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Altair Announces Second Quarter 2020 Financial Results

2020 Second Quarter Revenue Exceeds Guidance
Increases Full Year 2020 Outlook

TROY, Mich., Aug. 06, 2020 (GLOBE NEWSWIRE) -- Altair (Nasdaq: ALTR), a global technology company that provides software and cloud solutions in the areas of product development, high performance computing (HPC) and data analytics, today released its financial results for the second quarter ended June 30, 2020.

“We are very pleased with our second quarter performance, which exceeded our expectations. I am proud to lead an organization which has remained so dedicated and intensely focused on developing great software and helping customers succeed despite the personal hardships brought on by COVID-19,” said James Scapa, Founder, Chairman and Chief Executive Officer of Altair.

“Our software product revenue increased to 83% of total revenue, which drove a 400 basis point year over year improvement in gross margins, while our recurring license rate rose to an all-time high of 93%,” said Howard Morof, Chief Financial Officer of Altair. “Moreover, the proactive steps we took to control costs in light of COVID-19 had an immediate positive impact on our operating expenses. Our ongoing digital transformation efforts continue, and as we implement robust processes, we believe the positive impact of these significant investments will drive measurable benefits for the business and support our long-term goals.”

Second Quarter 2020 Financial Highlights

  • Software product revenue was $81.8 million compared to $84.4 million for the second quarter of 2019.
  • Total revenue was $98.6 million compared to $106.8 million for the second quarter of 2019.
  • Net loss was $10.2 million compared to net loss of $3.1 million for the second quarter of 2019. Diluted net loss per share was $0.14 based on 73.0 million diluted weighted average common shares outstanding, compared to diluted net loss per share of $0.04 for the second quarter of 2019, based on 71.4 million diluted weighted average common shares outstanding.
  • Adjusted EBITDA was $5.7 million, compared to $5.2 million for the second quarter of 2019. 
  • Non-GAAP net loss was $1.7 million, compared to non-GAAP net income of $3.2 million for the second quarter of 2019. Non-GAAP diluted net loss per share was $0.02 based on 80.7 million non-GAAP diluted common shares outstanding, compared to non-GAAP diluted net income per share of $0.04 for the second quarter of 2019, based on 77.7 million non-GAAP diluted common shares outstanding.
  • Free cash flow was $4.5 million for both the second quarters of 2020 and 2019.

Business Outlook

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

 (in millions) Third Quarter 2020   Full Year 2020  
Software Product Revenue   $ 80.0   to $ 82.0     $ 368.0   to $ 380.0  
Total Revenue   $ 96.0     $ 100.0     $ 443.0     $ 455.0  
Net Loss   $ (20.3 )   $ (18.3 )   $ (36.0 )   $ (31.0 )
Non-GAAP Net (Loss) Income   $ (9.0 )   $ (7.0 )   $ 2.2     $ 7.2  
Adjusted EBITDA   $ (2.0 )   $ 0.0     $ 33.0     $ 38.0  
                                 

Conference Call Information

What:  Altair’s Second Quarter 2020 Financial Results Conference Call
When:  Friday, August 7, 2020
Time:  8:30 a.m. ET
Live Call: (866) 754-5204, Domestic
  (636) 812-6621, International
Replay:  (855) 859-2056, Conference ID 5072406, Domestic
  (404) 537-3406, Conference ID 5072406, 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 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 product development, high performance computing (HPC) and data analytics. 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 third 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
Lindsay Savarese
212-331-8417
ir@altair.com


ALTAIR ENGINERING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

    June 30, 2020     December 31, 2019  
(In thousands)   (Unaudited)          
ASSETS                
CURRENT ASSETS:                
Cash and cash equivalents   $ 250,540     $ 223,117  
Accounts receivable, net     79,185       104,984  
Income tax receivable     5,760       7,264  
Prepaid expenses and other current assets     16,469       17,092  
Total current assets     351,954       352,457  
Property and equipment, net     34,456       36,297  
Operating lease right of use assets     32,598       28,134  
Goodwill     233,486       233,683  
Other intangible assets, net     58,177       67,075  
Deferred tax assets     5,661       5,791  
Other long-term assets     20,514       19,708  
TOTAL ASSETS   $ 736,846     $ 743,145  
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:                
Current portion of long-term debt   $ 456     $ 430  
Accounts payable     4,780       8,585  
Accrued compensation and benefits     30,997       30,676  
Current portion of operating lease liabilities     9,369       9,141  
Other accrued expenses and current liabilities     27,411       28,603  
Deferred revenue     73,061       75,431  
Total current liabilities     146,074       152,866  
Long-term debt, net of current portion     183,409       178,238  
Operating lease liabilities, net of current portion     24,352       20,174  
Deferred revenue, non-current     7,287       8,136  
Other long-term liabilities     19,990       26,672  
TOTAL LIABILITIES     381,112       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 42,108
  and 41,271 shares as of June 30, 2020 and December 31, 2019, respectively
    4       4  
Class B common stock, authorized 41,203 shares, issued and outstanding 30,971
  and 31,131 shares as of June 30, 2020 and December 31, 2019, respectively
    3       3  
Additional paid-in capital     456,307       446,633  
Accumulated deficit     (86,986 )     (82,405 )
Accumulated other comprehensive loss     (14,378 )     (9,528 )
TOTAL STOCKHOLDERS’ EQUITY     354,950       354,707  
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY   $ 736,846     $ 743,145  
                 


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

    Three Months Ended June 30,     Six Months Ended June 30,  
(in thousands, except per share data)   2020     2019     2020     2019  
Revenue                                
License   $ 51,018     $ 56,653     $ 128,561     $ 133,274  
Maintenance and other services     30,815       27,755       61,715       54,425  
Total software     81,833       84,408       190,276       187,699  
Software related services     5,444       7,907       12,378       17,679  
Total software and related services     87,277       92,315       202,654       205,378  
Client engineering services     9,640       12,412       23,518       24,462  
Other     1,644       2,046       3,852       4,792  
Total revenue     98,561       106,773       230,024       234,632  
Cost of revenue                                
License     2,851       2,954       8,374       8,775  
Maintenance and other services     8,502       9,430       18,957       17,961  
Total software *     11,353       12,384       27,331       26,736  
Software related services     4,656       6,612       10,145       13,130  
Total software and related services     16,009       18,996       37,476       39,866  
Client engineering services     7,789       10,033       19,107       19,833  
Other     1,283       1,994       2,995       4,209  
Total cost of revenue     25,081       31,023       59,578       63,908  
Gross profit     73,480       75,750       170,446       170,724  
Operating expenses:                                
Research and development *     28,970       29,829       60,437       57,345  
Sales and marketing *     25,806       26,221       53,905       52,672  
General and administrative *     20,248       19,851       42,594       40,180  
Amortization of intangible assets     3,692       3,600       7,532       7,128  
Other operating income, net     (944 )     (549 )     (1,835 )     (1,166 )
Total operating expenses     77,772       78,952       162,633       156,159  
Operating (loss) income     (4,292 )     (3,202 )     7,813       14,565  
Interest expense     2,843       590       5,656       860  
Other expense (income), net     320       (505 )     (1,070 )     (115 )
(Loss) income before income taxes     (7,455 )     (3,287 )     3,227       13,820  
Income tax expense (benefit)     2,768       (167 )     7,420       3,921  
Net (loss) income   $ (10,223 )   $ (3,120 )   $ (4,193 )   $ 9,899  
(Loss) income per share:                                
Net (loss) income per share attributable to common
  stockholders, basic
  $ (0.14 )   $ (0.04 )   $ (0.06 )   $ 0.14  
Net (loss) income per share attributable to common
  stockholders, diluted
  $ (0.14 )   $ (0.04 )   $ (0.06 )   $ 0.13  
Weighted average shares outstanding:                                
Weighted average number of shares used in computing
  net (loss) income per share, basic
    72,999       71,373       72,811       71,081  
Weighted average number of shares used in computing
  net (loss) income per share, diluted
    72,999       71,373       72,811       77,017  
                                 

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

    (Unaudited)  
    Three Months Ended June 30,     Six Months Ended June 30,  
    2020     2019     2020     2019  
Cost of revenue – software   $ 552     $ 279     $ 918     $ 343  
Research and development     1,830       579       3,258       937  
Sales and marketing     1,273       475       2,000       937  
General and administrative     879       747       1,529       1,075  
Total stock-based compensation expense   $ 4,534     $ 2,080     $ 7,705     $ 3,292  
                                 


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

    Six Months Ended June 30,  
(In thousands)   2020     2019  
OPERATING ACTIVITIES:                
Net (loss) income   $ (4,193 )   $ 9,899  
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization     11,293       10,468  
Provision for credit loss     589       134  
Amortization of debt discount and issuance costs     5,342       459  
Stock-based compensation expense     7,705       3,292  
Deferred income taxes     (5,961 )     (703 )
Other, net     3       (17 )
Changes in assets and liabilities:                
Accounts receivable     23,264       10,406  
Prepaid expenses and other current assets     1,817       (4,952 )
Other long-term assets     (960 )     (2,300 )
Accounts payable     (3,841 )     (2,187 )
Accrued compensation and benefits     497       (2,455 )
Other accrued expenses and current liabilities     131       1,887  
Operating lease right-of-use assets and liabilities, net     30       197  
Deferred revenue     (2,315 )     7,740  
Net cash provided by operating activities     33,401       31,868  
INVESTING ACTIVITIES:                
Capital expenditures     (2,530 )     (6,667 )
Payments for acquisition of businesses, net of cash acquired     (2,270 )     (709 )
Payments for acquisition of developed technology     (433 )     (344 )
Other investing activities, net     142       16  
Net cash used in investing activities     (5,091 )     (7,704 )
FINANCING ACTIVITIES:                
Proceeds from the exercise of stock options     477       1,270  
Proceeds from issuance of convertible senior notes, net of underwriters'
  discount and commissions
          223,101  
Payments on revolving commitment           (127,941 )
Borrowings under revolving commitment           96,991  
Payments for issuance costs of convertible senior notes           (1,018 )
Other financing activities     (210 )     (259 )
Net cash provided by financing activities     267       192,144  
Effect of exchange rate changes on cash, cash equivalents and restricted cash     (1,148 )     187  
Net increase in cash, cash equivalents and restricted cash     27,429       216,495  
Cash, cash equivalents and restricted cash at beginning of year     223,497       35,685  
Cash, cash equivalents and restricted cash at end of period   $ 250,926     $ 252,180  
Supplemental disclosure of cash flow:                
Interest paid   $ 306     $ 362  
Income taxes paid   $ 9,491     $ 4,054  
Supplemental disclosure of non-cash investing and financing activities:                
Finance leases   $ 100     $ 566  
Property and equipment in accounts payable, other current liabilities
  and other liabilities
  $ 343     $ 417  
Convertible senior notes issuance costs in accounts payable         $ 216  
                 

Financial Results

The following table provides a reconciliation of Non-GAAP net (loss) income and Non-GAAP net (loss) income per share - diluted to net (loss) income and net (loss) income per share – diluted, the most comparable GAAP financial measures:

    (Unaudited)  
    Three Months Ended June 30,     Six Months Ended June 30,  
(in thousands, except per share amounts)   2020     2019     2020     2019  
Net (loss) income   $ (10,223 )   $ (3,120 )   $ (4,193 )   $ 9,899  
Stock-based compensation expense     4,534       2,080       7,705       3,292  
Amortization of intangible assets     3,692       3,600       7,532       7,128  
Special adjustments (1)     578       776       578       1,004  
Income tax effect of non-GAAP adjustments     (280 )     (175 )     (662 )     (415 )
Non-GAAP net (loss) income   $ (1,699 )   $ 3,161     $ 10,960     $ 20,908  
                                 
Net (loss) income per share - diluted   $ (0.14 )   $ (0.04 )   $ (0.06 )   $ 0.13  
Non-GAAP net (loss) income per share - diluted   $ (0.02 )   $ 0.04     $ 0.14     $ 0.27  
                                 
GAAP diluted shares outstanding:     72,999       71,373       72,811       77,017  
Non-GAAP diluted shares outstanding:     80,700       77,700       80,700       77,700  

(1) Includes $0.6 million of severance expense for the three and six months ended June 30, 2020. Includes $0.8 million and $1.0 million of impairment charges for royalty contracts for the three and six months ended June 30, 2019, respectively.

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

    (Unaudited)  
    Three Months Ended June 30,     Six Months Ended June 30,  
(in thousands)   2020     2019     2020     2019  
Net (loss) income   $ (10,223 )   $ (3,120 )   $ (4,193 )   $ 9,899  
Income tax expense (benefit)     2,768       (167 )     7,420       3,921  
Stock-based compensation expense     4,534       2,080       7,705       3,292  
Interest expense     2,843       590       5,656       860  
Interest income and other (1)     194       508       (460 )     709  
Depreciation and amortization     5,633       5,274       11,293       10,468  
Adjusted EBITDA   $ 5,749     $ 5,165     $ 27,421     $ 29,149  

(1) Includes $0.6 million of severance expense for the three and six months ended June 30, 2020. Includes $0.8 million and $1.0 million of impairment charges for royalty contracts for the three and six months ended June 30, 2019, respectively. 

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 June 30,     Six Months Ended June 30,  
(in thousands)   2020     2019     2020     2019  
Net cash provided by operating activities   $ 5,365     $ 6,553     $ 33,401     $ 31,868  
Capital expenditures     (886 )     (2,084 )     (2,530 )     (6,667 )
Free cash flow   $ 4,479     $ 4,469     $ 30,871     $ 25,201  
                                 

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
September 30, 2020
    Year Ending
December 31, 2020
 
(in thousands)   Low     High     Low     High  
Net loss   $ (20,300 )   $ (18,300 )   $ (36,000 )   $ (31,000 )
Stock-based compensation expense     7,900       7,900       24,000       24,000  
Amortization of intangible assets     3,800       3,800       15,000       15,000  
Special adjustments                 600       600  
Income tax effect of non-GAAP adjustments     (400 )     (400 )     (1,400 )     (1,400 )
Non-GAAP net (loss) income   $ (9,000 )   $ (7,000 )   $ 2,200     $ 7,200  
                                 

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

    (Unaudited)  
    Three Months Ending
September 30, 2020
    Year Ending
December 31, 2020
 
(in thousands)   Low     High     Low     High  
Net loss   $ (20,300 )   $ (18,300 )   $ (36,000 )   $ (31,000 )
Income tax expense     2,100       2,100       12,000       12,000  
Stock-based compensation expense     7,900       7,900       24,000       24,000  
Interest expense     2,900       2,900       11,400       11,400  
Depreciation and amortization     5,700       5,700       22,700       22,700  
Interest income and other special adjustments     (300 )     (300 )     (1,100 )     (1,100 )
Adjusted EBITDA   $ (2,000 )   $     $ 33,000     $ 38,000  

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