altr-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-38263

 

ALTAIR ENGINEERING INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

38-2591828

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

1820 East Big Beaver Road, Troy, Michigan

 

48083

(Address of principal executive offices)

 

(Zip Code)

(248) 614-2400

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Class A Common Stock $0.0001 par value per share

ALTR

The NASDAQ Stock Market

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

On April 22, 2019 there were 39,011,887 shares of the registrant’s Class A common stock outstanding and 32,088,924 shares of the registrant’s Class B common stock outstanding.

 

  

 

 


ALTAIR ENGINEERING INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2019

INDEX

 

 

 

 

 

 

 

 

Page

 

 

 

 

 

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Financial Statements – Unaudited

 

3

 

 

 

 

 

 

 

 

 

 

 

a)

 

Consolidated Balance Sheets

 

3

 

 

 

 

 

 

 

 

 

 

 

b)

 

Consolidated Statements of Operations

 

4

 

 

 

 

 

 

 

 

 

 

 

c)

 

Consolidated Statements of Comprehensive Income

 

5

 

 

 

 

 

 

 

 

 

 

 

d)

 

Consolidated Statements of Changes in Stockholders’ Equity

 

6

 

 

 

 

 

 

 

 

 

 

 

e)

 

Consolidated Statements of Cash Flows

 

7

 

 

 

 

 

 

 

 

 

 

 

f)

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

26

 

 

 

 

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

38

 

 

 

 

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

39

 

 

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

40

 

 

 

 

 

 

 

 

 

Item 1A.

 

Risk Factors

 

40

 

 

 

 

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

40

 

 

 

 

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

40

 

 

 

 

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

40

 

 

 

 

 

 

 

 

 

Item 5.

 

Other Information

 

40

 

 

 

 

 

 

 

 

 

Item 6.

 

Exhibits

 

41

 

 

 

 

 

 

 

 

SIGNATURES

 

 

 

 

 

42

 

 

 

 


 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

 

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31, 2019

 

 

December 31, 2018

 

(In thousands)

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

39,771

 

 

$

35,345

 

Accounts receivable, net

 

 

88,358

 

 

 

96,803

 

Inventory, net

 

 

3,389

 

 

 

1,964

 

Income tax receivable

 

 

8,137

 

 

 

4,431

 

Prepaid expenses and other current assets

 

 

15,976

 

 

 

15,491

 

Total current assets

 

 

155,631

 

 

 

154,034

 

Property and equipment, net

 

 

33,524

 

 

 

30,153

 

Operating lease right of use assets

 

 

29,892

 

 

 

 

Goodwill

 

 

210,714

 

 

 

210,532

 

Other intangible assets, net

 

 

68,469

 

 

 

69,836

 

Deferred tax assets

 

 

1,978

 

 

 

1,373

 

Other long-term assets

 

 

18,658

 

 

 

17,288

 

TOTAL ASSETS

 

$

518,866

 

 

$

483,216

 

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

453

 

 

$

331

 

Accounts payable

 

 

6,569

 

 

 

8,357

 

Accrued compensation and benefits

 

 

28,643

 

 

 

31,740

 

Current portion of operating lease liabilities

 

 

9,464

 

 

 

 

Other accrued expenses and current liabilities

 

 

31,910

 

 

 

27,565

 

Deferred revenue

 

 

66,030

 

 

 

59,765

 

Total current liabilities

 

 

143,069

 

 

 

127,758

 

Long-term debt, net of current portion

 

 

15,686

 

 

 

31,417

 

Operating lease liabilities, net of current portion

 

 

21,744

 

 

 

 

Deferred revenue, non-current

 

 

6,511

 

 

 

6,754

 

Other long-term liabilities

 

 

27,811

 

 

 

28,153

 

TOTAL LIABILITIES

 

 

214,821

 

 

 

194,082

 

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 38,760

   and 38,349 shares as of March 31, 2019 and December 31, 2018, respectively

 

 

4

 

 

 

4

 

Class B common stock, authorized 41,203 shares, issued and outstanding 32,171

   and 32,171 shares as of March 31, 2019 and December 31, 2018, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

381,159

 

 

 

379,832

 

Accumulated deficit

 

 

(68,986

)

 

 

(82,005

)

Accumulated other comprehensive loss

 

 

(10,487

)

 

 

(11,052

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

301,693

 

 

 

286,782

 

TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

 

$

518,866

 

 

$

483,216

 

 

See accompanying notes to consolidated financial statements.

 

 

 

3


 

 

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands, except per share data)

 

2019

 

 

2018

 

Revenue

 

 

 

 

 

 

 

 

License

 

$

76,621

 

 

$

66,935

 

Maintenance and other services

 

 

26,670

 

 

 

22,734

 

Total software

 

 

103,291

 

 

 

89,669

 

Software related services

 

 

9,772

 

 

 

9,473

 

Total software and related services

 

 

113,063

 

 

 

99,142

 

Client engineering services

 

 

12,050

 

 

 

12,080

 

Other

 

 

2,746

 

 

 

2,035

 

Total revenue

 

 

127,859

 

 

 

113,257

 

Cost of revenue

 

 

 

 

 

 

 

 

License

 

 

5,821

 

 

 

3,730

 

Maintenance and other services

 

 

8,531

 

 

 

7,192

 

Total software

 

 

14,352

 

 

 

10,922

 

Software related services

 

 

6,518

 

 

 

6,709

 

Total software and related services

 

 

20,870

 

 

 

17,631

 

Client engineering services

 

 

9,800

 

 

 

10,200

 

Other

 

 

2,215

 

 

 

1,211

 

Total cost of revenue

 

 

32,885

 

 

 

29,042

 

Gross profit

 

 

94,974

 

 

 

84,215

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

27,516

 

 

 

22,703

 

Sales and marketing

 

 

26,451

 

 

 

18,627

 

General and administrative

 

 

20,329

 

 

 

16,990

 

Amortization of intangible assets

 

 

3,528

 

 

 

1,940

 

Other operating income

 

 

(617

)

 

 

(2,191

)

Total operating expenses

 

 

77,207

 

 

 

58,069

 

Operating income

 

 

17,767

 

 

 

26,146

 

Interest expense

 

 

270

 

 

 

16

 

Other expense (income), net

 

 

390

 

 

 

(900

)

Income before income taxes

 

 

17,107

 

 

 

27,030

 

Income tax expense

 

 

4,088

 

 

 

2,346

 

Net income

 

$

13,019

 

 

$

24,684

 

Income per share:

 

 

 

 

 

 

 

 

Net income per share attributable to common

  stockholders, basic

 

$

0.18

 

 

$

0.39

 

Net income per share attributable to common

  stockholders, diluted

 

$

0.17

 

 

$

0.34

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

Weighted average number of shares used in computing

  net income per share, basic

 

 

70,786

 

 

 

63,638

 

Weighted average number of shares used in computing

  net income per share, diluted

 

 

76,720

 

 

 

72,390

 

 

See accompanying notes to consolidated financial statements.

 

 

4


 

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2019

 

 

2018

 

Net income

 

$

13,019

 

 

$

24,684

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Foreign currency translation (net of tax effect of $0 and $0, respectively)

 

 

337

 

 

 

1,255

 

Retirement related benefit plans (net of tax effect of $0 and $10, respectively)

 

 

228

 

 

 

(12

)

Total other comprehensive income

 

 

565

 

 

 

1,243

 

Comprehensive income

 

$

13,584

 

 

$

25,927

 

 

See accompanying notes to consolidated financial statements.

 

 

 

5


 

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common stock

 

 

Additional

 

 

 

 

 

 

other

 

 

Total

 

 

 

Class A

 

 

Class B

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

stockholders’

 

(in thousands)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

loss

 

 

equity

 

Balance at January 1, 2019

 

 

38,349

 

 

$

4

 

 

 

32,171

 

 

$

3

 

 

$

379,832

 

 

$

(82,005

)

 

$

(11,052

)

 

$

286,782

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,019

 

 

 

 

 

 

13,019

 

Exercise of stock options

 

 

397

 

 

 

 

 

 

 

 

 

 

 

 

458

 

 

 

 

 

 

 

 

 

458

 

Vesting of restricted stock

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

869

 

 

 

 

 

 

 

 

 

869

 

Foreign currency translation, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

337

 

 

 

337

 

Retirement related benefit plans, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

228

 

 

 

228

 

Balance at March 31, 2019

 

 

38,760

 

 

$

4

 

 

 

32,171

 

 

$

3

 

 

$

381,159

 

 

$

(68,986

)

 

$

(10,487

)

 

$

301,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Common stock

 

 

Additional

 

 

 

 

 

 

other

 

 

Total

 

 

 

Class A

 

 

Class B

 

 

paid-in

 

 

Accumulated

 

 

comprehensive

 

 

stockholders’

 

(in thousands)

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

loss

 

 

equity

 

Balance at January 1, 2018

 

 

26,725

 

 

$

2

 

 

 

36,508

 

 

$

4

 

 

$

232,156

 

 

$

(166,499

)

 

$

(5,072

)

 

$

60,591

 

Cumulative effect of an accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

70,779

 

 

 

 

 

 

70,779

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,684

 

 

 

 

 

 

24,684

 

Adjustment for acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(96

)

 

 

 

 

 

 

 

 

(96

)

Exercise of stock options

 

 

632

 

 

 

1

 

 

 

 

 

 

 

 

 

300

 

 

 

 

 

 

 

 

 

301

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

216

 

 

 

 

 

 

 

 

 

216

 

Foreign currency translation, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,255

 

 

 

1,255

 

Retirement related benefit plans, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12

)

 

 

(12

)

Balance at March 31, 2018

 

 

27,357

 

 

 

3

 

 

 

36,508

 

 

 

4

 

 

 

232,576

 

 

 

(71,036

)

 

 

(3,829

)

 

 

157,718

 

 

 

See accompanying notes to consolidated financial statements.

 

 

6


 

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Three Months Ended March 31,

 

(In thousands)

 

2019

 

 

2018

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

13,019

 

 

$

24,684

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

5,194

 

 

 

3,543

 

Provision for bad debt

 

 

120

 

 

 

65

 

Stock-based compensation expense

 

 

1,212

 

 

 

216

 

Deferred income taxes

 

 

(654

)

 

 

271

 

Other, net

 

 

4

 

 

 

(7

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

7,678

 

 

 

4,492

 

Prepaid expenses and other current assets

 

 

(5,755

)

 

 

(1,091

)

Other long-term assets

 

 

(1,516

)

 

 

116

 

Accounts payable

 

 

(1,792

)

 

 

510

 

Accrued compensation and benefits

 

 

(2,815

)

 

 

(1,560

)

Other accrued expenses and current liabilities

 

 

4,093

 

 

 

(3,545

)

Operating lease right-of-use assets and liabilities, net

 

 

286

 

 

 

 

Deferred revenue

 

 

6,241

 

 

 

(1,005

)

Net cash provided by operating activities

 

 

25,315

 

 

 

26,689

 

INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4,583

)

 

 

(1,684

)

Payments for acquisition of developed technology

 

 

(344

)

 

 

(353

)

Payments for acquisition of businesses, net of cash acquired

 

 

 

 

 

(1,199

)

Other investing activities, net

 

 

2

 

 

 

23

 

Net cash used in investing activities

 

 

(4,925

)

 

 

(3,213

)

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments on revolving commitment

 

 

(68,395

)

 

 

 

Borrowings under revolving commitment

 

 

52,289

 

 

 

 

Proceeds from the exercise of stock options

 

 

458

 

 

 

302

 

Payments for initial public offering costs

 

 

 

 

 

(186

)

Other financing activities

 

 

(119

)

 

 

(111

)

Net cash (used in) provided by financing activities

 

 

(15,767

)

 

 

5

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(176

)

 

 

495

 

Net increase in cash, cash equivalents and restricted cash

 

 

4,447

 

 

 

23,976

 

Cash, cash equivalents and restricted cash at beginning of year

 

 

35,685

 

 

 

39,578

 

Cash, cash equivalents and restricted cash at end of period

 

$

40,132

 

 

$

63,554

 

Supplemental disclosure of cash flow:

 

 

 

 

 

 

 

 

Interest paid

 

$

225

 

 

$

10

 

Income taxes paid

 

$

2,327

 

 

$

2,143

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Finance leases

 

$

488

 

 

$

565

 

Property and equipment in accounts payable

 

$

295

 

 

$

736

 

 

See accompanying notes to consolidated financial statements.

 


7


 

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.

Organization and description of business

Altair Engineering Inc. (“Altair” or the “Company”) is incorporated in the state of Delaware. The Company is a global technology company providing software and cloud solutions in the areas of product design and development, high performance computing and data intelligence. Altair enables organization across broad industry segments to complete more effectively in a connected world while creating a more sustainable future. The Company is headquartered in Troy, Michigan.

 

2.

Accounting policies

Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information.   Accordingly, the accompanying statements do not include all the information and notes required by GAAP for complete financial statements.  The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements (and notes thereto) for the year ended December 31, 2018, included in the most recent Annual Report on Form 10-K filed with the SEC.  In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting periods.  Considerable judgment is often involved in making these determinations; use of different assumptions could result in significantly different results.  Management believes its assumptions and estimates are reasonable and appropriate.  However, actual results may differ from those estimates.  In addition, the results of operations for the three months ended March 31, 2019, are not necessarily indicative of the results that may be expected for any future period.  

The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), and its related amendments, on January 1, 2019. See Note 3 – Recent accounting guidance and Note 9 – Leases for additional information. There have been no other material changes to Altair’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.  

Adoption of ASC 606, Revenue from Contracts with Customers

In the fourth quarter of fiscal 2018, the Company adopted ASC 606 effective on January 1, 2018, using the modified retrospective approach for all contracts not completed as of the date of adoption. Results for the three months ended March 31, 2018, have been modified to reflect the adoption of ASC 606 on January 1, 2018.

The Company recorded a decrease to accumulated deficit of $84.6 million, or $70.8 million net of tax, on January 1, 2018, due to the cumulative effect of the ASC 606 adoption, with the impact primarily derived from revenue related to software licenses recognized at a point in time under ASC 606 that were historically recognized over time. There was no impact on Client Engineering Services or Other revenue upon the adoption of ASC 606.

The Company has concluded that all material transactions that have occurred that require disclosure or adjustments to the consolidated financial statements have been reported herein.  

 


8


 

Reclassifications

Certain prior period amounts included in the 2018 consolidated statement of operations has been reclassified to conform to the current year presentation.

Use of estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its significant estimates including the stand alone selling price, or SSP, for each distinct performance obligation included in customer contracts with multiple performance obligations, the incremental borrowing rate used in the valuation of lease liabilities, the determination of the period of benefit for capitalized costs to obtain a contract, provision for doubtful accounts, tax valuation allowances, liabilities for uncertain tax provisions, impairment of goodwill and intangible assets, retirement obligations, useful lives of intangible assets, revenue for fixed price contracts, valuation of common stock, and stock-based compensation. Actual results could differ from those estimates.

Cash, cash equivalents and restricted cash

The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value.

Restricted cash is included in other long-term assets on the consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheet that sum to the total of the amounts reported in the consolidated statement of cash flows (in thousands):

 

 

 

March 31, 2019

 

December 31, 2018

 

Cash and cash equivalents

 

$

39,771

 

$

35,345

 

Restricted cash included in other long-term assets

 

 

361

 

 

340

 

Total cash, cash equivalents, and restricted cash shown in the statement of cash flows

 

$

40,132

 

$

35,685

 

 

Restricted cash represents amounts required for a contractual agreement with an insurer for the payment of potential health insurance claims, and term deposits for bank guarantees.

Inventory

Inventory consist of finished goods and is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The valuation of inventory requires management to estimate excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires management to estimate market conditions and future demand for the Company’s products.

Receivable for French R&D credit

The French government provides a research and development (“R&D”) tax credit known as Credit Impôt Recherche, or CIR, in order to encourage Companies to invest in R&D activities.  The tax credit is deductible from French income tax and any excess is carried forward three years.  After three years, any unused credit may be reimbursed to the Company by the French government.  As of March 31, 2019, the Company had approximately $11.1 million receivable from the French government related to CIR, of which $1.4 million was recorded in income tax receivable and the remaining $9.7 million was recorded in other long-term assets. As of December 31, 2018, the Company had approximately $11.7 million receivable from the French government related to CIR, of which $2.6 million was recorded in income tax receivable and the remaining $9.1 million was recorded in other long-term assets. CIR is subject to customary audit by French tax authorities.

Mezzanine equity

In 2017, the Company issued 200,000 shares of Class A common stock to a third party as partial consideration for the purchase of developed technology. These shares have a put right that can be exercised by the holder five years from date of purchase at $12.50 per share that requires the shares to be recorded at fair value at the issuance date and classified as mezzanine equity in the consolidated balance sheet. The put right option is terminated if the shareholders sell their shares. As of December 31, 2017, the

9


 

Company concluded that it is no longer probable that the put option will be exercised as the put value is substantially below market value and subsequent adjustment is not required.

Classification of the of instrument shall remain as mezzanine equity until one of the following three events take place: (1) shares are sold on the open market; (2) a redemption feature lapses; or (3) there is a modification of the terms of the instrument. As none of these events have taken place as of March 31, 2019, the classification remains as mezzanine equity.

Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, current portion of operating lease liabilities, and operating lease liabilities, net of current portion on the Company’s consolidated balance sheets. Finance leases are included in property and equipment, current portion of long-term debt, and long-term debt, net of current portion on the consolidated balance sheets.  

Income per share

Basic income per share attributable to common stockholders is computed using the weighted average number of shares of common stock outstanding for the period, excluding stock options and restricted stock units (“RSUs”). Diluted income per share attributable to common stockholders is based upon the weighted average number of shares of common stock outstanding for the period and potentially dilutive common shares, including the effect of stock options and RSUs under the treasury stock method. The following table sets forth the computation of the numerators and denominators used in the basic and diluted income per share amounts (in thousands, except per share data):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Numerator:

 

 

 

 

 

 

 

 

Net income

 

$

13,019

 

 

$

24,684

 

Denominator:

 

 

 

 

 

 

 

 

Denominator for basic income per share—

weighted average shares

 

 

70,786

 

 

 

63,638

 

Effect of dilutive securities, stock options and RSUs

 

 

5,934

 

 

 

8,752

 

Denominator for dilutive income per share

 

 

76,720

 

 

 

72,390

 

Net income per share attributable to common

  stockholders, basic

 

$

0.18

 

 

$

0.39

 

Net income per share attributable to common

  stockholders, diluted

 

$

0.17

 

 

$

0.34

 

 

The computation of diluted income per share does not include shares that are anti-dilutive under the treasury stock method because their exercise prices are higher than the average fair value of the Company’s stock during the period or due to a net loss in the period. For each of the three months ended March 31, 2019 and 2018, there were no anti-dilutive shares excluded from the computation of income per share.

 

3.

Recent accounting guidance

Accounting standards adopted

Leases —In February 2016, the Financial Accounting Standard Board, or “FASB”, issued Accounting Standards Update, or “ASU”, No. 2016-02, Leases (ASC 842). This standard amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use (ROU) asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. The Company adopted ASU 2016-02 and its related amendments, on January 1, 2019 and elected the optional transition method and the package of practical expedients on adoption. Accordingly, the prior period comparative information has not been restated and continues to be reported under the accounting guidance in effect for those periods (ASC 840), including the disclosure requirements. The most significant impact of the adoption of ASC 842 was the recognition of ROU assets and lease liabilities for operating leases on the Company’s consolidated balance sheet. On adoption, the Company recognized operating liabilities associated with leases of $30.1 million and corresponding ROU assets of $29.1 million, based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. See Note 9 – Leases for further discussion. The Company’s accounting for finance leases (previously referred to as capital leases prior to the adoption of ASC 842) remained substantially unchanged. The standard had no impact on the Company’s consolidated net income or cash flows.

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Derivatives and HedgingIn August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends the guidance with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, this ASU amends the current guidance to simplify the application of the hedge accounting guidance. The Company adopted ASU 2017-12 on January 1, 2019. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

Comprehensive Income – In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act, or the “Tax Act”, related to items in AOCI that the FASB refers to as having been stranded in AOCI. The Company adopted this guidance on January 1, 2019 and elected not to reclassify amounts stranded in AOCI. The Company reclassifies taxes from AOCI to earnings as the items to which the tax effects relate are similarly reclassified. The adoption of ASU 2018-02 did not have a material effect on the Company’s consolidated financial statements.

Stock Compensation – In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The Company adopted this guidance on January 1, 2019, which did not have a material effect on the Company’s consolidated financial statements.

Accounting standards not yet adopted 

Credit Losses – In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The ASU significantly changes how entities will measure credit losses on most financial assets. This guidance is effective for annual periods beginning after 15 December 2019, and interim periods therein; early adoption is permitted. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and related disclosures.

Goodwill Impairment —In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies accounting for goodwill impairments by eliminating step two from the goodwill impairment test. This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The new standard must be applied on a prospective basis. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Fair ValueIn August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements, by removing, modifying, or adding certain disclosures. The amendments are effective for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted for any removed or modified disclosures. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

Retirement BenefitsIn August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits- Defined Benefit Plans – General (Subtopic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU modifies the disclosure requirements for defined benefit pension or other postretirement plans. The amendments are effective for fiscal years ending after December 15, 2020; early adoption is permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

IntangiblesIn August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU clarifies and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years; early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

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4.

Revenue from contracts with customers

Revenue recognition

Software revenue

Revenue is derived principally from the licensing of software products and from related maintenance contracts. The Company enters into contracts that include combinations of products, maintenance and services, which are accounted for as separate performance obligations with differing revenue recognition patterns.

Revenue from term-based software licenses is classified as software revenue. Term-based licenses are sold only as a bundled arrangement that includes the rights to a term software license and post-contract customer support (PCS), which includes unspecified technical enhancements and customer support. Maximizing the use of observable inputs, the Company determined that a majority of the estimated standalone selling prices of the term-based license is attributable to the term license and a minority is attributable to the PCS. The license component is classified as license revenue and recognized as revenue upon the later of delivery of the licensed product or the beginning of the license period. PCS is classified as maintenance and other services and is recognized ratably over the term of the contract, as the Company provides the PCS benefit over time as a stand ready to perform obligation.

In addition to term-based software licenses, the Company sells perpetual licenses. Software revenue is recognized upon the later of delivery of the licensed product or the beginning of the license period. Typically, the Company’s perpetual licenses are sold with PCS. The Company allocates value in bundled perpetual and PCS arrangements based on the value relationship between the software license and maintenance. Revenue from PCS is classified as maintenance and other services and is recognized ratably over the term of the contract, as the Company satisfies the PCS performance obligation over time as a stand ready to perform obligation.

Revenue from training, consulting and other services is recognized as the services are performed, and is classified as maintenance and other services in the consolidated statement of operations. For contracts in which the service consists of a single performance obligation, such as providing a training class to a customer, the Company recognizes revenue upon completion of the performance obligation. For service contracts that are longer in duration and often include multiple performance obligations (for example, point-in-time training and consulting), the Company measures the progress toward completion of the obligations and recognizes revenue accordingly. In measuring progress towards the completion of performance obligations, the Company typically utilizes output-based estimates for services with fixed fee arrangements, and estimates output based on the total tasks completed as compared to the total tasks required for each contract. Input-based estimates are utilized for services that involve general consultations with contractual billing arrangements based on time and materials, utilizing direct labor as the input measure.

The Company also executes arrangements through indirect channel partners in which the channel partners are authorized to market and distribute the Company's software products to end users of the Company's products and services in specified territories. In sales facilitated by channel partners, the channel partner bears the risk of collection from the end-user customer. The Company recognizes revenue from transactions with channel partners when the channel partner submits a purchase commitment, collectability from the channel partner is probable, and the performance obligation is met, at a point in time or over time as appropriate, provided that all other revenue recognition criteria are satisfied. Revenue from channel partner transactions is the amount remitted to the Company by the channel partners. This amount includes a fee for PCS that is compensation for providing technical enhancements and the second level of technical support to the end user, which is recognized over the period that PCS is to be provided. The Company does not offer right of return, product rotation, or price protection to any of its channel partners.

Non-income related taxes collected from customers and remitted to governmental authorities are recorded on the consolidated balance sheet as accounts receivable, net and other accrued expenses and current liabilities. These amounts are reported on a net basis in the consolidated statements of operations and do not impact reported revenues or expenses.

Significant judgments

Software revenue

The Company’s contracts with customers typically include promises to transfer licenses and services to a customer. Judgment is required to determine if the promises are separate performance obligations within the context of the arrangement, and if so, the allocation of the transaction price to each performance obligation. The Company’s determination of standalone selling price for performance obligations is based on the midpoint of the range of historical observable prices for goods and services sold separately. In addition, the Company estimates the standalone selling price for certain performance obligations where observable

12


 

prices are not directly available or a significant portion of historical prices are not within the range. The Company estimates standalone selling price at contract inception considering all information that is reasonably available and is based on the amount of consideration for which the Company expects to be entitled in exchange for transferring the promised good or service to the customer. The corresponding revenues are recognized as the related performance obligations are satisfied.

The Company’s contracts do not include a significant financing component requiring adjustment to the transaction price. Payment terms vary by contract type; however, arrangements typically stipulate a requirement for the customer to pay within 30 days.

The Company rarely enters into agreements to modify previously executed contracts, which constitute contract modifications. The Company assesses each of these contract modifications to determine (i) if the additional products and services are distinct from the products and services in the original arrangement; and (ii) if the amount of consideration expected for the added products and services reflects the stand-alone selling price of those products and services, as adjusted for contract-specific circumstances. A contract modification meeting both criteria is accounted for as a separate contract. A contract modification not meeting both criteria is considered a change to the original contract and is accounted for on either (i) a prospective basis as a termination of the existing contract and the creation of a new contract; or (ii) a cumulative catch-up basis. Generally, the Company’s contract modifications meet both criteria and are accounted for as a separate contract, as adjusted for contract-specific circumstances.

Software related services revenue

Consulting services from product design and development projects are considered distinct performance obligations and are provided to customers on a time-and-materials (“T&M”) or fixed-price basis. Altair recognizes software services revenue for T&M contracts based upon hours worked and contractually agreed-upon hourly rates using the input method. Revenue from fixed-price engagements is recognized using the output method based on the ratio of costs incurred, to the total estimated project costs.

Client engineering services and Other revenue

Client engineering services revenue are derived from professional services for staffing primarily representing engineers and data scientists located at a customer site. These professional services are considered distinct performance obligations and are provided to customers on a T&M basis. The Company recognizes this revenue for T&M contracts based upon hours worked and contractually agreed-upon hourly rates using the input method. No significant judgments were made for revenue recognition within Other revenue.

Disaggregation of revenue

The Company disaggregates its software revenue by type of performance obligation and timing of revenue recognition as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Software revenue:

 

 

 

 

 

 

 

 

Term licenses

 

$

65,057

 

 

$

57,165

 

Perpetual licenses

 

 

11,564

 

 

 

9,770

 

Maintenance

 

 

22,752

 

 

 

20,828

 

Professional services and other

 

 

3,918