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Altair Announces Fourth Quarter and Full Year 2018 Financial Results

TROY, Mich., Feb. 28, 2019 (GLOBE NEWSWIRE) -- Altair (Nasdaq:ALTR), a global technology company providing solutions in product development, high-performance computing and data intelligence, today released its financial results for the fourth quarter and full year ended December 31, 2018.

“Altair delivered better than expected revenue and profitability in the fourth quarter, capping a very strong year for the company,” said James Scapa, founder, chairman and chief executive officer.  “We believe our strong performance across the business reflects the  market’s growing recognition that our modeling, visualization and solver solutions bring significant value to the product design process.”

“The recent expansion into the data intelligence market through the Datawatch acquisition has further expanded our market opportunity and Altair’s value proposition.  We believe the convergence of data and simulation in the coming years will provide new growth opportunities.  In addition, we are incredibly excited by the opportunity with SimSolid, which represents a major step forward in generating fast and highly accurate design simulations.  Altair enters 2019 with significant momentum, and we believe we are uniquely positioned to deliver another year of strong revenue growth and expanding profitability.”

Note: We adopted ASC 606 on January 1, 2018, which impacted our financial results. The year ended December 31, 2018 has been reported under ASC 606.  The year ended December 31, 2017 has been reported under ASC 605 and has not been adjusted under the modified retrospective approach. For ease of comparison, in the commentary below all amounts used to calculate differences between 2017 and 2018 results are reported under ASC 605, unless otherwise indicated.

Fourth Quarter 2018 Financial Highlights under ASC 606

For Reference, we compare Fourth Quarter 2018 Financial Highlights under ASC 605 (as if previous revenue recognition guidance was in effect) to those in Fourth Quarter 2017

Full Year 2018 Financial Highlights under ASC 606

For Reference, we compare Full Year 2018 Financial Highlights under ASC 605 (as if previous revenue recognition guidance was in effect) to Full Year 2017

Business Outlook under ASC 606

Based on information available as of today, Altair is issuing guidance for the first quarter and full year 2019 under the ASC 606 standard as indicated below. 

 First Quarter 2019Full Year 2019
Software Product Revenue$99.0to$101.0$373.0to$377.0
Non-GAAP Software Product Revenue$101.2 $103.2$382.0 $386.0
Total Revenue$123.0 $125.0$470.0 $474.0
Non-GAAP Total Revenue$125.2 $127.2$479.0 $483.0
Net Income$10.5 $12.5$18.0 $22.0
Adjusted EBITDA$23.0 $25.0$61.0 $65.0
Non-GAAP Net Income$15.8 $17.8$40.2 $44.2

 (All figures in millions)

Conference Call Information

What: Altair Fourth Quarter and Full Year 2018 Financial Results Conference Call
When: Thursday, February 28, 2019
Time: 4:30 p.m. EST
Live Call: (866) 754-5204, domestic
 (636) 812-6621, international
Replay: (855) 859-2056, passcode 2093538, domestic
 (404) 537-3406, passcode 2093538, international
Webcast: http://investor.altair.com  (live & replay)


Non-GAAP Financial Measures 
This press release contains the following non-GAAP financial measures: Adjusted EBITDA, Non-GAAP Net Income, Non-GAAP Net Income Per Share and Free Cash Flow.

Altair believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to its financial condition and results of operations. The Company’s management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. The Company also believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

Company management does not consider these non-GAAP measures in isolation or as an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded in the Company’s financial statements. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which expenses and income are excluded or included in determining these non-GAAP financial measures. Altair urges investors to review the reconciliation of its non-GAAP financial measures to the comparable GAAP financial measures, which it includes in press releases announcing quarterly financial results, including this press release, and not to rely on any single financial measure to evaluate the Company’s business.
Reconciliation tables of the most comparable GAAP financial measures to the non-GAAP financial measures used in this press release are included with the financial tables at the end of this release.

About Altair
Altair is a global technology company that provides software and cloud solutions in the areas of product design and development, high-performance computing (HPC) and data intelligence. Altair enables organizations across broad industry segments to compete more effectively in a connected world while creating a more sustainable future. To learn more, please visit www.altair.com.

Cautionary Language Concerning Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to, statements regarding our business outlook, statements regarding the comparative business outlook under ASC 605, potential growth, potential impact of the SimSolid and Datawatch transactions and expanded product offerings, and our reconciliations of projected non-GAAP financial measures. These forward-looking statements are made as of the date of this release and are based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Words such as “expect,” “anticipate,” “should,” “believe,” “hope,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “might,” “could,” “intend,” variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond Altair’s control. Altair’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to, risks detailed in Altair’s quarterly and annual reports filed with the Securities and Exchange Commission as well as other documents that may be filed by the Company from time to time with the Securities and Exchange Commission. Past performance is not necessarily indicative of future results. The forward-looking statements included in this press release represent Altair’s views as of the date of this press release. The Company anticipates that subsequent events and developments will cause its views to change. Altair undertakes no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. These forward-looking statements should not be relied upon as representing Altair’s views as of any date subsequent to the date of this press release.

Investor Relations
Brian Denyeau
ICR
248-614-2400 ext. 346
ir@altair.com

Media Relations
Dave Simon
Altair
248-614-2400 ext. 332
pr@altair.com


Altair Engineering Inc. and Subsidiaries
Consolidated Balance Sheets
     
     
  December 31, 
2018		 December 31, 
2017
(In thousands, except per share data)    
ASSETS    
CURRENT ASSETS:    
Cash and cash equivalents $ 35,345 $ 39,213
Accounts receivable, net  96,803  86,635
Inventory, net  1,964  1,980
Income tax receivable  4,431  6,054
Prepaid expenses and other current assets  15,491  10,006
Total current assets  154,034  143,888
Property and equipment, net  30,153  31,446
Goodwill  210,532  62,706
Other intangible assets, net  69,836  24,461
Deferred tax assets  1,373  8,351
Other long-term assets  17,288  17,019
TOTAL ASSETS $ 483,216 $ 287,871
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:    
Current portion of long-term debt $ 331 $ 232
Accounts payable  8,357  4,880
Accrued compensation and benefits  31,740  26,560
Obligations for acquisition of businesses  1,218  13,925
Other accrued expenses and current liabilities  26,347  21,744
Deferred revenue  59,765  130,122
Total current liabilities  127,758  197,463
Long-term debt, net of current portion  31,417  178
Deferred revenue, non-current  6,754  9,640
Other long-term liabilities  28,153  17,647
TOTAL LIABILITIES  194,082  224,928
Commitments and contingencies    
MEZZANINE EQUITY  2,352   2,352
STOCKHOLDERS’ EQUITY:    
Preferred stock ($0.0001 par value), authorized 45,000 shares, none issued and outstanding   —   —
Common stock ($0.0001 par value)    
Class A common stock, authorized 513,797 shares, issued and outstanding 38,349 and 26,725 shares as of December 31, 2018 and December 31, 2017, respectively  4  2
Class B common stock, authorized 41,203 shares, issued and outstanding 32,171 and 36,508 shares as of December 31, 2018 and December 31, 2017, respectively  3  4
Additional paid-in capital  379,832  232,156
Accumulated deficit  (82,005)  (166,499)
Accumulated other comprehensive loss  (11,052)  (5,072)
TOTAL STOCKHOLDERS’ EQUITY  286,782  60,591
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY $ 483,216 $ 287,871
     


 
Altair Engineering Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
             
  Three Months Ended
December 31,		 Twelve Months Ended
December 31,
(in thousands, except per share data) 2018 606 2018 605 2017 605 2018 606 2018 605 2017 605
Revenue            
Software $ 79,903 $ 80,786 $ 67,912  304,361 $ 293,044 $ 244,817
Software related services  10,073  10,073  9,648  36,945  36,945  35,397
Total software  89,976  90,859  77,560  341,306  329,989  280,214
Client engineering services  11,200  11,200  10,439  47,852  47,852  46,510
Other  1,835  1,835  1,868  7,221  7,221  6,609
Total revenue  103,011  103,894  89,867  396,379  385,062  333,333
Cost of revenue            
Software*  13,038  13,038  9,561  45,774  45,774  36,360
Software related services  6,842  6,842  6,658  26,415  26,415  26,888
Total software  19,880  19,880  16,219  72,189  72,189  63,248
Client engineering services  9,002  9,002  8,931  38,979  38,979  38,131
Other  1,389  1,389  1,467  4,805  4,805  5,212
Total cost of revenue  30,271  30,271  26,617  115,973  115,973  106,591
Gross profit  72,740  73,623  63,250  280,406  269,089  226,742
Operating expenses:            
Research and development*  25,844  25,844  24,036  97,592  97,592  93,234
Sales and marketing*  22,427  22,178  21,275  80,277  80,613  79,958
General and administrative*  28,114  28,114  21,514  79,751  79,751  87,979
Amortization of intangible assets  2,076  2,076  2,161  7,739  7,739  5,448
Other operating income  (2,164)  (2,164)  (2,555)  (9,597)  (9,597)  (6,620)
Total operating expenses  76,297  76,048  66,431  255,762  256,098  259,999
Operating income (loss)  (3,557)  (2,425)  (3,181)  24,644  12,991  (33,257)
Interest expense  108  108  367  200  200  2,160
Other (income) expense, net  (534)  (534)  156  (2,580)  (2,580)  994
Income (loss) before income taxes  (3,131)  (1,999)  (3,704)  27,024  15,371  (36,411)
Income tax expense  7,692  7,843  56,643  13,309  12,472  62,996
Net income (loss) $ (10,823) $ (9,842) $ (60,347) $ 13,715 $ 2,899 $ (99,407)
Income (loss) per share:            
Net income (loss) per share attributable to common stockholders, basic $ (0.15) $ (0.14) $ (1.03) $ 0.20 $ 0.04 $ (1.89)
Net income (loss) per share attributable to common stockholders, diluted $ (0.15) $ (0.14) $ (1.03) $ 0.18 $ 0.04 $ (1.89)
Weighted average shares outstanding:            
Weighted average number of shares used in computing net income (loss) per share, basic  70,548  70,548  58,674  67,468  67,468  52,466
Weighted average number of shares used in computing net income (loss) per share, diluted  70,548  70,548  58,674  74,878  74,878  52,466
             

The year ended December 31, 2018 has been reported under ASC 606, and the year ended December 31, 2017 has been reported under ASC 605 and has not been adjusted under the modified retrospective approach.

     
*Amounts include stock-based compensation expense as follows (in thousands):    
         
  (Unaudited)
  Three Months Ended
December 31,		 Twelve Months Ended
December 31,
  2018 2017 2018 2017
Cost of revenue – software $ 7 $ 8 $ 31 $ 350
Research and development  410  2,045  740  12,540
Sales and marketing  595  1,533  910  7,693
General and administrative  1,114  4,393  1,658  26,698
Total stock-based compensation expense $ 2,126 $ 7,979 $ 3,339 $ 47,281


 
Altair Engineering Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
     
  Twelve Months Ended
December 31,
(In thousands) 2018 2017
OPERATING ACTIVITIES:    
Net income (loss) $ 13,715 $ (99,407)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
Depreciation and amortization  14,734  11,747
Provision for bad debt  394  610
Stock-based compensation expense  3,339  47,281
Gain on sale of assets held for sale and other  (4,503)  (244)
Impairment of intangible assets  608   —
Deferred income taxes  763  52,571
Other, net  (183)   542
Changes in assets and liabilities:    
Accounts receivable  (1,394)  (10,397)
Prepaid expenses and other current assets  204  1,559
Other long-term assets  (1,660)  (11,288)
Accounts payable  1,647  (1,087)
Accrued compensation and benefits  5,678  2,060
Other accrued expenses and current liabilities  (6,667)  6,207
Deferred revenue  9,555  15,937
Net cash provided by operating activities   36,230  16,091
INVESTING ACTIVITIES:    
Payments for acquisition of businesses, net of cash acquired  (203,438)  (15,582)
Capital expenditures  (6,659)  (7,522)
Proceeds from sale of assets held for sale and other  6,614  446
Payments for acquisition of developed technology  (2,727)   (2,120)
Other investing activities, net   —  (73)
Net cash used in investing activities   (206,210)   (24,851)
FINANCING ACTIVITIES:    
Proceeds from issuance of Class A common stock in follow-on public offering,
  net of underwriters' discounts and commissions		  135,572   —
Borrowings under revolving commitment  37,041  126,832
Payments on revolving commitment  (6,091)   (154,187)
Proceeds form issuance of common stock  2,077  1,792
Payments for follow-on public offering and IPO offering costs  (556)  (4,644)
Principal payments on long-term debt   (126)  (59,869)
Payments for redemption of common stock   (119)  (1,045)
Proceeds from issuance of Class A common stock in initial public
  offering, net of underwriters' commissions		   —  119,268
Proceeds from issuance of debt   —  1,541
Other financing activities   (268)   (130)
Net cash provided by financing activities   167,530  29,558
Effect of exchange rate changes on cash, cash equivalents and restricted cash   (1,443)  1,641
Net increase (decrease) in cash, cash equivalents and restricted cash   (3,893)  22,439
Cash, cash equivalents and restricted cash at beginning of year  39,578  17,139
Cash, cash equivalents and restricted cash at end of period $ 35,685 $ 39,578
Supplemental disclosure of cash flow:    
Interest paid $ 223 $ 2,092
Income taxes paid $ 6,735 $ 5,893
Supplemental disclosure of non-cash investing and financing activities:    
Issuance of common stock in connection with acquisitions $ 8,681 $ 8,712
Promissory notes issued and deferred payment obligations for acquisitions $ 1,729 $ 12,352
Capital leases $ 895 $ 124
Property and equipment in accounts payable $ 330 $ 582
Issuance of common stock with put rights  $- $ 2,352
Initial public offering costs in other long-term assets  $- $ 186
     


The following table presents the effect of the adoption of ASC 606 on the consolidated statement of operations (in thousands):
 
 
             
  Three Months Ended
December 31,		 Twelve Months Ended
December 31,
(in thousands, except per share data) As Reported 606 Adjustments for ASC 606 ASC 605 As Reported 606 Adjustments for ASC 606 ASC 605
Revenue            
Software $ 79,903 $ 883 $ 80,786 $ 304,361 $ (11,317) $ 293,044
Total software  89,976  883  90,859  341,306  (11,317)  329,989
Total revenue  103,011  883  103,894  396,379  (11,317)  385,062
Gross profit  72,740  883  73,623  280,406  (11,317)  269,089
Operating expenses:            
Sales and marketing*  22,427  (249)  22,178  80,277  336  80,613
Total operating expenses  76,297  (249)  76,048  255,762  336  256,098
Operating income (loss)  (3,557)  1,132  (2,425)  24,644  (11,653)  12,991
Income (loss) before income taxes  (3,131)  1,132  (1,999)  27,024  (11,653)  15,371
Income tax expense  7,692  151  7,843  13,309  (837)  12,472
Net income (loss) $ (10,823) $ 981 $ (9,842) $ 13,715 $ (10,816) $ 2,899
Income (loss) per share:            
Net income (loss) per share attributable to common stockholders, basic  (0.15)  0.01  (0.14)  0.20  (0.16)  0.04
Net income (loss) per share attributable to common stockholders, diluted  (0.15)  0.01  (0.14)  0.18  (0.14)  0.04


The following table provides a reconciliation of Non-GAAP net income and Non-GAAP diluted income per share to net income (loss) and income (loss) per share - diluted, the most comparable GAAP financial measures (in thousands, except per share amounts):
               
    (Unaudited)
    Three Months Ended
December 31,		 Twelve Months Ended
December 31,
    2018 606 2018 605 2017 605 2018 606 2018 605 2017 605
Net income (loss) $ (10,823) $ (9,842) $ (60,347) $ 13,715 $ 2,899 $ (99,407)
Stock-based compensation expense  2,126  2,126  7,979  3,339  3,339  47,281
Amortization of intangible assets  2,076  2,076  2,161  7,739  7,739  5,448
Non-recurring adjustments  10,627  10,627  47,429  6,837  6,837  47,429
Income tax effect of non-GAAP adjustments*  -  -  15,366  -  -  15,366
  Non-GAAP net income $ 4,006 $ 4,987 $ 12,588 $ 31,630 $ 20,814 $ 16,117
               
               
Income (loss) per share - diluted $ (0.15) $ (0.14) $ (1.03) $ 0.18 $ 0.04 $ (1.89)
Non-GAAP income per share - diluted $ 0.05 $ 0.06 $ 0.18 $ 0.41 $ 0.27 $ 0.26
               
               
GAAP diluted shares outstanding:            
 Weighted average number of shares used in computing net income (loss) per share, diluted  70,548  70,548  58,674  74,878  74,878  52,466
               
Non-GAAP diluted shares outstanding:            
 Number of shares used in computing net income per share, diluted  77,700  77,700  68,156  77,700  77,700  62,632
               
*The income tax effect of non-GAAP adjustments for 2018 is affected by the U.S. valuation allowance. 


The following table provides a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure (in thousands):
              
   (Unaudited)
   Three Months Ended
December 31,		 Twelve Months Ended
December 31,
   2018 606 2018 605 2017 605 2018 606 2018 605 2017 605
Net income (loss) $ (10,823) $ (9,842) $ (60,347) $ 13,715 $ 2,899 $ (99,407)
Income tax expense  7,692  7,843  56,643  13,309  12,472  62,996
Stock-based compensation expense  2,126  2,126  7,979  3,339  3,339  47,281
Interest expense  108  108  367  200  200  2,160
Interest income and other(1)  9,986  9,986  (76)  4,882  4,882  (2,260)
Depreciation and amortization  3,839  3,839  3,852  14,734  14,734  11,747
Adjusted EBITDA $ 12,928 $ 14,060 $ 8,418 $ 50,180 $ 38,527 $ 22,517
              
(1)Includes for the year ended December 31, 2018 a) nonrecurring costs from the acquisition of Datawatch of $10.4 million, b) gain on the sale of a building of $4.4 million, c) impairment charges for royalty contracts and trade names resulting in $2.8 million of expense. Includes for the years ended December 31, 2018 and 2017, a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income in each year.
 
 
              


The following table provides a reconciliation of Free Cash Flow to net cash provided by operating activities, the most comparable GAAP financial measure (in thousands):
         
  (Unaudited)
  Three Months Ended
December 31,		 Twelve Months Ended
December 31,
  2018 2017 2018 2017
Net cash (used in) provided by operating activities$ (4,192) $ (1,364) $ 36,230 $ 16,091
Capital expenditures  (1,326)  (3,155)  (6,659)  (7,522)
Free cash flow $ (5,518) $ (4,519) $ 29,571 $ 8,569
         

 

 
The following table provides a reconciliation of Non-GAAP Total Revenue to Total Revenue, the most comparable GAAP financial measure (in millions):
  (Unaudited)
  Three months ending Year ending
  March 31, 2019 December 31, 2019
  low high low high
Total Revenue (GAAP)$ 123.0 $ 125.0 $ 470.0 $ 474.0
Software licenses deferred revenue fair value adjustment (1) 2.2  2.2  9.0  9.0
Non-GAAP Total Revenue$ 125.2 $ 127.2 $ 479.0 $ 483.0
(1) Adjustment for revenue impact of the Datawatch deferred revenue purchase accounting haircut required by U.S. GAAP    
         
         
The following table provides a reconciliation of Non-GAAP Software Product Revenue to Total Software Product Revenue, the most comparable GAAP financial measure (in millions):
         
  (Unaudited)
  Three months ending Year ending
  March 31, 2019 December 31, 2019
  low high low high
Total Software Product Revenue (GAAP)$ 99.0 $ 101.0 $ 373.0 $ 377.0
Software licenses deferred revenue fair value adjustment (1) 2.2  2.2  9.0  9.0
Non-GAAP Total Software Product Revenue$ 101.2 $ 103.2 $ 382.0 $ 386.0
(1) Adjustment for revenue impact of the Datawatch deferred revenue purchase accounting haircut required by U.S. GAAP    
         
         
The following table provides a reconciliation of projected net income to projected Non-GAAP net income, the most comparable GAAP financial measure (in thousands):
         
  (Unaudited)
  Three months ending Year ending
  March 31, 2019 December 31, 2019
  low high low high
Net income$ 10,500 $ 12,500 $ 18,000 $ 22,000
Stock-based compensation expense 1,500  1,500  7,000  7,000
Amortization of intangible assets 3,800  3,800  15,200  15,200
 Non-GAAP net income$ 15,800 $ 17,800 $ 40,200 $ 44,200
         
         
The following table provides a reconciliation of projected Adjusted EBITDA to projected net income, the most comparable GAAP financial measure (in thousands):
         
  (Unaudited)
  Three months ending Year ending
  March 31, 2019 December 31, 2019
  low high low high
Net income$ 10,500 $ 12,500 $ 18,000 $ 22,000
Income tax expense 2,500  2,500  3,900  3,900
Stock-based compensation expense 1,500  1,500  7,000  7,000
Interest expense -  -  -  -
Depreciation and amortization 5,600  5,600  22,200  22,200
Interest income and other non-recurring adjustments 700  700  900  900
Software licenses deferred revenue fair value adjustment (1) 2,200  2,200  9,000  9,000
 Adjusted EBITDA$ 23,000 $ 25,000 $ 61,000 $ 65,000
(1) Adjustment for revenue impact of the Datawatch deferred revenue purchase accounting haircut required by U.S. GAAP    
         



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