Altair Announces Second Quarter 2022 Financial Results

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.

Source: Altair Engineering Inc.

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