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Altair Announces Third Quarter 2018 Financial Results

Third Quarter Software Product Revenue Increased 13% Year-over-Year

TROY, Mich., Nov. 08, 2018 (GLOBE NEWSWIRE) -- Altair (Nasdaq:ALTR) released its financial results for the third quarter ended September 30, 2018.

“Altair’s third quarter results reflected better than expected profitability and continued software momentum, despite greater than expected foreign exchange headwinds,” said James Scapa, Founder, Chairman and CEO.  “We are seeing broad-based growth across our business, including in the auto sector, due to the superior accuracy and time to value Altair’s solutions provide in the product design process.”

Scapa continued, “The pending acquisition of Datawatch significantly advances our vision of simulation driven design by accelerating the convergence of data and simulation.  Similarly, the recently completed acquisition of SimSolid is a revolutionary advance in design simulation that will greatly enhance the accuracy and speed of product design. We are confident our expanded product offerings position us well to build upon our leadership in the CAE market and generate continue strong revenue growth and expanding profitability.”

Third Quarter 2018 Financial Highlights

  • Software product revenue was $71.3 million, an increase of 13% from $63.2 million for the third quarter of 2017.
  • Total revenue was $93.9 million, an increase of 11% compared to $84.9 million for the third quarter of 2017.
  • Net income was $7.3 million, compared to net loss of $(29.6) million for the third quarter of 2017. The third quarter of 2018 included gain on the sale of a building of $4.4 million, while the third quarter of 2017 included non-cash stock-based compensation expenses of $25.3 million. Diluted net income per share was $0.10, based on 76.7 million diluted weighted average common shares outstanding, compared to diluted net loss per share of $(0.59) for the third quarter of 2017, based on 50.6 million diluted weighted average common shares outstanding.
  • Adjusted EBITDA was $9.5 million, compared to $7.0 million for the third quarter of 2017. Adjusted EBITDA represents net income (loss) 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 $5.1 million, compared to $4.0 million for the third quarter of 2017. Non-GAAP diluted net income per share was $0.07, based on 77.0 million non-GAAP diluted common shares outstanding, compared to non-GAAP diluted net income per share of $0.06 for the third quarter of 2017, based on 62.8 million non-GAAP diluted 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 $3.1 million, compared to an outflow of $(8.7) million for the third quarter of 2017.
  • Free cash flow, which consists of cash flow from operations less capital expenditures, was $0.9 million compared to negative $(10.7) million for the third quarter of 2017.  

Business Outlook

Based on information available as of today, Altair is issuing guidance for the fourth quarter and full year 2018 as indicated below.  This guidance does not include any impact from the pending acquisition of Datawatch.

     
  Fourth Quarter 2018 Full Year 2018
Software Product Revenue $ 75.0 to $ 76.0 $ 287.0 to $ 289.0
Total Revenue $ 98.0   $ 99.0 $ 378.0   $ 380.0
Net Income $ 5.5   $ 6.5 $ 18.3   $ 19.3
Adjusted EBITDA $ 11.5   $ 12.5 $ 36.0   $ 37.0
Non-GAAP Net Income $ 7.9   $ 8.9 $ 22.5   $ 23.5
                     

 (All figures in millions)

Conference Call Information

     
What:   Altair Third Quarter 2018 Financial Results Conference Call
When:    Thursday, November 8, 2018
Time:   4:30 p.m. EST
Live Call:    (866) 754-5204, domestic
    (636) 812-6621, international
Replay:    (855) 859-2056, passcode 5899735, domestic
    (404) 537-3406, passcode 5899735, 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, Non-GAAP Net Income 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.

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 transforms design and decision making by applying simulation, machine learning and optimization throughout product lifecycles. Our broad portfolio of simulation technology and patented units-based software licensing model enable Simulation-Driven Innovation for our customers. With more than 2,000 employees, Altair is headquartered in Troy, Michigan, USA and operates 71 offices throughout 24 countries. Altair serves more than 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, potential impact of the SimSolid and Datawatch transactions and expanded product offerings, 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.

Information regarding the Datawatch transaction

The merger agreement governing the pending Datawatch acquisition provides for a tender offer (the “Offer”) followed by a merger of a wholly-owned subsidiary of Altair (Dallas Merger Sub, Inc.) with and into Datawatch, subject to regulatory approval and other customary conditions. The Offer has not yet commenced, and this communication is neither an offer to purchase nor a solicitation of an offer to sell any shares of the common stock of Datawatch or any other securities. On the commencement date of the Offer, a tender offer statement on Schedule TO, including an offer to purchase, a letter of transmittal and related documents, will be filed with the United States Securities and Exchange Commission (the “SEC”) and Datawatch will file a Solicitation/Recommendation Statement on Schedule 14D-9 relating to the Offer with the SEC. The offer to purchase shares of Datawatch common stock will only be made pursuant to the offer to purchase, the letter of transmittal and related documents filed with such Schedule TO. DATAWATCH INVESTORS AND SECURITY HOLDERS ARE URGED TO READ BOTH THE TENDER OFFER STATEMENT AND THE SOLICITATION/RECOMMENDATION STATEMENT REGARDING THE OFFER, AS THEY MAY BE AMENDED FROM TIME TO TIME, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The tender offer statement will be filed with the SEC by Dallas Merger Sub, Inc. and Altair, and the solicitation/recommendation statement will be filed with the SEC by Datawatch.  Investors and security holders may obtain a free copy of these statements (when available) and other documents filed with the SEC at the website maintained by the SEC at www.sec.gov or by directing such requests to D.F. King & Co., Inc. toll-free at (877) 864-5060.

Investor Relations
Brian Denyeau
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 
         
         
    September 30,
 2018
  December 31, 2017
(In thousands, except per share data)   (Unaudited)    
ASSETS        
CURRENT ASSETS:        
Cash and cash equivalents   $   197,413     $   39,213  
Accounts receivable, net       69,046         86,635  
Inventory, net       1,234         1,980  
Income tax receivable       9,841         6,054  
Prepaid expenses and other current assets       12,149         10,006  
Total current assets       289,683         143,888  
Property and equipment, net       29,679         31,446  
Goodwill       62,905         62,706  
Other intangible assets, net       22,329         24,461  
Deferred tax assets       7,837         8,351  
Other long-term assets       15,580         17,019  
TOTAL ASSETS   $   428,013     $   287,871  
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:        
Current portion of long-term debt   $   400     $   232  
Accounts payable       5,592         4,880  
Accrued compensation and benefits       28,750         26,560  
Obligations for acquisition of businesses       831         13,925  
Other accrued expenses and current liabilities       20,222         21,744  
Deferred revenue       136,991         130,122  
Total current liabilities       192,786         197,463  
Long-term debt, net of current portion       670         178  
Deferred revenue, non-current       9,722         9,640  
Other long-term liabilities       13,036         17,647  
TOTAL LIABILITIES       216,214         224,928  
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 38,120 and 26,725 shares as of September 30,  2018 and December 31, 2017, respectively       4         2  
Class B common stock, authorized 41,203 shares, issued and outstanding 32,171 and 36,508 shares as of September 30, 2018 and December 31, 2017, respectively       3         4  
Additional paid-in capital       370,402         232,156  
Accumulated deficit       (153,759 )       (166,499 )
Accumulated other comprehensive loss       (7,203 )       (5,072 )
TOTAL STOCKHOLDERS’ EQUITY       209,447         60,591  
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY   $   428,013     $   287,871  
         

/EIN News/ --  

 
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)   2018     2017     2018     2017  
Revenue                
Software   $   71,302     $   63,208     $   212,258     $   176,905  
Software related services       8,692         8,574         26,872         25,749  
Total software       79,994         71,782         239,130         202,654  
Client engineering services       12,155         11,477         36,652         36,071  
Other       1,722         1,679         5,386         4,741  
Total revenue       93,871         84,938         281,168         243,466  
Cost of revenue                
Software*       9,831         9,166         32,736         26,799  
Software related services       6,352         6,457         19,573         20,230  
Total software       16,183         15,623         52,309         47,029  
Client engineering services       9,817         9,231         29,977         29,200  
Other       1,204         1,448         3,416         3,745  
Total cost of revenue       27,204         26,302         85,702         79,974  
Gross profit       66,667         58,636         195,466         163,492  
Operating expenses:                
Research and development*       24,301         27,590         71,748         69,198  
Sales and marketing*       19,275         22,345         58,435         58,683  
General and administrative*       17,234         29,175         51,636         66,465  
Amortization of intangible assets       1,739         1,189         5,665         3,287  
Other operating income       (4,850 )       (735 )       (7,433 )       (4,065 )
Total operating expenses       57,699         79,564         180,051         193,568  
Operating income (loss)       8,968         (20,928 )       15,415         (30,076 )
Interest expense       31         634         92         1,793  
Other (income) expense, net       (970 )       52         (2,046 )       838  
Income (loss) before income taxes       9,907         (21,614 )       17,369         (32,707 )
Income tax expense       2,600         8,012         4,629         6,353  
Net income (loss)    $   7,307     $   (29,626 )   $   12,740     $   (39,060 )
Income (loss) per share:                
Net income (loss) per share attributable to common stockholders, basic   $   0.10     $   (0.59 )   $   0.19     $   (0.78 )
Net income (loss) per share attributable to common stockholders, diluted   $   0.10     $   (0.59 )   $   0.17     $   (0.78 )
Weighted average shares outstanding:                
Weighted average number of shares used in computing net income (loss) per share, basic       70,001         50,606         66,429         50,374  
Weighted average number of shares used in computing net income (loss) per share, diluted       76,709         50,606         74,182         50,374  
                                 

 

             
*Amounts include stock-based compensation expense as follows (in thousands): 
                 
    (Unaudited)
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2018   2017   2018   2017
Cost of revenue – software   $   8   $   326   $   24   $   342
Research and development       175       6,711       330       10,495
Sales and marketing       140       4,045       315       6,160
General and administrative       240       14,183       544       22,305
Total stock-based compensation expense   $   563   $   25,265   $   1,213   $   39,302
                 

 

 
Altair Engineering Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
         
    Nine Months Ended
September 30,
(In thousands)   2018     2017  
OPERATING ACTIVITIES:        
Net income (loss)   $   12,740     $   (39,060 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization       10,895         7,895  
Provision for bad debt       455         517  
Stock-based compensation expense       1,213         39,302  
Gain on sale of assets held for sale and other       (4,544 )       (20 )
Impairment of intangible assets       608         —  
Deferred income taxes       (300 )       (4,793 )
Other, net       (116 )       169  
Changes in assets and liabilities:        
Accounts receivable       15,674         12,016  
Prepaid expenses and other current assets       (6,334 )       431  
Other long-term assets       36         (11,024 )
Accounts payable       796         (1,583 )
Accrued compensation and benefits       2,650         (211 )
Other accrued expenses and current liabilities       (4,626 )       6,122  
Deferred revenue       11,275         7,694  
Net cash provided by operating activities       40,422         17,455  
INVESTING ACTIVITIES:        
Payments for acquisition of businesses, net of cash acquired       (15,950 )       (15,582 )
Proceeds from sale of assets held for sale and other       6,613         20  
Capital expenditures       (5,333 )       (4,367 )
Payments for acquisition of developed technology       (2,738 )       (2,120 )
Other investing activities, net       —         (29 )
Net cash used in investing activities       (17,408 )       (22,078 )
FINANCING ACTIVITIES:        
Proceeds from issuance of Class A common stock in follow-on public offering,
  net of underwriters' discounts and commissions
      135,572         —  
Proceeds from the exercise of stock options       1,929         476  
Payments for follow-on public offering and initial public offering costs       (541 )       (2,595 )
Payments for redemption of common stock       (119 )       (918 )
Principal payments on long-term debt       (101 )       (8,392 )
Payments on revolving commitment       —         (71,676 )
Borrowings under revolving commitment       —         86,270  
Other financing activities       (226 )       (31 )
Net cash provided by financing activities       136,514         3,134  
Effect of exchange rate changes on cash, cash equivalents and restricted cash       (1,354 )       1,301  
Net increase (decrease) in cash, cash equivalents and restricted cash       158,174         (188 )
Cash, cash equivalents and restricted cash at beginning of year       39,578         17,139  
Cash, cash equivalents and restricted cash at end of period   $   197,752     $   16,951  
Supplemental disclosure of cash flow:        
Interest paid   $   70     $   1,722  
Income taxes paid   $   5,900     $   4,154  
Supplemental disclosure of non-cash investing and financing activities:        
Capital leases   $   995     $   —  
Property and equipment in accounts payable   $   228     $   144  
Follow-on public offering costs in accounts payable   $   15     $   —  
Promissory notes issued and deferred payment obligations for acquisitions   $   278     $   12,440  
Issuance of common stock in connection with acquisitions   $   —     $   8,712  
Issuance of common stock with put rights   $   —     $   2,352  
Initial public offering costs in other long-term assets   $   —     $   866  
         

 

 
The following table provides a reconciliation of Non-GAAP net income and Non-GAAP diluted income per share to net income (loss) and income (loss) per share - diluted, the most comparable GAAP financial measures (in thousands, except per share amounts):
                     
        (Unaudited)
        Three Months Ended
September 30,
  Nine Months Ended
September 30,
          2018       2017       2018       2017  
Net income (loss)    $   7,307     $   (29,626 )   $   12,740     $   (39,060 )
Stock-based compensation expense       563         25,265         1,213         39,302  
Amortization of intangible assets       1,739         1,189         5,665         3,287  
Non-recurring adjustments       (4,400 )       -         (4,400 )       -  
Income tax effect of non-GAAP adjustments*       (151 )       7,172         (658 )       11,546  
    Non-GAAP net income   $   5,058     $   4,000     $   14,560     $   15,075  
                     
                     
Income (loss) per share - diluted   $   0.10     $   (0.59 )   $   0.17     $   (0.78 )
Non-GAAP income per share - diluted   $   0.07     $   0.06     $   0.19     $   0.24  
                     
                     
GAAP diluted shares outstanding:                
  Weighted average number of shares used in computing net income (loss) per share, diluted       76,709         50,606         74,182         50,374  
                     
Non-GAAP diluted shares outstanding:                
  Number of shares used in computing net income per share, diluted       77,000         62,800         77,000         62,800  
                     
* The income tax effect of non-GAAP adjustments for 2018 is affected by the U.S. valuation allowance. 
     

 

 
The following table provides a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure (in thousands): 
                   
      (Unaudited)
      Three Months Ended
September 30,
  Nine Months Ended
September 30,
        2018       2017       2018       2017  
Net income (loss)   $   7,307     $   (29,626 )   $   12,740     $   (39,060 )
Income tax expense       2,600         8,012         4,629         6,353  
Stock-based compensation expense       563         25,265         1,213         39,302  
Interest expense       31         634         92         1,793  
Interest income and other(1)       (4,384 )       (53 )       (5,103 )       (2,184 )
Depreciation and amortization       3,370         2,811         10,895         7,895  
Adjusted EBITDA   $   9,487     $   7,043     $   24,466     $   14,099  
                   
(1)   Includes a) gain on the sale of a building for $4.4 million for the three and nine months ended September 30, 2018, b) an impairment charge for royalty contracts and trade names resulting in $0.8 million and $2.6 million of expense for the three and nine months ended September 30, 2018, and c) a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for both the nine months ended September 30, 2018 and September 30, 2017. 
                                   

 

 
The following table provides a reconciliation of Free Cash Flow to net cash provided by operating activities, the most comparable GAAP financial measure (in thousands): 
                 
    (Unaudited)
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
      2018       2017       2018       2017  
Net cash provided by operating activities   $   3,109     $   (8,662 )   $   40,422     $   17,455  
Capital expenditures       (2,203 )       (2,032 )       (5,333 )       (4,367 )
Free cash flow   $   906     $   (10,694 )   $   35,089     $   13,088  
                 

 

 
The following table provides a reconciliation of projected Non-GAAP net income to projected net income, the most comparable GAAP financial measure (in thousands):
                 
    (Unaudited)
    Three Months Ending   Year Ending
    December 31, 2018   December 31, 2018
    low   high   low   high
Net income $   5,500   $   6,500   $   18,300     $   19,300  
Stock-based compensation expense     600       600       1,800         1,800  
Amortization of intangible assets, net of tax     1,800       1,800       6,800         6,800  
Non-recurring adjustments     -       -       (4,400 )       (4,400 )
  Non-GAAP net income $   7,900   $   8,900   $   22,500     $   23,500  
                 

 

 
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
    December 31, 2018   December 31, 2018
    low   high   low   high
Net income $   5,500   $   6,500   $   18,300     $   19,300  
Income tax expense     1,700       1,700       6,300         6,300  
Stock-based compensation expense     600       600       1,800         1,800  
Interest expense     -       -       -         -  
Depreciation and amortization     3,500       3,500       14,500         14,500  
Interest income and other non-recurring adjustments     200       200       (4,900 )       (4,900 )
  Adjusted EBITDA $   11,500   $   12,500   $   36,000     $   37,000  
                 

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