Altair Announces Second Quarter 2022 Financial Results

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TROY, Mich., Aug. 04, 2022 (GLOBE NEWSWIRE) —  Altair (Nasdaq: ALTR), a global leader in computational science and artificial intelligence (AI) that provides software and cloud solutions in simulation, high-performance computing (HPC), data analytics and AI, today released its financial results for the second quarter ended June 30, 2022.

“Altair had a strong second quarter, driven by high double-digit software revenue growth, with all our key metrics coming in above our guidance ranges,” said James Scapa, founder, chairman and chief executive officer of Altair. “While we are in a period of geopolitical and economic uncertainty, I am confident Altair’s culture, customer relationships, high recurring revenue and utilization, high-value business model, and exceptional technology leaves us well-positioned for the remainder of the year.”

“The second quarter was another big success, achieving revenue and profit ahead of expectations,” said Matt Brown, chief financial officer of Altair. “Led by our year-over-year software product revenue growth of over 17% in the second quarter, we continued to deliver on our commitment to software product revenue growth and margin expansion. While we are encouraged by our strong first half of 2022, we are reducing our full year guidance ranges for revenue and profit due to the impact foreign exchange rates are having on our results in reported currency.”

Second Quarter 2022 Financial Highlights

  • Software product revenue was $116.9 million compared to $99.6 million for the second quarter of 2021, an increase of 17.4%
  • Total revenue was $132.7 million compared to $119.9 million for the second quarter of 2021, an increase of 10.6%
  • Net loss was $(33.8) million compared to $(13.6) million for the second quarter of 2021. Diluted net loss per share was $(0.43) based on 78.9 million diluted weighted average common shares outstanding, compared to diluted net loss per share of $(0.18) for the second quarter of 2021, based on 75.3 million diluted weighted average common shares outstanding. Net loss margin was (25.5%) compared to (11.4%) for the second quarter of 2021
  • Non-GAAP net income was $10.9 million, compared to non-GAAP net income of $5.6 million for the second quarter of 2021, an increase of 94.7%. Non-GAAP diluted net income per share was $0.13 based on 86.3 million non-GAAP diluted common shares outstanding, compared to non-GAAP diluted net income per share of $0.07 for the second quarter of 2021, based on 80.3 million non-GAAP diluted common shares outstanding
  • Adjusted EBITDA was $16.4 million compared to $9.5 million for the second quarter of 2021, an increase of 73.1%. Adjusted EBITDA margin was 12.4% compared to 7.9% for the second quarter of 2021
  • Cash provided by operating activities was 12.3 million, compared to 18.2 million for the second quarter of 2021
  • Free cash flow was $11.0 million, compared to $15.8 million for the second quarter of 2021.

Business Outlook

Based on information available as of today, Altair is issuing the following guidance for the third quarter and full year 2022:

(in millions) Third Quarter 2022   Full Year 2022  
Software Product Revenue   $ 99.0   to $ 104.0     $ 487.0   to $ 498.0  
Total Revenue   $ 115.0     $ 120.0     $ 555.0     $ 566.0  
Net Loss   $ (34.9 )   $ (31.0 )   $ (66.1 )   $ (56.5 )
Non-GAAP Net Income   $ (1.2 )   $ 1.8     $ 60.6     $ 68.0  
Adjusted EBITDA   $ 0.0     $ 4.0     $ 89.0     $ 99.0  
Net Cash Provided by Operating Activities               $ 15.1     $ 23.1  
Free Cash Flow               $ 8.0     $ 16.0  

Conference Call Information
What: Altair’s Second Quarter 2022 Financial Results Conference Call
When: Thursday, August 4, 2022
Webcast: http://investor.altair.com (live & replay)

Non-GAAP Financial Measures

This press release contains the following non-GAAP financial measures: Non-GAAP Net Income, Non-GAAP Net Income Per Share, Adjusted EBITDA, Free Cash Flow, Non-GAAP Gross Profit and Non-GAAP Operating Expense.

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.

Non-GAAP net income excludes stock-based compensation, amortization of intangible assets related to acquisitions, restructuring charges, asset impairment charges, non-cash interest expense, other special items as identified by management and described elsewhere in this press release, and the impact of non-GAAP tax rate to income tax expense, which approximates our tax rate excluding discrete items and other specific events that can fluctuate from period to period.

Non-GAAP diluted common shares as defined starting with Q1 2022, includes the diluted weighted average shares outstanding per GAAP regardless of whether the Company is in a loss position. All periods presented will be adjusted to align with this new definition.

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.

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

Non-GAAP gross profit represents gross profit adjusted for stock-based compensation expense, restructuring expense and other special items as identified by management and described elsewhere in this press release.

Non-GAAP operating expense represents operating expense excluding stock-based compensation expense, amortization, restructuring charges, asset impairment charges and other special items as identified by management and described elsewhere in this press release.

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 leader in computational science and artificial intelligence (AI) that provides software and cloud solutions in simulation, high-performance computing (HPC), data analytics and AI. Altair enables organizations across all industries to compete more effectively and drive smarter decisions in an increasingly connected world – all while creating a greener, 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 2022, our statements regarding our expectations for 2022, 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
[email protected]

Investor Relations
The Blueshirt Group
Monica Gould
212-871-3927
[email protected]

ALTAIR ENGINERING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

    June 30, 2022     December 31, 2021  
(In thousands)   (Unaudited)        
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents   $ 416,137     $ 413,743  
Accounts receivable, net     103,483       137,561  
Income tax receivable     11,412       9,388  
Prepaid expenses and other current assets     23,282       27,529  
Total current assets     554,314       588,221  
Property and equipment, net     39,370       40,478  
Operating lease right of use assets     24,977       28,494  
Goodwill     385,989       370,178  
Other intangible assets, net     90,327       99,057  
Deferred tax assets     7,943       8,495  
Other long-term assets     25,588       28,352  
TOTAL ASSETS   $ 1,128,508     $ 1,163,275  
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES:            
Accounts payable   $ 4,962     $ 6,647  
Accrued compensation and benefits     31,084       42,307  
Current portion of operating lease liabilities     9,433       9,933  
Other accrued expenses and current liabilities     49,444       122,226  
Deferred revenue     92,141       93,160  
Convertible senior notes, net           199,705  
Total current liabilities     187,064       473,978  
Operating lease liabilities, net of current portion     16,340       19,550  
Deferred revenue, non-current     20,785       12,872  
Convertible senior notes, net     304,676        
Other long-term liabilities     41,471       42,894  
TOTAL LIABILITIES     570,336       549,294  
Commitments and contingencies            
MEZZANINE EQUITY           784  
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 52,191
and 51,524 shares as of June 30, 2022, and December 31, 2021, respectively
    5       5  
Class B common stock, authorized 41,203 shares, issued and outstanding 27,745
shares as of June 30, 2022, and December 31, 2021
    3       3  
Additional paid-in capital     687,338       724,226  
Accumulated deficit     (100,394 )     (102,087 )
Accumulated other comprehensive loss     (28,780 )     (8,950 )
TOTAL STOCKHOLDERS’ EQUITY     558,172       613,197  
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY   $ 1,128,508     $ 1,163,275  

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)   2022     2021     2022     2021  
Revenue                        
License   $ 82,688     $ 66,632     $ 188,857     $ 163,027  
Maintenance and other services     34,205       32,926       68,933       66,072  
Total software     116,893       99,558       257,790       229,099  
Software related services     7,376       7,481       16,437       15,579  
Total software and related services     124,269       107,039       274,227       244,678  
Client engineering services     7,047       10,268       15,059       20,945  
Other     1,340       2,605       3,151       4,452  
Total revenue     132,656       119,912       292,437       270,075  
Cost of revenue                        
License     4,120       3,617       8,807       9,012  
Maintenance and other services     12,884       12,043       25,603       23,598  
Total software *     17,004       15,660       34,410       32,610  
Software related services     5,464       5,731       11,499       11,853  
Total software and related services     22,468       21,391       45,909       44,463  
Client engineering services     5,914       8,293       12,555       17,181  
Other     1,141       2,262       2,662       3,724  
Total cost of revenue     29,523       31,946       61,126       65,368  
Gross profit     103,133       87,966       231,311       204,707  
Operating expenses:                        
Research and development *     46,477       38,757       89,571       77,033  
Sales and marketing *     39,116       31,909       74,798       63,979  
General and administrative *     24,367       21,861       47,936       45,787  
Amortization of intangible assets     6,208       4,615       12,111       9,492  
Other operating income, net     (5,767 )     (585 )     (6,548 )     (1,202 )
Total operating expenses     110,401       96,557       217,868       195,089  
Operating (loss) income     (7,268 )     (8,591 )     13,443       9,618  
Interest expense     700       2,988       1,285       5,961  
Other expense, net     21,907       708       23,975       1,543  
(Loss) income before income taxes     (29,875 )     (12,287 )     (11,817 )     2,114  
Income tax expense     3,899       1,361       10,429       1,402  
Net (loss) income   $ (33,774 )   $ (13,648 )   $ (22,246 )   $ 712  
(Loss) income per share:                        
Net (loss) income per share attributable to common
stockholders, basic
  $ (0.43 )   $ (0.18 )   $ (0.28 )   $ 0.01  
Net (loss) income per share attributable to common
stockholders, diluted
  $ (0.43 )   $ (0.18 )   $ (0.28 )   $ 0.01  
Weighted average shares outstanding:                        
Weighted average number of shares used in computing
net (loss) income per share, basic
    78,948       75,263       79,204       74,959  
Weighted average number of shares used in computing
net (loss) income per share, diluted
    78,948       75,263       79,204       79,851  

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

    (Unaudited)  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
(in thousands)   2022     2021     2022     2021  
Cost of revenue – software   $ 2,030     $ 1,222     $ 3,933     $ 2,380  
Research and development     8,979       4,143       16,337       7,329  
Sales and marketing     7,664       3,659       14,699       7,127  
General and administrative     2,527       1,624       4,845       3,460  
Total stock-based compensation expense   $ 21,200     $ 10,648     $ 39,814     $ 20,296  

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

    Six Months Ended June 30,  
(In thousands)   2022     2021  
OPERATING ACTIVITIES:            
Net (loss) income   $ (22,246 )   $ 712  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:            
Depreciation and amortization     15,819       13,180  
Provision for credit loss     114       205  
Amortization of debt discount and issuance costs     829       5,631  
Stock-based compensation expense     39,814       20,296  
Deferred income taxes     (64 )     (1 )
Gain on mark-to-market adjustment of contingent consideration     (5,304 )      
Expense on repurchase of convertible senior notes     16,621        
Other, net     115       34  
Changes in assets and liabilities:            
Accounts receivable     29,270       24,852  
Prepaid expenses and other current assets     2,056       (3,367 )
Other long-term assets     4,397       (5,067 )
Accounts payable     (2,070 )     (967 )
Accrued compensation and benefits     (9,742 )     1,548  
Other accrued expenses and current liabilities     (61,648 )     2,999  
Deferred revenue     10,080       (5,333 )
Net cash provided by operating activities     18,041       54,722  
INVESTING ACTIVITIES:            
Payments for acquisition of businesses, net of cash acquired     (37,660 )      
Capital expenditures     (3,457 )     (5,391 )
Other investing activities, net     (322 )     (389 )
Net cash used in investing activities     (41,439 )     (5,780 )
FINANCING ACTIVITIES:            
Proceeds from issuance of convertible senior notes,
net of discounts and commissions
    224,265        
Repurchase of convertible senior notes     (192,792 )      
Proceeds from employee stock purchase plan contributions     4,431        
Repurchase and retirement of common stock     (4,387 )      
Proceeds from the exercise of common stock options     1,689       885  
Payments of debt issuance costs     (1,157 )      
Payments on revolving commitment           (30,000 )
Other financing activities     (131 )     (206 )
Net cash provided by (used in) financing activities     31,918       (29,321 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash     (6,226 )     (847 )
Net increase in cash, cash equivalents and restricted cash     2,294       18,774  
Cash, cash equivalents and restricted cash at beginning of year     414,012       241,547  
Cash, cash equivalents and restricted cash at end of period   $ 416,306     $ 260,321  
Supplemental disclosure of cash flow:            
Interest paid   $ 289     $ 339  
Income taxes paid   $ 4,891     $ 3,744  
Supplemental disclosure of non-cash investing and financing activities:            
Property and equipment in accounts payable, other current liabilities
and other liabilities
  $ 1,530     $ 631  

Financial Results

The following table provides a reconciliation of Non-GAAP net income and Non-GAAP net 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)   2022     2021     2022     2021  
Net (loss) income   $ (33,774 )   $ (13,648 )   $ (22,246 )   $ 712  
Stock-based compensation expense     21,200       10,648       39,814       20,296  
Amortization of intangible assets     6,208       4,615       12,111       9,492  
Non-cash interest expense     422       2,837       839       5,637  
Restructuring expense           1,732             5,078  
Impact of non-GAAP tax rate (1)     79       (601 )     (4,957 )     (9,678 )
Special adjustments and other (2)     16,737             18,229        
Non-GAAP net income   $ 10,872     $ 5,583     $ 43,790     $ 31,537  
                         
Net (loss) income per share, diluted   $ (0.43 )   $ (0.18 )   $ (0.28 )   $ 0.01  
Non-GAAP net income per share, diluted   $ 0.13     $ 0.07     $ 0.51     $ 0.39  
                         
GAAP diluted shares outstanding     78,948       75,263       79,204       79,851  
Non-GAAP diluted shares outstanding (3)     86,281       80,303       86,516       79,851  
  1. The Company uses a non-GAAP effective tax rate of 26%.
  2. The three months ended June 30, 2022, includes $16.6 million expense on the repurchase of convertible senior notes, $5.4 million currency losses on acquisition-related intercompany loans and a $5.3 million gain from a mark-to-market adjustment of contingent consideration associated with the World Programming acquisition. The six months ended June 30, 2022, includes $16.6 million expense on the repurchase of convertible senior notes, $6.9 million currency losses on acquisition-related intercompany loans and a $5.3 million gain from a mark-to-market adjustment of contingent consideration associated with the World Programming acquisition.
  3. The Non-GAAP diluted shares outstanding for the three and six months ended June 30, 2021, has been changed to align with the current definition.

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

    (Unaudited)  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
(in thousands)   2022     2021     2022     2021  
Net (loss) income   $ (33,774 )   $ (13,648 )   $ (22,246 )   $ 712  
Income tax expense     3,899       1,361       10,429       1,402  
Stock-based compensation expense     21,200       10,648       39,814       20,296  
Interest expense     700       2,988       1,285       5,961  
Depreciation and amortization     8,133       6,494       15,819       13,180  
Restructuring expense           1,732             5,078  
Special adjustments, interest income and other (1)     16,282       (79 )     17,929       (173 )
Adjusted EBITDA   $ 16,440     $ 9,496     $ 63,030     $ 46,456  

(1) The three months ended June 30, 2022, includes $16.6 million expense on the repurchase of convertible senior notes, $5.4 million currency losses on acquisition-related intercompany loans and a $5.3 million gain from a mark-to-market adjustment of contingent consideration associated with the World Programming acquisition. The six months ended June 30, 2022, includes $16.6 million expense on the repurchase of convertible senior notes, $6.9 million currency losses on acquisition-related intercompany loans and a $5.3 million gain from a mark-to-market adjustment of contingent consideration associated with the World Programming acquisition.

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)   2022     2021     2022     2021  
Net cash provided by operating activities (1)   $ 12,255     $ 18,151     $ 18,041     $ 54,722  
Capital expenditures     (1,267 )     (2,352 )     (3,457 )     (5,391 )
Free cash flow (1)   $ 10,988     $ 15,799     $ 14,584     $ 49,331  

(1) The six months ended June 30, 2022, includes a $65.9 million payment in January 2022 for a legal judgement acquired in December 2021.

The following table provides a reconciliation of Non-GAAP gross profit to gross profit, the most comparable GAAP financial measure:

    (Unaudited)  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
(in thousands)   2022     2021     2022     2021  
Gross profit   $ 103,133     $ 87,966     $ 231,311     $ 204,707  
Stock-based compensation expense     2,030       1,222       3,933       2,380  
Restructuring expense           161             936  
Non-GAAP gross profit   $ 105,163     $ 89,349     $ 235,244     $ 208,023  
Non-GAAP gross margin     79.3 %     74.5 %     80.4 %     77.0 %

The following table provides a reconciliation of Non-GAAP operating expense to Total operating expense, the most comparable GAAP financial measure:

    (Unaudited)  
    Three Months Ended
June 30,
    Six Months Ended
June 30,
 
(in thousands)   2022     2021     2022     2021  
Total operating expense   $ 110,401     $ 96,557     $ 217,868     $ 195,089  
Stock-based compensation expense     (19,170 )     (9,426 )     (35,881 )     (17,916 )
Amortization     (6,208 )     (4,615 )     (12,111 )     (9,492 )
Gain on mark-to-market adjustment of
contingent consideration
    5,304             5,304        
Restructuring expense           (1,571 )           (4,142 )
Non-GAAP operating expense   $ 90,327     $ 80,945     $ 175,180     $ 163,539  

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, 2022
    Year Ending
December 31, 2022
 
(in thousands)   Low     High     Low     High  
Net loss   $ (34,900 )   $ (31,000 )   $ (66,100 )   $ (56,500 )
Stock-based compensation expense     23,700       23,700       86,400       86,400  
Amortization of intangible assets     6,100       6,100       24,400       24,400  
Non-cash interest expense     500       500       1,800       1,800  
Impact of non-GAAP tax rate     3,400       2,500       (4,100 )     (6,300 )
Special adjustments and other(1)                 18,200       18,200  
Non-GAAP net (loss) income   $ (1,200 )   $ 1,800     $ 60,600     $ 68,000  

(1) Year ending December 31, 2022, includes $16.6 million expense on the repurchase of convertible senior notes, $6.9 million currency losses on acquisition-related intercompany loans and $5.3 million gain from a mark-to-market adjustment of contingent consideration associated with the World Programming acquisition.

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, 2022
    Year Ending
December 31, 2022
 
(in thousands)   Low     High     Low     High  
Net loss   $ (34,900 )   $ (31,000 )   $ (66,100 )   $ (56,500 )
Income tax expense     3,000       3,100       17,200       17,600  
Stock-based compensation expense     23,700       23,700       86,400       86,400  
Interest expense     200       200       1,300       1,300  
Depreciation and amortization     8,000       8,000       32,000       32,000  
Special adjustments and other(1)                 18,200       18,200  
Adjusted EBITDA   $     $ 4,000     $ 89,000     $ 99,000  

(1) Year ending December 31, 2022, includes $16.6 million expense on the repurchase of convertible senior notes, $6.9 million currency losses on acquisition-related intercompany loans and $5.3 million gain from a mark-to-market adjustment of contingent consideration associated with the World Programming acquisition.

The following table provides a reconciliation of projected Free Cash Flow to projected net cash provided by operating activities, the most comparable GAAP financial measure:

            (Unaudited)  
        Year Ending
December 31, 2022
 
(in thousands)           Low     High  
Net cash provided by operating activities (1)           $ 15,100     $ 23,100  
Capital expenditures             (7,100 )     (7,100 )
Free cash flow (1)           $ 8,000     $ 16,000  

(1) Includes $65.9 million payment in January 2022 for legal judgement acquired in December 2021.