Matt Brown: Yes. Hey Ken, no problem. So first off, so what we’re seeing this year has been playing out generally how we’ve been guiding since the beginning of the year. So we’ve been guiding software product revenue growth of about 10% at the midpoint in constant currency. And so far, we’ve been – we’ve seen constant currency growth of about 9.7% in the first half, and we’re expecting about 10.3% at the midpoint in the second half. So actually a pretty reasonable first half, second half dynamic there. So in other words, not specifically back-end loaded, certainly not with respect to first half, second half. And then when you look specifically at the Q3, Q4 dynamic, it really just comes down to a somewhat difficult nature of guiding Q3.
So in Q3, you’ve got the summer holiday. It’s historically been our smallest quarter of the year. So we’re only $7 million can make a seemingly large impact on percentages. And so you sometimes get a strange set of comparisons there. But again, when you look at the pipeline for the second half and what we’re seeing in the second half in total, we feel really good about how the year is shaping up. So nothing more to read into it than that.
Ken Wong: Okay, fantastic. Thank you guys.
Operator: Our next question comes from the line of Dylan Becker with William Blair.
Dylan Becker: Yep. Hey guys thanks for taking the question. Jim, maybe on kind of the vendor consolidation team to, obviously, customers love the units model. But I guess the dynamic that you guys are seeing healthy renewals. Wondering if you could kind of help us parse through is the momentum coming from, again, expansion across new teams for design – different design workflows. Is it customer switching and seeing that consolidation play out? Is it elevated compute intensity? I guess, kind of help us think through what maybe some of the core drivers are there?
Jim Scapa: So I mean there’s an overarching activity happening in our most important markets. Aerospace is very, very active right now and aerospace and defense in general, is probably the strongest sector right now that we see technology may be number two. And – but even in automotive, there’s still a lot of competitive drive to get to new products, to get to electric and all of that. So there’s still a lot of sort of overarching demand just because people – our customers are trying to get to new products. What was the second part of your question? Sorry.
Dylan Becker: I think kind of – I guess, spending consolidation and how that plays into the unit model too…
Jim Scapa: The consolidation piece. Yes. So I mean when you’re in this down part of the cycle as I’m describing it, it takes a little bit of a while. There’s a lot of religion in our world of technical computing and simulation and all that. But as customers are looking deeper, how do we do all the work we need to do, but how do we do it more efficiently, more effectively, more cost effectively. As the cycle sort of gets towards the end, they start really looking more closely at what can we do competitively? Is there a different partner that we should be working more with? And we’re in every one of these accounts already. All these accounts are very competitive. But customers are deciding, who’s the better partner, right? And so I think there’s more opportunity right now for us.
Dylan Becker: Okay. All right. Super helpful. Thanks for that. And then maybe, Matt, again, kind of touching back on the guidance framework. It looks like the seasonality is kind of aligning with the prior year period. And I think Jim made a comment around kind of more of an enterprise emphasis from the sales force. Is that naturally maybe a function to kind of this a little bit of a shift in the model of just aligning with kind of the purchasing decision – decisioning for those larger scale customers?
Matt Brown: I mean with respect to the Q3, Q4 dynamic, no, not really, actually. It really is just a function of some timing of deals when you’re trying to project when deals are going to close in late September versus early October and, again, a fairly smaller base, at least from us, it’s our smallest seasonal quarter, that just can drive some of those dynamics. So no, it actually doesn’t have much to do with the dynamic that Jim touched on.
Dylan Becker: Okay. All right. Super helpful. Thanks guys. Nice job.
Matt Brown: Okay. Thank you.
Operator: Our next question comes from the line of Josh Tilton with Wolfe Research.
Luke Mott: Hi. This is Luke Mott on for Josh. Thanks for taking my question. You said earlier you expect adjusted EBITDA to increase for the next three to five years. Any details you can provide on that? Or what will drive it? And any more color you could give around the magnitude of those increases would be very helpful. And then I have a follow-up. Thank you.
Jim Scapa: You get that one, Matt, sorry.
Matt Brown: No problem. Yes. So a lot of what we’ve been saying over the last couple of years here around our ability to just continue to incrementally add to our adjusted EBITDA margin is something that we believe we can continue into the future, certainly in the next three to five years, but frankly, and beyond. And the way that we’re doing that is we’re continuing to increase our proportion of software revenue as a percentage of total. And that is having a benefit to our gross margins, which is reflected, for example, in this quarter, where we were able to increase our non-GAAP gross margins year-over-year. But we expect that, that’s going to continue. So that’s one helpful driver. And then, of course, the other is we’re continuing to manage our OpEx expenses.
