Altair Announces Third Quarter 2020 Financial Results

Rhea-AI Summary

Altair (NASDAQ: ALTR) reported strong third-quarter 2020 results with software product revenue increasing by 13% year-over-year to $87.8 million, representing 83% of total revenue of $106.5 million. The company's net loss decreased to $8.5 million, improving from a $15.9 million loss in Q3 2019. Adjusted EBITDA reached $8.2 million compared to a loss of $2.3 million in the prior year. The proactive cost management strategies positively impacted operating expenses. For Q4 2020, Altair forecasts total revenue between $112 million and $117 million, with software product revenue estimated at $95 million to $99 million.

Positive

• Software product revenue grew 13% YoY to $87.8 million.
• Total revenue increased to $106.5 million from $100.4 million YoY.
• Gross margins improved over 400 basis points.
• Adjusted EBITDA turned positive at $8.2 million, up from a loss of $2.3 million YoY.
• Recurring license rate rose to 92%.

Negative

• Net loss increased to $8.5 million from $15.9 million YoY.
• Free cash flow was negative at $(7.5) million, worse than $(3.3) million YoY.
• Guidance indicates increased net loss forecast for Q4 2020.

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

FAQ

What were Altair's third quarter 2020 financial results?

Altair reported total revenue of $106.5 million and software product revenue of $87.8 million for Q3 2020.

How did Altair's net loss change in Q3 2020?

Altair's net loss decreased to $8.5 million in Q3 2020 from $15.9 million in Q3 2019.

What is Altair's revenue guidance for Q4 2020?

Altair expects total revenue in Q4 2020 to be between $112 million and $117 million.

What factors contributed to Altair's revenue growth?

The growth was driven by strong new customer activity and increased software renewals, particularly in the automobile and aerospace sectors.

What is the forecast for Altair's software product revenue in Q4 2020?

Altair forecasts software product revenue between $95 million and $99 million for Q4 2020.