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Altair Announces Third Quarter 2019 Financial Results

2019 Third Quarter Software Product Revenue Increased 21% year-over-year

TROY, Mich., Nov. 07, 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 third quarter ended September 30, 2019.

“Software product revenue grew over 21% from a year ago, as we continued to execute on our vision to provide truly differentiated simulation, data analytics and high-performance cloud computing solutions that enable our customers to compete more effectively in a connected world,” said James Scapa, Founder, Chairman and Chief Executive Officer of Altair.  “Our core simulation and optimization technologies performed well during the quarter and we are highly encouraged by strong demand for our SimSolid product, which has had one of the fastest new product ramps in our history. We are also pleased to see continued strong recurring software subscription revenues.  While we are seeing some macro headwinds in our automotive market and continue to be impacted by foreign exchange challenges, our diversification across multiple verticals and products provides us with optimism that our momentum will continue into 2020 and beyond.”

Third Quarter 2019 Financial Highlights


Business Outlook
Based on information available as of today, Altair is issuing revised and reduced guidance for the fourth quarter and full year 2019. 

  (Unaudited)
 
(in millions) Fourth Quarter 2019Full Year 2019 
Software Product Revenue $83.5 to$87.5 $349.0 to$353.0 
Non-GAAP Software Product Revenue $85.8  $89.8 $358.0  $362.0 
Total Revenue $105.0  $109.0 $440.0  $444.0 
Non-GAAP Total Revenue $107.3  $111.3 $449.0  $453.0 
Net (Loss)  $(5.4) $(3.4)$(11.4) $(9.4)
Non-GAAP Net Income $2.2  $4.2 $20.1  $22.1 
Adjusted EBITDA $7.3  $9.3 $34.0  $36.0 
Modified Adjusted EBITDA $9.5  $11.5 $43.0  $45.0 

(All figures in millions)

Conference Call Information

What:Altair’s Third Quarter 2019 Financial Results Conference Call
When:Thursday, November 7, 2019
Time:5:00 p.m. ET
Live Call:(866) 754-5204, Domestic
(636) 812-6621, International
Replay:(855) 859-2056, Conference ID 8382596, Domestic
(404) 537-3406, Conference ID 8382596, International
Webcast: http://investor.altair.com  (live & replay)


Non-GAAP Financial Measures
This press release contains the following non-GAAP financial measures: Non-GAAP Software Product Revenue, Non-GAAP Total Revenue, Adjusted EBITDA, Modified 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.

Non-GAAP software product revenue and Non-GAAP total revenue include revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

Adjusted EBITDA represents net income adjusted for income tax expense, interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairment charges and other special items as identified by management and described elsewhere in this press release.

Modified Adjusted EBITDA represents Adjusted EBITDA adjusted for revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

Non-GAAP net income excludes stock-based compensation, amortization of intangible assets related to acquisitions, revenue not recognized under GAAP due to acquisition accounting and special items as identified by management and described elsewhere in this press release.

Non-GAAP diluted common shares includes total outstanding shares plus outstanding equity awards under the Altair equity award plans.

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, our guidance for the fourth quarter and full year 2019, statements regarding other future periods 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 and Media Relations
Dave Simon
Altair
248-614-2400 ext. 332
ir@altair.com


ALTAIR ENGINERING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

  September 30, 2019  December 31, 2018 
(In thousands) (Unaudited)     
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents $246,937  $35,345 
Accounts receivable, net  84,062   96,803 
Income tax receivable  11,551   4,431 
Prepaid expenses and other current assets  18,398   17,455 
Total current assets  360,948   154,034 
Property and equipment, net  33,720   30,153 
Operating lease right of use assets  26,507    
Goodwill  210,500   210,532 
Other intangible assets, net  60,956   69,836 
Deferred tax assets  5,870   5,354 
Other long-term assets  18,199   17,288 
TOTAL ASSETS $716,700  $487,197 
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY 
CURRENT LIABILITIES:        
Current portion of long-term debt $437  $331 
Accounts payable  8,286   8,357 
Accrued compensation and benefits  28,839   31,740 
Current portion of operating lease liabilities  8,891    
Other accrued expenses and current liabilities  27,426   27,039 
Deferred revenue  69,377   59,765 
Total current liabilities  143,256   127,232 
Long-term debt, net of current portion  175,624   31,417 
Operating lease liabilities, net of current portion  18,831    
Deferred revenue, non-current  7,666   6,754 
Other long-term liabilities  25,630   25,756 
TOTAL LIABILITIES  371,007   191,159 
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 40,354
  and 38,349 shares as of September 30, 2019 and December 31, 2018, respectively
  4   4 
Class B common stock, authorized 41,203 shares, issued and outstanding 31,391
  and 32,171 shares as of September 30, 2019 and December 31, 2018, respectively
  3   3 
Additional paid-in capital  436,197   379,832 
Accumulated deficit  (80,903)  (74,863)
Accumulated other comprehensive loss  (11,960)  (11,290)
TOTAL STOCKHOLDERS’ EQUITY  343,341   293,686 
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY $716,700  $487,197 


ALTAIR ENGINEERING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
(in thousands, except per share data) 2019  2018  2019  2018 
Revenue                
License $46,853  $40,880  $180,127  $154,515 
Maintenance and other services  30,963   23,302   85,388   69,943 
Total software  77,816   64,182   265,515   224,458 
Software related services  7,956   8,692   25,635   26,872 
Total software and related services  85,772   72,874   291,150   251,330 
Client engineering services  12,803   12,155   37,265   36,652 
Other  1,831   1,722   6,623   5,386 
Total revenue  100,406   86,751   335,038   293,368 
Cost of revenue                
License  4,371   2,736   13,146   10,534 
Maintenance and other services  9,548   7,095   27,509   22,202 
Total software *  13,919   9,831   40,655   32,736 
Software related services  6,013   6,352   19,143   19,573 
Total software and related services  19,932   16,183   59,798   52,309 
Client engineering services  10,160   9,817   29,993   29,977 
Other  1,649   1,204   5,858   3,416 
Total cost of revenue  31,741   27,204   95,649   85,702 
Gross profit  68,665   59,547   239,389   207,666 
Operating expenses:                
Research and development *  29,667   24,301   87,012   71,748 
Sales and marketing *  25,790   19,243   78,462   57,849 
General and administrative *  20,706   17,234   60,886   51,636 
Amortization of intangible assets  3,545   1,739   10,673   5,665 
Other operating income  (536)  (4,850)  (1,702)  (7,433)
Total operating expenses  79,172   57,667   235,331   179,465 
Operating (loss) income  (10,507)  1,880   4,058   28,201 
Interest expense  2,726   31   3,586   92 
Other income, net  (588)  (970)  (703)  (2,046)
(Loss) income before income taxes  (12,645)  2,819   1,175   30,155 
Income tax expense  3,294   1,885   7,215   5,617 
Net (loss) income $(15,939) $934  $(6,040) $24,538 
Income per share:                
Net (loss) income per share attributable to common
  stockholders, basic
 $(0.22) $0.01  $(0.08) $0.37 
Net (loss) income per share attributable to common
  stockholders, diluted
 $(0.22) $0.01  $(0.08) $0.33 
Weighted average shares outstanding:                
Weighted average number of shares used in computing
  net (loss) income per share, basic
  71,770   70,001   71,313   66,429 
Weighted average number of shares used in computing
  net (loss) income per share, diluted
  71,770   76,709   71,313   74,182 

_________________
*          Amounts include stock-based compensation expense as follows (in thousands) (unaudited):

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
  2019  2018  2019  2018 
Cost of revenue – software $384  $8  $727  $24 
Research and development  674   175   1,611   330 
Sales and marketing  625   140   1,562   315 
General and administrative  609   240   1,684   544 
Total stock-based compensation expense $2,292  $563  $5,584  $1,213 


ALTAIR ENGINEERING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)

  Nine Months Ended September 30, 
(In thousands) 2019  2018 
OPERATING ACTIVITIES:        
Net (loss) income $(6,040) $24,538 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:        
Depreciation and amortization  15,836   10,895 
Provision for bad debt  472   455 
Amortization of debt discount and issuance costs  3,044   18 
Stock-based compensation expense  5,584   1,213 
Gain on sale of assets held for sale and other     (4,544)
Impairment of intangibles     608 
Deferred income taxes  (741)  706 
Other, net  (16)  (134)
Changes in assets and liabilities:        
Accounts receivable  10,185   15,674 
Prepaid expenses and other current assets  (8,718)  (6,821)
Other long-term assets  (1,443)  44 
Accounts payable  (420)  796 
Accrued compensation and benefits  (2,111)  2,650 
Other accrued expenses and current liabilities  2,110   (4,781)
Operating lease right-of-use assets and liabilities, net  188    
Deferred revenue  12,075   (895)
Net cash provided by operating activities  30,005   40,422 
INVESTING ACTIVITIES:        
Capital expenditures  (8,120)  (5,333)
Payments for acquisition of developed technology  (473)  (2,738)
Payments for acquisition of businesses, net of cash acquired  (709)  (15,950)
Proceeds from the sale of assets held for sale and other     6,613 
Other investing activities, net  16    
Net cash used in investing activities  (9,286)  (17,408)
FINANCING ACTIVITIES:        
Proceeds from issuance of convertible senior notes, net of underwriters'
  discount and commissions
  223,101    
Payments on revolving commitment  (127,941)   
Borrowings under revolving commitment  96,991    
Proceeds from the exercise of stock options  1,441   1,929 
Payments for issuance costs of convertible senior notes  (1,233)   
Payments for follow-on public offering and initial public offering costs     (541)
Proceeds from issuance of Class A common stock in follow-on public offering,
  net of underwriters' discounts and commissions
     135,572 
Other financing activities  (399)  (446)
Net cash provided by financing activities  191,960   136,514 
Effect of exchange rate changes on cash, cash equivalents and restricted cash  (1,065)  (1,354)
Net increase in cash, cash equivalents and restricted cash  211,614   158,174 
Cash, cash equivalents and restricted cash at beginning of year  35,685   39,578 
Cash, cash equivalents and restricted cash at end of period $247,299  $197,752 
Supplemental disclosure of cash flow:        
Interest paid $385  $70 
Income taxes paid $7,163  $5,900 
Supplemental disclosure of non-cash investing and financing activities:        
Finance leases $588  $995 
Property and equipment in accounts payable, other current liabilities
  and other liabilities
 $1,827  $228 
Follow-on public offering costs in accounts payable $  $15 
Promissory notes issued and deferred payment obligations for acquisitions $  $278 

Financial Results

The following table provides a reconciliation of Non-GAAP net (loss) income and Non-GAAP net (loss) income per share - diluted to net (loss) income and net (loss) income per share – diluted, the most comparable GAAP financial measures:

  (Unaudited) 
   Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
(in thousands, except per share amounts) 2019  2018  2019  2018 
Net (loss) income $(15,939) $934  $(6,040) $24,538 
Stock-based compensation expense  2,292   563   5,584   1,213 
Amortization of intangible assets  3,545   1,739   10,673   5,665 
Acquisition related deferred revenue (1)  2,250      6,750    
Special adjustments (2)  1,027   (4,177)  2,031   (4,400)
Income tax effect of non-GAAP adjustments  (368)  (459)  (1,103)  (658)
Non-GAAP net (loss) income $(7,193) $(1,400) $17,895  $26,358 
                 
Net (loss) income per share - diluted $(0.22) $0.01  $(0.08) $0.33 
Non-GAAP net (loss) income per share - diluted $(0.09) $(0.02) $0.23  $0.34 
                 
GAAP diluted shares outstanding:  71,770   76,709   71,313   74,182 
Non-GAAP diluted shares outstanding:  77,800   77,000   77,800   77,000 


(1) Represents revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.
(2)Includes a) nonrecurring severance expenses of $0.4 million and nonrecurring acquisition related costs of $0.6 million, for both the three and nine months ended September 30, 2019, and b) an impairment charge for royalty contracts resulting in $1.0 million of expenses for the nine months ended September 30, 2019.
 Includes a) a gain on the sale of a building of $4.4 million for the three and nine months ended September 30, 2018, b) an impairment charge for royalty contracts resulting in $0.2 million and $2.0 million for the three and nine months ended September 30, 2018, respectively and c) a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the nine months ended September 30, 2018.

The following table provides a reconciliation of Adjusted EBITDA and Modified Adjusted EBITDA to net (loss) income, the most comparable GAAP financial measure:

  (Unaudited) 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
(in thousands) 2019  2018  2019  2018 
Net (loss) income $(15,939) $934  $(6,040) $24,538 
Income tax expense  3,294   1,885   7,215   5,617 
Stock-based compensation expense  2,292   563   5,584   1,213 
Interest expense  2,726   31   3,586   92 
Interest income and other (1)  (76)  (4,384)  633   (5,103)
Depreciation and amortization  5,368   3,370   15,836   10,895 
Adjusted EBITDA  (2,335)  2,399   26,814   37,252 
Acquisition related deferred revenue (2)  2,250      6,750    
Modified Adjusted EBITDA $(85) $2,399  $33,564  $37,252 


(1) Includes a) nonrecurring severance expenses of $0.4 million and nonrecurring acquisition related costs of $0.6 million, for both the three and nine months ended September 30, 2019, and b) impairment charges for royalty contracts resulting in $1.0 million of expense for the nine months ended September 30, 2019. 
 Includes a) a gain on the sale of a building of $4.4 million for the three and nine months ended September 30, 2018, b) impairment charges for royalty contracts and trade names resulting in $0.8 million and $2.6 million of expense for the three and nine months ended September 30, 2018, respectively, and c) a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the nine months ended September 30, 2018.
(2)Represents revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

The following table provides a reconciliation of Non-GAAP total revenue to total revenue, the most comparable GAAP financial measure:

  (Unaudited) 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
(in thousands) 2019  2018  2019  2018 
Total revenue $100,406  $86,751  $335,038  $293,368 
Acquisition related deferred revenue (1)  2,250      6,750    
Non-GAAP total revenue $102,656  $86,751  $341,788  $293,368 


(1) Adjustment for revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

The following table provides a reconciliation of Non-GAAP total software product revenue to total software product revenue, the most comparable GAAP financial measure:

  (Unaudited) 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
(in thousands) 2019  2018  2019  2018 
Total software product revenue $77,816  $64,182  $265,515  $224,458 
Acquisition related deferred revenue(1)  2,250      6,750    
Non-GAAP total software product revenue $80,066  $64,182  $272,265  $224,458 


(1) Adjustment for revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

The following table provides a recompilation of Free Cash Flow to net cash provided by operating activities, the most comparable GAAP financial measure:

  (Unaudited) 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
(in thousands) 2019  2018  2019  2018 
Net cash (used in) provided by operating activities $(1,863) $3,109  $30,005  $40,422 
Capital expenditures  (1,453)  (2,203)  (8,120)  (5,333)
Free cash flow $(3,316) $906  $21,885  $35,089 

Effective January 1, 2018, we adopted Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASC 606). The following table sets forth selected quarterly information under ASC 606 for 2018:

  (Unaudited) 
  Three months ended 
  ASC 606 
(in thousands) March 31,
2018
  June 30,
2018
  September 30,
2018
  December 31,
2018
 
Software product revenue $89,670  $70,606  $64,182  $79,903 
Total revenue  113,257   93,360   86,751   103,011 
Net income (loss)  24,684   (1,080)  934   (9,003)
Adjusted EBITDA  29,550   5,303   2,399   12,928 

Business Outlook

The following table provides a reconciliation of projected Non-GAAP net income to projected net loss, the most comparable GAAP financial measure:

  (Unaudited) 
  Three Months ending
December 31, 2019
  Year Ending
December 31, 2019
 
(in thousands) Low  High  Low  High 
Net loss $(5,350) $(3,350) $(11,400) $(9,400)
Stock-based compensation expense  2,100   2,100   7,700   7,700 
Amortization of intangible assets  3,600   3,600   14,300   14,300 
Acquisition related deferred revenue (1)  2,250   2,250   9,000   9,000 
Non-recurring adjustments        2,000   2,000 
Income tax effect of non-GAAP adjustments  (370)  (370)  (1,500)  (1,500)
Non-GAAP net income $2,230  $4,230  $20,100  $22,100 


(1) Adjustment for revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

The following table provides a reconciliation of projected Adjusted EBITDA and Modified Adjusted EBITDA to projected net loss, the most comparable GAAP financial measure:

  (Unaudited) 
  Three Months ending
December 31, 2019
  Year Ending
December 31, 2019
 
(in thousands) Low  High  Low  High 
Net loss $(5,350) $(3,350) $(11,400) $(9,400)
Income tax expense  3,200   3,200   10,400   10,400 
Stock-based compensation expense  2,100   2,100   7,700   7,700 
Interest expense  2,800   2,800   6,300   6,300 
Depreciation and amortization  5,400   5,400   21,200   21,200 
Interest income and other non-recurring adjustments  (900)  (900)  (200)  (200)
Adjusted EBITDA  7,250   9,250   34,000   36,000 
Acquisition related deferred revenue (1)  2,250   2,250   9,000   9,000 
Modified Adjusted EBITDA $9,500  $11,500  $43,000  $45,000 


(1) Adjustment for revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

The following table provides a reconciliation of projected Non-GAAP total revenue to projected total revenue, the most comparable GAAP financial measure:

  (Unaudited) 
  Three Months ending
December 31, 2019
  Year Ending
December 31, 2019
 
(in thousands) Low  High  Low  High 
Total revenue $105,000  $109,000  $440,000  $444,000 
Acquisition related deferred revenue (1)  2,250   2,250   9,000   9,000 
Non-GAAP total revenue $107,250  $111,250  $449,000  $453,000 


(1) Adjustment for revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

The following table provides a reconciliation of projected Non-GAAP total software product revenue to projected total software product revenue, the most comparable GAAP financial measure:

  (Unaudited) 
  Three Months ending
December 31, 2019
  Year Ending
December 31, 2019
 
(in thousands) Low  High  Low  High 
Total software product revenue $83,500  $87,500  $349,000  $353,000 
Acquisition related deferred revenue (1)  2,250   2,250   9,000   9,000 
Non-GAAP total software product revenue $85,750  $89,750  $358,000  $362,000 


(1) Adjustment for revenue not recognized under GAAP due to acquisition accounting adjustments associated with the accounting for deferred revenue in significant business combinations.

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