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Altair Announces Third Quarter 2017 Financial Results

November 30, 2017 at 4:05 PM EST
Software Product Revenue Increased 13% Year-over-Year to Record Level

TROY, Mich., Nov. 30, 2017 (GLOBE NEWSWIRE) -- Altair Engineering Inc. (NASDAQ:ALTR) today announced its financial results for the third quarter ended September 30, 2017.

“We delivered a strong performance in the third quarter with software product revenue increasing 13% from a year ago to $63.2 million and total revenue increasing 9% to $84.9 million,” said James Scapa, Founder, Chairman, and CEO. “Equally important, we continue to shift our revenue mix toward software products where we achieve our highest gross margins, ultimately driving higher operating margins for the overall enterprise.

“During the third quarter we expanded our relationships with existing customers and broadened our reach with enhanced and new technology, including technologies from our acquisition of Runtime on September 28, which expands our market opportunity in the dynamic high-performance computing market. 

“We reached another milestone for the company with the completion of our initial public offering. By further strengthening our balance sheet and providing additional resources to pursue our growth strategy, we believe we are well positioned to capture share and enhance our leadership in simulation-driven design, while further driving new opportunities in high-performance computing, as well as IoT and analytics. We believe this combination positions us to continue executing on our long-term goal of further scaling our software revenue while leveraging our business model to increase profitability in the years ahead.”

Third Quarter 2017 Financial Highlights

  • Software product revenue was $63.2 million, an increase of 13% from $55.8 million for the third quarter of 2016.
  • Total revenue was $84.9 million, an increase of 9% compared to $78.1 million for the third quarter of 2016.
  • Including the impact of $25.3 million in non-cash stock-based compensation expenses in the third quarter of 2017, GAAP net loss was $29.6 million, compared to GAAP net income of $0.3 million for the third quarter of 2016. GAAP net loss per share was $(0.59), based on 50.6 million  basic and diluted weighted average common shares outstanding, compared to $0.01 for the third quarter of 2016, based on 59.3 million diluted weighted average common shares outstanding.
  • Adjusted EBITDA was $7.0 million, compared to $7.3 million for the third quarter of 2016. Adjusted EBITDA represents net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, restructuring charges, asset impairment charges and other special items as determined by management.
  • Cash flow from operations was an outflow of $(8.7) million, compared to an outflow of $(0.6) million for the third quarter of 2016. For the first nine months of 2017, cash flow from operations was $17.5 million, compared to $21.4 million for the same period in 2016. This change in cash flow for the quarter relates to the recognition of tax expense for income generated outside of the U.S. without a corresponding benefit for the losses in the U.S. resulting from stock compensation charges in the quarter.
  • Free cash flow, which consists of cash flow from operations less capital expenditures, was $(10.7) million compared to $(1.7) million for the third quarter of 2016.  For the first nine months of 2017, free cash flow was $11.1 million, compared to $16.7 million for the first nine months of 2016 with the difference reflecting changes in operating cash flow and $2.0 million in cash used to acquire MODELiiS in the second quarter.

 

Business Outlook

Based on information available as of today, Altair is issuing forward-looking statements on guidance for the fourth quarter and full year 2017 as indicated below.

  Fourth Quarter 2017 Full Year 2017
Software Product Revenue  $ 66.5 to $ 67.5 $ 243.4 to $ 244.4
Total Revenue  $ 86.8   $ 88.4 $ 330.3   $ 331.9
Adjusted EBITDA*  $ 7.4   $ 9.0 $ 21.5   $ 23.1
                     
* Adjusted EBITDA includes impact of Runtime acquisition which is expected to reduce Adjusted EBITDA by $1.4 million.

(All figures in millions)                            

Conference Call Information
 
What:      Altair Third Quarter 2017 Financial Results Conference Call
When:   Thursday, November 30, 2017
Time:    5:00 p.m. ET
Live Call:    (866) 754-5204, domestic
    (636) 812-6621, international
Replay:    (855) 859-2056, passcode 8985778, domestic
    (404) 537-3406, passcode 8985778, international

Webcast (live & replay): http://investor.altair.com

Non-GAAP Financial Measures
This press release contains the following non-GAAP financial measures: Adjusted EBITDA and Free Cash Flow. Altair believes that providing a reconciliation of Adjusted EBITDA guidance to the comparable GAAP measure of Net Income would require unreasonable efforts as the Company cannot reasonably estimate income tax expense in the fourth quarter.  Fourth quarter income tax expense will be significantly impacted by the expected valuation allowance and by the year-end results of our global organization.  Altair expects fourth quarter stock-based compensation to be approximately $7.6 million and depreciation and amortization to be $2.8 million to $3.0 million.

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.

Management of the Company 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 focused on the development and broad application of simulation technology to synthesize and optimize designs, processes and decisions for improved business performance. With more than 2,000 employees, Altair is headquartered in Troy, Michigan, USA and operates 69 offices throughout 24 countries. Today, Altair serves approximately 5,000 customers across broad industry segments.

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 financial outlook, market positioning and future investments. 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 prospectus 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
Garo Toomajanian
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
       
  September 30,   December 31,
   2017     2016 
(In thousands)      
ASSETS      
CURRENT ASSETS:      
Cash and cash equivalents $   16,667       $   16,874  
Accounts receivable - net     63,530         70,498  
Inventory - net     1,797         1,227  
Income tax receivable     6,868         9,069  
Prepaid expenses and other current assets     10,492         7,435  
Total current assets     99,354         105,103  
       
Property and equipment - net     29,892         29,708  
Goodwill     68,891         36,625  
Other intangible assets - net     15,379         11,168  
Deferred tax assets     69,135         62,896  
Other long-term assets     18,843         5,276  
TOTAL ASSETS $   301,494     $   250,776  
       
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' DEFICIT      
CURRENT LIABILITIES:      
Current portion of long-term debt $   10,147     $   10,435  
Accounts payable     3,987         5,009  
Accrued compensation and benefits     23,946         22,955  
Other accrued expenses and current liabilities     35,737         18,945  
Deferred revenue     117,969         100,661  
Total current liabilities     191,786         158,005  
       
Long-term debt, net of current portion     81,939         74,806  
Deferred revenue - non-current     12,495         13,268  
Stock-based compensation awards     59,076         22,236  
Other long-term liabilities     16,402         17,114  
TOTAL LIABILITIES     361,698         285,429  
       
Commitments and contingencies      
       
MEZZANINE EQUITY     2,352         —  
       
STOCKHOLDERS' DEFICIT:      
Common stock ($0.0001 par value)      
Class A common stock, authorized 76,000 shares; issued and outstanding 10,096 and 8,900 as of September 30, 2017 and December 31, 2016, respectively     1         1  
Class B common stock, authorized 44,000 shares; issued and outstanding 41,204 and 41,204 as of September 30, 2017 and December 31, 2016, respectively     4         4  
Additional paid-in capital     49,347         39,688  
Accumulated deficit     (106,152 )       (67,092 )
Accumulated other comprehensive loss     (5,756 )       (7,264 )
Total Altair Engineering Inc. stockholders' deficit     (62,556 )       (34,663 )
Noncontrolling interest     -         10  
 TOTAL STOCKHOLDERS' DEFICIT     (62,556 )       (34,653 )
       
TOTAL LIABILITIES, MEZZANINE EQUITY AND      
STOCKHOLDERS' DEFICIT $   301,494     $   250,776  
               

 

 
Altair Engineering Inc. and subsidiaries
Consolidated statements of operations
(Unaudited)
               
  Three months ended   Nine months ended
  September 30,    September 30,
    2017       2016       2017       2016  
(in thousands, except per share data)              
Revenue              
Software $   63,208     $   55,804     $   176,905     $   162,733  
Software related services     8,574         8,676         25,749         26,466  
Total software     71,782         64,480         202,654         189,199  
Client engineering services     11,477         12,146         36,071         36,435  
Other     1,679         1,426         4,741         4,758  
               
Total revenue     84,938         78,052         243,466         230,392  
               
Cost of revenue              
Software*     9,166         8,479         26,799         23,500  
Software related services     6,457         6,527         20,230         20,365  
Total software     15,623         15,006         47,029         43,865  
Client engineering services     9,231         9,579         29,200         28,786  
Other     1,448         1,036         3,745         3,728  
               
Total cost of revenue     26,302         25,621         79,974         76,379  
               
Gross profit     58,636         52,431         163,492         154,013  
Operating expenses:              
Research and development*     27,590         19,401         69,198         53,413  
Sales and marketing*     22,345         16,961         58,683         49,054  
General and administrative*     29,175         15,793         66,465         43,675  
Amortization of intangible assets     1,189         875         3,287         2,352  
Other operating income     (735 )       (823 )       (4,065 )       (1,952 )
               
Total operating expenses     79,564         52,207         193,568         146,542  
               
Operating (loss) income     (20,928 )       224         (30,076 )       7,471  
               
Interest expense     634         507         1,793         1,754  
Other expense (income), net     52         148         838         (504 )
               
(Loss) income before taxes     (21,614 )       (431 )       (32,707 )       6,221  
               
Income tax expense (benefit)     8,012         (745 )       6,353         1,954  
               
Net (loss) income $  (29,626 )   $   314     $   (39,060 )   $   4,267  
               
(Loss) income per share:              
Net (loss) income per share attributable              
to common stockholders, basic $   (0.59 )   $   0.01     $   (0.78 )   $   0.09  
Net (loss) income per share attributable              
to common stockholders, diluted $   (0.59 )   $   0.01     $   (0.78 )   $   0.07  
               
Weighted average shares outstanding:              
Weighted average number of shares              
used in computing net (loss) income              
per share, basic     50,606         49,761         50,374         48,521  
Weighted average number of shares              
used in computing net (loss) income              
per share, diluted     50,606         59,326         50,374         58,086  
                               

 

     
*Amounts include stock-based compensation expense as follows (in thousands):    
               
  Three months ended   Nine months ended
   September 30,    September 30,
    2017     2016     2017     2016
Cost of revenue – software $   326   $   1   $   342   $   15
Research and development     6,711       1,320       10,495       1,361
Sales and marketing     4,045       728       6,160       763
General and administrative     14,183       2,826       22,305       2,911
Total stock-based compensation expense $   25,265   $   4,875   $   39,302   $   5,050

 

 
 
Altair Engineering Inc. and subsidiaries
Consolidated statements of cash flows
(Unaudited)
             
        Nine months ended
        September 30,
(In thousands)   2017       2016  
OPERATING ACTIVITIES:      
  Net (loss) income $   (39,060 )   $   4,267  
  Adjustments to reconcile net (loss) income to net cash provided by      
    operating activities:      
    Depreciation and amortization     7,895         7,300  
    Provision for bad debt     517         354  
    Stock-based compensation expense     39,302         5,050  
    Deferred income taxes     (4,793 )       (2,170 )
    Other, net     149         —  
  Changes in assets and liabilities:      
    Accounts receivable     12,016         11,483  
    Prepaid expenses and other current assets     431         (3,243 )
    Other long-term assets     (11,024 )       (719 )
    Accounts payable     (1,583 )       (871 )
    Accrued compensation and benefits     (211 )       736  
    Other accrued expenses and current liabilities     6,122         (6,102 )
    Deferred revenue     7,694         5,277  
      Net cash provided by operating activities     17,455         21,362  
             
INVESTING ACTIVITIES:      
  Payments for acquisition of businesses     (15,582 )       (6,499 )
  Capital expenditures     (6,367 )       (4,722 )
  Purchase of noncontrolling interests     (29 )       —  
  Other investing activities, net     (100 )       (61 )
      Net cash used in investing activities     (22,078 )       (11,282 )
             
FINANCING ACTIVITIES:      
  Borrowings under revolving commitment     86,270         126,203  
  Payments on revolving commitment     (71,676 )       (117,919 )
  Principal payments on long-term debt     (8,392 )       (13,628 )
  Payments of deferred offering costs     (2,595 )       —  
  Payments for redemption of common stock     (918 )       (1,828 )
  Proceeds from issuance of common stock     476         302  
  Principal payments on capital leases     (31 )       (10 )
  Payment for return of capital     —         (724 )
  Proceeds from issuance of debt     —         2,030  
      Net cash provided by (used in) financing activities     3,134         (5,574 )
             
Effect of exchange rate changes on cash, cash equivalents and restricted cash     1,301         841  
Net (decrease) increase in cash, cash equivalents and restricted cash     (188 )       5,347  
Cash, cash equivalents and restricted cash at beginning of year     17,139         14,013  
             
Cash, cash equivalents and restricted cash at end of period $   16,951     $   19,360  
             
Supplemental disclosure of cash flow:      
  Interest paid $   1,722     $   1,547  
  Income taxes paid $   4,154     $   2,103  
Supplemental disclosure of non-cash investing and financing activities:      
  Promissory notes issued and deferred payment obligations for acquisitions $   12,440     $   4,171  
  Issuance of common stock in connection with acquisitions $   8,712     $   —  
  Issuance of common stock with put rights $   2,352     $   —  
  Deferred offering costs in other long-term assets $   866     $   —  
  Property and equipment in accounts payable, other accrued expenses      
    and current liabilities, and other liabilities $   144     $   1,918  
  Notes issued for stock redemptions $   —     $   577  
                   

 

Altair Engineering Inc. and subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures
 
The following table provides a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure (in thousands):
                 
    Three months ended   Nine months ended
     September 30,    September 30,
      2017       2016       2017       2016  
Net (loss) income $   (29,626 )   $   314     $   (39,060 )   $   4,267  
Income tax expense (benefit)     8,012         (745 )       6,353         1,954  
Stock-based compensation expense     25,265         4,875         39,302         5,050  
Interest expense     634         507         1,793         1,754  
Interest income and other     (53 )       (93 )       (2,184 )       (81 )
Depreciation and amortization     2,811         2,453         7,895         7,300  
  Adjusted EBITDA $   7,043     $   7,311     $   14,099     $   20,244  

 

 
   
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):
                 
    Three months ended   Nine months ended
     September 30,    September 30,
      2017       2016       2017       2016  
Net cash provided by operating activities $  (8,622 )   $   (644 )   $   17,455     $   21,362  
Capital expenditures     (2,032 )       (53 )       (6,367 )       (4,722 )
  Free cash flow $  (10,654 )   $   (697 )   $   11,088     $   16,640  

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Source: Altair Engineering Inc.

 

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