Fourth Quarter Software Product Revenue Increased 11% Year-over-Year

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 2018					Full Year 2018
Software Product Revenue	$	64.5	to	$	65.0	$	269.0	to	$	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