Altair Engineering Inc. (ALTR) Q4 2020 Earnings Call Transcript

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Altair Engineering Inc. (ALTR 0.26%)
Q4 2020 Earnings Call
Feb 26, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Altair Engineering Incorporated Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions] I would like to hand the conference over to our Chief Financial Officer, Howard Morof.

Howard Morof -- Chief Financial Officer

Good morning. Welcome, and thank you for attending Altair's earnings conference call for the fourth 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; and Matt Brown, who assumes the CFO role on March 16. After market closed yesterday, we issued a press release with details regarding our fourth quarter performance and guidance for Q1 and the full year 2021, 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 the IR section of our website following the conclusion of this call.

During today's call, we will make statements related to our business that may be considered forward-looking under federal securities laws. These statements reflect our views only as of today and should not be considered representative of our views as of any subsequent date. We disclaim any obligation to update any forward-looking statements or outlook.

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 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. Jim?

James R. Scapa -- Chairman & Chief Executive Officer

Thank you, Howard, and welcome to everyone on the call. Altair had an excellent fourth quarter and full-year 2020, especially given the global COVID-19 pandemic and economic uncertainty. I'm proud of what our team accomplished in 2020. In a year of business disruptions and personal challenges, Altair brought to market broad and deep additions and enhancements to our product portfolio, while delivering solid financial results. Though some challenges remained due to the pandemic, 2020 has positioned us well for 2021 as we demonstrate success as around our vision for the convergence of simulation high-performance computing and artificial intelligence. We will continue supporting our customers with industry-leading technology and unparalleled engineering and data science expertise.

We have never been in such an energized position regarding our software offerings. Our integrated suite of software optimizes design performance across multiple disciplines, encompassing structures, motion, fluids, thermal management, electromagnetics, system modeling and embedded systems, while also providing AI solutions and true to life visualization and rendering.

Our HPC solutions maximize the efficient utilization of complex compute resources and streamline the workflow management of compute-intensive tasks for applications including AI, modeling and simulation, and visualization. Our data analytics and AI products include data preparation, data science and visualization solutions that fuel engineering, scientific, and business decisions.

We are pleased to report Q4 results, with total revenue of $133.4 million. Software product revenue for the quarter was $113.6 million, reflecting year-on-year growth of 12%. Adjusted EBITDA was $21.7 million, an increase of 70% in the fourth quarter of 2019, all were well above our guidance ranges. For the year 2020, software product revenue grew to $391.7 million from $366.7 million in the prior year, an increase of 7%. Total revenue equaled $469.9 million compared to $458.9 million, a small increase recognizing the continued softness in services.

Software product revenue was 85.2% of total revenue for the fourth quarter compared to 81.7% in the prior-year period. For the full year 2020, software product revenue increased to 83.4% of our total revenue from 79.9% in 2019. Our recurring software license rate was 92% for the full year 2020 versus 87% in 2019. Software renewals in the quarter continued to come in as expected with several significant expansions and new customer activity remained healthy. As we drive the convergence of simulation, HPC and AI into 2021, I feel it might be helpful at this quarter's customer stories focused on momentum toward this convergence.

Panopticon, our solution for real-time data streaming and visualization, was selected by a European company specializing in retail customer behavior analysis. Their work includes biometrics measures, which can in turn lead to predictions around buying preferences. The application supports a multi-format dashboard with data visualization, photos, video, and audio.

Technical domain knowledge is key in the effective implementation of AI toward engineering applications. The defense agency is implementing a great example of AI converged with system modeling to support work, including radio signals, satellite communications, and electromagnetic spectrum performance. Our work with them started a year ago around electromagnetic simulation. As we help them to develop a cloud-based real-time telemetry data processing, data analytics and archiving system, it will include elements of data acquisition, real-time data science and visualization simulation models in a closed loop and predictive analytics.

In the food industry, a large multinational company has been a longtime user of Monarch data preparation tools licensed on a traditional named user basis. After an M&A, we met with the new parent company and opens conversations around Altair Units licensing model, especially with regard to the ability of the enterprise to access all of Altair's tools, including data preparation, data science and AI, as well as real-time data streaming and visualization. This dialog turned into a true win-win, with the customer now accessing the entire suite of our data analytics and AI tools across many additional users, while seeing value in a substantially increased financial commitment.

In a similar fashion, a large financial services organization has been using Monarch for data preparation for more than 20 years. The relationship has been completely restructured from named users on a single application licensing to a broad deployment of Altair Units for all of their data analytics and AI needs. The result is significantly more users and nice growth in the relationship.

We believe the Altair Units licensing model has potential for disruption in the data analytics and AI market software marketplace. The global leader in the agricultural machinery committed to Altair Units for the application of AI to engineering with a goal of using digital twins to improve predictive maintenance and reduce the time and cost required for testing.

An European manufacturer of metal parts for the automotive industry is using Altair's AI and engineering capabilities to diagnose, predict, and reduce production anomalies. These wins are great examples of Altair's deep engineering knowledge, helping customers to bring the power of AI to their enterprises. One of our larger data analytics deals to close out 2020, a major technology company inked a seven-figure purchase agreement with initial use cases around payroll optimization. Along with the matching and reconciliation process, the customer will be using Altair for visualization and scoring analysis. Their internal ROI calculations on this implementation are impressive, and we are delighted to see customers so lymphatic about their ability to get an outstanding financial return on our data analytics and AI tools.

A great example of our vision of converging AI with engineering was expressed in the press release we issued last month, discussing our MoU with Rolls-Royce Germany to collaboratively connect artificial intelligence and engineering to drive business value across Rolls Royce's engineering, testing and design of aerospace engines. The collaboration will address a wide variety of use cases, including applying data science with the vast amounts of engineering testing data, which can lead to a significantly reduced number of sensors needed. This single use case alone has the potential to reduce recurring cost by millions of euros.

As a pioneer of the convergence of AI and engineering, Altair is honored to be the technology partner of choice to help Rolls-Royce Germany make better daily data-driven decisions and transform their business and products.

On the topic of acquisition, I am pleased to announce we have acquired Flow Simulator from GE Aviation/ Flow Simulator is an integrated flow, heat transfer and combustion design software, which enables mixed fidelity simulations to optimize machine and systems design. As organizations are increasingly simulating complex duty cycles, solutions like Flow Simulator are needed to model an entire system, including rapid iteration concept modeling and understanding of system simulation and system behavior and virtually anything that encompasses thermal management. Bringing Flow Simulator to the Altair software set will allow us to expand its capabilities in the aerospace market and make it available to new industries, including defense, renewable energy, automotive, and electromobility.

In addition to the acquisition, Altair and GE Aviation has signed an MoU to facilitate a higher level of collaboration and establish a long-term strategic partnership. I am thrilled to strengthen our relationship with GE Aviation, a longtime customer and equally excited about the future of Flow Simulator, as we will bring the simplification of modeling complex thermal systems to new industries.

We continued to evolve Altair's organization and processes toward more operational efficiency and believe these changes are resulting in more effective delivery of technology and expertise to our customers. One example is with our global technical support organization. Infrastructure and organizational changes are allowing us to provide deep knowledge and expertise to customers regardless of geography, even as our technology portfolio expands in breadth.

In addition to leveraging global capabilities for customer-facing roles, we continue our power of internal digital transformation. In 2020, Altair, like many companies navigating COVID-19, shifted to a remote model for work and communications with customers and co-workers. Going forward, we expect to return to a hybrid model, remote work and traditional office and travel. We believe these changes, while not affecting our external relationships, will play a role for our EBITDA expansion as we scale revenue.

As announced in a December press release, Howard Morof is in the process of transitioning the CFO role to Matt Brown. I am deeply grateful to Howard for his many years of great leadership and guidance for Altair, especially as we made the transition from a privately held company of many decades to an organization ready for an IPO, and then to an operating public company. In the three years since we went public, Howard has been a straight and steady voice for Altair, and I wish him well in his next ventures, especially those involving his family and his work with charitable organizations.

In choosing our next CFO, it was important to me that we have someone with an operational focus and enthusiasm for doing the right things as we grow the company to the next level of revenue and profitability. Matt is clearly on target in this regard, given his financial expertise and large scale software company experience. Matt will officially take over from Howard on March 16, and both of them are to be congratulated on their superb process of transitioning the role in a way that has truly benefited the Altair organization. I look forward to working with Matt as we remain focused on delivering great technology to our customers, while we scale our software revenues and increase EBITDA for sustainable long-term growth.

Now, I will turn the call over to Howard and Matt to provide more details on our financial performance and our guidance for the first quarter and full year of 2021. Howard and Matt?

Howard Morof -- Chief Financial Officer

Thanks, Jim. I appreciate the kind words, and I'm delighted to have contributed to the growth and success of Altair over the course of the past decade. I will cover our Q4 and full-year 2020 results, while Matt will detail our expectations for 2021.

As Jim mentioned, we delivered excellent fourth quarter results on the top and bottom lines, driven by software product revenue well in excess of our expectations going into the quarter. I would like to remind everyone that our seasonal billings 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, and we expect this pattern to continue.

We exceeded our revenue guidance for Q4, driven by strong growth in software product revenue and handily exceeded our adjusted EBITDA guidance, driven by the combination of strong software revenue performance and continued controls over our operating expenses. We entered the quarter with a conservative perspective due to the uncertainties arising from COVID-19 since our Q4 typically includes a greater proportion of expansion and new revenue compared to other quarters.

We are delighted to see that the strong software growth we generated in Q3 carried through to Q4. We previously noted that changes in certain currencies can have an impact on our revenue, expenses and cash flows, especially when those changes occur over relatively shorter time periods or when currency changes are more pronounced over time. Accordingly, we believe it is meaningful to measure aspects of our performance on a constant currency basis.

For 2020, currencies did have a positive impact of $3.8 million on billings and an insignificant impact on revenue and adjusted EBITDA for the year. For Q4, currency positively impacted revenue by $3.2 million and had a nominally positive impact on adjusted EBITDA. Billings benefited in the quarter by $7.5 million due to currency moves compared to Q4 '19, primarily driven by moves in the euro.

Our fourth quarter results are attributed to continuing solid demand for our software products that exceeded our expectations. Software product revenue reached $113.6 million, an increase of 12.3% from a year ago and over 9% on a constant currency basis, while total revenue equaled $133.4 million, representing growth of almost 8% from the fourth quarter of 2019 and over 5% on a constant currency basis.

Acquisitions did not have a meaningful impact on revenue for the quarter. Total revenue continued to be impacted by the reduction in software related and client engineering services revenue, resulting from the continuing impact of COVID-19 on the demand for these services. Reflecting continued modest recovery compared to Q3, our software-related services revenue declined about 12% in the quarter relative to the prior year. These results represent improvement compared to Q3, which declined 22% compared to the prior year. As expected, our client engineering services revenue declined by 15% in the quarter compared to the prior year due to reductions imposed by some of our CES customers consistent with the prior quarter.

Our 2020 results benefited from demand for our software products. Software product revenue reached $391.7 million, an increase of almost 7% from a year ago, while total revenue equaled $469.9 million, representing growth of 2.4% from 2019 both exceeding guidance provided last quarter. Software-related services declined by 23.5% compared to a year ago, primarily impacted by the headwinds in our automotive customer base. Our growth and investment strategies remained targeted on higher margin software product revenue opportunities.

Revenue mix continued its favorable trend in the fourth quarter. Software product revenue increased to 85.1% of total revenue, up almost 350 basis points from 81.7% last year without any adjustment for currency or acquisition-related impacts, which were minimal. This continues the important long-term trend of an increasing mix of software product revenue, the key driver to expansion of our operating margins. For the full year, software product revenue progressed to 83.4% of our total revenue from 79.9% for the prior year.

Our recurring software license rate, that is the percentage of software product revenue that is recurring, continues to be strong with a healthy increase to 92% for the year as we continue to emphasize growth in our recurring revenue streams. Fourth quarter billings were $146 million, an increase of 12% from a year ago driven by software momentum, indicative of the strong growth in our software product business. For the year, billings were $480.4 million, an increase of about 1% from a year ago, driven by the growth in our software product business, offset in part by declines in software-related and client engineering services. We tend to view 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 shift to the balance of the P&L results. Gross margin in the fourth quarter improved to 75.5% consistent with the revenue mix shift to software product revenue. On a full year basis, gross margin improved by over 300 basis points to 74.2% compared to prior-year gross margin driven by the positive shift in revenue mix.

For the quarter, non-GAAP operating expenses, which exclude stock-based compensation, amortization of intangible assets, and other operating income, were $81.9 million. The increase from $73 million in Q3 is consistent with our expectations of the impact of our acquisitions later in 2020, as well as restoring certain cost reduction efforts undertaken earlier in the year.

Adjusted EBITDA for the quarter equaled to $21.7 million, a terrific increase of over 70% from last year, driven predominantly by the increase in software product revenue along with the benefit of reduced travel and selling expenses operating under COVID-19 restrictions. In Q4, we did realize some revenue in incurred expenses related to the acquisitions of Univa, Ellexus and M-Base. The magnitude of these conclusions did not significantly impact our results, either on the top line or bottom line.

Adjusted EBITDA for the year grew over 45% to $57.3 million compared to adjusted EBITDA of $39.5 million a year ago, driven by healthy software momentum in the second half of the year along with cost reductions over part of 2020 arising from COVID-19 actions we have spoken about previously. Our performance in 2020 pushed adjusted EBITDA margins in 2020 to 12.2%, up from 8.6% in 2019.

Turning to our balance sheet. Consistent with the typical seasonality in our billings and collections activities, we ended the fourth quarter with $241 million in cash and cash equivalents. We had $120 million in undrawn capacity on our US revolver. Just note that in early January 2021, we repaid the $30 million we had drawn on the line of credit during 2020. We generated cash flow from operations for the year of $32.9 million compared to $31.4 million for 2019. Our free cash flow improved to $26.8 million compared to $21.7 million for the prior year due in part to reduction in cash expenditures for property and equipment.

It has been a pleasure to have been a part of Altair the past decade, working with Jim, the entire Altair team, and more recently, the investment community. Having spent much time with Matt during our transition, I'm completely confident that the finance function will be in great hands going forward.

I would now like to turn the call over to Matt to discuss expectations for 2021. Matt?

Matt Brown -- Next Chief Financial Officer

Thank you, Howard. I want to start by thanking Howard for providing a very thorough, seamless transition over these past two months. When I started on January 4, I could not have imagined a better handover of CFO responsibilities. He has left us in a great spot for the future, and he has assured me that if we need to call him, he'll still pick up the phone. So, Howard, thank you. I very much appreciate it.

As you just heard, we're coming off a very successful fiscal year 2020, and especially Q4 in what was a challenging COVID-19 environment. We saw a record software product revenue in Q4 and for the full year with fiscal 2020 software product revenue growing 6.8% year-over-year. Total revenue in 2020 grew 2.4% year-over-year. And while also a record high, we saw declines in our service revenue that partially offset the software product revenue growth, as some customers pulled back on their services in contract spend.

As we look ahead to Q1 and fiscal year 2021, we expect to continue the momentum we saw at the end of 2020 and carry that into 2021 and are expecting software product revenue for Q1 '21 in the range of $118 million to $120 million or a year-over-year growth of 8.8% to 10.7%, and for fiscal year 2021, in the range of $423 million to $431 million or a year-over-year growth of 8% to 10%.

In looking at total revenue for 2021, we believe our services revenue has stabilized, and although we do not expect to see service revenue declines in 2021 like we did in 2020, we are not expecting service revenue growth either as we continue into what is likely another mixed COVID-19-year. As a result, we are forecasting total revenue for Q1 '21 in the range of $138 million to $140 million or a year-over-year growth of 5% to 6.5%, and for fiscal year 2021, in the range of $502 million to $510 million or a year-over-year growth of 6.8% to 8.5%. We believe our revenue guidance is balanced, but will depend on the levels and speed of the post-COVID recovery, particularly in the later part of the year.

From a cost perspective, the company succeeded in limiting expenditures during 2020 while in the midst of COVID-19 uncertainty. In particular, during 2020, we reduced marketing and trade show costs by almost 40% relative to the prior year and reduced travel and entertainment costs by 68%. In 2021, we expect some of this activity to return to normal, resulting in an increase in costs year-over-year, particularly in Q2 through Q4 '21, as we anniversary some of those cost cuts and this travel resumes. However, we will continue to be disciplined in our expenditures. We are currently looking at targeted reductions in employee costs, contractor costs, and professional services spend as we reorganize within the business. We expect these reductions to be substantially complete in the first half of 2021, freeing up capacity for investments in our product technology and sales capacity. As a result, we expect to incur cash reorganization costs in the first half of between $5 million to $7 million which is excluded from our adjusted EBITDA.

For Q1 '21, we expect adjusted EBITDA in the range of $24 million to $26 million or a year-over-year growth of 10.7% to 20%, which translates to adjusted EBITDA margin of 17.4% to 18.6%. And for fiscal year 2021, we expect adjusted EBITDA in the range of $58 million to $66 million or a year-over-year growth of 1.2% to 15.2%, which translates to adjusted EBITDA margin of 11.6% to 12.9%.

Our expectations on adjusted EBITDA are inclusive of the cost reductions and investments I mentioned a moment ago. We expect free cash flow for the year to increase in line with the increase in adjusted EBITDA and will be impacted by the reduction related cash costs and are forecasting free cash flow for fiscal year 2021 in the range of $26 million to $34 million.

As a reminder, our cash flow expectations are sensitive to billings and collection patterns, which fluctuate seasonally. We've provided detailed guidance tables in our earnings press release, which was issued after close of market yesterday and includes guidance on non-GAAP net income. Moving forward, when measuring non-GAAP net income, we will exclude non-cash interest expense and we'll apply a consistent non-GAAP income tax rate. We've made these changes to reflect management's views of business and to be more consistent with our peers. These changes will be applied to comparable prior periods to aid in comparability and have been provided in the supplemental tables in our earnings press release.

COVID-19 developments continued to evolve, but we are cautiously optimistic on a broad economic recovery as we look ahead to 2021. Altair has never been better positioned to support our customers on solving some of the most challenging problems faced by engineers, scientists, and data analysts. Our simulation products are being increasingly adopted earlier in the design process, improving product performance and reducing costs for our customers, Our HPC products are enabling customers to maximize their compute resources, and our data science and preparation tools are leveraging AI to enable customers to organize and visualize data to make important decisions quickly. We see these solutions converging and providing real value to our customers.

With that, we'd be happy to take your questions. Operator?

Questions and Answers:

Operator

Thank you. [Operator Instructions]. Our first question comes from Rich Valera with Needham. Your question please.

Rich Valera -- Needham -- Analyst

Thank you. Good morning, and congratulations on a strong finish to the year. And Howard, best wishes on your next chapter, and welcome, Matt. And with that,, I wanted to just talk about how the quarter played out for as your expectations, really nice upside in the quarter. And I'm wondering was that a result of things coming in? Have you actually seen improvements during the quarter or just conservatism get embedded into the guidance because you were kind of concerned about a COVID second wave, which I think you'd mentioned on last quarter's call? Just wondering where that upside came from on the quarter relative to your expectations.

James R. Scapa -- Chairman & Chief Executive Officer

[Indecipherable] [Speech Overlap] different places.

Howard Morof -- Chief Financial Officer

Jim, go ahead or I'm happy to answer.

James R. Scapa -- Chairman & Chief Executive Officer

Yeah. Why don't you answer that, Howard? It will be great.

Howard Morof -- Chief Financial Officer

Sure. So, Rich, and thank you for the nice words. We certainly entered with a sense of conservatism as we've frankly been pretty cautious over the course of the entire year for obvious reasons to most of 2020 for obvious reasons. So we entered the quarter conservative. We know that in Q4 we have a little higher proportion of new and expansion revenue as is typical in our Q4. So the conservatism that we thought was very well warranted. Against that backdrop, the quarter continued to, I would say, improve as the quarter navigated along reflecting growth investment, strength in our customer base, and frankly continued to use some growth and adoption of technologies that are ever so critical to our customers. So, I think it was really sort of a combination of conservatism, and as well, new and expansion in the way that you would hope to see.

Rich Valera -- Needham -- Analyst

That's great. And then maybe for you, Jim. Great to hear about your success selling kind of converged analytics and simulation solutions. I just wanted to get your sense of where you are in that path toward creating that conversion model kind of relative to maybe where you thought you were going to be when you made the acquisition, where you think it could be, say, five years from now, what you've done so far, and maybe what you're doing to further that integration, and then just where your are in sort of the model transition for that analytics business. Thanks.

James R. Scapa -- Chairman & Chief Executive Officer

Thanks, Rich. Nice to hear your voice. So, I mean I think that the model transition is largely done at this point. We've really moved things over to subscription pretty, pretty well at this point where it's kind of on par with [Indecipherable] this year. So, that part is done. As far as sort of this convergence between the engineering and the data analytics, I think it's a very natural transformation that's really happening. It's happening within our products and in ways that customers and users don't even know it's happening to some extent. And it's also happening for customers who really are beginning to recognize the opportunity. So, we have almost every one of our account managers has opportunities at this point that are really taking advantage of this convergence. And it's really starting to engage. We're starting to understand use cases that makes sense as we have success and point those use cases to other customers. So, five years from now, I don't think we're going to be talking about sort of a difference between simulation and AI. I think it's all going to be computational science basically if we're talking about.

Rich Valera -- Needham -- Analyst

That's great. Thanks for that, Jim, and congrats again on a nice performance.

James R. Scapa -- Chairman & Chief Executive Officer

Thank you.

Operator

Our next question comes from Jackson Ader with JPMorgan. Your question please.

Jackson Ader -- JPMorgan -- Analyst

Great. Good morning, guys, and yeah, I'll echo Richard, but Howard, it's been a lot of fun. And welcome, Matt. First question on the reorganization. What areas of the salesforce or I guess what types of sales investments where you guys will be making, where you're going to be shifting chips away from and being placing bets?

James R. Scapa -- Chairman & Chief Executive Officer

Sure.

Matt Brown -- Next Chief Financial Officer

Yeah, Ader, thanks for the question. Jim, do you want to take a stab at that and pass it to me?

James R. Scapa -- Chairman & Chief Executive Officer

Yeah, yeah. I think I should answer that question. Sorry, Matt. So, in terms of where we're continuing to invest, we are continuing to invest in enterprise level customers who we see large opportunities with. So, we're beginning to target our direct account managers more and more at those opportunities and create more focus forum. We're creating swarm[Phonetic] loans really in the market and working with the direct account managers of the accounts that makes sense for these enterprise opportunities we have inside sales and business development working more down market and indirect also down market in combination with them.

So, we're continuing to make investments. We're just -- we think we're just getting smarter at how we're working this on and leveraging the sales resources and the capacity that we have.

Matt can answer at something there. I'm not sure what he's going to...

Matt Brown -- Next Chief Financial Officer

Yeah, I mean, I would just chime in and say, from a high level context, right, I mean this is over the past five years, we've done 23 or so acquisitions and continue to really refine our operating model. And so, that's how I would characterize this. We're going to continue to invest in our product technology and in our sales engine moving forward. And so, this is really a refocusing. That's the way that I would characterize it.

Jackson Ader -- JPMorgan -- Analyst

Okay. And then, a follow-up I guess directly for Matt. What's the FX tailwind in 2021 for the revenue growth guidance?

Matt Brown -- Next Chief Financial Officer

It's a couple of points. I think we are -- obviously, as we guide '21, we're using today's rates on the FX. So you're not -- we're not anticipating movement in the FX rates, but within the comparable to the sort of year-over-year impact, it's worth a couple of points of FX on the revenue line. But next to nothing on EBITDA, those naturally offset.

Jackson Ader -- JPMorgan -- Analyst

Sure. All right. Great. Thank you.

Operator

Our next question comes from Bhavan Suri with William Blair. Your question please.

Bhavan Suri -- William Blair -- Analyst

Great, thanks for taking my question and I'll echo my congrats on the quarter. Welcome, Matt. And Howard, we will miss you. I'm sure, we're run into each other again, but best of luck. I guess, I want to touch on a couple of quick things. One, maybe this one is for Jim. Jim, the services business naturally, obviously, this year or in 2020 had challenges with COVID et cetera. But as you think about it, one of the great things about the business was you've got really intimate with customers, like you got to understand what they were doing, what they wanted, it drove some product development or at least ideas around innovation. And as you think about '21 and '22, do you think you reinvest in that business a little bit to sort of keep that customer intimacy, to keep those guys at the customers to help them with their solutions, but also to help guide and drive product innovation? How should we think about that playing out?

James R. Scapa -- Chairman & Chief Executive Officer

We are still very, very actively engaged with a lot of customers and also very advanced projects in electric motors, batteries, those kinds of things, additive manufacturing simulation, all of that. The service business that declined a few on last year is closer to again a continuum of super advanced stuff that we do down to more commodity level, and we don't do that very commodity anymore over the last five or 10 years, but still that are being lost, if you will, or more of the things on the commodity level side. So, we're still very engaged with customers. Customers still recognize the technical superiority of Altair and it's advancing our products still, but it's also advancing these relationships.

Bhavan Suri -- William Blair -- Analyst

Got it, got it. And then maybe one for Howard and Matt combined maybe, but Howard's had a philosophy over the X number of years about guidance with Jim and team. And I guess, Matt, as you look at the guidance for 2021, given there is still risk in COVID and you think about sort of billings was up 1% or a little above that in constant currency. I guess what are you seeing in pipeline or are customers in the auto space hiring more engineers? Are you seeing close rates improve, lends improve, the size of initial lend improve, expand improve, that sort of gives you that visibility confidence. Again just in the business, the business itself is not choppy, but the customer adoption, customer buying behavior can be choppy. I'm just trying to understand how you guys have thought about the guidance and sort of what you bring to the table in terms of visibility and I love to sort of think about that both tactically for 2021 and the strategic. How do you think about guidance? Thank you.

Matt Brown -- Next Chief Financial Officer

Yeah, yeah. No, I appreciate the question. So, I would that we are cautiously optimistic about 2021 and you can kind of separate top line at least into the two sections, one being software product revenue and the other being all else, right. So if we start with all else, we're still in a mixed COVID year. As you know, last year Q1 not really impacted by COVID, this year Q1 is.

Bhavan Suri -- William Blair -- Analyst

Right, right.

Matt Brown -- Next Chief Financial Officer

And as we move forward throughout the rest of the year, we're expecting some bit of recovery, but net-net, our expectations on everything other than the software product revenue is that the year is going to be basically flat to 2020, and so then that leaves you with software product revenue and we're pretty optimistic there. We're seeing good engagement from our customers and we're seeing a healthy pipeline, and we feel very strongly about our technology and how we compete. And so that's where you're seeing the growth. And of course, we'll have to see how the year plays out, but like I said, we're cautiously optimistic there.

James R. Scapa -- Chairman & Chief Executive Officer

If I could add to that question [Indecipherable], I think it's -- sometimes, it's undervalued by you guys that our recurring revenues, I think, in 2020 was something over 92%. So, we go into the year -- and very, very sturdy even in 2020. So, we go into the year with a pretty high recurring revenue. We expect the attrition on that to be a little bit better than in the prior year. And when we look at new and expansion, of course we were a little bit weaker last year there, but we can judge how weak we were against where we expect we might be. And all of that together gives us a cautious optimism as well.

Bhavan Suri -- William Blair -- Analyst

Got you, got you. Really helpful guys. Thanks for taking my question. I appreciate it.

James R. Scapa -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Ken Wong with Guggenheim Securities. Your question please.

Ken Wong -- Guggenheim Securities -- Analyst

Great. Thank you for taking my question. Just one for you, Jim. In the data space, you have a Southern California today's compared to that that saw a little bit of softness. And just based on what we're hearing from you guys, it looks like you feel that your business has powered forward quite nicely. Just wondering maybe what some of the trends you're seeing there, maybe what some of the differences are in terms of what you guys seem to be surging forward whereas they seem to be seeing a little bit of weakness.

James R. Scapa -- Chairman & Chief Executive Officer

Sorry, I can't speak to the other guys. But for us, I think we have very, very strong solution on the data prep side that just continues to go forward, but I think the rest of our offering frankly speaking is quite a bit deeper and broader, and the guys I assume you're alluding to. And frankly, all of that integrated with the rest of our business and how we're targeting things and it gives us this optimism.

Ken Wong -- Guggenheim Securities -- Analyst

Got it, got it. And then, just one for the Matt and Howard combo. I guess on the EBITDA guide, it doesn't look like you guys are getting much leverage, and actually on the full-year basis, it looks like it's going to be flat from a margin perspective. Can you maybe just walk us through some of the moving pieces on the spend side, whether it's reinvestment versus a readout in discretionary or anything else we might be missing from a spend perspective that maybe keeps us from getting more leverage on the -- on EBITDA.

Matt Brown -- Next Chief Financial Officer

Yeah, sure, Ken, I'll take that. So, you may be underestimating that a little bit. I think if you look at how we exited Q4 from a spend perspective, that really is probably your best basis as you move forward through the year. And so, you can see we carried that into the Q1 guide in terms of the spend, it's not much a incremental spend from Q4 to Q1 at the midpoint of the guide. But then as you look forward through the year, you actually will see off of that run rate, you will see a reduction in our expected spend that's implicit in the guide. So, make sure that you're taking that into account. There are some nice efficiencies there that are coupled with investments in our technology and in sales and some headwinds that we're seeing from some returned to normal on travel and marketing expenses. So, I think it's a pretty fair guide and actually I'm pretty happy with that outcome.

Ken Wong -- Guggenheim Securities -- Analyst

Great, thanks a lot for that, Matt.

Operator

Thank you. Our next question comes from Brian Essex with Goldman Sachs. Your question please.

Brian Essex -- Goldman Sachs -- Analyst

Hi, good morning, and thank you for taking the question. Maybe, Jim, a question for you. In your prepared remarks, you gave several nice examples of customers significantly restructuring their relationships. But wondering[Phonetic] as what are the overall trends with regard to adoption of product which within the Altair Units platform, where you're seeing a meaningful number of enterprises buy for greater flexibility, maybe for example, buying multi-physics instead of mechanical engineering to enable usage of perhaps SimLab, Inspire, and other adjacent applications?

James R. Scapa -- Chairman & Chief Executive Officer

So, the answer is yes. I affirm the Altair Units model has been very, very well received. It's well received by my account management team. They really appreciated because it gives them the ability to get the right value at the customers that are willing to pay more for the extra service, features, products, and it lets us basically be competitive in gaming markets where the customers are more price sensitive. So, I think our guys are seeing it well. I think the customers are appreciating it as well. Actually, it's very, very fair model for them and we are seeing adoption for sure.

Brian Essex -- Goldman Sachs -- Analyst

Great. That's good to hear. And maybe just a follow-up to Bhavan's question on services. Is the bench of services talent that you have access to limited to a certain group of businesses of verticals or perhaps certain technology versus some emerging technology. In other words, how applicable are those services as you continue to extend your model into emerging businesses or additional incremental technology through acquisitions?

James R. Scapa -- Chairman & Chief Executive Officer

We have very, very significantly shifted business[Phonetic] that we have. I mean, if you look at the projects that we are pursuing in electronics, electric vehicle, and electric motor sensors, IoT devices, we are at the state-of-the-art [Technical Issues] battery design. I think you'd be surprised on the expertise that we have now.

Brian Essex -- Goldman Sachs -- Analyst

Great. That's super helpful. Thank you very much and congrats on the results.

James R. Scapa -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Matt Hedberg with RBC Capital Markets. Your question please.

Matt Hedberg -- RBC Capital Markets -- Analyst

Hey, thank you, and congrats from me as well. And obviously, Howard, great working with you. And Matt, look forward to working with you again. I just had one question, and it's really a follow-up to Brian's question on Altair Units. Obviously, you're seeing success there and it opens up new opportunities. I guess the question is, when you think about the 2021 guide, how do you contemplate how pervasive? Or maybe said differently, the impact on top line growth with increasing usage of Altair Units, just wondering how you sort of conceptually thought about that as you contemplated the outlook for '21?

Matt Brown -- Next Chief Financial Officer

Yeah, so, still -- Yeah.

James R. Scapa -- Chairman & Chief Executive Officer

[Speech Overlap] Matt, I will answer that, but I -- personally, I'm not thinking about that at that sort of granular level. I'm trying to model that. I don't know what Matt or Howard have been trying to do that. For us, we're strictly looking at what we see the pipeline looking like.

Matt Brown -- Next Chief Financial Officer

Yeah, I can chime in there too, Jim. So, Matt, good to hear from you. So, some helpful context I think. So far, as of now, roughly a third of our customers have actually already converted, so I think that's important to note. And we're going to expect the rest of those customers to be substantially completed within the next year. So, we'll see that throughout the year.

The way that I'm thinking about it is that as these customers convert, they are finding their way into the suite that makes the most sense for them. In some cases, it ends up being slight into price increase. In other instances, they are finding a suite that makes sense for them, where they can utilize exactly the products that they want. And so in the first year, I'm not expecting a meaningful impact.

But what I think it does is it sets us up for the future in a way that allows these users to expand within the suites that they're really using and it allows us to get the value for that, particularly at the enterprise level. So, hopefully that answers your question. We're not baking in a meaningful impact in the year. And so far, we've seen a third of our customers already converted.

Matt Hedberg -- RBC Capital Markets -- Analyst

Super helpful. Thanks guys.

Operator

Our next question comes from Gal Munda with Berenberg Capital. Your question please.

Gal Munda -- Berenberg Capital -- Analyst

Hey, good morning. Thank you for taking my questions. The first one is just a little bit in the past you've talked about how the usage has trended, especially toward the end of the year kind of give us a little bit of an update over the year, and maybe I'm not specifically asking about the quarter itself, but just in general, how have you seen usage on solvers evolving throughout the 2020? That would be very helpful.

James R. Scapa -- Chairman & Chief Executive Officer

Gal [Phonetic], first of all, good morning to you. I think your question was how do we see the usage of solvers evolving. Is that correct?

Gal Munda -- Berenberg Capital -- Analyst

No. How they're evolving and how did you see it? What was kind of the performance in 2020 just as an overall, considering the fact that -- [Technical Issues] people asking the most. Yeah.

James R. Scapa -- Chairman & Chief Executive Officer

Sorry, the solver suite that we have continues to gain share we think can grow almost in every area for us and actually. So, if you went back 10 years ago, we were primarily a pre-post company. Today, a very significant part of our business is really on the physics side of the business and that's going to continue to grow even more as time goes on. So, solvers are an ever-increasing part of our overall business and strategy.

Gal Munda -- Berenberg Capital -- Analyst

Okay, that's helpful. Thank you. Thanks, Jim.

And then, in light of your comments about kind of being a little bit more mindful at the way we invest and sales and really trying to attack those enterprise level sales from -- and rebasing some of the other efforts either into the indirect channel or a bit[Phonetic], how far would you say you've progressed on the indirect sales channel? Now, you've talked in the past about your ambitions to significantly increase contribution to revenue from that side. Was 2020 kind of a year of foundation and you expect that to come through in '21? Any color on that? Thank you.

James R. Scapa -- Chairman & Chief Executive Officer

Sure. We've made some progress obviously [Phonetic] and it depends on the geography. But from my point of view, not as much progress as I would like to see, particularly in the Americas. So we -- I think the inside sales in business development piece of the business has really gotten a lot of traction for us. I think the indirect is getting traction more and more in Europe and continue in the APAC. And then in the Americas, I think we have some more work to do quite frankly.

Gal Munda -- Berenberg Capital -- Analyst

Thank you, Jim. That's very helpful.

Operator

Thank you. Our next question is from Mark Schappel from Benchmark. Your question please.

Mark Schappel -- Benchmark -- Analyst

All right, thank you for taking my questions. First off, Howard, the best for you going forward, it was good working with you. But, Jim, a question for you. I was wondering if you could dig a little bit deeper into your strategic partnership with GE as part of the acquisition. I was wondering if you just could provide some additional details on the arrangement and what we should expect from it going forward.

James R. Scapa -- Chairman & Chief Executive Officer

So, I mean this is a long-coming partnership for us. We've been working with GE for a couple of years now with this technology. It was actually part of the Altair partner alliance, and now the spin out from GE to be something that we've taken over responsibility for 100%, there is very, very large user base of this technology inside of GE, it's in the thousands. And they are excited, I think, about having a commercial software company to take responsibility for them and there's a lot of opportunities to leverage this, to grow the partnership in many different directions with GE, all of our software. So that part, we are very excited about. There's other projects that we actually have been doing with GE, on the area of rotating machinery and others, independent of Flow Simulator projects.

And turning to Flow Simulator, it's a really terrific piece of technology that was developed inside of GE. Very often, if I can be candid, the OEMs have a lot of internal development, but they do it bit very often, it's not all commercial grade, and they often are looking to spin it out, and very often, it's not really competitive. This is not the case here. This is a great piece of technology, it's gaining traction a lot of customers for us and we're very, very excited to have it with us.

So, it's just a very nice partnership with GE, it's a great piece of technology, and it's a model for things that we think we can do with some other customers as well.

Mark Schappel -- Benchmark -- Analyst

Great, thank you. Very helpful. And then, an additional question here. A quarter or two ago you have released your Inspire Mold solution. I was wondering -- And that was a pretty significant capability for the plastics industry. And I know it's still early, but I was wondering if you've had any Inspire Mold wins at the end of the year here that you could talk about.

James R. Scapa -- Chairman & Chief Executive Officer

We have some wins, but probably nothing that I can reach into my bag of tricks and speak about in a coherent way. It's pretty early days and we see a lot of interest in the product and we're pretty hopeful that we're going to see a lot of of traction around it, but it's frankly a little early. Ask me in another quarter or two and I'll tell you how we're doing. I'll make sure to study it more, but for the next call.

Mark Schappel -- Benchmark -- Analyst

Okay, great. I'll make sure you do so. Thank you. That's all from me.

James R. Scapa -- Chairman & Chief Executive Officer

Thank you.

Operator

Thank you. And this concludes our Q&A session for today. I would like to turn the call back to our CEO, James Scapa, for his final remarks.

James R. Scapa -- Chairman & Chief Executive Officer

Yes. Thank you. So, in conclusion here, I just want to thank everyone for their support and feeling really great about 2020 with so many challenges and very excited about 2021. And once again, just want to say a final thank you to Howard for just being a wonderful partner for me for so many years, initially on the Board and then coming in as CFO for the company, helping it to transform our finance department, helping us to go public, and just being a wonderful partner for me for so many years. So, wishing Howard the best, and thanks to everyone else [Technical Issues].

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Howard Morof -- Chief Financial Officer

James R. Scapa -- Chairman & Chief Executive Officer

Matt Brown -- Next Chief Financial Officer

Rich Valera -- Needham -- Analyst

Jackson Ader -- JPMorgan -- Analyst

Bhavan Suri -- William Blair -- Analyst

Ken Wong -- Guggenheim Securities -- Analyst

Brian Essex -- Goldman Sachs -- Analyst

Matt Hedberg -- RBC Capital Markets -- Analyst

Gal Munda -- Berenberg Capital -- Analyst

Mark Schappel -- Benchmark -- Analyst

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