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Altair Announces Third Quarter 2018 Financial Results

November 8, 2018

TROY, Mich., Nov. 08, 2018 (GLOBE NEWSWIRE) -- Altair (Nasdaq:ALTR) released its financial results for the third quarter ended September 30, 2018.

“Altair’s third quarter results reflected better than expected profitability and continued software momentum, despite greater than expected foreign exchange headwinds,” said James Scapa, Founder, Chairman and CEO. “We are seeing broad-based growth across our business, including in the auto sector, due to the superior accuracy and time to value Altair’s solutions provide in the product design process.”

Scapa continued, “The pending acquisition of Datawatch significantly advances our vision of simulation driven design by accelerating the convergence of data and simulation. Similarly, the recently completed acquisition of SimSolid is a revolutionary advance in design simulation that will greatly enhance the accuracy and speed of product design. We are confident our expanded product offerings position us well to build upon our leadership in the CAE market and generate continue strong revenue growth and expanding profitability.”

Third Quarter 2018 Financial Highlights

-- Software product revenue was $71.3 million, an increase of 13% from $63.2 million for the third quarter of 2017. -- Total revenue was $93.9 million, an increase of 11% compared to $84.9 million for the third quarter of 2017. -- Net income was $7.3 million, compared to net loss of $(29.6) million for the third quarter of 2017. The third quarter of 2018 included gain on the sale of a building of $4.4 million, while the third quarter of 2017 included non-cash stock-based compensation expenses of $25.3 million. Diluted net income per share was $0.10, based on 76.7 million diluted weighted average common shares outstanding, compared to diluted net loss per share of $(0.59) for the third quarter of 2017, based on 50.6 million diluted weighted average common shares outstanding. -- Adjusted EBITDA was $9.5 million, compared to $7.0 million for the third quarter of 2017. Adjusted EBITDA represents net income (loss) 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 determined by management. -- Non-GAAP net income was $5.1 million, compared to $4.0 million for the third quarter of 2017. Non-GAAP diluted net income per share was $0.07, based on 77.0 million non-GAAP diluted common shares outstanding, compared to non-GAAP diluted net income per share of $0.06 for the third quarter of 2017, based on 62.8 million non-GAAP diluted common shares outstanding. Non-GAAP net income excludes stock-based compensation, amortization of intangible assets related to acquisitions, and certain tax adjustments. -- Cash flow from operations was $3.1 million, compared to an outflow of $(8.7) million for the third quarter of 2017. -- Free cash flow, which consists of cash flow from operations less capital expenditures, was $0.9 million compared to negative $(10.7) million for the third quarter of 2017.

Business Outlook

Based on information available as of today, Altair is issuing guidance for the fourth quarter and full year 2018 as indicated below. This guidance does not include any impact from the pending acquisition of Datawatch.

------------------------ ---------------- ------------------ Fourth Quarter Full Year 2018 2018 ------------------------ ---------------- ------------------ Software Product Revenue $ 75.0 to $ 76.0 $ 287.0 to $ 289.0 Total Revenue $ 98.0 $ 99.0 $ 378.0 $ 380.0 Net Income $ 5.5 $ 6.5 $ 18.3 $ 19.3 Adjusted EBITDA $ 11.5 $ 12.5 $ 36.0 $ 37.0 Non-GAAP Net Income $ 7.9 $ 8.9 $ 22.5 $ 23.5

(All figures in millions)

Conference Call Information

What: Altair Third Quarter 2018 Financial Results Conference Call When: Thursday, November 8, 2018 Time: 4:30 p.m. EST Live Call: (866) 754-5204, domestic (636) 812-6621, international Replay: (855) 859-2056, passcode 5899735, domestic (404) 537-3406, passcode 5899735, international Webcast: http://investor.altair.com (live & replay)

Non-GAAP Financial Measures

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

Altair believes that these non-GAAP measures of financial results provide useful information to management and investors regarding certain financial and business trends relating to its financial condition and results of operations. The Company’s management uses these non-GAAP measures to compare the Company’s performance to that of prior periods for trend analysis, for purposes of determining executive and senior management incentive compensation and for budgeting and planning purposes. The Company also believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing the Company’s financial measures with other software companies, many of which present similar non-GAAP financial measures to investors.

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 transforms design and decision making by applying simulation, machine learning and optimization throughout product lifecycles. Our broad portfolio of simulation technology and patented units-based software licensing model enable Simulation-Driven Innovation for our customers. With more than 2,000 employees, Altair is headquartered in Troy, Michigan, USA and operates 71 offices throughout 24 countries. Altair serves more than 5,000 customers across broad industry segments. 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, statements regarding our business outlook, potential growth, potential impact of the SimSolid and Datawatch transactions and expanded product offerings, 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 forward-looking statements due to a number of factors, including but not limited to, 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.

Information regarding the Datawatch transaction

The merger agreement governing the pending Datawatch acquisition provides for a tender offer (the “Offer”) followed by a merger of a wholly-owned subsidiary of Altair (Dallas Merger Sub, Inc.) with and into Datawatch, subject to regulatory approval and other customary conditions. The Offer has not yet commenced, and this communication is neither an offer to purchase nor a solicitation of an offer to sell any shares of the common stock of Datawatch or any other securities. On the commencement date of the Offer, a tender offer statement on Schedule TO, including an offer to purchase, a letter of transmittal and related documents, will be filed with the United States Securities and Exchange Commission (the “SEC”) and Datawatch will file a Solicitation/Recommendation Statement on Schedule 14D-9 relating to the Offer with the SEC. The offer to purchase shares of Datawatch common stock will only be made pursuant to the offer to purchase, the letter of transmittal and related documents filed with such Schedule TO. DATAWATCH INVESTORS AND SECURITY HOLDERS ARE URGED TO READ BOTH THE TENDER OFFER STATEMENT AND THE SOLICITATION/RECOMMENDATION STATEMENT REGARDING THE OFFER, AS THEY MAY BE AMENDED FROM TIME TO TIME, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The tender offer statement will be filed with the SEC by Dallas Merger Sub, Inc. and Altair, and the solicitation/recommendation statement will be filed with the SEC by Datawatch. Investors and security holders may obtain a free copy of these statements (when available) and other documents filed with the SEC at the website maintained by the SEC at www.sec.gov or by directing such requests to D.F. King & Co., Inc. toll-free at (877) 864-5060.

Investor RelationsBrian DenyeauICR248-614-2400 ext. 346 ir@altair.com

Media RelationsDave SimonAltair248-614-2400 ext. 332 pr@altair.com

Altair Engineering Inc. and Subsidiaries Consolidated Balance Sheets September December 31, 30, 2017 2018 ------------ ------------ (In thousands, except per share data) (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 197,413 $ 39,213 Accounts receivable, net 69,046 86,635 Inventory, net 1,234 1,980 Income tax receivable 9,841 6,054 Prepaid expenses and other current assets 12,149 10,006 - -------- - - -------- - Total current assets 289,683 143,888 Property and equipment, net 29,679 31,446 Goodwill 62,905 62,706 Other intangible assets, net 22,329 24,461 Deferred tax assets 7,837 8,351 Other long-term assets 15,580 17,019 TOTAL ASSETS $ 428,013 $ 287,871 - -------- - - -------- - LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 400 $ 232 Accounts payable 5,592 4,880 Accrued compensation and benefits 28,750 26,560 Obligations for acquisition of businesses 831 13,925 Other accrued expenses and current liabilities 20,222 21,744 Deferred revenue 136,991 130,122 - -------- - - -------- - Total current liabilities 192,786 197,463 Long-term debt, net of current portion 670 178 Deferred revenue, non-current 9,722 9,640 Other long-term liabilities 13,036 17,647 TOTAL LIABILITIES 216,214 224,928 - -------- - - -------- - Commitments and contingencies MEZZANINE EQUITY 2,352 2,352 STOCKHOLDERS’ EQUITY: Preferred stock ($0.0001 par value), authorized 45,000 shares, none issued and — — outstanding Common stock ($0.0001 par value) Class A common stock, authorized 513,797 shares, issued and outstanding 38,120 and 4 2 26,725 shares as of September 30, 2018 and December 31, 2017, respectively Class B common stock, authorized 41,203 shares, issued and outstanding 32,171 and 3 4 36,508 shares as of September 30, 2018 and December 31, 2017, respectively Additional paid-in capital 370,402 232,156 Accumulated deficit (153,759 ) (166,499 ) Accumulated other comprehensive loss (7,203 ) (5,072 ) - -------- - - -------- - TOTAL STOCKHOLDERS’ EQUITY 209,447 60,591 TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY $ 428,013 $ 287,871 - -------- - - -------- -

Altair Engineering Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------ (in thousands, except per share data) 2018 2017 2018 2017 -------- - --------- - --------- - --------- - Revenue Software $ 71,302 $ 63,208 $ 212,258 $ 176,905 Software related services 8,692 8,574 26,872 25,749 - ------ - - ------- - - ------- - - ------- - Total software 79,994 71,782 239,130 202,654 Client engineering services 12,155 11,477 36,652 36,071 Other 1,722 1,679 5,386 4,741 - ------- - - ------- - Total revenue 93,871 84,938 281,168 243,466 - ------ - - ------- - - ------- - - ------- - Cost of revenue Software* 9,831 9,166 32,736 26,799 Software related services 6,352 6,457 19,573 20,230 - ------ - - ------- - - ------- - - ------- - Total software 16,183 15,623 52,309 47,029 Client engineering services 9,817 9,231 29,977 29,200 Other 1,204 1,448 3,416 3,745 - ------- - - ------- - Total cost of revenue 27,204 26,302 85,702 79,974 - ------ - - ------- - - ------- - - ------- - Gross profit 66,667 58,636 195,466 163,492 Operating expenses: Research and development* 24,301 27,590 71,748 69,198 Sales and marketing* 19,275 22,345 58,435 58,683 General and administrative* 17,234 29,175 51,636 66,465 Amortization of intangible assets 1,739 1,189 5,665 3,287 Other operating income (4,850 ) (735 ) (7,433 ) (4,065 ) Total operating expenses 57,699 79,564 180,051 193,568 - ------ - - ------- - - ------- - - ------- - Operating income (loss) 8,968 (20,928 ) 15,415 (30,076 ) Interest expense 31 634 92 1,793 Other (income) expense, net (970 ) 52 (2,046 ) 838 - ------ - - ------- - - ------- - - ------- - Income (loss) before income taxes 9,907 (21,614 ) 17,369 (32,707 ) Income tax expense 2,600 8,012 4,629 6,353 Net income (loss) $ 7,307 $ (29,626 ) $ 12,740 $ (39,060 ) - ------ - - ------- - - ------- - - ------- - Income (loss) per share: Net income (loss) per share attributable to common $ 0.10 $ (0.59 ) $ 0.19 $ (0.78 ) stockholders, basic Net income (loss) per share attributable to common $ 0.10 $ (0.59 ) $ 0.17 $ (0.78 ) stockholders, diluted Weighted average shares outstanding: Weighted average number of shares used in computing net 70,001 50,606 66,429 50,374 income (loss) per share, basic Weighted average number of shares used in computing net 76,709 50,606 74,182 50,374 income (loss) per share, diluted

*Amounts include stock-based compensation expense as follows (in thousands): (Unaudited) Three Months Nine Months Ended Ended September 30, September 30, --------------- ----------------- 2018 2017 2018 2017 ----- -------- ------- -------- Cost of revenue – software $ 8 $ 326 $ 24 $ 342 Research and development 175 6,711 330 10,495 Sales and marketing 140 4,045 315 6,160 General and administrative 240 14,183 544 22,305 - ------ - ------ Total stock-based compensation expense $ 563 $ 25,265 $ 1,213 $ 39,302 - --- - ------ - ----- - ------

Altair Engineering Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, ------------------------ (In thousands) 2018 2017 --------- - --------- - OPERATING ACTIVITIES: Net income (loss) $ 12,740 $ (39,060 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 10,895 7,895 Provision for bad debt 455 517 Stock-based compensation expense 1,213 39,302 Gain on sale of assets held for sale and other (4,544 ) (20 ) Impairment of intangible assets 608 — Deferred income taxes (300 ) (4,793 ) Other, net (116 ) 169 Changes in assets and liabilities: Accounts receivable 15,674 12,016 Prepaid expenses and other current assets (6,334 ) 431 Other long-term assets 36 (11,024 ) Accounts payable 796 (1,583 ) Accrued compensation and benefits 2,650 (211 ) Other accrued expenses and current liabilities (4,626 ) 6,122 Deferred revenue 11,275 7,694 Net cash provided by operating activities 40,422 17,455 - ------- - - ------- - INVESTING ACTIVITIES: Payments for acquisition of businesses, net of cash acquired (15,950 ) (15,582 ) Proceeds from sale of assets held for sale and other 6,613 20 Capital expenditures (5,333 ) (4,367 ) Payments for acquisition of developed technology (2,738 ) (2,120 ) Other investing activities, net — (29 ) Net cash used in investing activities (17,408 ) (22,078 ) - ------- - - ------- - FINANCING ACTIVITIES: Proceeds from issuance of Class A common stock in follow-on public offering, 135,572 — net of underwriters’ discounts and commissions Proceeds from the exercise of stock options 1,929 476 Payments for follow-on public offering and initial public offering costs (541 ) (2,595 ) Payments for redemption of common stock (119 ) (918 ) Principal payments on long-term debt (101 ) (8,392 ) Payments on revolving commitment — (71,676 ) Borrowings under revolving commitment — 86,270 Other financing activities (226 ) (31 ) Net cash provided by financing activities 136,514 3,134 - ------- - - ------- - Effect of exchange rate changes on cash, cash equivalents and restricted cash (1,354 ) 1,301 - ------- - - ------- - Net increase (decrease) in cash, cash equivalents and restricted cash 158,174 (188 ) Cash, cash equivalents and restricted cash at beginning of year 39,578 17,139 Cash, cash equivalents and restricted cash at end of period $ 197,752 $ 16,951 - ------- - - ------- - Supplemental disclosure of cash flow: Interest paid $ 70 $ 1,722 Income taxes paid $ 5,900 $ 4,154 Supplemental disclosure of non-cash investing and financing activities: Capital leases $ 995 $ — Property and equipment in accounts payable $ 228 $ 144 Follow-on public offering costs in accounts payable $ 15 $ — Promissory notes issued and deferred payment obligations for acquisitions $ 278 $ 12,440 Issuance of common stock in connection with acquisitions $ — $ 8,712 Issuance of common stock with put rights $ — $ 2,352 Initial public offering costs in other long-term assets $ — $ 866

The following table provides a reconciliation of Non-GAAP net income and Non-GAAP diluted income per share to net income (loss) and income (loss) per share - diluted, the most comparable GAAP financial measures (in thousands, except per share amounts): (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2018 2017 2018 2017 - ------ - - ------- - - ------ - - ------- - Net income (loss) $ 7,307 $ (29,626 ) $ 12,740 $ (39,060 ) Stock-based 563 25,265 1,213 39,302 compensation expense Amortization of 1,739 1,189 5,665 3,287 intangible assets Non-recurring (4,400 ) - (4,400 ) - adjustments Income tax effect of (151 ) 7,172 (658 ) 11,546 non-GAAP adjustments* Non-GAAP net income $ 5,058 $ 4,000 $ 14,560 $ 15,075 - ------ - - ------- - - ------ - - ------- - Income (loss) per $ 0.10 $ (0.59 ) $ 0.17 $ (0.78 ) share - diluted Non-GAAP income per $ 0.07 $ 0.06 $ 0.19 $ 0.24 share - diluted GAAP diluted shares outstanding: Weighted average number of shares used in computing 76,709 50,606 74,182 50,374 net income (loss) per share, diluted Non-GAAP diluted shares outstanding: Number of shares used in computing 77,000 62,800 77,000 62,800 net income per share, diluted * The income tax effect of non-GAAP adjustments for 2018 is affected by the U.S. valuation allowance.

The following table provides a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure (in thousands): (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2018 2017 2018 2017 - ------ - - ------- - - ------ - - ------- - Net income (loss) $ 7,307 $ (29,626 ) $ 12,740 $ (39,060 ) Income tax expense 2,600 8,012 4,629 6,353 Stock-based compensation expense 563 25,265 1,213 39,302 Interest expense 31 634 92 1,793 Interest income and other(1) (4,384 ) (53 ) (5,103 ) (2,184 ) Depreciation and amortization 3,370 2,811 10,895 7,895 - ------ - - ------- - - ------ - - ------- - Adjusted EBITDA $ 9,487 $ 7,043 $ 24,466 $ 14,099 - ------ - - ------- - - ------ - - ------- - Includes a) gain on the sale of a building for $4.4 million for the three and nine months ended September 30, 2018, b) an impairment charge for royalty contracts and trade names resulting in $0.8 million and $2.6 million of (1) expense for the three and nine months ended September 30, 2018, and c) a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for both the nine months ended September 30, 2018 and September 30, 2017.

The following table provides a reconciliation of Free Cash Flow to net cash provided by operating activities, the most comparable GAAP financial measure (in thousands): (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ---------------------- 2018 2017 2018 2017 - ------ - - ------- - - ------ - - ------ - Net cash provided by operating activities $ 3,109 $ (8,662 ) $ 40,422 $ 17,455 Capital expenditures (2,203 ) (2,032 ) (5,333 ) (4,367 ) - ------ - - ------- - - ------ - - ------ - Free cash flow $ 906 $ (10,694 ) $ 35,089 $ 13,088 - ------ - - ------- - - ------ - - ------ -

The following table provides a reconciliation of projected Non-GAAP net income to projected net income, the most comparable GAAP financial measure (in thousands): (Unaudited) ---------------------------------------- Three Months Year Ending Ending December 31, December 31, 2018 2018 ---------------- ---------------------- low high low high ------- ------- ---------- ---------- Net income $ 5,500 $ 6,500 $ 18,300 $ 19,300 Stock-based 600 600 1,800 1,800 compensation expense Amortization of intangible assets, 1,800 1,800 6,800 6,800 net of tax Non-recurring - - (4,400 ) (4,400 ) adjustments Non-GAAP net income $ 7,900 $ 8,900 $ 22,500 $ 23,500 - ----- - ----- - ------ - - ------ -

The following table provides a reconciliation of projected Adjusted EBITDA to projected net income, the most comparable GAAP financial measure (in thousands): (Unaudited) ------------------------------------------ Three Months Year Ending Ending December 31, 2018 December 31, 2018 ------------------ ---------------------- low high low high -------- -------- ---------- ---------- Net income $ 5,500 $ 6,500 $ 18,300 $ 19,300 Income tax 1,700 1,700 6,300 6,300 expense Stock-based compensation 600 600 1,800 1,800 expense Interest expense - - - - Depreciation and 3,500 3,500 14,500 14,500 amortization Interest income and other 200 200 (4,900 ) (4,900 ) non-recurring adjustments Adjusted EBITDA $ 11,500 $ 12,500 $ 36,000 $ 37,000 - ------ - ------ - ------ - - ------ -

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