Other (income) expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Period-to-period change |
(in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
Other (income) expense, net |
|
$ |
(3,613 |
) |
|
$ |
2,068 |
|
|
$ |
5,681 |
|
|
NM |
As a percent of consolidated revenue |
|
|
(2 |
%) |
|
|
1 |
% |
|
|
|
|
|
Other (income) expense, net increased by $5.7 million for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022. We recognized an increase of $2.6 million in net foreign currency gains and $3.0 million increase in interest income for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Period-to-period change |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
|
Income tax expense |
|
$ |
9,232 |
|
|
$ |
6,530 |
|
|
$ |
2,702 |
|
|
|
41 |
% |
The effective tax rate was 127% and 36% for the three months ended March 31, 2023 and 2022 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 increase in our effective tax rate for the three months ended March 31, 2023 is primarily due to a change to Internal Revenue Code (“IRC”) Section 174 which became effective for tax years beginning on or after January 1, 2022. Under the new rules, we are required to capitalize and amortize research and development expenses over five years for research activities conducted in the U.S. and over fifteen years for research activities conducted outside of the U.S. for U.S. tax purposes. The capitalization of research and development expenses resulted in an increase to our taxable income and foreign derived intangible income (“FDII”), resulting in a corresponding increase in our FDII deduction. However, no tax benefit is recognized for the deferred tax asset established for these capitalized research and development expenses due to our valuation allowance position in the U.S. Our effective tax rate for the three months ended March 31, 2023 and 2022, also includes net discrete expense of $5.7 million and $1.8 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.
Net (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Period-to-period change |
(in thousands) |
|
2023 |
|
|
2022 |
|
|
$ |
|
|
% |
Net (loss) income |
|
$ |
(1,959 |
) |
|
$ |
11,528 |
|
|
$ |
(13,487 |
) |
|
NM |
27
Net loss was $2.0 million for the three months ended March 31, 2023, compared to net income of $11.5 million for the three months ended March 31, 2022. The net loss was largely attributable to the increase in operating expenses and income tax expense, partially offset by the increase in software revenue, foreign currency gains, and interest income, as described above.
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.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Other financial data: |
|
|
|
|
|
|
Billings |
|
$ |
163,517 |
|
|
$ |
171,337 |
|
Adjusted EBITDA |
|
$ |
43,055 |
|
|
$ |
46,590 |
|
Free Cash Flow |
|
$ |
57,472 |
|
|
$ |
3,596 |
|
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, restructuring charges, 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) income to Adjusted EBITDA, and net cash provided by operating activities to Free Cash Flow:
Billings
28
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
2023 |
|
|
2022 |
|
Revenue |
$ |
166,034 |
|
|
$ |
159,781 |
|
Ending deferred revenue |
|
141,943 |
|
|
|
118,403 |
|
Beginning deferred revenue |
|
(144,460 |
) |
|
|
(106,032 |
) |
Deferred revenue acquired |
|
— |
|
|
|
(815 |
) |
Billings |
$ |
163,517 |
|
|
$ |
171,337 |
|
Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Net (loss) income |
|
$ |
(1,959 |
) |
|
$ |
11,528 |
|
Income tax expense |
|
|
9,232 |
|
|
|
6,530 |
|
Stock-based compensation expense |
|
|
22,161 |
|
|
|
18,614 |
|
Interest expense |
|
|
1,526 |
|
|
|
585 |
|
Depreciation and amortization |
|
|
9,750 |
|
|
|
7,686 |
|
Special adjustments, interest income and other (1) |
|
|
2,345 |
|
|
|
1,647 |
|
Adjusted EBITDA |
|
$ |
43,055 |
|
|
$ |
46,590 |
|
(1)The three months ended March 31, 2023, includes a $7.0 million loss from the mark-to-market adjustment of contingent consideration associated with the World Programming acquisition, $2.9 million of interest income, and $1.8 million currency gains on acquisition-related intercompany loans. The three months ended March 31, 2022, includes $1.5 million currency losses on acquisition-related intercompany loans.
Free Cash Flow
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Net cash provided by operating activities (1) |
|
$ |
59,199 |
|
|
$ |
5,786 |
|
Capital expenditures |
|
|
(1,727 |
) |
|
|
(2,190 |
) |
Free cash flow (1) |
|
$ |
57,472 |
|
|
$ |
3,596 |
|
(1)The three months ended March 31, 2022, includes $65.9 million payment for a damages judgement assumed as part of an acquisition in December 2021.
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. For the three months ended March 31, 2023 and 2022, our recurring software license rate was 95% and 93%, respectively. The recurring software license rate may vary from period to period.
Liquidity and capital resources
As of March 31, 2023, our principal sources of liquidity were $378.4 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 $311.8 million principal amount as of March 31, 2023.
For at least twenty trading days during the last thirty consecutive trading days in the quarter ended March 31, 2023, the last reported sale price of the Company’s Class A common stock was greater than or equal to 130% of the conversion price of the 2024 Notes. As a result, the 2024 Notes were convertible at the option of the holders and were classified as current liabilities on the consolidated balance sheet as of March 31, 2023.
29
During the period ended March 31, 2023, 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, 2023.
We have the ability to settle the Convertible Notes in cash, shares of our common stock, or a combination of cash and shares of our common stock at our own election.
During the period ended March 31, 2023, under our stock repurchase program, we repurchased and retired 91,273 shares of our Class A Common Stock at an average price of $46.63 per share for a total cost of approximately $4.3 million. As of March 31, 2023, approximately $24.1 million remained available for repurchase under the program.
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 2023 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. 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 economic uncertainty, 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.
Revolving credit facility
We have a $200.0 million credit facility with a maturity date of December 31, 2025 (“2019 Amended Credit Agreement”). As of March 31, 2023, there were no outstanding borrowings under the 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. As of March 31, 2023, we were in compliance with the financial covenants.
For additional information about the 2019 Amended Credit Agreement, refer to our consolidated financial statements for the year ended December 31, 2022, included in our Annual Report on Form 10-K filed with the SEC on February 24, 2023.
Cash flows
As of March 31, 2023, we had cash and cash equivalents of $378.4 million available for working capital purposes, acquisitions, and capital expenditures; $286.2 million of this amount was held in the United States and $88.1 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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(in thousands) |
|
2023 |
|
|
2022 |
|
Net cash provided by operating activities |
|
$ |
59,199 |
|
|
$ |
5,786 |
|
Net cash used in investing activities |
|
|
(3,132 |
) |
|
|
(15,504 |
) |
Net cash provided by financing activities |
|
|
5,456 |
|
|
|
2,509 |
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash |
|
|
379 |
|
|
|
(970 |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
$ |
61,902 |
|
|
$ |
(8,179 |
) |
30
Net cash provided by operating activities
Net cash provided by operating activities for the three months ended March 31, 2023, was $59.2 million, which reflects an increase of $53.4 million compared to the three months ended March 31, 2022. This increase was the result of a $65.9 million payment in the prior year on an existing legal judgment against World Programming, partially offset by changes to our working capital position for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022.
Net cash used in investing activities
Net cash used in investing activities for the three months ended March 31, 2023, was $3.1 million, which reflects a decrease of $12.4 million compared to the three months ended March 31, 2022. For the three months ended March 31, 2022, we paid $13.0 million related to business acquisitions.
Net cash provided by financing activities
Net cash provided by financing activities for the three months ended March 31, 2023, was $5.5 million, which reflects an increase of $2.9 million compared to the three months ended March 31, 2022. 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.
Effect of exchange rate changes on cash, cash equivalents and restricted cash
There was 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, compared to an adverse effect of exchange rate changes on cash, cash equivalents and restricted cash of $1.0 million for the three months ended March 31, 2022.
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, 2022.
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.