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Altair Announces Fourth Quarter and Full Year 2017 Financial Results

TROY, Mich., March 21, 2018 (GLOBE NEWSWIRE) -- Altair Engineering Inc. (NASDAQ:ALTR) today announced its financial results for the fourth quarter and full year ended December 31, 2017.

“Altair delivered strong fourth quarter and full year results highlighted by revenue that exceeded guidance,” said James Scapa, Founder, Chairman and CEO.  “We are also seeing a positive margin impact as a growing portion of revenue comes from higher margin software.”

“We enter 2018 with the strongest product portfolio we’ve ever had, including our recent acquisition of Runtime.  With ongoing investments in R&D, we continue to innovate to increase the value our simulation-driven design, high performance computing, IoT and Analytics solutions can deliver to our customers. Our strong billings growth in Q4, and 2017 as a whole, support our optimism for further growth in 2018, which coupled with continued investments, will help further elevate our leadership position in the multi-billion dollar markets we serve.”

Fourth Quarter 2017 Financial Highlights

  • Software product revenue was $67.9 million, an increase of 11% from $61.1 million for the fourth quarter of 2016.
  • Total revenue was $89.9 million, an increase of 8% compared to $82.8 million for the fourth quarter of 2016.
  • Net loss was $(60.3) million, compared to net income of $5.9 million for the fourth quarter of 2016. The fourth quarter of 2017 included the impact of $8.0 million in non-cash stock-based compensation expenses as well as $56.6 million in tax expenses, substantially due to the recording of a valuation allowance on the U.S. deferred tax assets from the exercise and expected exercise of a significant number of non-qualified stock options, and to a lesser degree as a result of recent tax reform. Diluted net loss per share was $(1.03), based on 58.7 million diluted weighted average common shares outstanding, compared to diluted net income per share of $0.10 for the fourth quarter of 2016, based on 58.8 million diluted weighted average common shares outstanding.
  • Adjusted EBITDA was $8.4 million, compared to $10.6 million for the fourth quarter of 2016. Adjusted EBITDA represents net (loss) 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 determined by management.
  • Non-GAAP net income was $12.6 million, compared to $6.9 million for the fourth quarter of 2016. Non-GAAP net income per share was $0.18, based on 68.2 million diluted weighted average common shares outstanding, compared to $0.12 for the fourth quarter of 2016, based on 58.8 million diluted weighted average common shares outstanding. Non-GAAP net income excludes stock-based compensation, amortization of intangible assets related to acquisitions and certain tax adjustments.
  • Cash flow from operations was an outflow of $(1.4) million, compared to an inflow of $23 thousand for the fourth quarter of 2016.
  • Free cash flow, which consists of cash flow from operations less capital expenditures, was $(4.5) million compared to $(4.7) million for the fourth quarter of 2016.  

Full Year 2017 Financial Highlights

  • Software product revenue was $244.8 million, an increase of 9% from $223.8 million for 2016.
  • Total revenue was $333.3 million, an increase of 6% compared to $313.2 million for 2016.
  • Net loss was $(99.4) million, compared to net income of $10.2 million for 2016.  2017 included the impact of $47.3 million in non-cash stock-based compensation expenses as well as $63.0 million in tax expenses, substantially due to the recording of a valuation allowance on the U.S. deferred tax assets from the exercise and expected exercise of a significant number of non-qualified stock options, and to a lesser degree, as a result of recent tax reform. Diluted net loss per share was $(1.89), based on 52.5 million diluted weighted average common shares outstanding, compared to diluted net income per share of $0.18 for 2016, based on 57.9 million diluted weighted average common shares outstanding.
  • Adjusted EBITDA was $22.5 million, compared to $30.8 million for 2016.
  • Non-GAAP net income was $16.1 million, compared to $18.6 million for 2016. Non-GAAP net income per share was $0.26, based on 62.6 million diluted weighted average common shares outstanding, compared to $0.32 for 2016, based on 57.9 million diluted weighted average common shares outstanding.
  • Cash flow from operations was $16.1 million, compared to $21.4 million for 2016.
  • Free cash flow was $8.6 million compared to $11.9 million for 2016. 

Business Outlook

Based on information available as of today, Altair is issuing forward-looking statements on guidance for the first quarter and full year 2018 as indicated below.

 First Quarter 2018Full Year 2018
Software Product Revenue $64.5to$65.0$269.0to$273.0
Total Revenue $86.5 $87.5$362.0 $366.0
GAAP Net Income $0.0 $0.5$10.0 $12.0
Adjusted EBITDA $3.8 $4.3$32.0 $34.0
Non-GAAP Net Income $1.8 $2.3$18.0 $20.0
           

 (All figures in millions)

 

 
Conference Call Information
   
What: Altair Fourth Quarter and Full Year 2017 Financial Results Conference Call
When: Wednesday, March 21, 2018
Time: 4:30 p.m. ET
Live Call: (866) 754-5204, domestic
  (636) 812-6621, international
Replay: (855) 859-2056, passcode 4684517, domestic
  (404) 537-3406, passcode 4684517, 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 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.

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. 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, potential growth, market positioning and future investments, 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
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 
   
 December 31,
 
 2017
  2016
 
(In thousands)       
ASSETS       
CURRENT ASSETS:       
Cash and cash equivalents$39,213  $16,874 
Accounts receivable, net 86,635   70,498 
Inventory, net 1,980   1,227 
Income tax receivable 6,054   9,069 
Prepaid expenses and other current assets 10,006   7,435 
Total current assets 143,888   105,103 
        
Property and equipment, net 31,446   29,708 
Goodwill 62,706   36,625 
Other intangible assets, net 24,461   11,168 
Deferred tax assets 8,351   62,896 
Other long-term assets 17,019   5,276 
TOTAL ASSETS$287,871  $250,776 
        
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY (DEFICIT)       
CURRENT LIABILITIES:       
Current portion of long-term debt$232  $10,435 
Accounts payable 4,880   5,009 
Accrued compensation and benefits 26,560   22,955 
Obligations for acquisition of businesses 13,925   2,649 
Other accrued expenses and current liabilities 21,744   16,296 
Deferred revenue 130,122   100,661 
 Total current liabilities 197,463   158,005 
        
Long-term debt, net of current portion 178   74,806 
Deferred revenue, non-current 9,640   13,268 
Stock-based compensation awards    22,236 
Other long-term liabilities 17,647   17,114 
TOTAL LIABILITIES 224,928   285,429 
        
Commitments and contingencies       
        
MEZZANINE EQUITY 2,352    
        
STOCKHOLDERS' EQUITY (DEFICIT):       
Preferred stock ($0.0001 par value), authorized 45,000 shares, none issued and
outstanding as of December 31, 2017; none authorized, issued or outstanding as
of December 31, 2016
     
Common stock ($0.0001 par value)       
Class A common stock, authorized 513,797 shares, issued and outstanding
26,725 as of December 31, 2017; authorized 76,000 shares, issued and
outstanding 8,900 as of December 31, 2016
 2   1 
Class B common stock, authorized 41,203 shares, issued and outstanding
36,508 as of December 31, 2017; authorized 44,000 shares, issued and
outstanding 41,204 as of December 31, 2016
 4   4 
Additional paid-in capital 232,156   39,688 
Accumulated deficit (166,499)  (67,092)
Accumulated other comprehensive loss (5,072)  (7,264)
Total Altair Engineering Inc. stockholders' equity (deficit) 60,591   (34,663)
Noncontrolling interest    10 
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 60,591   (34,653)
        
TOTAL LIABILITIES, MEZZANINE EQUITY AND       
STOCKHOLDERS' EQUITY (DEFICIT)$287,871  $250,776 
        
        


Altair Engineering Inc. and subsidiaries
Consolidated statements of operations
 
 Three months ended  Year ended
 December 31, December 31,
 2017 2016 2017 2016
(in thousands, except per share data)(Unaudited)    
Revenue               
Software$67,912  $61,085  $244,817  $223,818 
Software related services 9,648   9,304   35,397   35,770 
Total software 77,560   70,389   280,214   259,588 
Client engineering services 10,439   11,267   46,510   47,702 
Other 1,868   1,192   6,609   5,950 
Total revenue 89,867   82,848   333,333   313,240 
                
Cost of revenue               
Software* 9,561   8,462   36,360   31,962 
Software related services 6,658   7,288   26,888   27,653 
Total software 16,219   15,750   63,248   59,615 
Client engineering services 8,931   9,320   38,131   38,106 
Other 1,467   1,151   5,212   4,879 
Total cost of revenue 26,617   26,221   106,591   102,600 
                
Gross profit 63,250   56,627   226,742   210,640 
Operating expenses:               
Research and development* 24,036   17,912   93,234   71,325 
Sales and marketing* 21,275   17,032   79,958   66,086 
General and administrative* 21,514   13,527   87,979   57,202 
Amortization of intangible assets 2,161   970   5,448   3,322 
Other operating income (2,555)  (790)  (6,620)  (2,742)
Total operating expenses 66,431   48,651   259,999   195,193 
Operating (loss) income (3,181)  7,976   (33,257)  15,447 
                
Interest expense 367   511   2,160   2,265 
Other expense (income), net 156   (16)  994   (520)
(Loss) income before taxes (3,704)  7,481   (36,411)  13,702 
                
Income tax expense 56,643   1,585   62,996   3,539 
Net (loss) income$(60,347) $5,896  $(99,407) $10,163 
(Loss) income per share:               
Net (loss) income per share attributable               
to common stockholders, basic$(1.03) $0.12  $(1.89) $0.21 
Net (loss) income per share attributable               
to common stockholders, diluted$(1.03) $0.10  $(1.89) $0.18 
                
Weighted average shares outstanding:               
Weighted average number of shares               
used in computing net (loss) income               
per share, basic 58,674   49,837   52,466   48,852 

Weighted average number of shares
               
used in computing net (loss) income               
per share, diluted 58,674   58,848   52,466   57,856 
                
                


*Amounts include stock-based compensation expense as follows (in thousands):   
        
 Three months ended Year ended
  December 31,  December 31,
  2017  2016  2017  2016
Cost of revenue – software$8 $7 $350 $22
Research and development 2,045  9  12,540  1,370
Sales and marketing 1,533  12  7,693  775
General and administrative 4,393  54  26,698  2,965
Total stock-based compensation expense$7,979 $82 $47,281 $5,132
        
        


Altair Engineering Inc. and subsidiaries
Consolidated statements of cash flows
 
       
    Year ended
    December 31,
(In thousands)  2017   2016 
OPERATING ACTIVITIES:       
 Net (loss) income$  (99,407) $  10,163 
 Adjustments to reconcile net (loss) income to net cash provided by       
  operating activities:       
  Depreciation and amortization    11,747     9,980 
  Provision for bad debt    610     291 
  Write-down of inventory to net realizable value   270     179 
  Stock-based compensation expense    47,281     5,132 
  Deferred income taxes    52,571     (6,076)
  Other, net    28     86 
 Changes in assets and liabilities:       
  Accounts receivable    (10,397)    (4,397)
  Prepaid expenses and other current assets    1,559     (2,337)
  Other long-term assets    (11,288)    (930)
  Accounts payable    (1,087)    (1,321)
  Accrued compensation and benefits    2,060     2,366 
  Other accrued expenses and current liabilities    6,207     (1,173)
  Deferred revenue    15,937     9,422 
   Net cash provided by operating activities   16,091     21,385 
           
INVESTING ACTIVITIES:       
 Payments for acquisition of businesses    (15,582)    (6,499)
 Capital expenditures   (7,522)    (9,444)
 Payments for acquisition of developed technology   (2,120)    (154)
 Other investing activities, net   373     64 
   Net cash used in investing activities   (24,851)    (16,033)
           
FINANCING ACTIVITIES:       
 Payments on revolving commitment   (154,187)    (136,087)
 Borrowings under revolving commitment   126,832     151,928 
 Proceeds from issuance of Class A common stock in initial public        
  offering, net of underwriting commissions   119,268     —  
 Principal payments on long-term debt   (59,869)    (16,232)
 Payments of IPO offering costs   (4,644)    —  
 Proceeds from issuance of common stock   1,792     456 
 Proceeds from issuance of debt   1,541     2,030 
 Payments for redemption of common stock    (1,045)    (3,049)
 Payment for return of capital    —      (725)
 Other financing activities   (130)    (185)
   Net cash provided by (used in) financing activities   29,558     (1,864)
           
Effect of exchange rate changes on cash, cash equivalents and restricted cash   1,641     (362)
Net increase in cash, cash equivalents and restricted cash   22,439     3,126 
Cash, cash equivalents and restricted cash at beginning of year   17,139     14,013 
           
Cash, cash equivalents and restricted cash at end of period$  39,578  $  17,139 
           
Supplemental disclosure of cash flow:       
 Interest paid$  2,092  $  2,190 
 Income taxes paid$  5,893  $  5,909 
Supplemental disclosure of non-cash investing and financing activities:       
 Promissory notes issued and deferred payment obligations for acquisitions$  12,352  $  4,182 
 Issuance of common stock in connection with acquisitions$  8,712  $  —  
 Issuance of common stock with put rights$  2,352  $  —  
 Property and equipment and developed technology in accounts payable,       
  other accrued expenses and current liabilities, and other liabilities$  582  $  1,777 
 Initial public offering costs in accounts payable$  186  $  —  
 Capital leases$  124  $  129 
 Notes issued for stock redemptions$  —   $  807 


The following table provides a reconciliation of Adjusted EBITDA to net (loss) income, the most comparable GAAP financial measure (in thousands):
         
  Three months ended Year ended
  December 31, December 31,
   2017   2016   2017   2016 
Net (loss) income$(60,347) $5,896  $(99,407) $10,163 
Income tax expense 56,643   1,585   62,996   3,539 
Stock-based compensation expense 7,979   82   47,281   5,132 
Interest expense 367   511   2,160   2,265 
Interest income and other(1) (76)  (168)  (2,260)  (249)
Depreciation and amortization 3,852   2,680   11,747   9,980 
 Adjusted EBITDA$8,418  $10,586  $22,517  $30,830 
         
(1)Includes a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the year ended December 31, 2017.


The following table provides a reconciliation of Non-GAAP net income and Non-GAAP diluted earnings per share to net (loss) income and (loss) earnings per share - diluted, the most comparable GAAP financial measures (in thousands):
          
   (Unaudited)
   Three months ended Year ended
   December 31, December 31,
    2017   2016  2017   2016
Net (loss) income$(60,347) $5,896 $(99,407) $10,163
Stock-based compensation expense 7,979   82  47,281   5,132
Amortization of intangible assets 2,161   970  5,448   3,322
Change in tax valuation allowance 47,429   -  47,429   -
Tax law changes 15,366   -  15,366   -
  Non-GAAP net income$12,588  $6,948 $16,117  $18,617
                
                
(Loss) earnings per share - diluted$(1.03) $0.10 $(1.89) $0.18
Non-GAAP earnings per share - diluted$0.18  $0.12 $0.26  $0.32
                
                
GAAP diluted shares outstanding:             
 Weighted average number of shares              
  used in computing net (loss) income              
  per share, diluted 58,674   58,848  52,466   57,856
                
Non-GAAP diluted shares outstanding:             
 Weighted average number of shares              
  used in computing net income              
  per share, diluted   68,156     58,848    62,632     57,856
                
                


The following table provides a reconciliation of Free Cash Flow to net cash (used in) provided by operating activities, the most comparable GAAP financial measure (in thousands): 
         
  Three months ended Year ended
  December 31, December 31,
   2017   2016   2017   2016 
Net cash (used in) provided by operating activities$(1,364) $23  $16,091  $21,385 
Capital expenditures (3,155)  (4,722)  (7,522)  (9,444)
 Free cash flow$(4,519) $(4,699) $8,569  $11,941 
         
         


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, 2018 December 31, 2018 
  low high low high 
Net income$  - $  500 $  10,000 $  12,000 
Income tax expense   100    100    4,200    4,200 
Stock-based compensation expense   300    300    2,000    2,000 
Interest expense   -    -    -    - 
Interest income and other   -    -    -    - 
Depreciation and amortization   3,400    3,400    13,500    13,500 
Other non-recurring charges(1)   -    -    2,300    2,300 
 Adjusted EBITDA$  3,800 $  4,300 $  32,000 $  34,000 
          
(1) - represents projected accelerated compliance-related costs.     
      
      


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, 2018 December 31, 2018 
   low high low high 
Net income$- $500 $10,000 $12,000 
Stock-based compensation expense 300  300  2,000  2,000 
Amortization of intangible assets 1,500  1,500  6,000  6,000 
  Non-GAAP net income$1,800 $2,300 $18,000 $20,000 
           

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