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Altair Announces Third Quarter 2020 Financial Results

2020 Third Quarter Results Exceed Expectations

TROY, Mich., Nov. 05, 2020 (GLOBE NEWSWIRE) -- Altair (Nasdaq: ALTR), a global technology company providing software and cloud solutions in the areas of simulation, data analytics, and high-performance computing, today released its financial results for the third quarter ended September 30, 2020.

“We are very pleased with our third quarter performance, which exceeded our expectations,” said James Scapa, Founder, Chairman and Chief Executive Officer of Altair. “During the quarter new customer activity remained relatively strong and software renewals continued to come in as expected with several significant expansions, including in the automobile and aerospace sectors. We expanded our capabilities in high performance computing and material modeling with tuck-in acquisitions and the introduction of new internally developed solutions. Our organization continues to do a great job of developing and delivering valuable technology despite macro uncertainties.”

“Software product revenue increased 13% from the third quarter of 2019 to 83% of total revenue, which drove a year over year improvement in gross margins of over 400 basis points, while our recurring license rate rose to 92%,” said Howard Morof, Chief Financial Officer of Altair. “The proactive steps we took to control costs when combined with those impacted by COVID-19, had a positive impact on our operating expenses and profitability.”

Third Quarter 2020 Financial Highlights

  • Software product revenue was $87.8 million compared to $77.8 million for the third quarter of 2019.
  • Total revenue was $106.5 million compared to $100.4 million for the third quarter of 2019.
  • Net loss was $8.5 million compared to net loss of $15.9 million for the third quarter of 2019. Diluted net loss per share was $0.12 based on 73.3 million diluted weighted average common shares outstanding, compared to diluted net loss per share of $0.22 for the third quarter of 2019, based on 71.8 million diluted weighted average common shares outstanding.
  • Adjusted EBITDA was $8.2 million, compared to $(2.3) million for the third quarter of 2019.
  • Non-GAAP net income was $0.4 million, compared to non-GAAP net loss of $9.8 million for the third quarter of 2019. Non-GAAP diluted net income per share was $0.00 based on 80.7 million non-GAAP diluted common shares outstanding, compared to non-GAAP diluted net loss per share of $0.13 for the third quarter of 2019, based on 77.8 million non-GAAP diluted common shares outstanding.
  • Free cash flow was $(7.5) million, compared to $(3.3) million for the third quarter of 2019.

Business Outlook

Based on information available as of today, Altair is issuing guidance for the fourth quarter and full year 2020.

(in millions)Fourth Quarter 2020 Full Year 2020 
Software Product Revenue $95.0 to$99.0  $373.0 to$377.0 
Total Revenue $112.0  $117.0  $448.0  $453.0 
Net Loss $(13.3) $(11.3) $(26.6) $(24.6)
Non-GAAP Net (Loss) Income $(2.1) $(0.1) $8.6  $10.6 
Adjusted EBITDA $5.0  $7.0  $40.0  $42.0 

Conference Call Information

What:Altair’s Third Quarter 2020 Financial Results Conference Call
When:Friday, November 6, 2020
Time:  8:30 a.m. ET
Live Call:(866) 754-5204, Domestic
(636) 812-6621, International   
Replay:(855) 859-2056, Conference ID 1464885, Domestic
(404) 537-3406, Conference ID 1464885, 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 (Loss), Non-GAAP Net Income (Loss) 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.

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.

Non-GAAP net income (loss) excludes stock-based compensation, amortization of intangible assets related to acquisitions, 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 Company’s equity award plans.

Free cash flow consists of cash flow from operations less capital expenditures.

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 simulation, data analytics, and high-performance computing. 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 2020, our statements regarding COVID-19, our statements regarding our digital transformation efforts, 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 our forward-looking statements due to a number of factors, including but not limited to, the 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.

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

Investor Relations
The Blueshirt Group
Monica Gould
212-871-3927
ir@altair.com

Lindsay Savarese
212-331-8417
ir@altair.com


ALTAIR ENGINERING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

 September 30, 2020 December 31, 2019
(In thousands)(Unaudited)   
ASSETS     
CURRENT ASSETS:     
Cash and cash equivalents$245,364 $223,117
Accounts receivable, net 88,514  104,984
Income tax receivable 7,091  7,264
Prepaid expenses and other current assets 18,834  17,092
Total current assets 359,803  352,457
Property and equipment, net 34,401  36,297
Operating lease right of use assets 33,302  28,134
Goodwill 270,651  233,683
Other intangible assets, net 56,741  67,075
Deferred tax assets 5,631  5,791
Other long-term assets 19,174  19,708
TOTAL ASSETS$779,703 $743,145
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:     
Current portion of long-term debt$430 $430
Accounts payable 5,413  8,585
Accrued compensation and benefits 33,932  30,676
Current portion of operating lease liabilities 10,062  9,141
Other accrued expenses and current liabilities 25,606  28,603
Deferred revenue 74,045  75,431
Total current liabilities 149,488  152,866
Long-term debt, net of current portion 215,945  178,238
Operating lease liabilities, net of current portion 24,395  20,174
Deferred revenue, non-current 8,513  8,136
Other long-term liabilities 21,123  26,672
TOTAL LIABILITIES 419,464  386,086
Commitments and contingencies     
MEZZANINE EQUITY 784  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 42,870
and 41,271 shares as of September 30, 2020 and December 31, 2019, respectively
 4  4
Class B common stock, authorized 41,203 shares, issued and outstanding 30,591
and 31,131 shares as of September 30, 2020 and December 31, 2019, respectively
 3  3
Additional paid-in capital 464,803  446,633
Accumulated deficit (95,491  (82,405
Accumulated other comprehensive loss (9,864  (9,528
TOTAL STOCKHOLDERS’ EQUITY 359,455  354,707
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY$779,703 $743,145


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)2020  2019  2020  2019 
Revenue               
License$55,023  $46,853  $183,584  $180,127 
Maintenance and other services 32,787   30,963   94,502   85,388 
Total software 87,810   77,816   278,086   265,515 
Software related services 6,170   7,956   18,548   25,635 
Total software and related services 93,980   85,772   296,634   291,150 
Client engineering services 10,868   12,803   34,386   37,265 
Other 1,608   1,831   5,460   6,623 
Total revenue 106,456   100,406   336,480   335,038 
Cost of revenue               
License 4,477   4,371   12,851   13,146 
Maintenance and other services 9,626   9,548   28,583   27,509 
Total software * 14,103   13,919   41,434   40,655 
Software related services 4,996   6,013   15,141   19,143 
Total software and related services 19,099   19,932   56,575   59,798 
Client engineering services 8,510   10,160   27,617   29,993 
Other 1,427   1,649   4,422   5,858 
Total cost of revenue 29,036   31,741   88,614   95,649 
Gross profit 77,420   68,665   247,866   239,389 
Operating expenses:               
Research and development * 30,678   29,667   91,115   87,012 
Sales and marketing * 26,998   25,790   80,903   78,462 
General and administrative * 20,905   20,706   63,499   60,886 
Amortization of intangible assets 3,858   3,545   11,390   10,673 
Other operating income, net (1,596)  (536)  (3,431)  (1,702)
Total operating expenses 80,843   79,172   243,476   235,331 
Operating (loss) income (3,423)  (10,507)  4,390   4,058 
Interest expense 2,934   2,726   8,590   3,586 
Other income net (782)  (588)  (1,852)  (703)
(Loss) income before income taxes (5,575)  (12,645)  (2,348)  1,175 
Income tax expense 2,930   3,294   10,350   7,215 
Net loss$(8,505) $(15,939) $(12,698) $(6,040)
Loss per share:               
Net loss per share attributable to common
stockholders, basic and diluted
$(0.12) $(0.22) $(0.17) $(0.08)
Weighted average shares outstanding:               
Weighted average number of shares used in computing
net loss per share, basic and diluted
 73,311   71,770   72,979   71,313 


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

    

 (Unaudited)
 Three Months Ended
September 30,
 Nine Months Ended
September 30,
 2020 2019 2020 2019
Cost of revenue – software$684 $384 $1,602 $727
Research and development 2,428  674  5,686  1,611
Sales and marketing 1,949  625  3,949  1,562
General and administrative 1,173  609  2,702  1,684
Total stock-based compensation expense$6,234 $2,292 $13,939 $5,584


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

 Nine Months Ended September 30, 
(In thousands)2020  2019 
OPERATING ACTIVITIES:       
Net loss$(12,698) $(6,040)
Adjustments to reconcile net loss to net cash provided by operating activities:       
Depreciation and amortization 16,916   15,836 
Provision for credit loss 930   472 
Amortization of debt discount and issuance costs 8,067   3,044 
Stock-based compensation expense 13,939   5,584 
Deferred income taxes (5,441)  (741)
Other, net 13   (16)
Changes in assets and liabilities:       
Accounts receivable 16,213   10,185 
Prepaid expenses and other current assets (1,055)  (8,718)
Other long-term assets 867   (1,443)
Accounts payable (3,321)  (420)
Accrued compensation and benefits 1,274   (2,111)
Other accrued expenses and current liabilities (5,847)  2,110 
Operating lease right-of-use assets and liabilities, net (26)  188 
Deferred revenue (2,452)  12,075 
Net cash provided by operating activities 27,379   30,005 
INVESTING ACTIVITIES:       
Payments for acquisition of businesses, net of cash acquired (32,279)  (709)
Capital expenditures (4,006)  (8,120)
Payments for acquisition of developed technology (433)  (473)
Other investing activities, net 152   16 
Net cash used in investing activities (36,566)  (9,286)
FINANCING ACTIVITIES:       
Borrowings under revolving commitment 30,000   96,991 
Proceeds from the exercise of stock options 1,094   1,441 
Proceeds from issuance of convertible senior notes, net of underwriters' discount and commissions    223,101 
Payments on revolving commitment    (127,941)
Payments for issuance costs of convertible senior notes    (1,233)
Other financing activities (401)  (399)
Net cash provided by financing activities 30,693   191,960 
Effect of exchange rate changes on cash, cash equivalents and restricted cash 676   (1,065)
Net increase in cash, cash equivalents and restricted cash 22,182   211,614 
Cash, cash equivalents and restricted cash at beginning of year 223,497   35,685 
Cash, cash equivalents and restricted cash at end of period$245,679  $247,299 
Supplemental disclosure of cash flow:       
Interest paid$320  $385 
Income taxes paid$12,142  $7,163 
Supplemental disclosure of non-cash investing and financing activities:       
Issuance of common stock in connection with acquisitions$1,638  $ 
Finance leases$117  $588 
Property and equipment in accounts payable, other current liabilities and other liabilities$208  $1,827 


Financial Results

The following table provides a reconciliation of Non-GAAP net income (loss) and Non-GAAP net income (loss) per share – diluted, to net loss and net loss 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)2020  2019  2020  2019 
Net loss$(8,505) $(15,939) $(12,698) $(6,040)
Stock-based compensation expense 6,234   2,292   13,939   5,584 
Amortization of intangible assets 3,858   3,545   11,390   10,673 
Special adjustments (1) (950)  1,027   (372)  2,031 
Income tax effect of non-GAAP adjustments (267)  (688)  (929)  (1,103)
Non-GAAP net income (loss)$370  $(9,763) $11,330  $11,145 
                
Net loss per share - diluted$(0.12) $(0.22) $(0.17) $(0.08)
Non-GAAP net income (loss) per share - diluted$  $(0.13) $0.14  $0.14 
                
GAAP diluted shares outstanding: 73,311   71,770   72,979   71,313 
Non-GAAP diluted shares outstanding: 80,700   77,800   80,700   77,800 


 (1) Included in 2020 are a) $1.0 million of proceeds from settlements related to a historical acquisition for both the three and nine months ended September 30, 2020, and b) $0.6 million of severance expense for the nine months ended September 30, 2020.
Included in 2019 are 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 of $1.0 million for the nine months ended September 30, 2019.

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


 (Unaudited) 
 Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
(in thousands)2020  2019  2020  2019 
Net loss$(8,505) $(15,939) $(12,698) $(6,040)
Income tax expense 2,930   3,294   10,350   7,215 
Stock-based compensation expense 6,234   2,292   13,939   5,584 
Interest expense 2,934   2,726   8,590   3,586 
Interest income and other (1) (1,041)  (76)  (1,501)  633 
Depreciation and amortization 5,623   5,368   16,916   15,836 
Adjusted EBITDA$8,175  $(2,335) $35,596  $26,814 


(1)Included in 2020 are a) $1.0 million of proceeds from settlements related to a historical acquisition for both the three and nine months ended September 30, 2020, and b) $0.6 million of severance expense for the nine months ended September 30, 2020.
Included in 2019 are 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 of $1.0 million for the nine months ended September 30, 2019. 

The following table provides a reconciliation 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)2020  2019  2020  2019 
Net cash (used in) provided by operating activities$(6,022) $(1,863) $27,379  $30,005 
Capital expenditures (1,476)  (1,453)  (4,006)  (8,120)
Free cash flow$(7,498) $(3,316) $23,373  $21,885 

Business Outlook

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


 (Unaudited) 
 Three Months Ending
December 31, 2020
  Year Ending
December 31, 2020
 
(in thousands)Low  High  Low  High 
Net loss$(13,300) $(11,300) $(26,600) $(24,600)
Stock-based compensation expense 7,200   7,200   21,100   21,100 
Amortization of intangible assets 4,400   4,400   15,800   15,800 
Special adjustments       (400)  (400)
Income tax effect of non-GAAP adjustments (400)  (400)  (1,300)  (1,300)
Non-GAAP net (loss) income$(2,100) $(100) $8,600  $10,600 

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


 (Unaudited) 
 Three Months Ending
December 31, 2020
  Year Ending
December 31, 2020
 
(in thousands)Low  High  Low  High 
Net loss$(13,300) $(11,300) $(26,600) $(24,600)
Income tax expense 2,200   2,200   12,500   12,500 
Stock-based compensation expense 7,200   7,200   21,100   21,100 
Interest expense 2,900   2,900   11,500   11,500 
Depreciation and amortization 6,100   6,100   23,100   23,100 
Interest income and other non-recurring adjustments (100)  (100)  (1,600)  (1,600)
Adjusted EBITDA$5,000  $7,000  $40,000  $42,000 

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