UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-38263
ALTAIR ENGINEERING INC.
(Exact name of registrant as specified in its charter)
Delaware
38-2591828
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
1820 East Big Beaver Road, Troy, Michigan
48083
(Address of principal executive offices)
(Zip Code)
(248) 614-2400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
Class A Common Stock $0.0001 par value per share
ALTR
The NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
On April 17, 2024, there were 56,948,286 shares of the registrant’s Class A common stock outstanding and 26,084,574 shares of the registrant’s Class B common stock outstanding.
ALTAIR ENGINEERING INC. AND SUBSIDIARIES
FOR THE QUARTER ENDED MARCH 31, 2024
INDEX
Page
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements – Unaudited
3
a)
Consolidated Balance Sheets
b)
Consolidated Statements of Operations
4
c)
Consolidated Statements of Comprehensive Income
5
d)
Consolidated Statements of Changes in Stockholders’ Equity
6
e)
Consolidated Statements of Cash Flows
8
f)
Notes to Consolidated Financial Statements
9
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
30
Item 4.
Controls and Procedures
31
PART II.
OTHER INFORMATION
Legal Proceedings
32
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
33
SIGNATURES
34
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
March 31, 2024
December 31, 2023
(In thousands)
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
557,605
467,459
Accounts receivable, net
127,870
190,461
Income tax receivable
18,898
16,650
Prepaid expenses and other current assets
26,026
26,053
Total current assets
730,399
700,623
Property and equipment, net
38,837
39,803
Operating lease right of use assets
30,175
30,759
Goodwill
454,953
458,125
Other intangible assets, net
75,357
83,550
Deferred tax assets
9,699
9,955
Other long-term assets
40,491
40,678
TOTAL ASSETS
1,379,911
1,363,493
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable
6,522
8,995
Accrued compensation and benefits
35,911
45,081
Current portion of operating lease liabilities
8,330
8,825
Other accrued expenses and current liabilities
43,820
48,398
Deferred revenue
120,554
131,356
Current portion of convertible senior notes, net
81,617
81,455
Total current liabilities
296,754
324,110
Convertible senior notes, net
226,223
225,929
Operating lease liabilities, net of current portion
22,508
22,625
Deferred revenue, non-current
24,385
32,347
Other long-term liabilities
47,113
47,151
TOTAL LIABILITIES
616,983
652,162
Commitments and contingencies
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 56,912 and 55,240 shares as of March 31, 2024, and December 31, 2023, respectively
Class B common stock, authorized 41,203 shares, issued and outstanding 26,084 and 26,814 shares as of March 31, 2024, and December 31, 2023, respectively
Additional paid-in capital
904,180
864,135
Accumulated deficit
(113,956
)
(130,503
Accumulated other comprehensive loss
(27,304
(22,309
TOTAL STOCKHOLDERS’ EQUITY
762,928
711,331
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
(in thousands, except per share data)
2024
2023
Revenue
License
117,707
112,409
Maintenance and other services
40,722
37,234
Total software
158,429
149,643
Engineering services and other
14,483
16,391
Total revenue
172,912
166,034
Cost of revenue
4,490
4,824
14,166
14,426
18,656
19,250
12,237
13,485
Total cost of revenue
30,893
32,735
Gross profit
142,019
133,299
Operating expenses:
Research and development
52,333
53,251
Sales and marketing
44,434
43,492
General and administrative
17,761
17,951
Amortization of intangible assets
7,438
7,814
Other operating (income) expense, net
(882
5,605
Total operating expenses
121,084
128,113
Operating income
20,935
5,186
Interest expense
1,576
1,526
Other income, net
(3,957
(3,613
Income before income taxes
23,316
7,273
Income tax expense
6,769
9,232
Net income (loss)
16,547
(1,959
Income (loss) per share:
Net income (loss) per share attributable to common stockholders, basic
0.20
(0.02
Net income (loss) per share attributable to common stockholders, diluted
Weighted average shares outstanding:
Weighted average number of shares used in computing net income (loss) per share, basic
82,587
80,191
Weighted average number of shares used in computing net income (loss) per share, diluted
89,806
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Other comprehensive (loss) income, net of tax:
Foreign currency translation (net of tax effect of $0 for all periods)
(5,029
7,232
Retirement related benefit plans (net of tax effect of $0 for all periods)
19
Total other comprehensive (loss) income
(4,995
7,251
Comprehensive income
11,552
5,292
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Accumulated
Common stock
Additional
other
Total
Class A
Class B
paid-in
comprehensive
stockholders’
Shares
Amount
capital
deficit
loss
equity
Balance as of December 31, 2023
55,240
26,814
Net income
Issuance of common stock for acquisitions
35
75
Issuance of common stock for employee stock purchase program
64
4,127
Exercise of stock options
540
19,844
Vesting of restricted stock
303
Conversion of Class B to Class A common stock
730
(730
Stock-based compensation
15,999
Foreign currency translation, net of tax
Retirement related benefit plans, net of tax
Balance as of March 31, 2024
56,912
26,084
Balance as of December 31, 2022
52,277
27,745
721,307
(121,577
(30,002
569,736
Net loss
Repurchase and retirement of common stock
(91
(4,256
92
3,648
265
10,324
336
240
(240
22,161
Balance as of March 31, 2023
53,153
27,505
753,184
(123,536
(22,751
606,905
7
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
9,619
9,750
Stock-based compensation expense
Loss on mark-to-market adjustment of contingent consideration
145
7,006
Other, net
580
640
Changes in assets and liabilities:
60,245
39,872
(2,679
1,981
(1,944
(1,667
(5,362
(8,503
(12,283
(199
2,015
(16,646
(2,678
Net cash provided by operating activities
73,450
59,199
INVESTING ACTIVITIES:
Capital expenditures
(2,766
(1,727
Other investing activities, net
2
(1,405
Net cash used in investing activities
(2,764
(3,132
FINANCING ACTIVITIES:
Proceeds from the exercise of common stock options
9,872
Proceeds from employee stock purchase plan contributions
2,182
1,868
Payments for repurchase and retirement of common stock
(6,255
Other financing activities
(29
Net cash provided by financing activities
22,026
5,456
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(2,592
379
Net increase in cash, cash equivalents and restricted cash
90,120
61,902
Cash, cash equivalents and restricted cash at beginning of year
467,576
316,958
Cash, cash equivalents and restricted cash at end of period
557,696
378,860
Supplemental disclosure of cash flow:
Interest paid
46
Income taxes paid
2,954
4,751
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment in accounts payable and other current liabilities
277
1,559
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Altair Engineering Inc. (“Altair” or the “Company”) is incorporated in the state of Delaware. The Company is a global leader in computational intelligence enabling organizations across broad industry segments to drive smarter decisions in an increasingly connected world. Altair delivers software and cloud solutions in the areas of simulation, high-performance computing (“HPC”), data analytics, and artificial intelligence (“AI”). Altair’s products and services leverage computational science to drive innovation and intelligent decisions for a more connected, safe, and sustainable future. The Company is headquartered in Troy, Michigan.
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial information. Accordingly, the accompanying statements do not include all the information and notes required by GAAP for complete financial statements. The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements (and notes thereto) for the year ended December 31, 2023, included in the most recent Annual Report on Form 10-K filed with the SEC.
Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. On an ongoing basis, management evaluates its significant estimates including the stand alone selling price, or SSP, for each distinct performance obligation included in customer contracts with multiple performance obligations, valuation of acquired intangible assets in business combinations, the incremental borrowing rate used in the valuation of lease liabilities, the determination of the period of benefit for capitalized costs to obtain a contract, fair value of convertible senior notes, provision for credit loss, tax valuation allowances, liabilities for uncertain tax provisions, impairment of goodwill and intangible assets, useful lives of intangible assets, and stock-based compensation. Actual results could differ from those estimates.
Significant accounting policies
There have been no material changes to our significant accounting policies as of and for the three months ended March 31, 2024, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2023.
Change in Presentation of Revenue and Cost of Revenue
Effective in the first quarter of 2024, the Company changed the presentation of revenue and cost of revenue in its Consolidated Statements of Operations to combine the financial statement line items (“FSLIs”) labeled “Software related services”, “Client engineering services” and “Other” into one FSLI labeled “Engineering services and other”. The change in presentation has been applied retrospectively and does not affect the software revenue, total revenue, software cost of revenue, or total cost of revenue amounts previously reported or have any effect on segment reporting.
Accounting standards not yet adopted
Reference Rate Reform – In March 2020, the FASB issued ASU 2020-04. Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another rate that is expected to be discontinued. In October 2022, the FASB Board voted to amend the sunset date of ASU 2020-04 to December 31, 2024. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and related disclosures and does not expect this guidance to have a material effect on its consolidated financial statements.
Segment Reporting – In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures. The update is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The ASU requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted, and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact of adopting the updated standard.
Income Taxes – In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which updates income tax disclosures related to the tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction. The amendments are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively; however, retrospective application is permitted. The Company is currently evaluating this ASU to determine the effect on its related disclosures.
Disaggregation of revenue
The Company disaggregates its revenue by type of performance obligation and timing of revenue recognition as follows (in thousands):
Term licenses and other software products
111,170
103,309
Perpetual licenses
6,537
9,100
Maintenance
38,643
35,601
Professional software services
2,079
1,633
Software related services
6,617
7,100
Client engineering services
6,457
7,776
Other
1,409
1,515
The Company derived approximately 10.8% of its total revenue through indirect sales channels for the three months ended March 31, 2024.
Costs to obtain a contract
As of March 31, 2024, and December 31, 2023, respectively, capitalized costs to obtain a contract were $4.6 million and $4.3 million recorded in Prepaid expenses and other current assets and $0.9 million and $0.9 million recorded in Other long-term assets in the Company’s consolidated balance sheets. Sales commissions were $2.3 million and $2.0 million, respectively, for the three months ended March 31, 2024 and 2023. Sales commissions were included in Sales and marketing expense in the Company’s consolidated statement of operations.
Contract assets
As of March 31, 2024, and December 31, 2023, respectively, contract assets were $5.1 million and $5.2 million included in Accounts receivable, net, and $3.1 million and $2.7 million included in Prepaid expenses and other current assets in the Company’s consolidated balance sheets.
Approximately $66.3 million of revenue recognized during the three months ended March 31, 2024, was included in deferred revenue at the beginning of the year.
10
Revenue allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue and amounts that will be invoiced and recognized as revenue in future periods. Contracted revenue not yet recognized was $243.5 million and $208.3 million as of March 31, 2024 and 2023, respectively. Of the amount recorded as of March 31, 2024, the Company expects to recognize approximately 70% over the next 12 months and the remainder thereafter.
Acquisitions
During the three months ended March 31, 2024 and 2023, respectively, the Company recognized a $0.1 million loss and a $7.0 million loss from a mark-to-market adjustment of contingent consideration associated with a prior year acquisition. The mark-to-market adjustments were included in Other operating (income) expense, net in the consolidated statements of operations.
Cash, cash equivalents and restricted cash
The Company considers all highly liquid investments with original or remaining maturities of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents are recorded at cost, which approximates fair value. Restricted cash is included in Other long-term assets on the consolidated balance sheets. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheets that sum to the total of the amounts reported in the consolidated statement of cash flows (in thousands):
March 31,
December 31,
Restricted cash included in other long-term assets
117
Total cash, cash equivalents and restricted cash
Restricted cash represents amounts required for the payment of potential health insurance claims and term deposits for bank guarantees.
Property and equipment consisted of the following (in thousands):
Land
8,373
8,376
Building and improvements
17,515
17,528
Computer equipment and software
46,154
45,678
Furniture, equipment and other
13,972
14,402
Leasehold improvements
8,602
8,380
Total property and equipment
94,616
94,364
Less: accumulated depreciation and amortization
55,779
54,561
Depreciation expense was $2.2 million and $1.9 million for the three months ended March 31, 2024 and 2023, respectively.
11
Other liabilities
The following table provides the details of other accrued expenses and current liabilities (in thousands):
Income taxes payable
15,152
12,239
Accrued VAT
4,472
8,710
Obligations related to acquisition of businesses and technology
3,012
3,286
Accrued royalties
2,889
2,313
Accrued professional fees
2,808
2,436
Billings in excess of cost
2,401
2,385
Employee stock purchase plan obligations
2,210
4,155
Non-income tax liabilities
1,332
2,473
Accrued interest
1,242
183
Defined contribution plan liabilities
1,110
1,454
Other current liabilities
7,192
8,764
The following table provides details of other long-term liabilities (in thousands):
Pension and other post-retirement liabilities
16,219
15,815
Income tax reserves
16,117
16,254
Deferred tax liabilities
12,765
12,870
2,012
2,212
Other income, net consists of the following (in thousands):
Interest income
(5,722
(2,885
Foreign exchange loss (gain)
1,765
(728
The change in the carrying amount of goodwill, which is attributable to the Software reportable segment, was as follows (in thousands):
Foreign currency translation
(3,172
12
Other intangible assets
A summary of other intangible assets is shown below (in thousands):
Weighted averageamortization period
Gross carryingamount
Accumulated amortization
Net carrying amount
Definite-lived intangible assets:
Developed technology
4-6 years
141,093
95,465
45,628
Customer relationships
7-10 years
57,988
39,427
18,561
Other intangibles
4-10 years
1,455
626
829
Total definite-lived intangible assets
200,536
135,518
65,018
Indefinite-lived intangible assets:
Trade names
10,339
Total other intangible assets
210,875
Accumulatedamortization
Net carryingamount
142,368
90,729
51,639
58,316
37,779
20,537
1,459
563
896
202,143
129,071
73,072
10,478
212,621
Amortization expense related to intangible assets was $7.4 million and $7.8 million for the three months ended March 31, 2024 and 2023, respectively.
Convertible senior notes
2027 Notes
In June 2022, the Company issued $230.0 million aggregate principal amount of 1.750% convertible senior notes due in 2027 (the "2027 Notes"), which includes the initial purchaser’s exercise in full of its option to purchase an additional $30.0 million principal amount of the 2027 Notes, in a private offering. The net proceeds from the issuance of the 2027 Notes was $224.3 million after deducting discounts, commissions and estimated issuance costs. The 2027 Notes bear interest at a rate of 1.750% per year, payable semi-annually in arrears on June 15 and December 15 of each year, which commenced on December 15, 2022. The 2027 Notes mature on June 15, 2027, unless, earlier repurchased or redeemed by the Company or converted pursuant to their terms. The 2027 Notes have an initial conversion rate of 13.9505 shares of the Company's Class A common stock per $1,000 principal amount of 2027 Notes, which is equivalent to an initial conversion price of approximately $71.68 per share of its Class A common stock. Refer to the Company’s consolidated financial statements for the year ended December 31, 2022, for details of the issuance of the 2027 Notes.
The Company may settle the 2027 Notes in cash, shares of Class A common stock or a combination of cash and shares of its Class A common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture.
During the period ended March 31, 2024, the conditions allowing holders of the 2027 Notes to convert were not met. Therefore, the 2027 Notes remained classified as long-term debt on the consolidated balance sheet as of March 31, 2024.
13
2024 Notes
In June 2019, the Company issued $230.0 million aggregate principal amount of 0.25% convertible senior notes due in 2024 (the "2024 Notes" and together with the 2027 Notes, the “Convertible Notes”), which includes the underwriters’ exercise in full of their option to purchase an additional $30.0 million principal amount of the 2024 Notes, in a public offering. The net proceeds from the issuance of the 2024 Notes were $221.9 million after deducting the underwriting discounts and commissions and estimated issuance costs. The 2024 Notes bear interest at a rate of 0.25% per year, payable semi-annually in arrears on June 1 and December 1 of each year. The 2024 Notes mature on June 1, 2024, unless, earlier repurchased or redeemed by the Company or converted pursuant to their terms. The 2024 Notes have an initial conversion rate of 21.5049 shares of the Company's Class A common stock per $1,000 principal amount of 2024 Notes, which is equivalent to an initial conversion price of approximately $46.50 per share of its Class A common stock. Refer to the Company’s consolidated financial statements for the year ended December 31, 2023, for details of the issuance of the 2024 Notes.
During the year ended December 31, 2022, using proceeds from the issuance of the 2027 Notes, the Company entered into separate privately negotiated transactions with certain holders of the 2024 Notes to repurchase and retire $148.2 million aggregate principal amount of the 2024 Notes for an aggregate amount of $192.4 million of cash including accrued and unpaid interest.
As of March 31, 2024, until the close of business on the business day immediately preceding the maturity date, holders may convert their 2024 Notes at any time. Upon conversion, the Company has elected to settle the 2024 Notes par value in cash and to settle the premium in shares of its Class A common stock, subject to the terms and conditions provided in the Indenture. As of March 31, 2024, $81.7 million principal amount of the 2024 Notes remained outstanding and were classified as current liabilities on the consolidated balance sheet.
The net carrying value of the 2027 and 2024 Notes was as follows (in thousands):
Principal
230,000
81,729
Less: unamortized debt issuance costs
3,777
112
4,071
274
The interest expense related to the 2027 and 2024 Notes was as follows (in thousands):
Contractual interest expense
1,057
1,061
Amortization of debt issuance costs
457
464
1,514
1,525
As of March 31, 2024, the “if converted value” of the 2027 Notes exceeded the principal amount by $46.4 million, and the “if converted value” of the 2024 Notes exceeded the principal amount by $69.7 million.
Revolving credit facility
The Company has a $200.0 million credit facility with a maturity date of December 31, 2025 (“2019 Amended Credit Agreement”).
As of March 31, 2024, there were no outstanding borrowings under the 2019 Amended Credit Agreement, there was $200.0 million available for future borrowing, and the Company was in compliance with all the financial covenants. The 2019 Amended Credit Agreement is available for general corporate purposes, including working capital, capital expenditures, and permitted acquisitions.
For additional information about the 2019 Amended Credit Agreement, refer to the Company’s consolidated financial statements for the year ended December 31, 2023, included in our Annual Report on Form 10-K.
14
The accounting guidance for fair value, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The framework for measuring fair value consists of a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:
Level 1 – Quoted prices in active markets for identical assets and liabilities at the measurement date;
Level 2 – Observable inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3 – Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
An asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
The carrying value of cash and cash equivalents, accounts receivable, net and accounts payable approximate fair value due to their short maturities. Interest on the Company’s line of credit is at a variable rate, and as such the debt obligation outstanding approximates fair value.
The carrying value of the Company’s Convertible Notes are at face value less unamortized issuance costs. The estimated fair values of the Convertible Notes, which the Company has classified as Level 2 financial instruments, were determined based on quoted bid prices of the Convertible Notes on the last trading day of each reporting period. As of March 31, 2024, the estimated fair value of the 2027 Notes and 2024 Notes was $302.1 million and $150.9 million, respectively, and is presented for required disclosure purposes only. For further information on the Convertible Notes, see Note 6. – Debt.
2017 stock-based compensation plan
In 2017, the Company’s Board of Directors adopted the 2017 Equity Incentive Plan (“2017 Plan”), which was approved by the Company’s stockholders. The 2017 Plan provides for the grant of incentive stock options to the Company’s employees and any parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, performance shares, other cash-based awards and other stock-based awards to the Company’s employees, directors and consultants and the Company’s parent, subsidiary, and affiliate corporations’ employees and consultants. The 2017 Plan has 19,460,908 authorized shares of the Company’s Class A common stock reserved for issuance. As of March 31, 2024, the Company had 6,701,748 shares of its common stock available for future issuances under the 2017 Plan.
The following table summarizes the restricted stock units, or RSUs, awarded under the 2017 Plan for the period:
Number of RSUs
Outstanding as of December 31, 2023
1,086,351
Granted
308,671
Vested
(303,210
Forfeited
(6,428
Outstanding as of March 31, 2024
1,085,384
The weighted average grant date fair value of the RSUs was $79.20 and the RSUs generally vest in four equal annual installments. Total compensation cost related to nonvested awards not yet recognized as of March 31, 2024, totaled $93.5 million, and is expected to be recognized over a weighted average period of 2.7 years.
15
The following table summarizes the stock option activity under the 2017 Plan for the period:
Number of options
Weighted averageexercise price per share
Weighted averageremaining contractual term (years)
Aggregate intrinsic value (in millions)
7,602,078
52.81
7.8
238.3
416,608
79.19
Exercised
(402,890
49.40
(22,962
55.23
7,592,834
54.43
240.9
Exercisable as of March 31, 2024
3,640,511
51.42
6.8
126.4
The total intrinsic value of the 2017 Plan stock options exercised during the three months ended March 31, 2024, was $143.4 million.
2021 Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“ESPP”) which allows eligible employees to purchase shares of common stock through payroll deductions and is intended to qualify under Section 423 of the Internal Revenue Code. The maximum number of shares available for issuance under the ESPP is 3,200,000 shares of the Company’s Class A common stock. As of March 31, 2024, the Company had 2,767,911 shares of its common stock available for future issuances under the ESPP.
The purchase price for each share of common stock purchased under the ESPP will be 85% of the lower of (a) the fair market value per share on the first day of the applicable offering period or (b) the fair market value per share on the applicable purchase date.
The Company issued 64,309 shares of common stock under the ESPP during the three months ended March 31, 2024. As of March 31, 2024 and December 31, 2023, respectively, $2.2 million and $4.2 million had been withheld on behalf of employees for future purchases under the ESPP due to the timing of payroll deductions and was reported in current liabilities. The Company recognized $0.7 million and $0.6 million of stock-based compensation expense related to the ESPP for the three months ended March 31, 2024 and 2023, respectively.
Stock-based compensation expense was recorded as follows (in thousands):
Cost of revenue – software
2,002
2,752
6,360
8,743
4,520
7,591
3,117
3,075
Total stock-based compensation expense
16
Basic net income (loss) per share attributable to common stockholders is computed using the weighted average number of shares of common stock outstanding for the period, excluding dilutive securities, stock options, RSUs and ESPP shares. Diluted net income (loss) per share attributable to common stockholders is based upon the weighted average number of shares of common stock outstanding for the period and potentially dilutive common shares, including the effect of dilutive securities, stock options, RSUs and ESPP shares under the treasury stock method.
The Company applies the if-converted method for convertible instruments when calculating diluted earnings per share. Under the if-converted method, shares related to convertible senior notes, to the extent dilutive, are assumed to be converted into common stock at the beginning of the period.
The following table sets forth the computation of the numerators and denominators used in the basic and diluted net income (loss) per share amounts (in thousands, except per share data):
Numerator:
Interest expense related to Convertible Notes, net of tax
Numerator for diluted income (loss) per share
17,604
Denominator:
Denominator for basic income (loss) per share— weighted average shares
Effect of dilutive securities, stock options, RSUs and ESPP shares
7,219
Denominator for dilutive income (loss) per share
Anti-dilutive shares excluded from the computation of diluted net income (loss) per share were as follows (in thousands):
Stock options and ESPP shares
2,883
Convertible shares
4,967
Total shares excluded from calculation
7,850
The Company’s income tax expense and effective tax rate for the three ended March 31, 2024 and 2023, were as follows (in thousands, except percentages):
Effective tax rate
29
%
127
17
The tax rate is affected by the Company being a U.S. resident taxpayer, the tax rates in the U.S. and other jurisdictions in which the Company operates, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no benefit or expense is recognized due to a valuation allowance. The change in the effective tax rate for the three months ended March 31, 2024 as compared to March 31, 2023, was primarily attributable to the effects of tax elections made by the Company during the third quarter of 2023 that have a prospective impact on the Company’s tax expense in 2024. The Company's effective tax rate for the three months ended March 31, 2024 and 2023 also includes net discrete benefit of $0.4 million and expense of $5.7 million, respectively, primarily related to changes in tax laws, withholding taxes on royalties, changes in reserves, changes in accruals for unremitted earnings and other adjustments.
The components of accumulated other comprehensive loss were as follows (in thousands):
Retirement relatedbenefit plans
(21,473
(836
Other comprehensive income before reclassification
Amounts reclassified from accumulated other comprehensive income
Tax effects
Other comprehensive income
(26,502
(802
Legal proceedings
From time to time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company has received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend the Company, its partners, and its customers by determining the scope, enforceability, and validity of third-party proprietary rights, or to establish and enforce the Company’s proprietary rights.
Effects of proceedings
The results of any current or future litigation cannot be predicted with certainty and regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
The Company defines its operating segments as components of its business where separate financial information is available and used by the chief operating decision maker (“CODM”) in deciding how to allocate resources to its segments and in assessing performance. The Company’s CODM is its Chief Executive Officer.
The Company has identified two reportable segments for financial reporting purposes: Software and Client Engineering Services (“CES”). The primary measure of segment operating performance is Adjusted EBITDA, which is defined as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, asset impairment charges and other special items as determined by management. Corporate headquarter costs are allocated to each segment.
18
The following tables are in thousands:
Three months ended March 31, 2024
Software
CES
All other
165,046
Adjusted EBITDA
46,070
(67
(185
45,818
Three months ended March 31, 2023
156,743
42,772
409
(126
43,055
Reconciliation of Adjusted EBITDA to U.S. GAAP income before income taxes:
(15,999
(22,161
(1,576
(1,526
(9,619
(9,750
Special adjustments, interest income and other (1)
4,692
(2,345
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this quarterly report and with our audited consolidated financial statements (and notes thereto) for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties, and other factors, which may be beyond our control, and which may cause our actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “can,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “seek,” “estimate,” “continue,” “plan,” “point to,” “project,” “predict,” “could,” “intend,” “target,” “potential,” and other similar words and expressions of the future.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. For additional risks which could adversely impact our business and financial performance please see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 22, 2024, and other information appearing elsewhere in our Annual Report on Form 10-K, this report on Form 10-Q and our other filings with the SEC.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise. We have expressed our expectations, beliefs, and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs, or projections will result or be achieved or accomplished.
Overview
We are a global leader in computational intelligence and we provide software and cloud solutions in simulation, high-performance computing (HPS), data analytics, and AI. We enable 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.
Factors Affecting our Performance
We believe that our future success will depend on many factors, including those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. If we are unable to address these challenges, our business, operating results and prospects could be harmed. Please see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Seasonality and quarterly results
Our billings have historically been highest in the first and fourth quarters of any calendar year and may vary in future quarters. The timing of recording billings and the corresponding effect on our cash flows may vary due to the seasonality of the purchasing and payment patterns of our customers. In addition, the timing of the recognition of revenue, the amount and timing of operating expenses, including employee compensation, sales and marketing activities, and capital expenditures, may vary from quarter-to-quarter which may cause our reported results to fluctuate significantly. In addition, we may choose to grow our business for the long-term rather than to optimize for profitability or cash flows for a particular shorter-term period. This seasonality or the occurrence of any of the factors above may cause our results of operations to vary and our financial statements may not fully reflect the underlying performance of our business.
Integration of recent acquisitions
We believe that our recent acquisitions result in certain benefits, including expanding our portfolio of software and products and enabling us to better serve our customers’ requests for data analytics and simulation technology. However, to realize some of these anticipated benefits, the acquired businesses must be successfully integrated. The success of these acquisitions will depend in part on our ability to realize these anticipated benefits. We may fail to realize the anticipated benefits of these acquisitions for a variety of reasons.
Foreign currency fluctuations
Because of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies, including the Euro, British Pound Sterling, Indian Rupee, Japanese Yen, and Chinese Yuan. To identify changes in our underlying business without regard to the impact of currency fluctuations, we evaluate certain of our operating results both on an as reported basis, as well as on a constant currency basis. For the remainder of our current fiscal year, we anticipate that our revenues and profit may be impacted by changes in foreign currency rates.
21
Business Segments
We have identified two reportable segments: Software and Client Engineering Services:
Our other businesses which do not meet the criteria to be separate reportable segments are combined and reported as “Other” which represents innovative services and products, including Toggled, our LED lighting business. Toggled is focused on developing and selling next-generation solid state lighting technology along with communication and control protocols based on our intellectual property for the direct replacement of fluorescent light tubes with LED lamps.
For additional information about our reportable segments and other businesses, see Note 13 in the Notes to consolidated financial statements in Item 1, Part I of this Quarterly Report on Form 10-Q.
22
Results of operations
Comparison of the three months ended March 31, 2024 and 2023
The following table sets forth the results of operations and the period-over-period percentage change in certain financial data for the three months ended March 31, 2024 and 2023:
Increase / (decrease)
(in thousands, except %'s)
Revenue:
(12
%)
Cost of revenue:
(3
(9
(6
(2
(1
(5
NM
304
221
(27
Other financial information:
Billings(1)
154,148
163,517
Adjusted EBITDA(2)
24
Free cash flow(3)
70,684
57,472
23
NM Not meaningful.
Effective in the first quarter of 2024, the Company changed the presentation of revenue and cost of revenue in its Consolidated Statements of Operations to combine the financial statement line items (“FSLIs”) labeled “Software related services”, “Client engineering services” and “Other” into one FSLI labeled “Engineering services and other.” The change in presentation has been applied retrospectively and does not affect the software revenue, total revenue, software cost of revenue, or total cost of revenue amounts previously reported or have any effect on segment reporting.
Three months ended March 31, 2024 and 2023
Period-to-period change
Software revenue
8,786
As a percent of consolidated revenue
90
Software revenue increased 6%, or 7% in constant currency, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase was driven by growth in software license revenue primarily by strong retention and expansions within existing accounts, particularly in the automotive and aerospace & defense verticals.
Engineering services and other revenue
(1,908
The 12% decrease in engineering services and other revenue for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023, was due to lower customer demand for client engineering services during the period.
Cost of software revenue
(594
As a percent of software revenue
Cost of software revenue decreased $0.6 million, or 3%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Hardware costs and stock-based compensation expense decreased $0.9 million and $0.8 million, respectively, for the three months ended March 31, 2024. These decreases were partially offset by increases in employee compensation and related expense and royalty expense of $0.7 million and $0.4 million, respectively.
Cost of engineering services and other revenue
(1,248
As a percent of engineering services and other revenue
84
82
Cost of engineering services and other revenue decreased 9% for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The decrease was due to decreases in project-related costs of $0.6 million, employee compensation and related expense of $0.4 million, and manufacturing costs and inventory expense of $0.3 million.
8,720
80
Gross profit increased by $8.7 million, or 7%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. This increase in gross profit was primarily attributable to the increase in software revenue.
Operating expenses
Operating expenses, as discussed below, support all the products and services that we provide to our customers and, as a result, they are reported and discussed in the aggregate.
(918
Research and development expenses decreased by $0.9 million, or 2%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Stock-based compensation expense decreased $2.4 million for the three months ended March 31, 2024, partially offset by an increase in employee compensation and related expense of $1.2 million, primarily due to increased headcount and merit increases.
942
26
Sales and marketing expenses increased by $0.9 million, or 2%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Employee compensation and related expense increased $3.6 million, primarily due to annual merit increases and increased headcount, travel costs increased $0.3 million, facilities costs and depreciation expense increased $0.3 million, and advertising and trade show related expenses increased $0.2 million for the three months ended March 31, 2024. These increases were partially offset by a decrease in stock-based compensation expense and non-income tax expense of $3.1 million and $0.4 million, respectively.
(190
General and administrative expenses decreased by $0.2 million, or 1%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Employee compensation and related expense decreased $0.4 million for the three months ended March 31, 2024, partially offset by an increase in professional fees of $0.4 million.
(376
Amortization of intangible assets decreased by $0.4 million, or 5%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. Amortization decreased as a result of certain fully amortized intangible assets.
25
6,487
Other operating (income) expense, net was $0.9 million of income for the three months ended March 31, 2024, compared to $5.6 million of expense for the three months ended March 31, 2023. We recognized a $0.1 million loss on the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition for the three months ended March 31, 2024, compared to a $7.0 million loss for the three months ended March 31, 2023. In addition, we had a $0.9 million decrease in grant income and $0.4 million increase in royalty income for the three months ended March 31, 2024.
50
1
Interest expense remained consistent for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.
344
Other income, net increased $0.3 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023. Other income, net for the three months ended March 31, 2024, includes $5.7 million of interest income and $1.8 million in net foreign currency losses. Other income, net for the three months ended March 31, 2023, includes $2.9 million of interest income and $0.7 million in net foreign currency gains.
(2,463
The effective tax rate was 29% and 127% for the three months ended March 31, 2024 and 2023, respectively. The tax rate is affected by our status as a U.S. resident taxpayer, the tax rates in the U.S. and other jurisdictions in which we operate, the relative amount of income earned by jurisdiction and the relative amount of losses or income for which no benefit or expense is recognized due to a valuation allowance. The change in the effective tax rate for the three months ended March 31, 2024 as compared to March 31, 2023, was primarily attributable to the effects of tax elections made by the Company during the third quarter of 2023 that have a prospective impact on the Company’s tax expense in 2024. The Company's effective tax rate for the three months ended March 31, 2024 and 2023 also includes net discrete benefit of $0.4 million and expense of $5.7 million, respectively, primarily related to changes in tax laws, withholding taxes on royalties, changes in reserves, changes in accruals for unremitted earnings and other adjustments.
18,506
Net income was $16.5 million for the three months ended March 31, 2024, compared to a net loss of $2.0 million for the three months ended March 31, 2023. Net income for the three months ended March 31, 2024, was a result of the increase in gross profit, the decrease in the loss on the mark-to-market adjustment of contingent consideration, and the decrease in income tax expense as compared to the three months ended March 31, 2023.
Non-GAAP financial measures
We monitor the following key non-GAAP (United States generally accepted accounting principles) financial and operating metrics to help us evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. In analyzing and planning for our business, we supplement our use of GAAP financial measures with non-GAAP financial measures, including Billings as a liquidity measure, Adjusted EBITDA as a performance measure and Free Cash Flow as a liquidity measure.
Other financial data:
Billings
Free Cash Flow
Billings. Billings consists of our total revenue plus the change in our deferred revenue, excluding deferred revenue from acquisitions during the period. Given that we generally bill our customers at the time of sale, but typically recognize a portion of the related revenue ratably over time, management believes that Billings is a meaningful way to measure and monitor our ability to provide our business with the working capital generated by upfront payments from our customers.
Adjusted EBITDA. We define Adjusted EBITDA as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and other, depreciation and amortization, stock-based compensation expense, asset impairment charges and other special items as determined by management. Our management team believes that Adjusted EBITDA is a meaningful measure of performance as it is commonly utilized by management and the investment community to analyze operating performance in our industry.
Free Cash Flow. Free Cash Flow is a non-GAAP measure that we calculate as cash flow provided by operating activities less capital expenditures. Management believes that Free Cash Flow is useful in analyzing our ability to service and repay debt, when applicable, and return value directly to stockholders.
These non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with our GAAP results and the accompanying reconciliations to corresponding GAAP financial measures included in the tables below, may provide a more complete understanding of factors and trends affecting our business. These non-GAAP financial measures should not be relied upon to the exclusion of GAAP financial measures and are by definition an incomplete understanding of the Company and must be considered in conjunction with GAAP measures.
We believe that the non-GAAP measures disclosed herein are only useful as an additional tool to help management and investors make informed decisions about our financial and operating performance and liquidity. By definition, non-GAAP measures do not give a full understanding of the Company. To be truly valuable, they must be used in conjunction with the comparable GAAP measures. In addition, non-GAAP financial measures are not standardized. It may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements and the notes thereto in their entirety and not to rely on any single financial measure.
Reconciliation of non-GAAP financial measures
The following tables provides reconciliations of revenue to Billings, net loss to Adjusted EBITDA, and net cash provided by operating activities to Free Cash Flow:
Ending deferred revenue
144,939
141,943
Beginning deferred revenue
(163,703
(144,460
27
(4,692
2,345
Free cash flow
Recurring software license rate
A key factor to our success is our recurring software license rate, which we measure through Billings, primarily derived from annual renewals of our existing subscription customer agreements. Recurring revenue streams allow us to create more consistent, predictable cash flows and drive greater long-term customer value. We believe the recurring software license rate is a key factor to our success and we monitor this measure to ensure our go-to-market strategy is driving long-term success of our business.
We calculate our recurring software license rate for a particular period by dividing (i) the sum of software term-based license Billings, software license maintenance Billings, and 20% of software perpetual license Billings which we believe approximates maintenance as an element of the arrangement by (ii) the total software license Billings including all term-based subscriptions, maintenance, and perpetual license billings from all customers for that period. The recurring software license rate was 95% for the three months ended March 31, 2024 and 2023. The recurring software license rate may vary from period to period.
Liquidity and capital resources
As of March 31, 2024, our principal sources of liquidity were $557.6 million in cash and cash equivalents and $200.0 million availability on our credit facility. We have outstanding debt in the form of our 2027 and 2024 convertible notes (“Convertible Notes”) with a $311.7 million principal amount as of March 31, 2024.
During the period ended March 31, 2024, the conditions allowing holders of the 2027 Notes to convert were not met. Therefore, the 2027 Notes were classified as long-term debt on the consolidated balance sheet as of March 31, 2024. We have the ability to settle the 2027 Notes in cash, shares of our common stock, or a combination of cash and shares of our common stock at our own election.
The 2024 Notes are convertible at the option of the holders and mature on June 1, 2024, and were classified as current on the consolidated balance sheet as of March 31, 2024. We have elected to settle the 2024 Notes par value of $81.7 million in cash, which we currently expect to fund from our available cash, and will settle the premium of $69.2 million in shares of our Class A common stock.
As of March 31, 2024, approximately $49.1 million remained available for repurchase under our stock repurchase program.
28
We continue to evaluate possible acquisitions and other strategic transactions designed to expand our business. As a result, our expected uses of cash could change, our cash position could be reduced, or we may incur additional debt obligations to the extent we complete additional acquisitions or strategic transactions.
Our existing cash and cash equivalents may fluctuate during fiscal 2024 due to changes in our planned cash expenditures, including changes in incremental costs such as direct costs and integration costs related to acquisitions. Cash from operations could also be affected by various risks and uncertainties, including but not limited to, the effects of geopolitical events. It is possible that certain customers may unilaterally decide to extend payments on accounts receivable, however our customer base is comprised primarily of larger organizations with typically strong liquidity and capital resources.
We believe that our existing cash balances, together with funds generated from operations and amounts available under our credit facility, will be sufficient to finance our operations and meet our foreseeable cash requirements for the next twelve months. We also believe that our financial resources, along with managing discretionary expenses, will allow us to manage our business operations for the foreseeable future and withstand geopolitical events, which could include reductions in revenue and delays in payments from customers and partners. We will continue to evaluate our financial position as developments evolve.
As of March 31, 2024, there were no outstanding borrowings under our 2019 Amended Credit Agreement and there was $200.0 million available for future borrowing. The 2019 Amended Credit Agreement is available for general corporate purposes, including working capital, capital expenditures and permitted acquisitions.
For additional information about the 2019 Amended Credit Agreement, refer to our consolidated financial statements for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC on February 22, 2024.
Cash flows
As of March 31, 2024, we had cash and cash equivalents of $557.6 million available for working capital purposes, acquisitions, and capital expenditures; $444.8 million of this amount was held in the United States and $107.4 million was held in the APAC and EMEA regions with the remainder held in Canada, Mexico, and South America.
Other than statutory limitations, there are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Altair. Based on our current liquidity needs and repatriation strategies, we expect that we can manage our global liquidity needs without material adverse tax implications.
The following table summarizes our cash flows for the periods indicated:
Net cash provided by operating activities for the three months ended March 31, 2024, was $73.5 million, which reflects an increase of $14.3 million compared to the three months ended March 31, 2023. This increase was the result of improvements in our operating results and changes to our working capital position for the three months ended March 31, 2024, as compared to the three months ended March 31, 2024.
Net cash used in investing activities for the three months ended March 31, 2024, was $2.8 million, which reflects a decrease of $0.4 million compared to the three months ended March 31, 2023.
Net cash provided by financing activities for the three months ended March 31, 2024, was $22.0 million, which reflects an increase of $16.6 million compared to the three months ended March 31, 2023. For the three months ended March 31, 2024, we received proceeds of $19.8 million from the exercise of common stock options. For the three months ended March 31, 2023, we received proceeds of $9.9 million from the exercise of common stock options and made payments of $6.3 million for the repurchase of our Class A common stock.
There was an adverse effect of exchange rate changes on cash, cash equivalents and restricted cash of $2.6 million for the three months ended March 31, 2024, compared to a favorable effect of exchange rate changes on cash, cash equivalents and restricted cash of $0.4 million for the three months ended March 31, 2023.
Commitments
There were no material changes in our commitments as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Recently issued accounting pronouncements
See Note 2 in the Notes to consolidated financial statements in Item 1, Part I of this Quarterly Report on Form 10-Q for a full description of the recent accounting pronouncements and our expectation of their impact, if any, on our results of operations and financial condition.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to certain global market risks, including foreign currency exchange risk and interest rate risk associated with our revolving credit facility.
Foreign Currency Risk
As a result of our substantial international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies. In addition, we translate sales and financial results denominated in foreign currencies into United States dollars for purposes of our consolidated financial statements. As a result, appreciation of the United States dollar against these foreign currencies generally will have a negative impact on our reported revenue and operating income while depreciation of the United States dollar against these foreign currencies will generally have a positive effect on reported revenue and operating income.
As of March 31, 2024, we do not have any foreign currency hedging contracts. Based on our current international operations, we do not plan on engaging in hedging activities in the near future.
Market Risk and Market Interest Risk
In June 2022, we issued $230.0 million aggregate principal amount of 1.750% convertible senior notes due in 2027. In June 2019, we issued $230.0 million aggregate principal amount of 0.250% convertible senior notes due 2024 of which $81.7 million aggregate principal amount remains outstanding as of March 31, 2024. The 2027 Notes and 2024 Notes have fixed annual interest rates at 1.750% and 0.250%, respectively, and, therefore, we do not have economic interest rate exposure on our Convertible Notes. However, the value of the Convertible Notes is exposed to interest rate risk. Generally, the fair market value of our fixed interest rate Convertible Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair values of the Convertible Notes are affected by our stock price. The fair value of the Convertible Notes will generally increase as our Class A common stock price increases in value and will generally decrease as our Class A common stock price declines in value. We carry the Convertible Notes at face value less unamortized issuance costs on our balance sheet, and we present the fair value for required disclosure purposes only.
As of March 31, 2024, we had cash, cash equivalents and restricted cash of $557.7 million, consisting primarily of bank deposits and money market funds. As of March 31, 2024, we had no outstanding borrowings under our 2019 Amended Credit Agreement. Such interest-bearing instruments carry a degree of interest rate risk; however, historical fluctuations of interest expense have not been significant.
Interest rate risk relates to the gain/increase or loss/decrease we could incur on our debt balances and interest expense associated with changes in interest rates. Changes in interest rates would impact the amount of interest income we realize on our invested cash balances. It is our policy not to enter into derivative instruments for speculative purposes, and therefore, we hold no derivative instruments for trading purposes.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) of the Exchange Act) that are designed to ensure that information required to be disclosed in periodic reports filed with the SEC under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13(a)-15(e) under the Exchange Act as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2024.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
Other legal proceedings
From time to time, we may be subject to other legal proceedings and claims in the ordinary course of business. We have received, and may in the future continue to receive, claims from third parties asserting, among other things, infringement of their intellectual property rights. Future litigation may be necessary to defend ourselves, our partners and our customers by determining the scope, enforceability and validity of third-party proprietary rights, or to establish and enforce our proprietary rights. The results of any current or future litigation cannot be predicted with certainty and regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in the Company’s Annual Report on 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Insider Trading Arrangements and Policies
During the quarter ended March 31, 2024, none of the Company’s directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408, that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).
Item 6. Exhibits
No.
Description
31.1*
Certification of the Chief Executive Officer of Altair Engineering Inc. pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended
31.2*
Certification of the Chief Financial Officer of Altair Engineering Inc. pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended
32.1**
Certification of the Chief Executive Officer and Chief Financial Officer of Altair Engineering Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema with Embedded Linkbase Documents
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, has been formatted in Inline XBRL
* Filed herewith.
** The certifications furnished in Exhibit 32.1 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 2, 2024
By:
/s/ James R. Scapa
James R. Scapa
Chief Executive Officer (Principal Executive Officer)
/s/ Matthew Brown
Matthew Brown
Chief Financial Officer (Principal Financial Officer)