Chief Financial Officer

Thanks, Jim. We are very pleased with the performance of our business in the second quarter of 2019. As a reminder, our reporting and guidance for 2019 is under ASC 606 as are the comparative numbers from 2018. As we previously noted, our seasonal billings patterns coupled with the treatment of revenue under ASC 606, result in heightened seasonality in revenue with higher revenues recorded in our first and fourth quarters of any given year.

For ease of reference, we've included a table of results for 2018 reflecting summarized results for all four quarters on an ASC 606 basis in our most recent 10-K and within our press release information. While the conversion from ASC 605 to ASC 606 makes our quarterly results more challenging to predict, our annual recurring revenue units-based licensing model does drive a high degree of predictability over annual cycles.

In prior conference calls, we have noted that changes in certain currencies can have an impact on both our revenues 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 Q2 '19 compared to Q2 '18, 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.

Our second quarter results were driven by very strong software revenue growth. For the quarter, software product revenue reached $84.4 million, an increase of 20% from a year ago, while total revenue equaled to $126.8 million, representing growth of 14% from the second quarter of 2018.

Adjusting for the adverse impact of currency fluctuations in Q2 '19, software product revenue grew by an impressive 23% and total revenue grew by 18% compared to Q2 '18. For the six-month period, software product grew by 21% compared to a year ago on a constant currency basis. Software product revenue was at the upper end of our guidance range, even as our conversion of Datawatch customers to recurring revenue licensing models was modestly ahead of our expectations.

Software-related services declined by 9% compared to a year ago as utilization declined due to the completion of certain projects and the delay of inflection of new projects. We anticipate services revenue for the year to continues to be flat to slightly down as we focus on our growth strategies on higher margin software revenues. As mentioned last quarter, 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 software product revenue growth equaled 26% in this quarter. In the current quarter, software product revenue increased to over 79% of total revenue, up 350 basis points from last year without any adjustment for currency or acquisition-related data points, continuing the important long-term trend of increasing prominence of software product revenue to total revenue.

Our recurring software license rate, it is the percentage of software revenue that is recurring, continues to be strong and consistent with our past performance at 91% for the first half of the year. Our positive software momentum contributed to strong profitability in the quarter with modified adjusted EBITDA of $7.4 million, at the upper end of our guidance range, which includes the deferred revenue adjustment mentioned a bit ago. The net impact from shifts in foreign currency imposed a $713,000 negative impact on our results for the quarter and $1.5 million for the six months.

Second quarter calculated billings were $108 million, an increase of 17% from a year ago, indicative of the strong growth in our software product business. Currency shift also impacted current period billings negatively by $914,000 and on a constant currency basis would have increased by 18% for the quarter. We tend to view calculated billings over a longer time periods due to the impact variations in the 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 second quarter was 70.9%, substantially improved from Q2 '18 by 250 basis points as a result of the increasing level of software product revenue. The improvement in Q2 '19 contributed to year-to-date gross margins of 72.8% compared to prior-year gross margins of 71.7%. This improvement offset lower gross margins related to our software-related services revenues, which were impacted by the lower utilization I mentioned as well as lower margins in our other segments.

The higher cost of revenue for the other segments primarily toggled, is due to the timing of sales price decreases compared to future reduced unit cost that we expect to achieve later in the year. These items are transitory in nature.

For the quarter, non-GAAP operating expenses, which excludes stock-based compensation, amortization of intangible assets and other operating income, were $74.1 million, compared to $61.7 million a year ago. These expenses held tightly compared to Q1 '19 moving by only 1% in total. Operating expenses include the operations of Datawatch which are more skewed to sales and marketing compared to R&D with some incremental G&A expenses.

As highlighted before, modified adjusted EBITDA for the quarter was $7.4 million, an increase of 40% compared to $5.3 million a year ago. Modified adjusted EBITDA margin in the second quarter was 6.9% compared to 5.7% a year ago.

As Jim mentioned, we regularly evaluate the nature of our investments and we will proactively realign those investments to respond to emerging opportunities or challenges. Considering the recent potential concerns across selected elements of our customer base with macroeconomic and trade matters, we are managing our expenses prudently in order to support our near- and long-term goals, even as we continue to hire and invest in sales, marketing and R&D areas, we see as necessary and opportunistic.

Investment may include continuing M&A activities we believe are beneficial to our long-term growth prospects. Our focus is on driving growth and software product revenue as the key to improving our operating margins, while gaining economies of scale for our field organization and general and administrative operations.

Turning to our balance sheet. We ended the second quarter with $251.8 million in cash and cash equivalents. We had $150 million undrawn and available on our US line of credit as of June 30th 2019. On June 14th, we announced the closing of $230 million convertible debt offering with including the exercise in full of the underwriters' option. With a coupon rate of 0.25% and a 5-year 30% conversion premium, we feel this was a judicious means of increasing our liquidity and cash reserves, providing substantial capacity to continue funding M&A activities without adversely impacting liquidity levels and without imposing a substantial cash interest burden on operations.

Moving to our cash flows. Cash flow from operations in the second quarter was an inflow of $6.6 million, compared to an inflow of $10.6 million for the second quarter of 2018. Free cash flow in Q2 '19 was an inflow of $4.5 million, consistent with our business cycle. For the 6-month period, our free cash flow equaled $25.2 million, compared to $34.1 million for the prior year consistent with the expected impact we noted during Q1 '19 for changes in certain working capital flows in Q2 '19.

Our seasonal patterns allow us to realize a substantial portion of free cash flow in our first and second quarters of each year. I would caution against extrapolating free cash flow results on a quarter-to-quarter basis.

With the impact of the shifting revenue mix and foreign exchange impacts driven by the factors Jim and I have discussed, we are adjusting our annual guidance for total revenue to now be $460 million to $464 million, a decrease of $10 million at both the top and bottom end of the range. And for software product revenue to now be between $366 million to $370 million, a decrease of $7 million at both the top and bottom end of the range.

Even with the slight reduction in revenue guidance, we are continuing to expect software product revenue growth of 20% to 22% this year and total revenue growth of 16% to 17%, notwithstanding the adverse impact of currencies or acquisition accounting adjustments.

Our initial guidance for 2019 was impacted by fluctuations in currencies such as the euro and pound. Given the movements in these and other currencies compared to 2018, our guidance remains anticipatory of the negative impact on annual revenues of approximately $7 million to $10 million with a $2 million to $3 million headwind to modified adjusted EBITDA for 2019. It is possible that continued shift in the foreign exchange rates for the rest of the year could increase the impact on our operations. For the six-month period, the actual impact of currency fluctuations equals a reduction of $6.9 million for revenue and $1.5 million for modified adjusted EBITDA.

We are maintaining our guidance for modified adjusted EBITDA at $62 million to $66 million as we believe that with positive impacts of currency exchange rates to our operating costs and the careful management of our expenses, we can mitigate the adjustment to our top line expectation.

Our expectations for annual free cash flows remained unchanged from last quarter at $27 million to $29 million for 2019.

To conclude, I would like to emphasize that for the full-year 2019, we continue to be very pleased with our growth compared to 2018 and progress toward our long-term goals.

Our updated expectations for growth are as follows. Software product revenue represents growth of 20% to 22% from 2018. Total revenue represents growth of 16% to 17% from 2018. Modified adjusted EBITDA increases by between 24% and 32%.

As to Q3 2019, our expectations are as follows. Software product revenue to be between $79 million and $81 million, representing growth of 23% to 26% from 2018. Total revenue to be $103 million and $105 million, representing growth of 19% to 21% from 2018. Modified adjusted EBITDA of between $3 million and $5 million.

We are optimistic about our ability to drive exciting revenue growth driven by software product momentum for the remainder of 2019 with solid profitability and cash flow for the year.

With that, operator, can we now open the call to questions?

Questions and Answers:

Operator

(Operator Instructions). Our first question comes from Bhavan Suri of William Blair. Your line is now open.

Bhavan Suri -- William Blair -- Analyst

Hey, Jim. Thanks for taking my question. I guess I wanted to touch first a little bit on the commentary around macro here. The software product numbers are pretty good, you're still highlighting pretty solid product growth for the year. I guess just a lot of color on sort of what are you seeing from customers, is it EMEA, is it UK, is it China and sort of it's reflected some of it in services, which is fine, but more importantly, sort of, what do you see on the product side in terms of fewer units, HyperWorks Units or is it just slower additions or due to the hiring, help us understand a little bit of what's going on, what the customers are actually telling you? Thank you .

James R. Scapa -- Chairman & Chief Executive Officer

Sure. So when we are -- when we're talking about the macro side, I mean, honestly I'm seeing or sensing, if you will, slowdown in the automotive industry globally for sure. We're not actually seeing an impact to the strength or pull for software actually out of that market. It's more a little bit of conservatism, but most of that conservatism that you see and just making the adjustment is more around Datawatch and services, quite frankly. We actually thought about being more conservative and just we're just not seeing a change to the core business strength yet, and so we actually didn't reflect that, believe it or not, but you can't help but notice what's happening in the auto industry and the auto industry is cyclic, and we certainly do have a higher amount of exposure there. So just being careful, I guess is the right answer I think.

Bhavan Suri -- William Blair -- Analyst

Got it. Okay. And then, and then you talked about sales investment. When I look at the products INSPIRE and sort of the whole idea around that displacing some of the legacy products whether from Disso [Phonetic], SolidWorks whatever and then SimSolid. Are they getting a disproportionate part of the investments or is the sales investment across the board and everything from competition for dynamics to SimSolid to the soft thinking products. Just love to understand sort of how you think about where that sales investment is going? Thank you.

James R. Scapa -- Chairman & Chief Executive Officer

Okay. So sales investment I think is going across the board. Still, it's not particularly focused. There is an increase in marketing, I would say, investment around SimSolid a little bit. I was just trying to bring attention to something that is just clearly -- really special. And we are beginning to ramp up marketing on the data intelligence products as well. But in general, I think the sales investment is across the board. We are also growing the sales force for Datawatch products or data intelligence products as well.

So we've kind of stabilized through the year, we've done our simulating of the business and now we're in sort of growth mode and we're adding sales guys pretty aggressively around the world for the data intelligence products where we really needed to put people in place and also pre-sales.

Bhavan Suri -- William Blair -- Analyst

Got it. Thanks guys. Thanks for taking my question. Thank you.

Operator

Thank you. And our next question comes from Sterling Auty of JPMorgan. Your line is now open.

Sterling Auty -- JP Morgan -- Analyst

Yeah, thanks. Hi guys. A lot of moving parts between ASC 606, FX, acquisition accounting et cetera. What's the best way to think about the kind of normalized growth in basically buying from your customers on a year-over-year basis in that software line? I have to

James R. Scapa -- Chairman & Chief Executive Officer

admit I don't think I understood your question, Sterling. Could you maybe restate and let Howard -- Yeah. Try again. I apologize, but try again on me.

Sterling Auty -- JP Morgan -- Analyst

Yes, no problem. So if we think about, you've got the acquisition accounting impacts of moving to ASC 606, constant currency or you have the FX impacts given the fluctuation, and then you have the accounting impacts of Datawatch et cetera. I'm just wondering if we just try to take a step back and think about what the growth in your software business is net of all those impacts, what does it look like, or what should we be looking for going forward?

James R. Scapa -- Chairman & Chief Executive Officer

It's probably in the mid-teens, basically a little below, I'm going to say 13%, 14% kind of range.

Sterling Auty -- JP Morgan -- Analyst

Perfect. That is good understanding. Thanks, Jim.

And then I know --

Howard N. Morof -- Chief Financial Officer

I would agree --

James R. Scapa -- Chairman & Chief Executive Officer

We're talking about the core piece of the business.

Howard N. Morof -- Chief Financial Officer

Yeah. When you look at just the software product alone, current quarter on a constant currency basis 606 to 606, it was really apples to apples, 23% year-over-year for the first half, 21% year-over-year. So a little bit of acceleration from Q1 into Q2, which is --

James R. Scapa -- Chairman & Chief Executive Officer

But he is trying to net out -- trying to net out of the acquisition.

Howard N. Morof -- Chief Financial Officer

Right. Yeah, absolutely.

James R. Scapa -- Chairman & Chief Executive Officer

And so trying to net that out, I think it's probably in the range of the 14%, to be honest with you, which I think is -- as you said is right.

Sterling Auty -- JP Morgan -- Analyst

I think that's fair. And then one follow-up, when you talk about managing expenses for the EBITDA target, where is the greatest flexibility for you to manage those expenses without jeopardizing the growth moving forward?

James R. Scapa -- Chairman & Chief Executive Officer

You probably realize there's just a lot of leverage in our business, we're pretty sizable and as we scale, we're going to continue to grow margins relatively easily. So we're just across the board a little bit, tucking in and it's just very, very easy for us to do, it's not a huge pain.

Howard N. Morof -- Chief Financial Officer

Yeah, one more point on that Sterling and that is currency, we're obviously substantially global. So while there may be currency impacts on the top line, those same shifts have a positive offsetting kind of natural hedge and certainly a fair part of our expenditures outside of the US as well. So some of that is just kind of a natural FX hedge against top line as well.

Sterling Auty -- JP Morgan -- Analyst

Got it. Thank you.

Operator

Thank you. And our next question comes from Ken Wong of Guggenheim Securities. Your line is now open.

Ken Wong -- Guggenheim Securities -- Analyst

Great, thanks for taking my questions. I just wanted to drill into the Datawatch business a little more. You talked about how most of the cut seems to be coming out of that business. I guess on the surface my feeling -- my thinking is that the exposure to the end markets are more financial services and some healthcare less the traditional manufacturing base that you guys have. So, is the cut coming from that existing Datawatch base or is it just expectations for slower adoption from your core? Just help us kind of an of unravel that a little bit.

James R. Scapa -- Chairman & Chief Executive Officer

It's actually I think a couple of things, one of the biggest things is that it's been -- we really pushed hard to shift the model from a perpetual model to a subscription model. And I would say that that's going a bit faster, which is mostly good. Okay. But -- and it's great for how we're going to enter 2020, but it's just on balance, it has a little bit of an effect on the actual number for the year. So a lot of it is really just the shift in the model, but some of it is also the fact that we have some moving parts here, we're moving to this units-based model we're finally done doing that. Even today, we quoted a very large customer with the units model and we're beginning to experiment with that and it looks very promising for us, but that also is a shift. So, shifting to subscription, shifting to this units-based model a bit, not in every case, not in every sale, but we are beginning to try and look at enterprise level customers that way. And I think it's currency as well I guess.

Ken Wong -- Guggenheim Securities -- Analyst

Got it. And on that first point about shifting from perpetual to more subscription. I mean to the extent that that's moving faster. Any rough quantification of how that might be a headwind to numbers because I think optically the $7 million probably isn't as bad as that really is part of what's going on here.

James R. Scapa -- Chairman & Chief Executive Officer

I think what we're going to see is with the sales force expansion that we're doing this year and coming into the year with a higher percentage of subscription, we're going to see a very strong growth for the data intelligence business in 2020. We're feeling good.

Ken Wong -- Guggenheim Securities -- Analyst

Got it. And then maybe the next thing just on FX. Can you give us a rough sense of what that incremental headwind looks like on revenue and EBITDA compared to what you guys had modeled for currency rate last quarter?

Howard N. Morof -- Chief Financial Officer

We're not going to tight book-ends around that, Ken. But I think we certainly saw $7 million-ish of constant currency negative impact in the first six months of this year versus last year. Trying to really project out where FX will land across all the currencies that we navigate across is -- could it be a similar amount? Who knows, I mean, but remember, last year, toward the back end of 2018, the US dollar strengthened relative to the front end of 2018. So it might not be as pronounced and so on. For us, again, kind of a key point is, if there is an impact on the top line for us, there is much less of an impact on the bottom line given the natural hedge considering how global we are. I'm not saying, there isn't an impact, but there is definitely kind of a natural hedge there. So I don't want to say we don't care because we certainly do. But it's not that much of an extreme impact.

Ken Wong -- Guggenheim Securities -- Analyst

Got it. All right. Fair enough. Thanks a lot.

Operator

Thank you. And our next question comes from Gal Munda of Berenberg Capital Markets. Your line is now open.

Francois -- Berenberg Capital Markets -- Analyst

Hi, this is actually Francois on for Gal. We just had a question about the lowered guidance. Is there any way you could quantify or roughly speak about how much of the decrease is coming from each of the factors, the lowered currency, subscription transition and conservative views on manufacturing? And I just have one more follow-up. Thanks.

Howard N. Morof -- Chief Financial Officer

We're -- the short answer is, we're more comfortable with kind of a collective view rather than pegging a dollar amount to each of those particular factors, but clearly, there is a significant element of each that we bake into the guidance, but I think it's important to note that notwithstanding the contributing factor -- or factors to a reduction in the top line, the fact that we've continued to maintain our guidance for modified adjusted EBITDA is an important counterbalancing factor there based upon how we can manage the business in the -- for example, a natural hedge on some of the currency stuff as well.

James R. Scapa -- Chairman & Chief Executive Officer

And we still feel great about the business. Just want to make that point, we're growing like crazy and the EBITDA is growing somewhere between, I don't know, 25- and 30-some percent for the full year in our plan. So from where we sit, we're having a great year.

Francois -- Berenberg Capital Markets -- Analyst

Great, thank you for that. And just one more follow-up on SimSolid. Could you give us a little bit more color about how that adoption is going, you did mention that it was one of the fastest growing segments. Is it a material contributor to growth right now? And just a little bit more color on that would be appreciated. Thanks.

James R. Scapa -- Chairman & Chief Executive Officer

It's -- thank you. That's actually making that shift. I think now, what we do is we actually measure usage and the usage over the last five months, has grown about 10 times, which is pretty amazing, actually, INSPIRE actually is growing really fast too, it's about a 2 times growth over last year. But when we look at SimSolid, it's a -- we actually rank the positions of the different products and it has moved from essentially nowhere, and if you think of it like (Indecipherable) to a pretty significant position. It's not in the top three. But it's still in a pretty important place among a lot of the software products. So it is really taking off, and we had one aerospace customer, well-known name who -- we looked at their usage on their usage is just absolutely skyrocketing as well and it's serious numbers at this point, serious number of users, serious numbers of hours that are being and numbers of runs that these guys are making. So it's catching fire and it should, it's really -- it's a difference maker.

Francois -- Berenberg Capital Markets -- Analyst

Thank you very much for that.

Operator

Thank you. And our next question comes from Rich Valera of Needham & Company. Your line is now open.

Needham & Company -- Needham & Company -- Analyst

Hi, good afternoon. This is (Indecipherable) on for Rich. Thanks for taking my question. So you've touched on sales force a bit already, but I do have a question for you, Jim. On last quarter's call, you had mentioned that sales force had been historically more adhoc, be it recently begun use integrating some sales data to work on prediction and improve your targeting. And so I was wondering if you could highlight any developments here?

James R. Scapa -- Chairman & Chief Executive Officer

Yeah, that's continuing. We're implementing a new system across the board, we've been training, I think we probably trained almost 100% of the sales force in how we're qualifying prospects and all of that and how we bring them in, so there's just a lot more process to what we're doing. So we're feeling really great about the mechanics of how the sales force is actually operating, I guess I'm answering your question?

Needham & Company -- Needham & Company -- Analyst

Yeah, that's helpful. And then is it possible at all to quantify the success rate or efficacy of any of the initiatives that you have gone on the sales force?

James R. Scapa -- Chairman & Chief Executive Officer

I think it's a little bit early, probably next year, we're going to start to see much more we hope certainly much more effect from this, but perhaps also later in the year.

Needham & Company -- Needham & Company -- Analyst

Okay, thank you. And then just switching gears back to Datawatch. So there was -- there has been a number of comments already made, but I just did want to revisit some of the challenges noted on the Q1 call, namely expanding footprint and the cultural differences. And I was wondering if you could expand on how any of those progressed throughout the quarter?

James R. Scapa -- Chairman & Chief Executive Officer

I think we're pretty much over most of that to be honest. And I think the teams are pretty assimilated, it's certainly not 100%, but we are feeling really positive about the teams and I think we're understanding each other significantly better and we're basically in growth mode now, I think most of these guys are feeling like they're part of Altair, they understand the culture, they are beginning to experiment with with the approach that we take and the business model that we take. And we've hired some new people on to the marketing side, focused on the data intelligence products as well and kind of getting that going as well. So I would say that we're past those growing pains and now sort of just moving forward.

Needham & Company -- Needham & Company -- Analyst

Got it. Thank you very much.

Operator

Thank you. (Operator Instructions) Our next question comes from Matt Hedberg of RBC Capital Markets. Your line is now open.

Matthew Hedberg -- RBC Capital Markets -- Analyst

Okay, guys. Thanks. Jim, I wanted to just circle back one more time on the macro, because obviously you incorporated into the reduction in guidance. But to me, it seems like it's more of a precautionary tone. And I just wanted to confirm you're not really even seeing any change in buying behavior, yet, it's more precautionary, is that -- is that fair?

James R. Scapa -- Chairman & Chief Executive Officer

Actually that's true. We're still seeing a lot of strength in the market. We do sense though that the auto industry is beginning to slow down and there's just no doubt about it. And we could stick our heads in the sand and ignore that, but that isn't how we run our business. So one other thing is that during these periods where, if you will, you have these downturns a bit, a lot of these companies actually begin investing more in technology and new technology and that tends to play for us. The other thing that tends to happen is, they consolidate a bit and we're actually very well positioned, we were last time in '09 as well, which was OK, much more serious, but we tend to gain market share and gain power during those periods and then come out really just rock and strong.

So, yeah, right now, we're not actually, other than a little bit on the services side, I would say, we're not really seeing any impact to the pull for our products, if you will, for software products. A lot of the pull back is a little bit currency and then frankly the Datawatch is shifting a bit to more subscription than what we had expected.

Matthew Hedberg -- RBC Capital Markets -- Analyst

Okay and you mentioned auto, which is obviously your biggest end market. I'm curious about like aerospace and others. I mean is there -- are those still. I know we talked about a little bit on the last call, but maybe just touch on some of the other, the other key kind of well, I guess that one in particular?

James R. Scapa -- Chairman & Chief Executive Officer

I mean, I think with with all the trade stuff going on. I think manufacturing in general, has some turbulence to it, I'll say, the tariffs and and currencies and all of that. Aerospace, in particular, no, it's really pretty stable. Again, I'm talking about their industries, not -- as they may relate to us in the future. The reality is actually the strength of our own business is still, especially the core business is really very solid.

Matthew Hedberg -- RBC Capital Markets -- Analyst

Okay.

James R. Scapa -- Chairman & Chief Executive Officer

It's almost perplexing.

Matthew Hedberg -- RBC Capital Markets -- Analyst

And if I could just one more just on Datawatch for Howard. If I recall, I believe when you acquired Datawatch I believe about 60% of their revenue was recurring I'm wondering if you could kind of give us a sense for what that mix looks like today. And I mean, is it 100% that's sort of the end game?

Howard N. Morof -- Chief Financial Officer

Well, obviously we'd love for 100% to be the end game because that's certainly the goal, even within the non-Datawatch business at Altair, we're not quite 100% recurring. We have a little bit of perpetual. But the intent -- and the objective through taking them to recurring revenue model and getting them now plugged into the HyperWorks Units model is to really move the needle. And the good news is we're being very successful about that and the customer base is being very receptive to that. So it bears out what we believe, which is that these types of technologies will lend itself very well to our type of business philosophy and strategy, that we think is very customer-centric and customer friendly and customer beneficial.

Matthew Hedberg -- RBC Capital Markets -- Analyst

Got it. Thanks guys.

Operator

Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Jim Scapa for any closing remarks.

James R. Scapa -- Chairman & Chief Executive Officer

I just want to say thanks to everybody for their interest and attention. Thank you.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Howard N. Morof -- Chief Financial Officer

James R. Scapa -- Chairman & Chief Executive Officer

Bhavan Suri -- William Blair -- Analyst

Sterling Auty -- JP Morgan -- Analyst

Ken Wong -- Guggenheim Securities -- Analyst

Francois -- Berenberg Capital Markets -- Analyst

Needham & Company -- Needham & Company -- Analyst

Matthew Hedberg -- RBC Capital Markets -- Analyst

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