10-Q

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 June 30, 2018

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)

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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	☒	(Do not check if a smaller reporting company)	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 August 3, 2018 there were 36,739,344 shares of the registrant’s Class A common stock outstanding and 33,170,732 shares of the registrant’s Class B common stock outstanding.

ALTAIR ENGINEERING INC. AND SUBSIDIARIES

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2018

INDEX

				Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements – Unaudited		3
		a)	Consolidated balance sheets	4
		b)	Consolidated statements of operations	4
		c)	Consolidated statements of comprehensive income (loss)	5
		d)	Consolidated statement of changes in stockholders’ equity	6
		e)	Consolidated statements of cash flows	7
		f)	Notes to consolidated financial statements	8
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
	Item 4.	Controls and Procedures		39
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings		40
	Item 1A.	Risk Factors		40
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		41
	Item 3.	Defaults Upon Senior Securities		41
	Item 4.	Mine Safety Disclosures		41
	Item 5.	Other Information		41
	Item 6.	Exhibits		42
SIGNATURES				43

PART I– FINANCIAL INFORMATION

Item 1. Financial Statements

Altair Engineering Inc. and subsidiaries

Consolidated balance sheets

	June 30, 2018			December 31, 2017
(In thousands, except per share data)	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	199,230		$	39,213
Accounts receivable, net		73,793			86,635
Inventory, net		1,786			1,980
Income tax receivable		7,260			6,054
Prepaid expenses and other current assets		13,290			10,006
Total current assets		295,359			143,888
Property and equipment, net		30,112			31,446
Goodwill		63,263			62,706
Other intangible assets, net		24,846			24,461
Deferred tax assets		8,113			8,351
Other long-term assets		16,077			17,019
TOTAL ASSETS	$	437,770		$	287,871
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt	$	390		$	232
Accounts payable		5,957			4,880
Accrued compensation and benefits		26,393			26,560
Obligations for acquisition of businesses		9,842			13,925
Other accrued expenses and current liabilities		20,443			21,744
Deferred revenue		147,261			130,122
Total current liabilities		210,286			197,463
Long-term debt, net of current portion		690			178
Deferred revenue, non-current		9,256			9,640
Other long-term liabilities		13,474			17,647
TOTAL LIABILITIES		233,706			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 36,518    and 26,725 shares as of June 30, 2018 and December 31, 2017, respectively		4			2
Class B common stock, authorized 41,203 shares, issued and outstanding 33,171    and 36,508 shares as of June 30, 2018 and December 31, 2017, respectively		3			4
Additional paid-in capital		369,579			232,156
Accumulated deficit		(161,066	)		(166,499	)
Accumulated other comprehensive loss		(6,808	)		(5,072	)
TOTAL STOCKHOLDERS’ EQUITY		201,712			60,591
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY	$	437,770		$	287,871

See accompanying notes to consolidated financial statements.

3

Altair Engineering Inc. and subsidiaries

Consolidated statements of operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share data)	2018			2017			2018			2017
Revenue
Software	$	72,813		$	59,600		$	140,956		$	113,697
Software related services		8,707			8,204			18,180			17,175
Total software		81,520			67,804			159,136			130,872
Client engineering services		12,417			12,365			24,497			24,594
Other		1,629			1,477			3,664			3,062
Total revenue		95,566			81,646			187,297			158,528
Cost of revenue
Software		11,983			8,729			22,905			17,633
Software related services		6,512			7,114			13,221			13,773
Total software		18,495			15,843			36,126			31,406
Client engineering services		9,960			9,828			20,160			19,969
Other		1,001			1,247			2,212			2,297
Total cost of revenue		29,456			26,918			58,498			53,672
Gross profit		66,110			54,728			128,799			104,856
Operating expenses:
Research and development		24,744			22,838			47,447			41,608
Sales and marketing		20,183			19,428			39,160			36,338
General and administrative		17,412			21,201			34,402			37,290
Amortization of intangible assets		1,986			1,155			3,926			2,098
Other operating income		(392	)		(2,736	)		(2,583	)		(3,330	)
Total operating expenses		63,933			61,886			122,352			114,004
Operating income (loss)		2,177			(7,158	)		6,447			(9,148	)
Interest expense		45			548			61			1,159
Other (income) expense, net		(176	)		427			(1,076	)		786
Income (loss) before income taxes		2,308			(8,133	)		7,462			(11,093	)
Income tax expense (benefit)		795			(887	)		2,029			(1,659	)
Net income (loss)	$	1,513		$	(7,246	)	$	5,433		$	(9,434	)
Income (loss) per share:
Net income (loss) per share attributable to common stockholders, basic	$	0.02		$	(0.14	)	$	0.08		$	(0.19	)
Net income (loss) per share attributable to common stockholders, diluted	$	0.02		$	(0.14	)	$	0.07		$	(0.19	)
Weighted average shares outstanding:
Weighted average number of shares used in computing net income (loss) per share, basic		65,580			50,374			64,614			50,255
Weighted average number of shares used in computing net income (loss) per share, diluted		73,391			50,374			72,881			50,255

See accompanying notes to consolidated financial statements.

4

Altair Engineering Inc. and subsidiaries

Consolidated statements of comprehensive income (loss)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
Net income (loss)	$	1,513		$	(7,246	)	$	5,433		$	(9,434	)
Other comprehensive income (loss), net of tax:
Foreign currency translation (net of tax effect of $0,   $0, $0 and $0, respectively)		(2,047	)		1,154			(1,842	)		1,511
Retirement related benefit plans (net of tax effect of $(17),   $0, $(7) and $0, respectively)		118			(33	)		106			(44	)
Total other comprehensive income (loss)		(1,929	)		1,121			(1,736	)		1,467
Comprehensive income (loss)	$	(416	)	$	(6,125	)	$	3,697		$	(7,967	)

See accompanying notes to consolidated financial statements.

5

Altair Engineering Inc. and subsidiaries

Consolidated statement of changes in stockholders’ equity

(Unaudited)

																	Accumulated
	Common stock										Additional						other			Total
	Class A				Class B						paid-in			Accumulated			comprehensive			stockholders’
(in thousands)	Shares		Amount		Shares			Amount			capital			deficit			loss			equity
Balance at January 1, 2018		26,725	$	2		36,508		$	4		$	232,156		$	(166,499	)	$	(5,072	)	$	60,591
Net income		—		—		—			—			—			5,433			—			5,433
Follow-on public offering, net of offering costs of $370		5,731		1		(1,675	)		(1	)		135,201									135,201
Adjustment for acquisitions		—		—		—			—			(96	)		—			—			(96	)
Conversion from Class B to Class A		1,662		—		(1,662	)		—			—			—			—			—
Exercise of stock options		2,400		1		—			—			1,668			—			—			1,669
Stock-based compensation		—		—		—			—			650			—			—			650
Foreign currency translation, net of tax		—		—		—			—			—			—			(1,842	)		(1,842	)
Retirement related benefit plans, net of tax		—		—		—			—			—			—			106			106
Balance at June 30, 2018		36,518	$	4		33,171		$	3		$	369,579		$	(161,066	)	$	(6,808	)	$	201,712

See accompanying notes to consolidated financial statements.

6

Altair Engineering Inc. and subsidiaries

Consolidated statements of cash flows

(Unaudited)

	Six Months Ended June 30,
(In thousands)	2018			2017
OPERATING ACTIVITIES:
Net income (loss)	$	5,433		$	(9,434	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		7,525			5,084
Provision for bad debt		269			116
Stock-based compensation expense		650			14,037
Deferred income taxes		(283	)		(3,679	)
Other, net		(154	)		34
Changes in assets and liabilities:
Accounts receivable		11,743			11,412
Prepaid expenses and other current assets		(2,927	)		(3,850	)
Other long-term assets		(278	)		(2,567	)
Accounts payable		335			955
Accrued compensation and benefits		73			(1,531	)
Other accrued expenses and current liabilities		(4,496	)		(2,331	)
Deferred revenue		19,423			17,871
Net cash provided by operating activities		37,313			26,117
INVESTING ACTIVITIES:
Payments for acquisition of businesses, net of cash acquired		(7,028	)		(6,437	)
Capital expenditures		(3,130	)		(2,335	)
Payments for acquisition of developed technology		(2,738	)		(2,120	)
Other investing activities, net		38			(28	)
Net cash used in investing activities		(12,858	)		(10,920	)
FINANCING ACTIVITIES:
Proceeds from issuance of Class A common stock in follow-on public offering,     net of underwriters' discounts and commissions		135,572			—
Proceeds from the exercise of stock options		1,668			476
Payments for follow-on public offering and initial public offering costs		(468	)		(869	)
Payments for redemption of common stock		(119	)		(611	)
Principal payments on long-term debt		(76	)		(5,248	)
Payments on revolving commitment		—			(53,564	)
Borrowings under revolving commitment		—			44,227
Other financing activities		(147	)		(20	)
Net cash provided by (used in) financing activities		136,430			(15,609	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(877	)		962
Net increase in cash, cash equivalents and restricted cash		160,008			550
Cash, cash equivalents and restricted cash at beginning of year		39,578			17,139
Cash, cash equivalents and restricted cash at end of period	$	199,586		$	17,689
Supplemental disclosure of cash flow:
Interest paid	$	41		$	1,163
Income taxes paid	$	3,660		$	2,352
Supplemental disclosure of non-cash investing and financing activities:
Capital leases	$	1,010		$	—
Property and equipment in accounts payable and other accrued expenses     and current liabilities	$	935		$	155
Follow-on public offering costs in accounts payable	$	88		$	—
Promissory notes issued and deferred payment obligations for acquisitions	$	278		$	2,728
Issuance of common stock with put rights	$	—		$	2,345
Initial public offering costs in other long-term assets	$	—		$	1,522
Issuance of common stock in connection with acquisitions	$	—		$	415

See accompanying notes to consolidated financial statements.

7

Altair Engineering Inc. and subsidiaries

Notes to consolidated financial statements(unaudited)

1. Organization and description of business

Altair Engineering Inc. (“Altair” or the “Company”) is incorporated in the state of Delaware. The Company is a provider of enterprise-class engineering software enabling innovation across the entire product lifecycle from concept design to in-service operation. Altair transforms design and decision making by applying simulation, machine learning, and optimization throughout product lifecycles. The Company is headquartered in Troy, Michigan.

Follow-on public offering

In June 2018, the Company closed its follow-on public offering (the “Offering”), in which the Company issued and sold 4,056,004 shares of Class A common stock (inclusive of 763,424 shares sold upon the exercise by the underwriters of their option to purchase additional shares of our Class A common stock). The price per share to the public was $35.00. The Company received aggregate proceeds of $135.6 million from the Offering, net of underwriters’ discounts and commissions, before deducting offering costs of approximately $0.4 million.

The Offering also included the sale of 2,307,420 shares of Class A common stock by selling stockholders, giving effect to the conversion of 1,675,420 shares of the Company’s Class B common stock into an equivalent number of shares of Class A common stock and the exercise of 257,000 options to purchase Class A common stock. The Company did not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders other than the $0.5 million in proceeds from exercises of stock options by certain selling stockholders.  

2. Accounting policies

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 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, 2017, included in the most recent Annual Report on Form 10-K filed with the SEC.  In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. The preparation of the 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.  Considerable judgment is often involved in making these determinations; use of different assumptions could result in significantly different results.  Management believes its assumptions and estimates are reasonable and appropriate.  However, actual results may differ from those estimates.  In addition, the results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for any future period.  

There have been no material changes to Altair’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.  

The Company has concluded that all material transactions that have occurred that require disclosure or adjustments to the consolidated financial statements have been reported herein.  See Note 17 – Subsequent events for additional information.

8

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 sheet that sum to the total of the amounts reported in the consolidated statement of cash flows (in thousands):

	June 30, 2018		December 31, 2017
Cash and cash equivalents	$	199,230	$	39,213
Restricted cash included in other long-term assets		356		365
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	199,586	$	39,578

Restricted cash represents amounts required for a contractual agreement with an insurer for the payment of potential health insurance claims, and term deposits for bank guarantees.

Receivable for R&D credit

The French government provides a research and development (“R&D”) tax credit known as Credit Impôt Recherche, or CIR, in order to encourage Companies to invest in R&D activities.  The tax credit is deductible from French income tax and any excess is carried forward three years.  After three years, any unused credit may be reimbursed to the Company by the French government.  As of June 30, 2018, the Company had approximately $10.4 million in receivables from the French government related to CIR, of which $2.3 million is recorded in income tax receivable and the remaining $8.1 million is recorded in other long-term assets. CIR is subject to customary audit by French tax authorities.

Assets held for sale

Assets held for sale are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation expense is not recognized on assets held for sale. On March 30, 2018, the Company signed a letter of intent to sell the building that is used as the headquarters for the Company’s toggled subsidiary. A purchase agreement has been executed including provisions governing the lease back of a part of the facility primarily for continued use as a distribution center for toggled’s operational needs. As of June 30, 2018, the building and related assets of $2.1 million were recorded in prepaid expenses and other current assets. See Note 17 – Subsequent events for information regarding the sale of the building in August 2018.

Mezzanine equity

In 2017, the Company issued 200,000 shares of Class A common stock to a third party as partial consideration for the purchase of developed technology. These shares have a put right that can be exercised by the holder five years from date of purchase at $12.50 per share that requires the shares to be recorded at fair value and classified as mezzanine equity in the consolidated balance sheet. The put right option is terminated if the shareholders sell their shares. Classification of the of instrument shall remain as mezzanine equity until one of the following three events take place: (1) shares are sold on the open market; (2) a redemption feature lapses; or (3) there is a modification of the terms of the instrument.

9

Income (loss) per share

Basic 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 stock options and restricted stock units (“RSUs”). Diluted 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 stock options and RSUs under the treasury stock method. The following table sets forth the computation of the numerators and denominators used in the basic and diluted income (loss) per share amounts (in thousands, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Numerator:
Net income (loss)	$	1,513	$	(7,246	)	$	5,433	$	(9,434	)
Denominator:
Denominator for basic income (loss) per share—weighted average shares		65,580		50,374			64,614		50,255
Effect of dilutive securities, stock options and RSUs		7,811		—			8,267		—
Denominator for dilutive income (loss) per share		73,391		50,374			72,881		50,255
Net income (loss) per share attributable to common stockholders, basic	$	0.02	$	(0.14	)	$	0.08	$	(0.19	)
Net income (loss) per share attributable to common stockholders, diluted	$	0.02	$	(0.14	)	$	0.07	$	(0.19	)

The computation of diluted income (loss) per share does not include shares that are anti-dilutive under the treasury stock method because their exercise prices are higher than the average fair value of the Company’s stock during the period or due to a net loss in the period. For the three and six months ended June 30, 2018, there were no anti-dilutive shares excluded from the computation of income (loss) per share. For both the three and six months ended June 30, 2017, there were 9.6 million anti-dilutive shares excluded from the computation of income (loss) per share.

3. Recent accounting guidance

Accounting standards adopted

The Company adopted Accounting Standards Update, “ASU” 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, on January 1, 2018. ASU 2017-09 amends the guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company adopted ASU 2017-09 on a prospective basis, and the adoption did not have a material effect on the Company’s consolidated financial statements.

Accounting standards not yet adopted

The Company will cease to qualify as an emerging growth company (as defined in the Jumpstart Our Business Startups Act of 2012) as of December 31, 2018, therefore the public company adoption dates mentioned below will be applicable at that time.

Revenue Recognition—In May 2014, the Financial Accounting Standards Board, or “FASB”, issued ASU 2014-09, Revenue from Contracts with Customers. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most existing revenue recognition guidance under GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date that defers the effective date of ASU 2014-09 for all entities by one year for public business entities. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, including emerging growth companies, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted.

10

Under existing GAAP, the Company does not have vendor-specific objective evidence (“VSOE”) of fair value for post-contract customer support (“PCS”) sold along with software products licenses; therefore, revenues for the software products licenses (including perpetual licenses), PCS and professional services, if applicable, are considered to be one accounting unit and, once all services have commenced, are recognized ratably over the remaining period of the arrangement (the longer of the contractual service term or PCS term). Under ASU 2014-09, the concept of assessing VSOE has been eliminated and the Company must estimate a fair value associated with each performance obligation within an arrangement. As a result, the Company expects the timing of revenue recognition to be accelerated because it anticipates that license revenue will be recognized at a point in time, rather than over time, which is its current practice. Generally, the license revenue component of an arrangement represents a significant portion of the overall fair value of a software arrangement. As a result, the Company expects the adoption of ASU 2014-09 to have a significant impact on the consolidated financial statements. The Company plans to adopt this standard effective January 1, 2018, using themodified retrospective approach, which will be reflected in the December 31, 2018 financial statements. The Company is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

Financial Instruments—In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. For public business entities, ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including emerging growth companies, ASU 2016-01 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements and related disclosures.

Leases—In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. For all other entities, including emerging growth companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The new standard must be adopted using a modified retrospective approach, and provides for certain practical expedients. The Company plans to adopt this standard on January 1, 2019. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements and related disclosures.

Cash Classification—In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to improve financial reporting in regard to how certain transactions are classified in the statement of cash flows. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, for public business entities. For all other entities, including emerging growth companies, ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-15 on its consolidated financial statements and related disclosures.

Goodwill Impairment—In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies accounting for goodwill impairments by eliminating step two from the goodwill impairment test.  This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, for public business entities that are Securities and Exchange Commission (SEC) filers, and December 15, 2020, for public business entities that are not SEC filers. For all other entities, including emerging growth companies, ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The new standard must be applied on a prospective basis. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

Retirement Benefits – In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. The new guidance is effective for public business entities for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. For all other entities, including emerging growth companies, ASU 2017-07 is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

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Derivatives and Hedging – In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends the guidance with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. In addition, this ASU amends the current guidance to simplify the application of the hedge accounting guidance. For public business entities, the amendments are effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. For all other entities, including emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

Comprehensive Income – In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act, or the Tax Act, related to items in AOCI that the FASB refers to as having been stranded in AOCI. The new guidance may be applied retrospectively to each period in which the effect of the Tax Act is recognized in the period of adoption. The Company must adopt this guidance for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for periods for which financial statements have not yet been issued or made available for issuance, including the period the Tax Act was enacted. The guidance, when adopted, will require new disclosures regarding a company’s accounting policy for releasing the tax effects in AOCI and permit the company the option to reclassify to retained earnings the tax effects resulting from the Tax Act that are stranded in AOCI. The Company is currently evaluating how to apply the new guidance and has not determined whether it will elect to reclassify stranded amounts. The adoption of ASU 2018-02 is not expected to have a material effect on the Company’s consolidated financial statements and related disclosures.

Stock Compensation – In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date, which may lower an entity’s cost and reduce volatility in the income statement. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, including emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including in an interim period, but not before an entity adopts ASC 606, Revenue from contracts with customers.

4. Fair value measurements

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 – Observableinputs, 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 and accounts payable approximate fair value due to their short maturities. Interest on the Company’s long-term debt is at a variable rate, and as such the debt obligation outstanding approximates fair value.

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5. Acquisitions

FluiDyna GmbH

In May 2018, the Company purchased the remaining equity interests in FluiDyna GmbH (“FluiDyna”) for aggregate consideration of EUR 2.2 million ($2.7 million).  Prior to the purchase of the remaining equity interests, the Company owned 24% of the outstanding equity interests in FluiDyna. The purchase price was allocated to assets and liabilities of FluiDyna based on the fair values of the assets acquired and liabilities assumed. The allocation included $2.2 million to intangibles, consisting of developed technology and customer relationships and $1.7 million to goodwill, which is not tax deductible. The financial results of FluiDyna have been included in the consolidated financial statements since the acquisition date.

The allocation of fair value of purchase consideration is incomplete pending the final determination of the fair value of assets acquired and liabilities assumed, and is subject to change within the measurement period (up to one year from the acquisition date). The primary areas that remain preliminary relate to the fair value of intangible assets acquired, certain tangible assets and liabilities acquired, income taxes and residual goodwill.

FluiDyna developed NVIDIA CUDA and GPU-based Computational Fluid Dynamics (“CFD”) and numerical simulation technologies. The Company made an initial investment in FluiDyna in 2015. FluiDyna’s simulation software products ultraFluidx and nanoFluidx have been available to the Company’s customers through the Altair Partner Alliance and also offered as standalone licenses. ultraFluidX solves large scale internal and external aerodynamics problems for a broad class of problems including ultra-fast prediction and evaluation of vehicle, building, and environmental aerodynamics. nanoFluidX is a fluid dynamics simulation tool based on the smoothed particle hydrodynamics method to predict the flow in complex geometries with complex motion. 

CANDI Controls, Inc.

In April 2018, the Company entered into an asset purchase agreement with California-based CANDI Controls, Inc. (“CANDI”) and acquired all the intellectual property assets of CANDI for $2.4 million. The sale was approved by the bankruptcy court on April 25, 2018, and the asset purchase was completed on April 26, 2018.  

CANDI developed a modern platform which supports multiple data protocols for edge gateway computers to communicate with a constellation of Internet of Things (“IoT”) devices. CANDI’s software is designed to easily connect systems and equipment with cloud-based monitoring and control services to help organizations improve performance, conserve resources, and cut operational costs. Sensor data can be analyzed, visualized, and processed with machine learning and predictive analytics tools to forecast performance and prescribe actions consistent with business objectives.

6. Inventory

Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The valuation of inventory requires management to estimate excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires management to estimate market conditions and future demand for the Company’s products.

Inventory consisted of the following (in thousands):

	June 30,		December 31,
	2018		2017
Raw materials	$	—	$	—
Finished goods		1,786		1,980
Total inventory – net	$	1,786	$	1,980

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7. Property and equipment, net

Property and equipment consists of the following (in thousands):

	June 30,		December 31,
	2018		2017
Land	$	7,994	$	7,994
Building and improvements		12,894		15,185
Computer equipment and software		35,137		32,103
Office furniture and equipment		6,820		6,751
Leasehold improvements		6,260		6,467
Total property and equipment		69,105		68,500
Less: accumulated depreciation and amortization		38,993		37,054
Property and equipment, net	$	30,112	$	31,446

Depreciation expense was $2.0 million and $3.6 million for the three and six months ended June 30, 2018, respectively, and $1.5 million and $3.0 million for the three and six months ended June 30, 2017, respectively.

8. Goodwill and other intangible assets

Goodwill

The changes in the carrying amount of goodwill, which is attributable to the Software reporting segment, are as follows (in thousands):

Balance at December 31, 2017	$	62,706
Acquisitions		1,708
Purchase price adjustment		96
Effects of foreign currency translation		(1,247	)
Balance at June 30, 2018	$	63,263

Other intangible assets

A summary of other intangible assets is shown below (in thousands):

	June 30, 2018
	Weighted average amortization period	Gross carrying amount		Accumulated amortization		Net carrying amount
Definite-lived intangible assets:
Developed technology	4 years	$	29,333	$	12,664	$	16,669
Customer relationships	7 years		12,154		6,661		5,493
Other intangibles	10 years		129		55		74
Total definite-lived intangible assets			41,616		19,380		22,236
Indefinite-lived intangible assets:
Trade names			2,610				2,610
Total other intangible assets		$	44,226	$	19,380	$	24,846

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	December 31, 2017
	Weighted average amortization period	Gross carrying amount		Accumulated amortization		Net carrying amount
Definite-lived intangible assets:
Developed technology	4 years	$	25,947	$	9,909	$	16,038
Customer relationships	7 years		11,794		6,195		5,599
Other intangibles	10 years		143		57		86
Total definite-lived intangible assets			37,884		16,161		21,723
Indefinite-lived intangible assets:
Trade names			2,738				2,738
Total other intangible assets		$	40,622	$	16,161	$	24,461

Amortization expense related to intangible assets was $2.0 million and $3.9 million for the three and six months ended June 30, 2018, respectively, and $1.2 million and $2.1 million for the three and six months ended June 30, 2017, respectively.

9. Other liabilities

The following table provides the details of other accrued expenses and current liabilities (in thousands):

	June 30,		December 31,
	2018		2017
Accrued VAT		4,048		3,916
Accrued royalties		3,395		2,037
Accrued professional fees		2,849		2,500
Income taxes payable		1,941		3,724
Defined contribution plan liabilities		1,131		1,274
Government grants		829		712
Self-insurance and other insurance reserves		812		601
Billings in excess of cost		540		832
Related party liabilities		202		119
Other current liabilities		4,696		6,029
	$	20,443	$	21,744

The following table provides details of other long-term liabilities (in thousands):

	June 30,		December 31,
	2018		2017
Pension and other post retirement liabilities	$	7,676	$	7,670
Deferred tax liabilities		1,818		1,620
Other liabilities		3,980		8,357
	$	13,474	$	17,647

10. Stock-based compensation

2001 stock-based compensation plans

Nonqualified stock option plan

In 2001, the Company established the Nonqualified Stock Option Plan (“NSO Plan”) under which 4,876,300 stock options with an exercise price of $0.000025 remain outstanding at June 30, 2018. The NSO Plan was terminated in 2003. Stock options under the NSO plan were immediately vested and have a contractual term of 35 years from the date of grant. The outstanding awards will continue to be governed by their existing terms under the NSO Plan. The NSO Plan is accounted for as an equity plan.

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The following table summarizes the stock option activity under the NSO Plan:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		6,441,972		$	0.000025		19
Exercised		(1,565,672	)	$	0.000025
Forfeited		—			—
Outstanding at June 30, 2018		4,876,300		$	0.000025		18
Exercisable at June 30, 2018		4,876,300		$	0.000025		18

The total intrinsic value of the NSO Plan stock options exercised during the six months ended June 30, 2018 was $47.8 million.

Incentive and nonqualified stock-based plan

Also in 2001, the Company established the Incentive and Nonqualified Stock-based Plan (“ISO Plan”) which was terminated in 2011 and was authorized to issue nonqualified stock options (“NQSO”) and incentive stock options (“ISO”) totaling 11,153,872 shares of Class A common stock. The NQSO grants could be issued at less than the fair market value at date of grant under the terms of the ISO Plan, while ISO grants were issued at a price equal to or greater than the fair market value at date of grant. Options generally vested over a two to three-year period. All options have a contractual term of ten years from the date of grant.

The following table summarizes the stock option activity under the 2001 stock-based compensation plans for the periods indicated as follows:

	Number of Options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		888,864		$	0.67		2.5
Exercised		(291,264	)	$	0.71
Forfeited		—			—
Outstanding at June 30, 2018		597,600		$	0.65		1.9
Exercisable at June 30, 2018		597,600		$	0.65		1.9

The total intrinsic value of the ISO Plan stock options exercised during the six months ended June 30, 2018 was $2.8 million.

2012 stock-based compensation plans

During 2012, the Company established the 2012 Incentive and Nonqualified Stock Option Plan (“2012 Plan”) which permits the issuance of 5,200,000 shares of Class A common stock for the grant of nonqualified stock options (“NQSO”) and incentive stock options ("ISO”) for management, other employees, and board members of the Company. The options are issued at a price equal to or greater than fair market value at date of grant. All options have a contractual term of 10 years from date of grant.

The 2012 Plan is accounted for as an equity plan. For those options expected to vest, compensation expense is recognized on a straight-line basis over a four-year period, the total requisite service period of the awards. Total compensation cost related to nonvested awards not yet recognized as of June 30, 2018, totaled $1.2 million, and is expected to be recognized over a weighted average period of 2.4 years.

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The following table summarizes the stock option activity under the 2012 Plan for the periods indicated as follows:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		2,183,127		$	3.74		7.3
Granted		—			—
Exercised		(542,784	)	$	2.68
Forfeited		(11,225	)	$	4.72
Outstanding at June 30, 2018		1,629,118		$	4.08		7.4
Exercisable at June 30, 2018		883,429		$	3.63		6.6

The total intrinsic value of the 2012 Plan stock options exercised during the six months ended June 30, 2018 was $15.4 million.

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 8,104,971 authorized shares of the Company’s Class A common stock reserved for issuance.

The following table summarizes the restricted stock units, or RSUs, awarded under the 2017 Plan for the period:

	Number of RSUs		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		—
Granted		203,701
Vested		—
Forfeited		—
Outstanding at June 30, 2018		203,701		9.8

The weighted average grant date fair value of the RSUs was $29.59 and the RSUs generally vest in four equal annual installments. Total compensation cost related to nonvested awards not yet recognized as of June 30, 2018, totaled $5.7 million, and is expected to be recognized over a weighted average period of four years.

Stock-based compensation expense

The stock-based compensation expense was recorded as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Cost of revenue – software	$	8	$	11	$	16	$	16
Research and development		108		3,009		155		3,784
Sales and marketing		134		1,684		175		2,115
General and administrative		184		6,464		304		8,122
Total stock-based compensation expense	$	434	$	11,168	$	650	$	14,037

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11. Other (income)expense, net

Other (income) expense, net consists of the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Foreign exchange loss (gain)	$	217		$	473		$	(580	)	$	917
Other		(393	)		(46	)		(496	)		(131	)
Other (income) expense, net	$	(176	)	$	427		$	(1,076	)	$	786

12. Income taxes

At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date income (loss) before income taxes. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.

The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected income (loss) before income taxes for the year, projections of the proportion of income (and/or loss) earned and taxed in respective tax jurisdictions, including applicable foreign taxes withheld at the source, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or the Company’s tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.

The Company’s income tax expense (benefit) and effective tax rate for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands, except percentages):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Income tax expense (benefit)	$	795		$	(887	)	$	2,029		$	(1,659	)
Effective tax rate		34	%		11	%		27	%		15	%

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. The effective tax rate was impacted by the geographic income mix in 2018 as compared to 2017, primarily related to United States pre-tax loss of $2.1 million and $1.0 million and tax credits not benefited due to a valuation allowance of $0.9 million and $3.1 million for the three and six months ended June 30, 2018, respectively, compared to a United States pre-tax loss of $9.4 million and $14.9 million and non-deductible stock-based compensation expense of $7.5 million and $9.4 million for the three and six months ended June 30, 2017, respectively.

The Tax Cuts and Jobs Act, or the Tax Act, was enacted on December 22, 2017. The Tax Act reduces the US federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The Company is applying the guidance in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act when accounting for the enactment-date effects of the Tax Act.  At June 30, 2018, the Company has not completed its accounting for all of the tax effects of the Tax Act; however it has made reasonable estimates of the tax effects in certain situations.  In addition, the Company’s estimates may also be affected as it gains a more thorough understanding of the tax law and certain aspects of the Tax Act are clarified by the taxing authorities. During the three months ended June 30, 2018, the Company has not recorded any adjustments to the provisional amounts recorded at December 31, 2017 related to the remeasurement of its deferred balances and the one-time transition tax.  In all cases, the Company is continuing to refine its calculations as additional analysis is completed.

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The Tax Act subjects a US shareholder to tax on Global Intangible Low-TaxedIncome (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for GILTI, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined its accounting policy.  At June 30,2018, because the Company is still evaluating the GILTI provisions and its analysis of future taxable income that is subject to GILTI, the Company has included GILTI related to current-year operations only in its estimated annual effective tax rateand has not provided additional GILTI on deferred items.  The Company will continue to refine its calculations, which may result in changes to this expected impact.

13. Accumulated other comprehensive loss

The components of accumulated other comprehensive loss were as follows (in thousands):

	Foreign currency translation			Retirement related benefit plans			Total
Balance at December 31, 2017	$	(3,374	)	$	(1,698	)	$	(5,072	)
Other comprehensive income (loss) before reclassification		(1,842	)		73			(1,769	)
Amounts reclassified from accumulated other comprehensive loss	—				40			40
Tax effects		—			(7	)		(7	)
Other comprehensive income (loss)		(1,842	)		106			(1,736	)
Balance at June 30, 2018	$	(5,216	)	$	(1,592	)	$	(6,808	)

14. Related party transactions

At June 30, 2018 and December 31, 2017, the Company had obligations to related parties for $0.2 million and $0.1 million, respectively, recorded in other accrued expenses and current liabilities.

At December 31, 2017, the Company had receivables from an entity for which the Company had an equity investment, FluiDyna, for $0.5 million recorded in other long-term assets. The Company acquired FluiDyna in May 2018; as a result, the receivable has been eliminated from the June 30, 2018 consolidated balance sheet. For additional information on the acquisition of FluiDyna, see Note 5 - Acquisitions.

15. Commitments and contingencies

MSC Litigation

In July 2007, MSC Software Corporation filed a lawsuit against the Company alleging misappropriation of trade secrets, breach of confidentiality and other claims. On April 10, 2014, a jury returned a verdict against the Company. The Company challenged the verdict and on November 13, 2014, a judge vacated all but $0.4 million of the judgment and ordered a new trial on damages. On December 13, 2017, the court granted Altair’s motion for summary judgment and dismissed MSC’s claim of trade secret misappropriation. On January 5, 2018, MSC filed a notice of appeal of the final judgment entered on December 13, 2017 and prior orders in this action to the Sixth Circuit Court of Appeals. On January 19, 2018, Altair filed a cross-appeal. The Sixth Circuit referred the case to mediation.Mediation is on-going, and the Company cannot be certain of the outcome of this matter. The Company has estimated and recorded a liability for the probable loss.

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. 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.

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16. Segment information

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. 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, restructuring charges, asset impairment charges and other special items as determined by management. Adjusted EBITDA includes an allocation of corporate headquarters costs.

The Software reportable segment derives revenue from the sale and subscription of licenses for software products focused on the development and application of simulation technology to synthesize and optimize designs, processes and decisions for improved business performance. The Software segment also derives revenue from software support, upgrades, training and consulting services focused on product design and development expertise and analysis support from the component level up to complete product engineering at any stage of the lifecycle. To a much lesser extent, the Software segment also includes revenue from the sale of hardware products, primarily as a result of recent business acquisitions.

The Client Engineering Services reportable segment provides support to its customers with long-term ongoing product design and development expertise in its market segments of Solvers & Optimization, Modeling & Visualization, Industrial and Concept Design, and high-performance computing. The Company hires simulation specialists, industrial designers, design engineers, materials experts, development and test specialists, manufacturing engineers and information technology specialists for placement at customer sites for specific customer-directed assignments.

The “All other” represents innovative services and products, including toggled^®, the Company’s LED lighting business. toggled^® is focused on developing and selling next-generation solid state lighting technology along with communication and control protocols based on intellectual property for the direct replacement of fluorescent light tubes with LED lamps. Other businesses combined within Other include our WEYV business, a consumer music and content service, and potential services and product concepts that are still in their development stages.

Inter-segment sales are not significant for any period presented. The CODM does not review asset information by segment when assessing performance, therefore no asset information is provided for reportable segments.

The following tables are in thousands:

Three Months Ended June 30, 2018	Software		CES		All other			Total
Revenue	$	81,520	$	12,417	$	1,629		$	95,566
Adjusted EBITDA	$	6,720	$	1,508	$	(923	)	$	7,305
Three Months Ended June 30, 2017	Software		CES		All other			Total
Revenue	$	67,804	$	12,365	$	1,477		$	81,646
Adjusted EBITDA	$	3,790	$	1,713	$	(1,356	)	$	4,147

Six Months Ended June 30, 2018	Software		CES		All other			Total
Revenue	$	159,136	$	24,497	$	3,664		$	187,297
Adjusted EBITDA	$	13,872	$	2,564	$	(1,457	)	$	14,979
Six Months Ended June 30, 2017	Software		CES		All other			Total
Revenue	$	130,872	$	24,594	$	3,062		$	158,528
Adjusted EBITDA	$	6,723	$	2,742	$	(2,409	)	$	7,056

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	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Reconciliation of Adjusted EBITDA to U.S. GAAP Income (loss) before income taxes:
Adjusted EBITDA	$	7,305		$	4,147		$	14,979		$	7,056
Stock-based compensation expense		(434	)		(11,168	)		(650	)		(14,037	)
Interest expense		(45	)		(548	)		(61	)		(1,159	)
Interest income and other (1)		(536	)		2,046			719			2,131
Depreciation and amortization		(3,982	)		(2,610	)		(7,525	)		(5,084	)
Income (loss) before income taxes	$	2,308		$	(8,133	)	$	7,462		$	(11,093	)

⁽¹⁾ Includes an impairment charge for royalty contracts resulting in $0.9 million and $1.8 million of expense for the three and six months ended June 30, 2018, respectively. Includes a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the six months ended June 30, 2018 and the three and six months ended June 30, 2017.

17. Subsequent events

Sale of building

On August 7, 2018, the Company consummated the sale of the building that is used as the headquarters for its toggled subsidiary. Under the terms of the purchase agreement, the Company entered into a three-year lease back of part of the facility, primarily for continued use as a distribution center for toggled’s operational needs. Net proceeds from the sale transaction were $6.5 million.

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-Item 2. Management’s Discussion and Analysis ofFinancial 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, 2017, 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:

• our ability to acquire new customers because of the difficulty in predicting our software sales cycles;

• reduced spending on product design and development activities by our customers;

• our dependence on annual renewals of our software licenses;

• our ability to maintain or protect our intellectual property;

• our ability to retain key executive members;

• our ability to internally develop new inventions and intellectual property;

• our ability to successfully integrate and realize the benefits of our past or future strategic acquisitions or investments;

• demand for our software by customers other than simulation engineering specialists and in additional industry verticals;

• acceptance of our business model by investors;

• our susceptibility to factors affecting the automotive industry where we derive a substantial portion of our revenues;

• the accuracy of our estimates regarding expenses and capital requirements; and

• the significant quarterly fluctuations of our results.

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 anticipate 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, 2017, which was filed with the SEC, on March 21, 2018, and the other information appearing elsewhere in such report, 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.

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Overview

Altair Engineering Inc., (“Altair”, the “Company”, “we”, “us”, or “our”) is a leading provider of enterprise-class engineering software enabling innovation across the entire product lifecycle from concept design to in-service operation. Our simulation-driven approach to innovation is powered by our broad portfolio of high-fidelity and high performance physics solvers. Our integrated suite of software optimizes design performance across multiple disciplines encompassing structures, motion, fluids, thermal management, electromagnetics, system modeling and embedded systems, while also providing data analytics and true-to-life visualization and rendering.

Our engineering and design platform offers a wide range of multi-disciplinary computer aided engineering, or CAE, solutions which we believe is one of the most innovative and comprehensive offerings available in the market. To ensure customer success and deepen our relationships with them, we engage with our customers to provide consulting, implementation services, training, and support, especially when applying optimization. We participate in five software categories related to CAE and high performance computing, or HPC:

• Solvers & Optimization;

• Modeling & Visualization;

• Industrial & Concept Design;

• Internet of Things, or IoT; and

• HPC.

Altair also provides client engineering services, or CES, to support our customers with long-term ongoing product design and development expertise. This has the benefit of embedding us within customers, deepening our understanding of their processes, and allowing us to more quickly perceive trends in the overall market.  Our presence at our customers’ sites helps us to better tailor our software products’ research and development, or R&D, and sales initiatives.

Follow-on public offering

On June 11, 2018, we completed a follow-on public offering (the “Offering”) and sold 4,056,004 shares of Class A common stock at a public offering price of $35.00 per share for an aggregate offering price of $142.0 million. We received aggregate proceeds of $135.6 million from the Offering, net of underwriters’ discounts and commissions, before deducting offering costs of approximately $0.4 million.

The Offering also included the sale of 2,307,420 shares of Class A common stock by selling stockholders, giving effect to the conversion of 1,675,420 shares of the Company’s Class B common stock into an equivalent number of shares of Class A common stock and the exercise of 257,000 options to purchase Class A common stock. The Company did not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders other than the $0.5 million in proceeds from exercises of stock options by certain selling stockholders.  

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-Kfor the year ended December 31, 2017, as filed with the SEC on March 21, 2018.

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 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.

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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 present the 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.

Constant currency amounts exclude the effect of foreign currency fluctuations on our reported results. Our comparative financial results were impacted by fluctuations in the value of the United States dollar relative to other currencies during the three and six months ended June 30, 2018, as compared to the three and six months ended June 30, 2017. To present this information, the results for 2018 for entities whose functional currency is a currency other than the United States dollar were converted to United States dollars at rates that were in effect for 2017. These adjusted amounts are then compared to our current period reported amounts to provide operationally driven variances in our results.

The effects of currency fluctuations on our Revenue and Adjusted EBITDA are reflected in the table below. Amounts indicate a net positive impact from currency fluctuations.

	Three Months Ended		Six Months Ended
(in thousands)	June 30, 2018		June 30, 2018
Revenue	$	2,508	$	7,206
Adjusted EBITDA	$	722	$	1,800

Expanded use of our software applications

Our ability to grow our revenue is affected, in part, by the pace at which our customers continue to expand their use of our design, simulation, optimization and analysis applications and the degree to which prospective customers realize the benefit of using our software applications. To grow our presence within our customers and attract new customers, we devote substantial sales and marketing resources to drive increased adoption across our existing customers and encourage new customers to commence using our software. As a result of this “land and expand” business model, we expect to generate additional revenue from our current and future customer base. To the extent our sales and marketing efforts do not translate into customer retention or expansion, or if we do not allocate those expenses efficiently, our financial performance may be adversely affected. Therefore, our financial performance will depend in part on the degree to which our “land and expand” strategies are successful.

Investments for growth

We have made and plan to continue to make investments for long-term growth, including investments in our ongoing research and development activities seeking to create new software and to enhance our existing applications to address emerging technology trends and additional customer needs. Generally, the development of new or improved applications in our software can result in the expansion of our user base within an organization and a potential increase in revenue over time, although the expenditures associated with such developments may adversely affect our performance in the near term. We intend to continue to invest resources in sales and marketing, by further expanding our sales teams and increasing our marketing activities. Our ability to continue to grow revenue from our current and potential customer base is dependent, in part, upon the success of our current and future research and development and sales and marketing activities.

As part of our long-term growth strategy, we have made and plan to continue to explore and pursue selective acquisitions and strategic investments to complement and strengthen our product offerings, expand the functionality of our solutions, acquire technology or talent, or gain access to new customers and markets.  We acquired 22 companies or strategic technologies since 1996, including 11 since January 1, 2015.  We believe our ability to integrate expert teams and new IP into our organization, and quickly bring acquired products to market with our business model, is unique in the PLM market.

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Business Segments

We have identified two reportable segments: Software and Client Engineering Services:

• Software—our Software segment includes software and software related services. The software component of this segment includes our portfolio of software products including our solvers and optimization technology products, modeling and visualization tools, industrial and concept design tools, IoT platform and analytics tools, and high performance computing, or HPC, software applications and hardware products, as well as support and the complementary software products we offer through our Altair Partner Alliance, or APA. The APA includes technologies ranging from computational fluid dynamics and fatigue to manufacturing process simulation and cost estimation. The software related services component of this segment includes consulting, implementation services, and training focused on product design and development expertise and analysis support from the component level up to complete product engineering at any stage of the lifecycle.

• Client Engineering Services—our client engineering services, or CES, segment provides client engineering services to support our customers with long-term, ongoing product design and development expertise. We operate our CES business by hiring engineers for placement at a customer site for specific customer-directed assignments. We employ and pay the engineers only for the duration of the placement.

Our other businesses that 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. Other businesses combined within Other include our WEYV business, a consumer music and content service, and potential services and product concepts that are still in their development stages.

For additional information about our reportable segments and other businesses, see Note 16 in the Notes to consolidated financial statements in Item 1, Part I of this Quarterly Report on Form 10-Q.

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Results of operations

Comparison of the three and six months ended June 30, 2018 and 2017

The following table sets forth the results of operations and the period-over-period percentage change in certain financial data for the three and six months ended June 30, 2018 and 2017:

	Three Months Ended June 30,						Increase / (decrease)			Six Months Ended June 30,						Increase / (decrease)
(in thousands)	2018			2017			%			2018			2017			%
Revenue:
Software	$	72,813		$	59,600			22	%	$	140,956		$	113,697			24	%
Software related services		8,707			8,204			6	%		18,180			17,175			6	%
Total software		81,520			67,804			20	%		159,136			130,872			22	%
Client engineering services		12,417			12,365			—	%		24,497			24,594			—	%
Other		1,629			1,477			10	%		3,664			3,062			20	%
Total revenue		95,566			81,646			17	%		187,297			158,528			18	%
Cost of revenue:
Software		11,983			8,729			37	%		22,905			17,633			30	%
Software related services		6,512			7,114			(8	%)		13,221			13,773			(4	%)
Total software		18,495			15,843			17	%		36,126			31,406			15	%
Client engineering services		9,960			9,828			1	%		20,160			19,969			1	%
Other		1,001			1,247			(20	%)		2,212			2,297			(4	%)
Total cost of revenue		29,456			26,918			9	%		58,498			53,672			9	%
Gross profit		66,110			54,728			21	%		128,799			104,856			23	%
Operating expenses:
Research and development		24,744			22,838			8	%		47,447			41,608			14	%
Sales and marketing		20,183			19,428			4	%		39,160			36,338			8	%
General and administrative		17,412			21,201			(18	%)		34,402			37,290			(8	%)
Amortization of intangible assets		1,986			1,155			72	%		3,926			2,098			87	%
Other operating income		(392	)		(2,736	)		(86	%)		(2,583	)		(3,330	)		(22	%)
Total operating expenses		63,933			61,886			3	%		122,352			114,004			7	%
Operating income (loss)		2,177			(7,158	)	NM				6,447			(9,148	)	NM
Interest expense		45			548			(92	%)		61			1,159			(95	%)
Other (income) expense, net		(176	)		427		NM				(1,076	)		786		NM
Income (loss) before income taxes		2,308			(8,133	)	NM				7,462			(11,093	)	NM
Income tax expense (benefit)		795			(887	)	NM				2,029			(1,659	)	NM
Net income (loss)	$	1,513		$	(7,246	)	NM			$	5,433		$	(9,434	)	NM
Other financial information:
Billings(1)	$	89,459		$	85,960			4	%	$	204,052		$	181,379			13	%
Adjusted EBITDA(2)	$	7,305		$	4,147			76	%	$	14,979		$	7,056			112	%
Net cash provided by operating activities	$	10,624		$	6,915			54	%	$	37,313		$	26,117			43	%
Free cash flow(3)	$	9,178		$	5,549			65	%	$	34,183		$	23,782			44	%

NM Not meaningful.

(1) Billings consists of our total revenue plus the change in our deferred revenue. For more information about Billings and our other non-GAAP financial measures and reconciliations of our non-GAAP financial measures to the most directly comparable financial measures calculated and presented in accordance with GAAP, see “Non-GAAP financial measures” contained herein.

(2) 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. For more information about Adjusted EBITDA and our other non-GAAP financial measures and reconciliations of our non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with GAAP, see “Non-GAAP financial measures” contained herein.

(3) We define Free Cash Flow as net cash provided by operating activities less capital expenditures. For a reconciliation of Free Cash Flow, see “Non-GAAP financial measures” contained herein.

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The following table sets forth our revenue growth on a constant currency basis for the three and six months ended June 30, 2018, compared to the three and six months ended June 30, 2017:

	Three Months Ended June 30,				Change			Constant currency change(1)			Six Months Ended June 30,				Change			Constant currency change(1)
(dollars in thousands)	2018		2017		%			%			2018		2017		%			%
Revenue:
Software	$	72,813	$	59,600		22	%		18	%	$	140,956	$	113,697		24	%		19	%
Software related services		8,707		8,204		6	%		2	%		18,180		17,175		6	%		—	%
Total software		81,520		67,804		20	%		16	%		159,136		130,872		22	%		16	%
Client engineering services		12,417		12,365		—	%		1	%		24,497		24,594		—	%		—	%
Other		1,629		1,477		10	%		10	%		3,664		3,062		20	%		20	%
Total revenue	$	95,566	$	81,646		17	%		14	%	$	187,297	$	158,528		18	%		14	%

⁽¹⁾ The results for entities whose functional currency is a currency other than the United States dollar were converted to United States dollars at rates that were in effect for the corresponding period of the prior year.

Three months ended June 30, 2018 and 2017

Revenue

Total revenue increased by $13.9 million, or 17%, for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017. The increase was primarily attributable to an increase in software revenue.

Software segment

Software

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Software revenue	$	72,813		$	59,600		$	13,213		22	%
As a percent of software segment revenue		89	%		88	%
As a percent of consolidated revenue		76	%		73	%

The 22% increase in our software revenue for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017, was primarily the result of an expansion in the number of units licensed by our existing customers under renewed software license agreements, contributions from recent acquisitions, licensing of units to new customers pursuant to new software license agreements and positive foreign currency effects.

Software related services

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Software related services revenue	$	8,707		$	8,204		$	503		6	%
As a percent of software segment revenue		11	%		12	%
As a percent of consolidated revenue		9	%		10	%

The 6% increase in our software related services revenue for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017, was primarily the result of fluctuations in foreign currencies.

Client engineering services segment

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Client engineering services revenue	$	12,417		$	12,365		$	52		0	%
As a percent of consolidated revenue		13	%		15	%

CES revenue was consistent for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017.  Our CES business is primarily affected by customer demand and our ability to fill customers’ open positions.

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Other

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Other revenue	$	1,629		$	1,477		$	152		10	%
As a percent of consolidated revenue		2	%		2	%

The 10% increase in other revenue for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017, was primarily due to increased revenue from toggled, our LED lighting business.

Cost of revenue

Software segment

Software

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Cost of software revenue	$	11,983		$	8,729		$	3,254		37	%
As a percent of software revenue		16	%		15	%
As a percent of consolidated revenue		13	%		11	%

Cost of software revenue increased by $3.3 million, or 37%, for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. This increase in the current year was due to increased employee compensation and related costs of $1.3 million, increased third party royalty costs of $0.6 million for software programs and $1.4 million in costs associated with operations of recent acquisitions that we did not have in our prior year results.

Software related services

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
Cost of software related services revenue	$	6,512		$	7,114		$	(602	)		(8	%)
As a percent of software related services revenue		75	%		87	%
As a percent of consolidated revenue		7	%		9	%

Cost of software related services revenue decreased by 8% for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. The decrease in the current year was due to a reduction in headcount and improved utilization of personnel.

Client engineering services segment

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Cost of client engineering services revenue	$	9,960		$	9,828		$	132		1	%
As a percent of client engineering services segment revenue		80	%		79	%
As a percent of consolidated revenue		10	%		12	%

Cost of CES revenue was consistent for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017.

Other

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
Cost of other revenue	$	1,001		$	1,247		$	(246	)		(20	%)
As a percent of other revenue		61	%		84	%
As a percent of consolidated revenue		1	%		2	%

Cost of other revenue decreased by $0.2 million, or 20%, for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. This was due to toggled’s decreased product unit costs coupled with higher product unit sales in the

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current quarter;product costs as a percentage of other revenue decreased primarily due to improved supply chain performance driven by higher unit volumes.

Gross profit

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Gross profit	$	66,110		$	54,728		$	11,382		21	%
As a percent of consolidated revenue		69	%		67	%

Gross profit increased by $11.4 million, or 21%, for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. This increase in gross profit was primarily attributable to the growth of our software revenue of $13.2 million driven by the factors described above. The increase in revenue was partially offset by the increase in cost of revenue as described above.

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 here in aggregate.

Research and development

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Research and development	$	24,744		$	22,838		$	1,906		8	%
As a percent of consolidated revenue		26	%		28	%

Research and development expenses increased by $1.9 million, or 8%, for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. This increase was primarily attributable to higher employee costs of $4.6 million resulting from annual compensation adjustments and an increase in our headcount, primarily due to acquisitions. This increase was partially offset by a decrease in stock-based compensation expense of $2.9 million for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017.

Sales and marketing

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Sales and marketing	$	20,183		$	19,428		$	755		4	%
As a percent of consolidated revenue		21	%		24	%

Sales and marketing expenses increased by $0.8 million, or 4%, for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. This increase was primarily attributable to a $2.0 million increase in employee costs resulting from annual compensation adjustments and an increase in our headcount. This increase was partially offset by a decrease in stock-based compensation expense of $1.6 million for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017.

General and administrative

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
General and administrative	$	17,412		$	21,201		$	(3,789	)		(18	%)
As a percent of consolidated revenue		18	%		26	%

General and administrative expenses decreased by $3.8 million, or 18%, for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. This decrease was primarily attributable to increased employee costs, professional services fees and rent expense, offset by a $6.3 million decrease in stock-based compensation expense.

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Amortization of intangible assets

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Amortization of intangible assets	$	1,986		$	1,155		$	831		72	%
As a percent of consolidated revenue		2	%		1	%

Amortization of intangible assets increased by $0.8 million for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. This was attributable to an increase in the amortization of developed technology in the current year as a result of acquisitions.

Other operating income

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
Other operating income	$	(392	)	$	(2,736	)	$	(2,344	)		(86	%)
As a percent of consolidated revenue		(0	%)		(3	%)

Other operating income decreased $2.3 million for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017. For the three months ended June 30, 2018, we had an impairment charge for guaranteed royalty expense of $0.9 million related to our WEYV business. For the three months ended June 30, 2017, we had a non-recurring adjustment to income of $2.0 million for a change in estimated legal expenses.

Interest expense

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
Interest expense	$	45		$	548		$	(503	)		(92	%)
As a percent of consolidated revenue	—		%		1	%

Interest expense decreased $0.5 million for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. The decrease in interest expense was a result of payoff of borrowings on our term loan and line of credit in the fourth quarter of the prior year.

Other (income) expense, net

	Three Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Other (income) expense, net	$	(176	)	$	427		$	603	NM
As a percent of consolidated revenue		(0	)%	—		%

Other (income) expense, net increased by $0.6 million for the three months ended June 30, 2018, as compared to the three months ended June 30, 2017. This increase was due to an increase in interest income and fluctuations in the United States dollar relative to other functional currencies during the three months ended June 30, 2018, compared to the three months ended June 30, 2017.

 Income tax expense (benefit)

	Three Months Ended June 30,					Period-to-period change
(in thousands)	2018		2017			$		%
Income tax expense (benefit)	$	795	$	(887	)	$	1,682	NM

The effective tax rate was 34% and 11% for the three months ended June 30, 2018 and 2017, respectively. 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 or taxes incurred by jurisdiction and the relative amount of losses or income for which no benefit or expense is recognized. The effective tax rate was impacted by the geographic income mix in 2018 as compared to 2017, primarily related to United States pre-tax loss of $2.1 million and tax credits of $0.9 million not benefited due to a valuation allowance for the three months ended June 30, 2018, compared to a United States pre-tax loss of $9.4 million and non-deductible stock-based compensation expense of $7.5 million for the three months ended June 30, 2017.

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Six months ended June 30, 2018 and 2017

Revenue

Total revenue increased by $28.8 million, or 18%, for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. The increase was primarily attributable to an increase in software revenue.

Software segment

Software

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Software revenue	$	140,956		$	113,697		$	27,259		24	%
As a percent of software segment revenue		89	%		87	%
As a percent of consolidated revenue		75	%		72	%

The 24% increase in our software revenue for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017, was primarily the result of an expansion in the number of units licensed by our existing customers under renewed software license agreements, contributions from recent acquisitions, licensing of units to new customers pursuant to new software license agreements and positive foreign currency effects.

Software related services

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Software related services revenue	$	18,180		$	17,175		$	1,005		6	%
As a percent of software segment revenue		11	%		13	%
As a percent of consolidated revenue		10	%		11	%

The 6% increase in our software related services revenue for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017, was primarily the result of fluctuations in foreign currencies.

Client engineering services segment

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
Client engineering services revenue	$	24,497		$	24,594		$	(97	)		(0	%)
As a percent of consolidated revenue		13	%		16	%

CES revenue was consistent for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017.  Our CES business is primarily affected by customer demand and our ability to fill customers’ open positions.

Other

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Other revenue	$	3,664		$	3,062		$	602		20	%
As a percent of consolidated revenue		2	%		2	%

The 20% increase in other revenue for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017, was primarily due to increased revenue from toggled, our LED lighting business.

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Cost of revenue

Software segment

Software

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Cost of software revenue	$	22,905		$	17,633		$	5,272		30	%
As a percent of software revenue		16	%		16	%
As a percent of consolidated revenue		12	%		11	%

Cost of software revenue increased by $5.3 million, or 30%, for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. This increase in the current year was due to increased employee compensation and related costs of $2.3 million, increased third party royalty costs of $0.7 million for software programs and $2.2 million in costs associated with operations of recent acquisitions that we did not have in our prior year results.

Software related services

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
Cost of software related services revenue	$	13,221		$	13,773		$	(552	)		(4	%)
As a percent of software related services revenue		73	%		80	%
As a percent of consolidated revenue		7	%		9	%

Cost of software related services revenue decreased $0.6 million, or 4%, for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. The decrease in the current year was due to a reduction in headcount and improved utilization of personnel.

Client engineering services segment

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Cost of client engineering services revenue	$	20,160		$	19,969		$	191		1	%
As a percent of client engineering services segment revenue		82	%		81	%
As a percent of consolidated revenue		11	%		13	%

Cost of CES revenue was consistent for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017; however, the increase in cost as a percentage of CES revenue is reflective of higher costs relative to customer approved billing rates compared to the prior comparative period.

Other

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
Cost of other revenue	$	2,212		$	2,297		$	(85	)		(4	%)
As a percent of other revenue		60	%		75	%
As a percent of consolidated revenue		1	%		1	%

Cost of other revenue was consistent for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. However, product costs as a percentage of other revenue decreased primarily due to improved supply chain performance driven by higher unit volumes.

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Gross profit

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Gross profit	$	128,799		$	104,856		$	23,943		23	%
As a percent of consolidated revenue		69	%		66	%

Gross profit increased by $23.9 million, or 23%, for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. This increase in gross profit was primarily attributable to the growth of our software revenue of $27.3 million driven by the factors described above. The increase in revenue was partially offset by the increase in cost of revenue as described above.

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 here in aggregate.

Research and development

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Research and development	$	47,447		$	41,608		$	5,839		14	%
As a percent of consolidated revenue		25	%		26	%

Research and development expenses increased by $5.8 million, or 14%, for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. This increase was primarily attributable to higher employee costs of $8.8 million resulting from annual compensation adjustments and an increase in our headcount, primarily due to acquisitions. This increase was partially offset by a decrease in stock-based compensation expense of $3.6 million for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017.

Sales and marketing

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Sales and marketing	$	39,160		$	36,338		$	2,822		8	%
As a percent of consolidated revenue		21	%		23	%

Sales and marketing expenses increased by $2.8 million, or 8%, for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. This increase was primarily attributable to higher employee costs of $4.1 million resulting from annual compensation adjustments and an increase in our headcount, primarily due to acquisitions. This increase was partially offset by a decrease in stock-based compensation expense of $1.9 million for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017.

General and administrative

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
General and administrative	$	34,402		$	37,290		$	(2,888	)		(8	%)
As a percent of consolidated revenue		18	%		24	%

General and administrative expenses decreased by $2.9 million, or 8%, for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. This decrease was primarily attributable to increased employee costs, professional service fees, rent expense and software maintenance expense, offset by a $7.8 million decrease in stock-based compensation expense.

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Amortization of intangible assets

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Amortization of intangible assets	$	3,926		$	2,098		$	1,828		87	%
As a percent of consolidated revenue		2	%		1	%

Amortization of intangible assets increased by $1.8 million for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. This was attributable to an increase in the amortization of developed technology in the current year as a result of 2017 acquisitions.

Other operating income

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Other operating income	$	(2,583	)	$	(3,330	)	$	747		(22	%)
As a percent of consolidated revenue		(1	%)		(2	%)

Other operating income decreased $0.7 million for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. The decrease was due to an impairment charge for guaranteed royalty expense of $1.8 million related to our WEYV business during the six months ended June 30, 2018, partially offset by an increase in grant income of $1.2 million in the current year.

Interest expense

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$			%
Interest expense	$	61		$	1,159		$	(1,098	)		(95	%)
As a percent of consolidated revenue		0	%		1	%

Interest expense decreased $1.1 million for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. The decrease in interest expense was a result of the payoff of borrowings on our term loan and line of credit in the fourth quarter of the prior year.

Other (income) expense, net

	Six Months Ended June 30,						Period-to-period change
(in thousands)	2018			2017			$		%
Other (income) expense, net	$	(1,076	)	$	786		$	1,862	NM
As a percent of consolidated revenue		(1	%)		0	%

Other (income) expense, net increased by $1.9 million for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017. This increase was due to fluctuations in the United States dollar relative to other functional currencies during the six months ended June 30, 2018, compared to the six months ended June 30, 2017.

 Income tax expense (benefit)

	Six Months Ended June 30,					Period-to-period change
(in thousands)	2018		2017			$		%
Income tax expense (benefit)	$	2,029	$	(1,659	)	$	3,688	NM

The effective tax rate was 27% and 15% for the six months ended June 30, 2018 and 2017, respectively. 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 or taxes incurred by jurisdiction and the relative amount of losses or income for which no benefit or expense is recognized. The effective tax rate was impacted by the geographic income mix in 2018 as compared to 2017, primarily related to United States pre-tax loss of $1.0 million and tax credits of $3.1 million not benefited due to a valuation allowance for the six months ended June 30, 2018, compared to a United States pre-tax loss of $14.9 million and non-deductible stock-based compensation expense of $9.4 million for the six months ended June 30, 2017.

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Non-GAAP financial measures

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 June 30,				Six Months Ended June 30,
(in thousands)	2018		2017		2018		2017
Other financial data:
Billings	$	89,459	$	85,960	$	204,052	$	181,379
Adjusted EBITDA	$	7,305	$	4,147	$	14,979	$	7,056
Free Cash Flow	$	9,178	$	5,549	$	34,183	$	23,782

Billings consists of our total revenue plus the change in our deferred revenue. Given that we generally bill our customers at the time of sale, but typically recognize a majority 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.

We define Adjusted EBITDA as net income (loss) adjusted for income tax expense (benefit), interest expense, interest income and others, 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.

We define Free Cash Flow 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 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 the 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 rely on any single financial measure.

The following table provides a reconciliation of Billings to revenue, the most comparable GAAP financial measure, for each of the periods presented:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2018			2017			2018			2017
Revenue	$	95,566		$	81,646		$	187,297		$	158,528
Ending deferred revenue		156,517			136,780			156,517			136,780
Beginning deferred revenue		(162,624	)		(132,466	)		(139,762	)		(113,929	)
Billings	$	89,459		$	85,960		$	204,052		$	181,379

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The following table provides a reconciliation of Adjusted EBITDA to net income (loss), the most comparable GAAP financial measure, for each of the periods presented:

	Three Months Ended June 30,					Six Months Ended June 30,
(in thousands)	2018		2017			2018			2017
Net income (loss)	$	1,513	$	(7,246	)	$	5,433		$	(9,434	)
Income tax expense (benefit)		795		(887	)		2,029			(1,659	)
Stock-based compensation expense		434		11,168			650			14,037
Interest expense		45		548			61			1,159
Interest income and other (1)		536		(2,046	)		(719	)		(2,131	)
Depreciation and amortization		3,982		2,610			7,525			5,084
Adjusted EBITDA	$	7,305	$	4,147		$	14,979		$	7,056

(1) Includes an impairment charge for royalty contracts resulting in $0.9 million and $1.8 million of expense for the three and six months ended June 30, 2018, respectively. Includes a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the six months ended June 30, 2018 and three and six months ended June 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, for each of the periods presented:

	Six Months Ended June 30,
(in thousands)	2018			2017
Net cash provided by operating activities	$	37,313		$	26,117
Capital expenditures		(3,130	)		(2,335	)
Free cash flow	$	34,183		$	23,782

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. 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, maintenance, and perpetual license billings from all customers for that period. For the six months ended June 30, 2018, our recurring software license rate was 90%.

Liquidity and capital resources

Our principal sources of liquidity have been the net payments received from global customers using our software and services, proceeds from our initial public and follow-on offerings, and prior to the initial public offering, periodic draws on our credit facilities. At June 30, 2018, we had cash and cash equivalents totaling $199.2 million and net accounts receivable of $73.8 million. We believe that funds generated from operations, with cash and cash equivalents and the amounts available to us to borrow under our credit facility will be sufficient to meet our anticipated cash needs for at least the next 12 months.

We have commenced the initial planning to update zoning to allow for future expansion of our corporate headquarters facilities on the adjacent property we own to enable development consistent with our long-term needs.  We have not yet determined the nature and scope of the overall timeline and investment beyond the immediate rezoning efforts necessary for our potential use in the future.Over the next 12 months, we expect to continue to advance this project.

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Revolving credit facility

Our credit agreement consists of an aggregate commitment amount of $100.0 million, with a sublimit for the issuance of letters of credit of up to $5.0 million and a sublimit for swingline loans of up to $5.0 million (the “2017 Credit Agreement”). The 2017 Credit Agreement matures on October 18, 2022.

The 2017 Credit Agreement allows us to request that the aggregate commitments under the 2017 Credit Agreement be increased by up to $50.0 million for a total of $150.0 million, subject to certain conditions, by obtaining additional commitments from the existing lenders or by causing a person acceptable to the administrative agent to become a lender (in each case subject to the terms and conditions set forth in the 2017 Credit Agreement).

As of June 30, 2018, we had no outstanding borrowings under the 2017 Credit Agreement, and there was $100.0 million available for future borrowing. The 2017 Credit Agreement is available for general corporate purposes, including working capital, capital expenditures and permitted acquisitions.

The 2017 Credit Agreement is secured by collateral including (i) substantially all of the Company’s properties and assets, and the properties and assets of the Company’s domestic subsidiaries but excluding any patents, copyrights, patent applications or copyright applications or any trade secrets or software products and (ii) pledges of the equity interests in all present and future domestic subsidiaries (subject to certain exceptions as provided for under the 2017 Credit Agreement). The Company’s direct and indirect domestic subsidiaries are guarantors of all of the obligations under the 2017 Credit Agreement. In addition, the 2017 Credit Agreement contains financial covenants relating to maintaining a minimum interest coverage ratio of 3.0 to 1.0 and maximum leverage ratio of 3.0 to 1.0, as defined in the 2017 Credit Agreement. At June 30, 2018, we were in compliance with all financial covenants.

Cash flows

As of June 30, 2018, we had an aggregate of cash and cash equivalents of $199.2 million that was held for working capital purposes, acquisitions, and capital expenditures; $172.8 million of this aggregate amount was held in the United States and $24.9 million was held in the APAC and EMEA regions.

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 recent changes in U.S. tax law could materially affect our tax obligations. For further discussion, please see our 2017 Annual Report on Form 10-K, “Item 1A. Risk Factors – New legislations or tax-reform policies that would change U.S. or foreign taxation of international business activities, including uncertainties in the interpretation and application of the 2017 Tax Cuts and Jobs Act, could materially affect our tax obligations and effective tax rate.”

The following table summarizes our cash flows for the periods indicated:

	Six Months Ended June 30,
(in thousands)	2018			2017
Net cash provided by operating activities	$	37,313		$	26,117
Net cash used in investing activities		(12,858	)		(10,920	)
Net cash provided by (used in) financing activities		136,430			(15,609	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(877	)		962
Net increase in cash, cash equivalents and restricted cash	$	160,008		$	550

Net cash provided by operating activities

Net cash provided by operating activities for the six months ended June 30, 2018 was $37.3 million, which reflects an increase of $11.2 million compared to the six months ended June 30, 2017. This increase was primarily a result of our improved financial performance and changes to our working capital position for the six months ended June 30, 2018, as compared to the six months ended June 30, 2017.

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Net cash used in investing activities

Net cash used in investing activities for the six months ended June 30, 2018 was $12.9 million, which reflects an increase in cash used of $1.9 million compared to the six months ended June 30, 2017. This increase was the result of an increase in cash payments for capital expenditures, developed technology and acquisition of businesses in the six months ended June 30, 2018, as compared to the six months ended June 30, 2017.

Net cash provided by (used in) financing activities

Net cash provided by financing activities for the six months ended June 30, 2018 was $136.4 million, which reflects an increase in cash provided of $152.0 million compared to cash used of $15.6 million for the six months ended June 30, 2017. We received aggregate proceeds of $135.6 million from our follow-on public offering, net of underwriters’ discount and commissions. We had a decrease in net debt payments of $14.7 million for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.

Effect of exchange rate changes on cash, cash equivalents and restricted cash

There was an adverse effect of exchange rate changes on cash, cash equivalents and restricted cash of $ $0.9 million for the six months ended June 30, 2018, compared to a favorable effect of exchange rate changes on cash, cash equivalents and restricted cash of $1.0 million for the six months ended June 30, 2017.

2018 Employee Equity Program (“2018 EEP”)

Under the terms of the 2017 Equity Incentive Plan (“2017 Plan”), the Company intends to issue Restricted Stock Units (“RSUs”) to its senior executives, sales team, and other designated employees based upon a combination of factors including Company performance, tenure, position, geographic location, and individual performance related to the 2018 fiscal year. The determination of the actual number of the individual and aggregate number of RSUs to be awarded and subject to a four-year vesting period is expected to be finalized in early 2019 and remains subject to Compensation Committee approval at that time. Based upon expectations, potential dilution is expected to be below 1% for this future award of RSUs.

Contractual obligations and commitments

There were no material changes in our commitments under contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

Off-balance sheet arrangements

Through June 30, 2018, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Recently issued accounting pronouncements

See Note 3 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.

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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 debt.

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.

To date, we have not entered into any foreign currency hedging contracts, since exchange rate fluctuations have not had a material impact on our operating results and cash flows. Based on our current international structure, we do not plan on engaging in hedging activities in the near future.

Interest Rate Risk

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. 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

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 these disclosure controls and procedures were not effective as of June 30, 2018, due to the material weaknesses identified in connection with the audits of fiscal years 2017 and 2016 financial statements.

The first material weakness pertained to controls over accounting for income taxes. Specifically, that: (i) certain misstatements were either not identified by management or were not identified timely by management; and (ii) additional technical resources were necessary to enable timely and sufficient review controls over accounting for income taxes. We have taken steps to remediate this by hiring additional technical resources and increasing management review and oversight over the income tax process.

The second material weakness pertained to our internal controls over the financial statement close process not being designed to be precise enough to detect a material error in the financial statements in a timely manner. Specifically, certain misstatements were either not identified by management or were not identified timely by management. We have taken steps to remediate this material weakness, by hiring additional personnel and increasing management review and oversight over the financial statement close process.

If our steps are insufficient to successfully remediate the material weaknesses and otherwise establish and maintain an effective system of internal control over financial reporting, the reliability of our financial reporting, investor confidence in us and the value of our common stock could be materially and adversely affected. The process of designing and implementing internal control over financial reporting required to comply with applicable securities laws and regulations and will be time consuming, costly and complicated. Our independent registered public accounting firm was not engaged to audit the effectiveness of our internal control over financial reporting with respect to any period reported herein or any other prior period. We may discover other control deficiencies in the future, and we cannot assure you that we will not have a material weakness in future periods.

Effective internal control over financial reporting is necessary for us to provide reliable and timely financial reports and, together with adequate disclosure controls and procedures, are designed to reasonably detect and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations.

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 June 30, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

As previously described in our Annual Report on Form 10-K, Part 1, Item 3, we are subject to litigation for which there were no material changes during the six months ended June 30, 2018.

MSC Litigation

On July 5, 2007, MSC Software Corporation, or MSC, filed a lawsuit against us and certain of our named employees in the United States District Court for the Eastern District of Michigan, asserting, among other things, that we and certain of our employees misappropriated alleged trade secrets that certain of our employees breached contractual non-solicitation and confidentiality obligations owed to MSC and that we tortiously interfered with MSC’s contractual relations with these employees. In April 2014, a jury returned a $26.1 million verdict against us on three trade secrets claims and a tortious interference claim as well as against certain of our employees for breach of contractual obligations to MSC. In November 2014, this verdict was partially vacated except for damages of $425,000 related to the employment matters, and the Court ordered a new trial on damages for the trade secrets claims. On December 13, 2017, the court granted Altair’s motion for summary judgment and dismissed MSC’s claim of trade secret misappropriation. On January 5, 2018, MSC filed a notice of appeal of the final judgment entered on December 13, 2017 and prior orders in this action to the Sixth Circuit Court of Appeals. On January 19, 2018, Altair filed a cross-appeal. The Sixth Circuit referred the case to mediation.Mediation is on-going.   

We can express no opinion regarding the ultimate resolution of this matter. Litigation is inherently uncertain, and any judgment or injunctive relief entered against us or any adverse settlement could negatively affect our business, results of operations and financial condition.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017.

The risk factor set forth below supplements the risk factors regarding our status as an emerging growth company previously disclosed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2017, and as updated by our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.

We will cease to qualify as an “emerging growth company” (as defined in the Jumpstart Our Business Startups Act of 2012) as of December 31, 2018, in which case we will be subject to Section 404(b) of the Sarbanes-Oxley Act of 2002 and accelerated adoption of certain new accounting standards that may be difficult for us to satisfy in a timely fashion.

We will cease to qualify as an “emerging growth company”, or EGC, as of December 31, 2018 because the market value of our common stock held by non-affiliates exceeded $700 million as of June 30, 2018. As a result, we will be required to comply with the additional requirements associated with no longer being an EGC, as described in our Annual Report on Form 10-K for the year ended December 31, 2017, including the requirements for accelerated adoption of certain new accounting standards and the requirement that our independent registered public accounting firm express an opinion as to the effectiveness of our internal controls over financial reporting. Section 404(a) of the Sarbanes-Oxley Act of 2002 requires that we evaluate and determine the effectiveness of our internal controls over financial reporting and provide a management report on the internal controls over financial reporting. Section 404(b) of that Act will require that we file our independent registered public accounting firm's attestation report on our internal controls over financial reporting. We are in the process of planning for the accelerated adoption of new accounting standards as well as designing, documenting or implementing the incremental internal controls over financial reporting required to comply with these obligations, which will be time consuming, costly and complicated. We may not be able to complete our evaluation, testing, and any required remediation in a timely fashion.

If we are unable to complete the implementation of certain new accounting standards, if we identify previously undetected material weaknesses in our internal controls over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal controls over financial reporting are effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class Acommon stock could be negatively affected.

40

Item 2. UnregisteredSales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds

Initial public offering

On October 31, 2017, the Registration Statement on Form S-1 (File No. 333-220710) for our initial public offering was declared effective by the SEC. On November 3, 2017, we closed the initial public offering and sold 9,865,004 shares of our Class A common stock at a public offering price of $13.00 per share for an aggregate offering price of approximately $128.2 million.

The remainder of the information required by this item regarding the use of our IPO proceeds has been omitted pursuant to SEC rules because such information has not changed since our last periodic report was filed.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

41

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
EX-101.INS	XBRL INSTANCE DOCUMENT
EX-101.SCH	XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.LAB	XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

* 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.

42

SIGNATURES

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.

	ALTAIR ENGINEERING INC.
Date: August 9, 2018	By:	/s/ James Scapa
		James R. Scapa
		Chief Executive Officer (Principal Executive Officer)

Date: August 9, 2018
	By:	/s/ Howard N. Morof
		Howard N. Morof
		Chief Financial Officer (Principal Financial and Accounting Officer)

43

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James R. Scapa, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Altair Engineering Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) (paragraph omitted pursuant to the transition period exemption for newly public companies);

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 /s/ James Scapa

James R. Scapa

Chief Executive Officer

(Principal Executive Officer)

August 9, 2018

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Howard N. Morof, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Altair Engineering Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) (paragraph omitted pursuant to the transition period exemption for newly public companies);

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Howard N. Morof

Howard N. Morof

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 9, 2018

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Altair Engineering Inc. (the “Company”), on Form 10-Q for the period ended June 30, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of the Company certify to their knowledge and in their respective capacities, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James Scapa

James R. Scapa

Chief Executive Officer

(Principal Executive Officer)

/s/ Howard N. Morof

Howard N. Morof

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 9, 2018

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 03, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Trading Symbol	ALTR
Entity Registrant Name	ALTAIR ENGINEERING INC.
Entity Central Index Key	0001701732
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Class A Common Stock [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		36,739,344
Class B Common Stock [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		33,170,732

XML

Consolidated balance sheets - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
CURRENT ASSETS:
Cash and cash equivalents	$ 199,230	$ 39,213
Accounts receivable, net	73,793	86,635
Inventory, net	1,786	1,980
Income tax receivable	7,260	6,054
Prepaid expenses and other current assets	13,290	10,006
Total current assets	295,359	143,888
Property and equipment, net	30,112	31,446
Goodwill	63,263	62,706
Other intangible assets, net	24,846	24,461
Deferred tax assets	8,113	8,351
Other long-term assets	16,077	17,019
TOTAL ASSETS	437,770	287,871
CURRENT LIABILITIES:
Current portion of long-term debt	390	232
Accounts payable	5,957	4,880
Accrued compensation and benefits	26,393	26,560
Obligations for acquisition of businesses	9,842	13,925
Other accrued expenses and current liabilities	20,443	21,744
Deferred revenue	147,261	130,122
Total current liabilities	210,286	197,463
Long-term debt, net of current portion	690	178
Deferred revenue, non-current	9,256	9,640
Other long-term liabilities	13,474	17,647
TOTAL LIABILITIES	233,706	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
Additional paid-in capital	369,579	232,156
Accumulated deficit	(161,066)	(166,499)
Accumulated other comprehensive loss	(6,808)	(5,072)
TOTAL STOCKHOLDERS’ EQUITY	201,712	60,591
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY	437,770	287,871
Class A Common Stock [Member]
STOCKHOLDERS’ EQUITY:
Common stock	4	2
Class B Common Stock [Member]
STOCKHOLDERS’ EQUITY:
Common stock	$ 3	$ 4

XML

Consolidated balance sheets (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Preferred stock, par value	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	45,000,000	45,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Class A Common Stock [Member]
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	513,797,000	513,797,000
Common stock, shares issued	36,518,000	26,725,000
Common stock, shares outstanding	36,518,000	26,725,000
Class B Common Stock [Member]
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	41,203,000	41,203,000
Common stock, shares issued	33,171,000	36,508,000
Common stock, shares outstanding	33,171,000	36,508,000

XML

Consolidated statements of operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue
Software	$ 72,813	$ 59,600	$ 140,956	$ 113,697
Software related services	8,707	8,204	18,180	17,175
Total software	81,520	67,804	159,136	130,872
Client engineering services	12,417	12,365	24,497	24,594
Other	1,629	1,477	3,664	3,062
Total revenue	95,566	81,646	187,297	158,528
Cost of revenue
Software	11,983	8,729	22,905	17,633
Software related services	6,512	7,114	13,221	13,773
Total software	18,495	15,843	36,126	31,406
Client engineering services	9,960	9,828	20,160	19,969
Other	1,001	1,247	2,212	2,297
Total cost of revenue	29,456	26,918	58,498	53,672
Gross profit	66,110	54,728	128,799	104,856
Operating expenses:
Research and development	24,744	22,838	47,447	41,608
Sales and marketing	20,183	19,428	39,160	36,338
General and administrative	17,412	21,201	34,402	37,290
Amortization of intangible assets	1,986	1,155	3,926	2,098
Other operating income	(392)	(2,736)	(2,583)	(3,330)
Total operating expenses	63,933	61,886	122,352	114,004
Operating income (loss)	2,177	(7,158)	6,447	(9,148)
Interest expense	45	548	61	1,159
Other (income) expense, net	(176)	427	(1,076)	786
Income (loss) before income taxes	2,308	(8,133)	7,462	(11,093)
Income tax expense (benefit)	795	(887)	2,029	(1,659)
Net income (loss)	$ 1,513	$ (7,246)	$ 5,433	$ (9,434)
Income (loss) per share:
Net income (loss) per share attributable to common stockholders, basic	$ 0.02	$ (0.14)	$ 0.08	$ (0.19)
Net income (loss) per share attributable to common stockholders, diluted	$ 0.02	$ (0.14)	$ 0.07	$ (0.19)
Weighted average shares outstanding:
Weighted average number of shares used in computing net income (loss) per share, basic	65,580	50,374	64,614	50,255
Weighted average number of shares used in computing net income (loss) per share, diluted	73,391	50,374	72,881	50,255

XML

Consolidated statements of comprehensive income (loss) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 1,513	$ (7,246)	$ 5,433	$ (9,434)
Other comprehensive income (loss), net of tax:
Foreign currency translation (net of tax effect of $0, $0, $0 and $0, respectively)	(2,047)	1,154	(1,842)	1,511
Retirement related benefit plans (net of tax effect of $(17), $0, $(7) and $0, respectively)	118	(33)	106	(44)
Total other comprehensive income (loss)	(1,929)	1,121	(1,736)	1,467
Comprehensive income (loss)	$ (416)	$ (6,125)	$ 3,697	$ (7,967)

XML

Consolidated statements of comprehensive income (loss) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
Foreign currency translation, tax effect	$ 0	$ 0	$ 0	$ 0
Retirement related benefit plans, tax effect	$ (17)	$ 0	$ (7)	$ 0

XML

Consolidated statement of changes in stockholders' equity - 6 months ended Jun. 30, 2018 - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock [Member] Class A Common Stock [Member]	Common Stock [Member] Class B Common Stock [Member]	Additional Paid-In Capital [Member]	Accumulated Deficit [Member]	Accumulated Other Comprehensive Loss [Member]
Beginning balance at Dec. 31, 2017	$ 60,591	$ 2	$ 4	$ 232,156	$ (166,499)	$ (5,072)
Beginning balance (in shares) at Dec. 31, 2017		26,725	36,508
Net income	5,433				5,433
Follow-on public offering, net of offering costs of $370	135,201	$ 1	$ (1)	135,201
Follow-on public offering, net of offering costs of $370 (shares)		5,731	(1,675)
Adjustment for acquisitions	(96)			(96)
Conversion from Class B to Class A		1,662	(1,662)
Exercise of stock options	1,669	$ 1		1,668
Exercise of stock options (in shares)		2,400
Stock-based compensation	650			650
Foreign currency translation, net of tax	(1,842)					(1,842)
Retirement related benefit plans, net of tax	106					106
Ending balance at Jun. 30, 2018	$ 201,712	$ 4	$ 3	$ 369,579	$ (161,066)	$ (6,808)
Ending balance (in shares) at Jun. 30, 2018		36,518	33,171

XML

Consolidated statement of changes in stockholders' equity (Parenthetical) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($)
Statement Of Stockholders Equity [Abstract]
Follow-on public offering, offering costs	$ 370

XML

Consolidated statements of cash flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
OPERATING ACTIVITIES:
Net income (loss)	$ 5,433	$ (9,434)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	7,525	5,084
Provision for bad debt	269	116
Stock-based compensation expense	650	14,037
Deferred income taxes	(283)	(3,679)
Other, net	(154)	34
Changes in assets and liabilities:
Accounts receivable	11,743	11,412
Prepaid expenses and other current assets	(2,927)	(3,850)
Other long-term assets	(278)	(2,567)
Accounts payable	335	955
Accrued compensation and benefits	73	(1,531)
Other accrued expenses and current liabilities	(4,496)	(2,331)
Deferred revenue	19,423	17,871
Net cash provided by operating activities	37,313	26,117
INVESTING ACTIVITIES:
Payments for acquisition of businesses, net of cash acquired	(7,028)	(6,437)
Capital expenditures	(3,130)	(2,335)
Payments for acquisition of developed technology	(2,738)	(2,120)
Other investing activities, net	38	(28)
Net cash used in investing activities	(12,858)	(10,920)
FINANCING ACTIVITIES:
Proceeds from issuance of Class A common stock in follow-on public offering, net of underwriters' discounts and commissions	135,572
Proceeds from the exercise of stock options	1,668	476
Payments for follow-on public offering and initial public offering costs	(468)	(869)
Payments for redemption of common stock	(119)	(611)
Principal payments on long-term debt	(76)	(5,248)
Payments on revolving commitment		(53,564)
Borrowings under revolving commitment		44,227
Other financing activities	(147)	(20)
Net cash provided by (used in) financing activities	136,430	(15,609)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(877)	962
Net increase in cash, cash equivalents and restricted cash	160,008	550
Cash, cash equivalents and restricted cash at beginning of year	39,578	17,139
Cash, cash equivalents and restricted cash at end of period	199,586	17,689
Supplemental disclosure of cash flow:
Interest paid	41	1,163
Income taxes paid	3,660	2,352
Supplemental disclosure of non-cash investing and financing activities:
Capital leases	1,010
Property and equipment in accounts payable and other accrued expenses and current liabilities	935	155
Follow-on public offering costs in accounts payable	88
Promissory notes issued and deferred payment obligations for acquisitions	$ 278	2,728
Issuance of common stock with put rights		2,345
Initial public offering costs in other long-term assets		1,522
Issuance of common stock in connection with acquisitions		$ 415

XML

Organization and Description of Business

6 Months Ended

Jun. 30, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization and Description of Business

1. Organization and description of business

Altair Engineering Inc. (“Altair” or the “Company”) is incorporated in the state of Delaware. The Company is a provider of enterprise-class engineering software enabling innovation across the entire product lifecycle from concept design to in-service operation. Altair transforms design and decision making by applying simulation, machine learning, and optimization throughout product lifecycles. The Company is headquartered in Troy, Michigan.

Follow-on public offering

In June 2018, the Company closed its follow-on public offering (the “Offering”), in which the Company issued and sold 4,056,004 shares of Class A common stock (inclusive of 763,424 shares sold upon the exercise by the underwriters of their option to purchase additional shares of our Class A common stock). The price per share to the public was $35.00. The Company received aggregate proceeds of $135.6 million from the Offering, net of underwriters’ discounts and commissions, before deducting offering costs of approximately $0.4 million.

The Offering also included the sale of 2,307,420 shares of Class A common stock by selling stockholders, giving effect to the conversion of 1,675,420 shares of the Company’s Class B common stock into an equivalent number of shares of Class A common stock and the exercise of 257,000 options to purchase Class A common stock. The Company did not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders other than the $0.5 million in proceeds from exercises of stock options by certain selling stockholders.  

XML

Accounting Policies

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Accounting Policies

2. Accounting policies

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 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, 2017, included in the most recent Annual Report on Form 10-K filed with the SEC.  In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. The preparation of the 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.  Considerable judgment is often involved in making these determinations; use of different assumptions could result in significantly different results.  Management believes its assumptions and estimates are reasonable and appropriate.  However, actual results may differ from those estimates.  In addition, the results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for any future period.  

There have been no material changes to Altair’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.  

The Company has concluded that all material transactions that have occurred that require disclosure or adjustments to the consolidated financial statements have been reported herein.  See Note 17 – Subsequent events for additional information.

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 sheet that sum to the total of the amounts reported in the consolidated statement of cash flows (in thousands):

	June 30, 2018		December 31, 2017
Cash and cash equivalents	$	199,230	$	39,213
Restricted cash included in other long-term assets		356		365
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	199,586	$	39,578

Restricted cash represents amounts required for a contractual agreement with an insurer for the payment of potential health insurance claims, and term deposits for bank guarantees.

Receivable for R&D credit

The French government provides a research and development (“R&D”) tax credit known as Credit Impôt Recherche, or CIR, in order to encourage Companies to invest in R&D activities.  The tax credit is deductible from French income tax and any excess is carried forward three years.  After three years, any unused credit may be reimbursed to the Company by the French government.  As of June 30, 2018, the Company had approximately $10.4 million in receivables from the French government related to CIR, of which $2.3 million is recorded in income tax receivable and the remaining $8.1 million is recorded in other long-term assets. CIR is subject to customary audit by French tax authorities.

Assets held for sale

Assets held for sale are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation expense is not recognized on assets held for sale. On March 30, 2018, the Company signed a letter of intent to sell the building that is used as the headquarters for the Company’s toggled subsidiary. A purchase agreement has been executed including provisions governing the lease back of a part of the facility primarily for continued use as a distribution center for toggled’s operational needs. As of June 30, 2018, the building and related assets of $2.1 million were recorded in prepaid expenses and other current assets. See Note 17 – Subsequent events for information regarding the sale of the building in August 2018.

Mezzanine equity

In 2017, the Company issued 200,000 shares of Class A common stock to a third party as partial consideration for the purchase of developed technology. These shares have a put right that can be exercised by the holder five years from date of purchase at $12.50 per share that requires the shares to be recorded at fair value and classified as mezzanine equity in the consolidated balance sheet. The put right option is terminated if the shareholders sell their shares. Classification of the of instrument shall remain as mezzanine equity until one of the following three events take place: (1) shares are sold on the open market; (2) a redemption feature lapses; or (3) there is a modification of the terms of the instrument.

Income (loss) per share

Basic 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 stock options and restricted stock units (“RSUs”). Diluted 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 stock options and RSUs under the treasury stock method. The following table sets forth the computation of the numerators and denominators used in the basic and diluted income (loss) per share amounts (in thousands, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Numerator:
Net income (loss)	$	1,513	$	(7,246	)	$	5,433	$	(9,434	)
Denominator:
Denominator for basic income (loss) per share—weighted average shares		65,580		50,374			64,614		50,255
Effect of dilutive securities, stock options and RSUs		7,811		—			8,267		—
Denominator for dilutive income (loss) per share		73,391		50,374			72,881		50,255
Net income (loss) per share attributable to common stockholders, basic	$	0.02	$	(0.14	)	$	0.08	$	(0.19	)
Net income (loss) per share attributable to common stockholders, diluted	$	0.02	$	(0.14	)	$	0.07	$	(0.19	)

The computation of diluted income (loss) per share does not include shares that are anti-dilutive under the treasury stock method because their exercise prices are higher than the average fair value of the Company’s stock during the period or due to a net loss in the period. For the three and six months ended June 30, 2018, there were no anti-dilutive shares excluded from the computation of income (loss) per share. For both the three and six months ended June 30, 2017, there were 9.6 million anti-dilutive shares excluded from the computation of income (loss) per share.

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Recent Accounting Guidance

6 Months Ended

Jun. 30, 2018

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Guidance

3. Recent accounting guidance

Accounting standards adopted

The Company adopted Accounting Standards Update, “ASU” 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, on January 1, 2018. ASU 2017-09 amends the guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The Company adopted ASU 2017-09 on a prospective basis, and the adoption did not have a material effect on the Company’s consolidated financial statements.

Accounting standards not yet adopted

The Company will cease to qualify as an emerging growth company (as defined in the Jumpstart Our Business Startups Act of 2012) as of December 31, 2018, therefore the public company adoption dates mentioned below will be applicable at that time.

Revenue Recognition—In May 2014, the Financial Accounting Standards Board, or “FASB”, issued ASU 2014-09, Revenue from Contracts with Customers. This standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most existing revenue recognition guidance under GAAP. The core principle of the guidance is that an entity should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenues and cash flows arising from contracts with customers. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers: Deferral of the Effective Date that defers the effective date of ASU 2014-09 for all entities by one year for public business entities. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. For all other entities, including emerging growth companies, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted.

Under existing GAAP, the Company does not have vendor-specific objective evidence (“VSOE”) of fair value for post-contract customer support (“PCS”) sold along with software products licenses; therefore, revenues for the software products licenses (including perpetual licenses), PCS and professional services, if applicable, are considered to be one accounting unit and, once all services have commenced, are recognized ratably over the remaining period of the arrangement (the longer of the contractual service term or PCS term). Under ASU 2014-09, the concept of assessing VSOE has been eliminated and the Company must estimate a fair value associated with each performance obligation within an arrangement. As a result, the Company expects the timing of revenue recognition to be accelerated because it anticipates that license revenue will be recognized at a point in time, rather than over time, which is its current practice. Generally, the license revenue component of an arrangement represents a significant portion of the overall fair value of a software arrangement. As a result, the Company expects the adoption of ASU 2014-09 to have a significant impact on the consolidated financial statements. The Company plans to adopt this standard effective January 1, 2018, using the modified retrospective approach, which will be reflected in the December 31, 2018 financial statements. The Company is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.

Financial Instruments—In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This standard affects the accounting for equity instruments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. For public business entities, ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including emerging growth companies, ASU 2016-01 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements and related disclosures.

Leases—In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard amends various aspects of existing accounting guidance for leases, including the recognition of a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This standard also introduces new disclosure requirements for leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years for public business entities. For all other entities, including emerging growth companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted. The new standard must be adopted using a modified retrospective approach, and provides for certain practical expedients. The Company plans to adopt this standard on January 1, 2019. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements and related disclosures.

Cash Classification—In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to improve financial reporting in regard to how certain transactions are classified in the statement of cash flows. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is effective for interim and annual periods beginning after December 15, 2017, for public business entities. For all other entities, including emerging growth companies, ASU 2016-15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-15 on its consolidated financial statements and related disclosures.

Goodwill Impairment—In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which simplifies accounting for goodwill impairments by eliminating step two from the goodwill impairment test.  This guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, for public business entities that are Securities and Exchange Commission (SEC) filers, and December 15, 2020, for public business entities that are not SEC filers. For all other entities, including emerging growth companies, ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2021. Early adoption is permitted for interim and annual goodwill impairment tests performed on testing dates after January 1, 2017. The new standard must be applied on a prospective basis. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

Retirement Benefits – In March 2017, the FASB issued ASU 2017-07, Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This ASU requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component. The new guidance is effective for public business entities for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2017. For all other entities, including emerging growth companies, ASU 2017-07 is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

Derivatives and Hedging – In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. This ASU amends the guidance with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. In addition, this ASU amends the current guidance to simplify the application of the hedge accounting guidance. For public business entities, the amendments are effective for annual reporting periods, and interim reporting periods within those annual periods, beginning after December 15, 2018. For all other entities, including emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements and related disclosures.

Comprehensive Income – In February 2018, the FASB issued ASU 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (AOCI), which gives entities the option to reclassify to retained earnings the tax effects resulting from the Tax Cuts and Jobs Act, or the Tax Act, related to items in AOCI that the FASB refers to as having been stranded in AOCI. The new guidance may be applied retrospectively to each period in which the effect of the Tax Act is recognized in the period of adoption. The Company must adopt this guidance for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for periods for which financial statements have not yet been issued or made available for issuance, including the period the Tax Act was enacted. The guidance, when adopted, will require new disclosures regarding a company’s accounting policy for releasing the tax effects in AOCI and permit the company the option to reclassify to retained earnings the tax effects resulting from the Tax Act that are stranded in AOCI. The Company is currently evaluating how to apply the new guidance and has not determined whether it will elect to reclassify stranded amounts. The adoption of ASU 2018-02 is not expected to have a material effect on the Company’s consolidated financial statements and related disclosures.

Stock Compensation – In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. This ASU simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date, which may lower an entity’s cost and reduce volatility in the income statement. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, including emerging growth companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, including in an interim period, but not before an entity adopts ASC 606, Revenue from contracts with customers.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

4. Fair value measurements

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 – Observableinputs, 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 and accounts payable approximate fair value due to their short maturities. Interest on the Company’s long-term debt is at a variable rate, and as such the debt obligation outstanding approximates fair value.

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Acquisitions

6 Months Ended

Jun. 30, 2018

Business Combinations [Abstract]

Acquisitions

5. Acquisitions

FluiDyna GmbH

In May 2018, the Company purchased the remaining equity interests in FluiDyna GmbH (“FluiDyna”) for aggregate consideration of EUR 2.2 million ($2.7 million).  Prior to the purchase of the remaining equity interests, the Company owned 24% of the outstanding equity interests in FluiDyna. The purchase price was allocated to assets and liabilities of FluiDyna based on the fair values of the assets acquired and liabilities assumed. The allocation included $2.2 million to intangibles, consisting of developed technology and customer relationships and $1.7 million to goodwill, which is not tax deductible. The financial results of FluiDyna have been included in the consolidated financial statements since the acquisition date.

The allocation of fair value of purchase consideration is incomplete pending the final determination of the fair value of assets acquired and liabilities assumed, and is subject to change within the measurement period (up to one year from the acquisition date). The primary areas that remain preliminary relate to the fair value of intangible assets acquired, certain tangible assets and liabilities acquired, income taxes and residual goodwill.

FluiDyna developed NVIDIA CUDA and GPU-based Computational Fluid Dynamics (“CFD”) and numerical simulation technologies. The Company made an initial investment in FluiDyna in 2015. FluiDyna’s simulation software products ultraFluidx and nanoFluidx have been available to the Company’s customers through the Altair Partner Alliance and also offered as standalone licenses. ultraFluidX solves large scale internal and external aerodynamics problems for a broad class of problems including ultra-fast prediction and evaluation of vehicle, building, and environmental aerodynamics. nanoFluidX is a fluid dynamics simulation tool based on the smoothed particle hydrodynamics method to predict the flow in complex geometries with complex motion. 

CANDI Controls, Inc.

In April 2018, the Company entered into an asset purchase agreement with California-based CANDI Controls, Inc. (“CANDI”) and acquired all the intellectual property assets of CANDI for $2.4 million. The sale was approved by the bankruptcy court on April 25, 2018, and the asset purchase was completed on April 26, 2018.  

CANDI developed a modern platform which supports multiple data protocols for edge gateway computers to communicate with a constellation of Internet of Things (“IoT”) devices. CANDI’s software is designed to easily connect systems and equipment with cloud-based monitoring and control services to help organizations improve performance, conserve resources, and cut operational costs. Sensor data can be analyzed, visualized, and processed with machine learning and predictive analytics tools to forecast performance and prescribe actions consistent with business objectives.

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Inventory

6 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Inventory

6. Inventory

Inventory is stated at the lower of cost and net realizable value. Cost is determined using the first-in, first-out method. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The valuation of inventory requires management to estimate excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires management to estimate market conditions and future demand for the Company’s products.

Inventory consisted of the following (in thousands):

	June 30,		December 31,
	2018		2017
Raw materials	$	—	$	—
Finished goods		1,786		1,980
Total inventory – net	$	1,786	$	1,980

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Property and Equipment, Net

6 Months Ended

Jun. 30, 2018

Property Plant And Equipment [Abstract]

Property and Equipment, Net

7. Property and equipment, net

Property and equipment consists of the following (in thousands):

	June 30,		December 31,
	2018		2017
Land	$	7,994	$	7,994
Building and improvements		12,894		15,185
Computer equipment and software		35,137		32,103
Office furniture and equipment		6,820		6,751
Leasehold improvements		6,260		6,467
Total property and equipment		69,105		68,500
Less: accumulated depreciation and amortization		38,993		37,054
Property and equipment, net	$	30,112	$	31,446

Depreciation expense was $2.0 million and $3.6 million for the three and six months ended June 30, 2018, respectively, and $1.5 million and $3.0 million for the three and six months ended June 30, 2017, respectively.

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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

8. Goodwill and other intangible assets

Goodwill

The changes in the carrying amount of goodwill, which is attributable to the Software reporting segment, are as follows (in thousands):

Balance at December 31, 2017	$	62,706
Acquisitions		1,708
Purchase price adjustment		96
Effects of foreign currency translation		(1,247	)
Balance at June 30, 2018	$	63,263

Other intangible assets

A summary of other intangible assets is shown below (in thousands):

	June 30, 2018
	Weighted average amortization period	Gross carrying amount		Accumulated amortization		Net carrying amount
Definite-lived intangible assets:
Developed technology	4 years	$	29,333	$	12,664	$	16,669
Customer relationships	7 years		12,154		6,661		5,493
Other intangibles	10 years		129		55		74
Total definite-lived intangible assets			41,616		19,380		22,236
Indefinite-lived intangible assets:
Trade names			2,610				2,610
Total other intangible assets		$	44,226	$	19,380	$	24,846

	December 31, 2017
	Weighted average amortization period	Gross carrying amount		Accumulated amortization		Net carrying amount
Definite-lived intangible assets:
Developed technology	4 years	$	25,947	$	9,909	$	16,038
Customer relationships	7 years		11,794		6,195		5,599
Other intangibles	10 years		143		57		86
Total definite-lived intangible assets			37,884		16,161		21,723
Indefinite-lived intangible assets:
Trade names			2,738				2,738
Total other intangible assets		$	40,622	$	16,161	$	24,461

Amortization expense related to intangible assets was $2.0 million and $3.9 million for the three and six months ended June 30, 2018, respectively, and $1.2 million and $2.1 million for the three and six months ended June 30, 2017, respectively.

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Other Liabilities

6 Months Ended

Jun. 30, 2018

Other Liabilities Disclosure [Abstract]

Other Liabilities

9. Other liabilities

The following table provides the details of other accrued expenses and current liabilities (in thousands):

	June 30,		December 31,
	2018		2017
Accrued VAT		4,048		3,916
Accrued royalties		3,395		2,037
Accrued professional fees		2,849		2,500
Income taxes payable		1,941		3,724
Defined contribution plan liabilities		1,131		1,274
Government grants		829		712
Self-insurance and other insurance reserves		812		601
Billings in excess of cost		540		832
Related party liabilities		202		119
Other current liabilities		4,696		6,029
	$	20,443	$	21,744

The following table provides details of other long-term liabilities (in thousands):

	June 30,		December 31,
	2018		2017
Pension and other post retirement liabilities	$	7,676	$	7,670
Deferred tax liabilities		1,818		1,620
Other liabilities		3,980		8,357
	$	13,474	$	17,647

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

10. Stock-based compensation

2001 stock-based compensation plans

Nonqualified stock option plan

In 2001, the Company established the Nonqualified Stock Option Plan (“NSO Plan”) under which 4,876,300 stock options with an exercise price of $0.000025 remain outstanding at June 30, 2018. The NSO Plan was terminated in 2003. Stock options under the NSO plan were immediately vested and have a contractual term of 35 years from the date of grant. The outstanding awards will continue to be governed by their existing terms under the NSO Plan. The NSO Plan is accounted for as an equity plan.

The following table summarizes the stock option activity under the NSO Plan:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		6,441,972		$	0.000025		19
Exercised		(1,565,672	)	$	0.000025
Forfeited		—			—
Outstanding at June 30, 2018		4,876,300		$	0.000025		18
Exercisable at June 30, 2018		4,876,300		$	0.000025		18

The total intrinsic value of the NSO Plan stock options exercised during the six months ended June 30, 2018 was $47.8 million.

Incentive and nonqualified stock-based plan

Also in 2001, the Company established the Incentive and Nonqualified Stock-based Plan (“ISO Plan”) which was terminated in 2011 and was authorized to issue nonqualified stock options (“NQSO”) and incentive stock options (“ISO”) totaling 11,153,872 shares of Class A common stock. The NQSO grants could be issued at less than the fair market value at date of grant under the terms of the ISO Plan, while ISO grants were issued at a price equal to or greater than the fair market value at date of grant. Options generally vested over a two to three-year period. All options have a contractual term of ten years from the date of grant.

The following table summarizes the stock option activity under the 2001 stock-based compensation plans for the periods indicated as follows:

	Number of Options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		888,864		$	0.67		2.5
Exercised		(291,264	)	$	0.71
Forfeited		—			—
Outstanding at June 30, 2018		597,600		$	0.65		1.9
Exercisable at June 30, 2018		597,600		$	0.65		1.9

The total intrinsic value of the ISO Plan stock options exercised during the six months ended June 30, 2018 was $2.8 million.

2012 stock-based compensation plans

During 2012, the Company established the 2012 Incentive and Nonqualified Stock Option Plan (“2012 Plan”) which permits the issuance of 5,200,000 shares of Class A common stock for the grant of nonqualified stock options (“NQSO”) and incentive stock options ("ISO”) for management, other employees, and board members of the Company. The options are issued at a price equal to or greater than fair market value at date of grant. All options have a contractual term of 10 years from date of grant.

The 2012 Plan is accounted for as an equity plan. For those options expected to vest, compensation expense is recognized on a straight-line basis over a four-year period, the total requisite service period of the awards. Total compensation cost related to nonvested awards not yet recognized as of June 30, 2018, totaled $1.2 million, and is expected to be recognized over a weighted average period of 2.4 years.

The following table summarizes the stock option activity under the 2012 Plan for the periods indicated as follows:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		2,183,127		$	3.74		7.3
Granted		—			—
Exercised		(542,784	)	$	2.68
Forfeited		(11,225	)	$	4.72
Outstanding at June 30, 2018		1,629,118		$	4.08		7.4
Exercisable at June 30, 2018		883,429		$	3.63		6.6

The total intrinsic value of the 2012 Plan stock options exercised during the six months ended June 30, 2018 was $15.4 million.

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 8,104,971 authorized shares of the Company’s Class A common stock reserved for issuance.

The following table summarizes the restricted stock units, or RSUs, awarded under the 2017 Plan for the period:

	Number of RSUs		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		—
Granted		203,701
Vested		—
Forfeited		—
Outstanding at June 30, 2018		203,701		9.8

The weighted average grant date fair value of the RSUs was $29.59 and the RSUs generally vest in four equal annual installments. Total compensation cost related to nonvested awards not yet recognized as of June 30, 2018, totaled $5.7 million, and is expected to be recognized over a weighted average period of four years.

Stock-based compensation expense

The stock-based compensation expense was recorded as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Cost of revenue – software	$	8	$	11	$	16	$	16
Research and development		108		3,009		155		3,784
Sales and marketing		134		1,684		175		2,115
General and administrative		184		6,464		304		8,122
Total stock-based compensation expense	$	434	$	11,168	$	650	$	14,037

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Other (income) expense, net

6 Months Ended

Jun. 30, 2018

Other Income And Expenses [Abstract]

Other (income) expense, net

11. Other (income) expense, net

Other (income) expense, net consists of the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Foreign exchange loss (gain)	$	217		$	473		$	(580	)	$	917
Other		(393	)		(46	)		(496	)		(131	)
Other (income) expense, net	$	(176	)	$	427		$	(1,076	)	$	786

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Income Taxes

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

12. Income taxes

At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date income (loss) before income taxes. The income tax provision or benefit related to unusual or infrequent items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which those items occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.

The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected income (loss) before income taxes for the year, projections of the proportion of income (and/or loss) earned and taxed in respective tax jurisdictions, including applicable foreign taxes withheld at the source, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. Jurisdictions with a projected loss for the year or a year-to-date loss for which no tax benefit can be recognized due to a valuation allowance are excluded from the estimated annual effective tax rate. The impact of such an exclusion could result in a higher or lower effective tax rate during a particular quarter, based upon the composition and timing of actual earnings compared to annual projections. The estimates used to compute the provision or benefit for income taxes may change as new events occur, additional information is obtained or the Company’s tax environment changes. To the extent that the expected annual effective income tax rate changes, the effect of the change on prior interim periods is included in the income tax provision in the period in which the change in estimate occurs.

The Company’s income tax expense (benefit) and effective tax rate for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands, except percentages):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Income tax expense (benefit)	$	795		$	(887	)	$	2,029		$	(1,659	)
Effective tax rate		34	%		11	%		27	%		15	%

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. The effective tax rate was impacted by the geographic income mix in 2018 as compared to 2017, primarily related to United States pre-tax loss of $2.1 million and $1.0 million and tax credits not benefited due to a valuation allowance of $0.9 million and $3.1 million for the three and six months ended June 30, 2018, respectively, compared to a United States pre-tax loss of $9.4 million and $14.9 million and non-deductible stock-based compensation expense of $7.5 million and $9.4 million for the three and six months ended June 30, 2017, respectively.

The Tax Cuts and Jobs Act, or the Tax Act, was enacted on December 22, 2017. The Tax Act reduces the US federal corporate income tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The Company is applying the guidance in Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act when accounting for the enactment-date effects of the Tax Act.  At June 30, 2018, the Company has not completed its accounting for all of the tax effects of the Tax Act; however it has made reasonable estimates of the tax effects in certain situations.  In addition, the Company’s estimates may also be affected as it gains a more thorough understanding of the tax law and certain aspects of the Tax Act are clarified by the taxing authorities. During the three months ended June 30, 2018, the Company has not recorded any adjustments to the provisional amounts recorded at December 31, 2017 related to the remeasurement of its deferred balances and the one-time transition tax.  In all cases, the Company is continuing to refine its calculations as additional analysis is completed.

The Tax Act subjects a US shareholder to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for GILTI, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Given the complexity of the GILTI provisions, the Company is still evaluating the effects of the GILTI provisions and has not yet determined its accounting policy.  At June 30, 2018, because the Company is still evaluating the GILTI provisions and its analysis of future taxable income that is subject to GILTI, the Company has included GILTI related to current-year operations only in its estimated annual effective tax rate and has not provided additional GILTI on deferred items.  The Company will continue to refine its calculations, which may result in changes to this expected impact.

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Accumulated Other Comprehensive Loss

13. Accumulated other comprehensive loss

The components of accumulated other comprehensive loss were as follows (in thousands):

	Foreign currency translation			Retirement related benefit plans			Total
Balance at December 31, 2017	$	(3,374	)	$	(1,698	)	$	(5,072	)
Other comprehensive income (loss) before reclassification		(1,842	)		73			(1,769	)
Amounts reclassified from accumulated other comprehensive loss	—				40			40
Tax effects		—			(7	)		(7	)
Other comprehensive income (loss)		(1,842	)		106			(1,736	)
Balance at June 30, 2018	$	(5,216	)	$	(1,592	)	$	(6,808	)

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Related Party Transactions

6 Months Ended

Jun. 30, 2018

Related Party Transactions [Abstract]

Related Party Transactions

14. Related party transactions

At June 30, 2018 and December 31, 2017, the Company had obligations to related parties for $0.2 million and $0.1 million, respectively, recorded in other accrued expenses and current liabilities.

At December 31, 2017, the Company had receivables from an entity for which the Company had an equity investment, FluiDyna, for $0.5 million recorded in other long-term assets. The Company acquired FluiDyna in May 2018; as a result, the receivable has been eliminated from the June 30, 2018 consolidated balance sheet. For additional information on the acquisition of FluiDyna, see Note 5 - Acquisitions.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

15. Commitments and contingencies

MSC Litigation

In July 2007, MSC Software Corporation filed a lawsuit against the Company alleging misappropriation of trade secrets, breach of confidentiality and other claims. On April 10, 2014, a jury returned a verdict against the Company. The Company challenged the verdict and on November 13, 2014, a judge vacated all but $0.4 million of the judgment and ordered a new trial on damages. On December 13, 2017, the court granted Altair’s motion for summary judgment and dismissed MSC’s claim of trade secret misappropriation. On January 5, 2018, MSC filed a notice of appeal of the final judgment entered on December 13, 2017 and prior orders in this action to the Sixth Circuit Court of Appeals. On January 19, 2018, Altair filed a cross-appeal. The Sixth Circuit referred the case to mediation.Mediation is on-going, and the Company cannot be certain of the outcome of this matter. The Company has estimated and recorded a liability for the probable loss.

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. 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.

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Segment Information

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Segment Information

16. Segment information

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. 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, restructuring charges, asset impairment charges and other special items as determined by management. Adjusted EBITDA includes an allocation of corporate headquarters costs.

The Software reportable segment derives revenue from the sale and subscription of licenses for software products focused on the development and application of simulation technology to synthesize and optimize designs, processes and decisions for improved business performance. The Software segment also derives revenue from software support, upgrades, training and consulting services focused on product design and development expertise and analysis support from the component level up to complete product engineering at any stage of the lifecycle. To a much lesser extent, the Software segment also includes revenue from the sale of hardware products, primarily as a result of recent business acquisitions.

The Client Engineering Services reportable segment provides support to its customers with long-term ongoing product design and development expertise in its market segments of Solvers & Optimization, Modeling & Visualization, Industrial and Concept Design, and high-performance computing. The Company hires simulation specialists, industrial designers, design engineers, materials experts, development and test specialists, manufacturing engineers and information technology specialists for placement at customer sites for specific customer-directed assignments.

The “All other” represents innovative services and products, including toggled^®, the Company’s LED lighting business. toggled^® is focused on developing and selling next-generation solid state lighting technology along with communication and control protocols based on intellectual property for the direct replacement of fluorescent light tubes with LED lamps. Other businesses combined within Other include our WEYV business, a consumer music and content service, and potential services and product concepts that are still in their development stages.

Inter-segment sales are not significant for any period presented. The CODM does not review asset information by segment when assessing performance, therefore no asset information is provided for reportable segments.

The following tables are in thousands:

Three Months Ended June 30, 2018	Software		CES		All other			Total
Revenue	$	81,520	$	12,417	$	1,629		$	95,566
Adjusted EBITDA	$	6,720	$	1,508	$	(923	)	$	7,305
Three Months Ended June 30, 2017	Software		CES		All other			Total
Revenue	$	67,804	$	12,365	$	1,477		$	81,646
Adjusted EBITDA	$	3,790	$	1,713	$	(1,356	)	$	4,147

Six Months Ended June 30, 2018	Software		CES		All other			Total
Revenue	$	159,136	$	24,497	$	3,664		$	187,297
Adjusted EBITDA	$	13,872	$	2,564	$	(1,457	)	$	14,979
Six Months Ended June 30, 2017	Software		CES		All other			Total
Revenue	$	130,872	$	24,594	$	3,062		$	158,528
Adjusted EBITDA	$	6,723	$	2,742	$	(2,409	)	$	7,056

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Reconciliation of Adjusted EBITDA to U.S. GAAP Income (loss) before income taxes:
Adjusted EBITDA	$	7,305		$	4,147		$	14,979		$	7,056
Stock-based compensation expense		(434	)		(11,168	)		(650	)		(14,037	)
Interest expense		(45	)		(548	)		(61	)		(1,159	)
Interest income and other (1)		(536	)		2,046			719			2,131
Depreciation and amortization		(3,982	)		(2,610	)		(7,525	)		(5,084	)
Income (loss) before income taxes	$	2,308		$	(8,133	)	$	7,462		$	(11,093	)

⁽¹⁾ Includes an impairment charge for royalty contracts resulting in $0.9 million and $1.8 million of expense for the three and six months ended June 30, 2018, respectively. Includes a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the six months ended June 30, 2018 and the three and six months ended June 30, 2017.

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Subsequent Events

6 Months Ended

Jun. 30, 2018

Subsequent Events [Abstract]

Subsequent Events

17. Subsequent events

Sale of building

On August 7, 2018, the Company consummated the sale of the building that is used as the headquarters for its toggled subsidiary. Under the terms of the purchase agreement, the Company entered into a three-year lease back of part of the facility, primarily for continued use as a distribution center for toggled’s operational needs. Net proceeds from the sale transaction were $6.5 million.

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Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Basis of Presentation

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 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, 2017, included in the most recent Annual Report on Form 10-K filed with the SEC.  In the opinion of management, all adjustments considered necessary for a fair presentation of the financial statements have been included, and all adjustments are of a normal and recurring nature. The preparation of the 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.  Considerable judgment is often involved in making these determinations; use of different assumptions could result in significantly different results.  Management believes its assumptions and estimates are reasonable and appropriate.  However, actual results may differ from those estimates.  In addition, the results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for any future period.  

There have been no material changes to Altair’s significant accounting policies as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.  

The Company has concluded that all material transactions that have occurred that require disclosure or adjustments to the consolidated financial statements have been reported herein.  See Note 17 – Subsequent events for additional information.

Cash, Cash Equivalents and Restricted Cash

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 sheet that sum to the total of the amounts reported in the consolidated statement of cash flows (in thousands):

	June 30, 2018		December 31, 2017
Cash and cash equivalents	$	199,230	$	39,213
Restricted cash included in other long-term assets		356		365
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	199,586	$	39,578

Restricted cash represents amounts required for a contractual agreement with an insurer for the payment of potential health insurance claims, and term deposits for bank guarantees.

Receivable for R&D Credit

Receivable for R&D credit

The French government provides a research and development (“R&D”) tax credit known as Credit Impôt Recherche, or CIR, in order to encourage Companies to invest in R&D activities.  The tax credit is deductible from French income tax and any excess is carried forward three years.  After three years, any unused credit may be reimbursed to the Company by the French government.  As of June 30, 2018, the Company had approximately $10.4 million in receivables from the French government related to CIR, of which $2.3 million is recorded in income tax receivable and the remaining $8.1 million is recorded in other long-term assets. CIR is subject to customary audit by French tax authorities.

Assets Held for Sale

Assets held for sale

Assets held for sale are reported at the lower of the carrying amount or fair value less costs to sell. Depreciation expense is not recognized on assets held for sale. On March 30, 2018, the Company signed a letter of intent to sell the building that is used as the headquarters for the Company’s toggled subsidiary. A purchase agreement has been executed including provisions governing the lease back of a part of the facility primarily for continued use as a distribution center for toggled’s operational needs. As of June 30, 2018, the building and related assets of $2.1 million were recorded in prepaid expenses and other current assets. See Note 17 – Subsequent events for information regarding the sale of the building in August 2018.

Mezzanine Equity

Mezzanine equity

In 2017, the Company issued 200,000 shares of Class A common stock to a third party as partial consideration for the purchase of developed technology. These shares have a put right that can be exercised by the holder five years from date of purchase at $12.50 per share that requires the shares to be recorded at fair value and classified as mezzanine equity in the consolidated balance sheet. The put right option is terminated if the shareholders sell their shares. Classification of the of instrument shall remain as mezzanine equity until one of the following three events take place: (1) shares are sold on the open market; (2) a redemption feature lapses; or (3) there is a modification of the terms of the instrument.

Income (Loss) Per Share

Income (loss) per share

Basic 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 stock options and restricted stock units (“RSUs”). Diluted 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 stock options and RSUs under the treasury stock method. The following table sets forth the computation of the numerators and denominators used in the basic and diluted income (loss) per share amounts (in thousands, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Numerator:
Net income (loss)	$	1,513	$	(7,246	)	$	5,433	$	(9,434	)
Denominator:
Denominator for basic income (loss) per share—weighted average shares		65,580		50,374			64,614		50,255
Effect of dilutive securities, stock options and RSUs		7,811		—			8,267		—
Denominator for dilutive income (loss) per share		73,391		50,374			72,881		50,255
Net income (loss) per share attributable to common stockholders, basic	$	0.02	$	(0.14	)	$	0.08	$	(0.19	)
Net income (loss) per share attributable to common stockholders, diluted	$	0.02	$	(0.14	)	$	0.07	$	(0.19	)

The computation of diluted income (loss) per share does not include shares that are anti-dilutive under the treasury stock method because their exercise prices are higher than the average fair value of the Company’s stock during the period or due to a net loss in the period. For the three and six months ended June 30, 2018, there were no anti-dilutive shares excluded from the computation of income (loss) per share. For both the three and six months ended June 30, 2017, there were 9.6 million anti-dilutive shares excluded from the computation of income (loss) per share.

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Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Reconciliation of Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the consolidated balance sheet that sum to the total of the amounts reported in the consolidated statement of cash flows (in thousands):

	June 30, 2018		December 31, 2017
Cash and cash equivalents	$	199,230	$	39,213
Restricted cash included in other long-term assets		356		365
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	199,586	$	39,578

Computation of Numerators and Denominators Used in Basic and Diluted Income (Loss) per Share Amounts

The following table sets forth the computation of the numerators and denominators used in the basic and diluted income (loss) per share amounts (in thousands, except per share data):

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Numerator:
Net income (loss)	$	1,513	$	(7,246	)	$	5,433	$	(9,434	)
Denominator:
Denominator for basic income (loss) per share—weighted average shares		65,580		50,374			64,614		50,255
Effect of dilutive securities, stock options and RSUs		7,811		—			8,267		—
Denominator for dilutive income (loss) per share		73,391		50,374			72,881		50,255
Net income (loss) per share attributable to common stockholders, basic	$	0.02	$	(0.14	)	$	0.08	$	(0.19	)
Net income (loss) per share attributable to common stockholders, diluted	$	0.02	$	(0.14	)	$	0.07	$	(0.19	)

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Inventory (Tables)

6 Months Ended

Jun. 30, 2018

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventory consisted of the following (in thousands):

	June 30,		December 31,
	2018		2017
Raw materials	$	—	$	—
Finished goods		1,786		1,980
Total inventory – net	$	1,786	$	1,980

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Property and Equipment, Net (Tables)

6 Months Ended

Jun. 30, 2018

Property Plant And Equipment [Abstract]

Summary of Property and Equipment

Property and equipment consists of the following (in thousands):

	June 30,		December 31,
	2018		2017
Land	$	7,994	$	7,994
Building and improvements		12,894		15,185
Computer equipment and software		35,137		32,103
Office furniture and equipment		6,820		6,751
Leasehold improvements		6,260		6,467
Total property and equipment		69,105		68,500
Less: accumulated depreciation and amortization		38,993		37,054
Property and equipment, net	$	30,112	$	31,446

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Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2018

Goodwill And Intangible Assets Disclosure [Abstract]

Changes in Carrying Amount of Goodwill Attributable to Software Reporting Segment

The changes in the carrying amount of goodwill, which is attributable to the Software reporting segment, are as follows (in thousands):

Balance at December 31, 2017	$	62,706
Acquisitions		1,708
Purchase price adjustment		96
Effects of foreign currency translation		(1,247	)
Balance at June 30, 2018	$	63,263

Summary of Other Intangible Assets

A summary of other intangible assets is shown below (in thousands):

	June 30, 2018
	Weighted average amortization period	Gross carrying amount		Accumulated amortization		Net carrying amount
Definite-lived intangible assets:
Developed technology	4 years	$	29,333	$	12,664	$	16,669
Customer relationships	7 years		12,154		6,661		5,493
Other intangibles	10 years		129		55		74
Total definite-lived intangible assets			41,616		19,380		22,236
Indefinite-lived intangible assets:
Trade names			2,610				2,610
Total other intangible assets		$	44,226	$	19,380	$	24,846

	December 31, 2017
	Weighted average amortization period	Gross carrying amount		Accumulated amortization		Net carrying amount
Definite-lived intangible assets:
Developed technology	4 years	$	25,947	$	9,909	$	16,038
Customer relationships	7 years		11,794		6,195		5,599
Other intangibles	10 years		143		57		86
Total definite-lived intangible assets			37,884		16,161		21,723
Indefinite-lived intangible assets:
Trade names			2,738				2,738
Total other intangible assets		$	40,622	$	16,161	$	24,461

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Other Liabilities (Tables)

6 Months Ended

Jun. 30, 2018

Other Liabilities Disclosure [Abstract]

Summary of Other Accrued Expenses and Current Liabilities

The following table provides the details of other accrued expenses and current liabilities (in thousands):

	June 30,		December 31,
	2018		2017
Accrued VAT		4,048		3,916
Accrued royalties		3,395		2,037
Accrued professional fees		2,849		2,500
Income taxes payable		1,941		3,724
Defined contribution plan liabilities		1,131		1,274
Government grants		829		712
Self-insurance and other insurance reserves		812		601
Billings in excess of cost		540		832
Related party liabilities		202		119
Other current liabilities		4,696		6,029
	$	20,443	$	21,744

Summary of Other Long-term Liabilities

The following table provides details of other long-term liabilities (in thousands):

	June 30,		December 31,
	2018		2017
Pension and other post retirement liabilities	$	7,676	$	7,670
Deferred tax liabilities		1,818		1,620
Other liabilities		3,980		8,357
	$	13,474	$	17,647

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2018

Summary of Restricted Stock Units Awarded

The following table summarizes the restricted stock units, or RSUs, awarded under the 2017 Plan for the period:

	Number of RSUs		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		—
Granted		203,701
Vested		—
Forfeited		—
Outstanding at June 30, 2018		203,701		9.8

Summary of Stock-Based Compensation

The stock-based compensation expense was recorded as follows (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Cost of revenue – software	$	8	$	11	$	16	$	16
Research and development		108		3,009		155		3,784
Sales and marketing		134		1,684		175		2,115
General and administrative		184		6,464		304		8,122
Total stock-based compensation expense	$	434	$	11,168	$	650	$	14,037

NSO Plan [Member]

Summary of Stock Option Activity

The following table summarizes the stock option activity under the NSO Plan:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		6,441,972		$	0.000025		19
Exercised		(1,565,672	)	$	0.000025
Forfeited		—			—
Outstanding at June 30, 2018		4,876,300		$	0.000025		18
Exercisable at June 30, 2018		4,876,300		$	0.000025		18

ISO Plan [Member]

Summary of Stock Option Activity

The following table summarizes the stock option activity under the 2001 stock-based compensation plans for the periods indicated as follows:

	Number of Options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		888,864		$	0.67		2.5
Exercised		(291,264	)	$	0.71
Forfeited		—			—
Outstanding at June 30, 2018		597,600		$	0.65		1.9
Exercisable at June 30, 2018		597,600		$	0.65		1.9

2012 Plan [Member]

Summary of Stock Option Activity

The following table summarizes the stock option activity under the 2012 Plan for the periods indicated as follows:

	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term (years)
Outstanding at January 1, 2018		2,183,127		$	3.74		7.3
Granted		—			—
Exercised		(542,784	)	$	2.68
Forfeited		(11,225	)	$	4.72
Outstanding at June 30, 2018		1,629,118		$	4.08		7.4
Exercisable at June 30, 2018		883,429		$	3.63		6.6

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Other (income) expense, net (Tables)

6 Months Ended

Jun. 30, 2018

Other Income And Expenses [Abstract]

Schedule of Other (income) expense, net

Other (income) expense, net consists of the following (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Foreign exchange loss (gain)	$	217		$	473		$	(580	)	$	917
Other		(393	)		(46	)		(496	)		(131	)
Other (income) expense, net	$	(176	)	$	427		$	(1,076	)	$	786

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Schedule of Income Tax Expense (Benefit) and Effective Tax Rate

The Company’s income tax expense (benefit) and effective tax rate for the three and six months ended June 30, 2018 and 2017 were as follows (in thousands, except percentages):

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Income tax expense (benefit)	$	795		$	(887	)	$	2,029		$	(1,659	)
Effective tax rate		34	%		11	%		27	%		15	%

XML

Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Components of Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):

	Foreign currency translation			Retirement related benefit plans			Total
Balance at December 31, 2017	$	(3,374	)	$	(1,698	)	$	(5,072	)
Other comprehensive income (loss) before reclassification		(1,842	)		73			(1,769	)
Amounts reclassified from accumulated other comprehensive loss	—				40			40
Tax effects		—			(7	)		(7	)
Other comprehensive income (loss)		(1,842	)		106			(1,736	)
Balance at June 30, 2018	$	(5,216	)	$	(1,592	)	$	(6,808	)

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Schedule of Segment Reporting Information

The following tables are in thousands:

Three Months Ended June 30, 2018	Software		CES		All other			Total
Revenue	$	81,520	$	12,417	$	1,629		$	95,566
Adjusted EBITDA	$	6,720	$	1,508	$	(923	)	$	7,305
Three Months Ended June 30, 2017	Software		CES		All other			Total
Revenue	$	67,804	$	12,365	$	1,477		$	81,646
Adjusted EBITDA	$	3,790	$	1,713	$	(1,356	)	$	4,147

Six Months Ended June 30, 2018	Software		CES		All other			Total
Revenue	$	159,136	$	24,497	$	3,664		$	187,297
Adjusted EBITDA	$	13,872	$	2,564	$	(1,457	)	$	14,979
Six Months Ended June 30, 2017	Software		CES		All other			Total
Revenue	$	130,872	$	24,594	$	3,062		$	158,528
Adjusted EBITDA	$	6,723	$	2,742	$	(2,409	)	$	7,056

Reconciliation of U.S. Gaap Income (Loss) Before Income Taxes to Adjusted EBITDA

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Reconciliation of Adjusted EBITDA to U.S. GAAP Income (loss) before income taxes:
Adjusted EBITDA	$	7,305		$	4,147		$	14,979		$	7,056
Stock-based compensation expense		(434	)		(11,168	)		(650	)		(14,037	)
Interest expense		(45	)		(548	)		(61	)		(1,159	)
Interest income and other (1)		(536	)		2,046			719			2,131
Depreciation and amortization		(3,982	)		(2,610	)		(7,525	)		(5,084	)
Income (loss) before income taxes	$	2,308		$	(8,133	)	$	7,462		$	(11,093	)

⁽¹⁾ Includes an impairment charge for royalty contracts resulting in $0.9 million and $1.8 million of expense for the three and six months ended June 30, 2018, respectively. Includes a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the six months ended June 30, 2018 and the three and six months ended June 30, 2017.

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Organization and Description of Business - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018	Jun. 30, 2017
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Proceeds from exercises of stock options		$ 1,668	$ 476
Class A Common Stock [Member] | Offering [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Number of shares issued and sold	4,056,004
Price per share	$ 35.00	$ 35.00
Proceeds from issuance of Class A common stock in follow-on offering, net of underwriting discounts and commissions	$ 135,600
Stock issuance, offering costs	$ 400
Number of shares of common stock sold	2,307,420
Shares issued upon conversion	1,675,420
Exercise of stock options (in shares)	257,000
Proceeds from exercises of stock options	$ 500
Class B Common Stock [Member] | Offering [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Conversion from Class B to Class A	1,675,420
Underwriters [Member] | Class A Common Stock [Member] | Offering [Member]
Organization Consolidation And Presentation Of Financial Statements [Line Items]
Shares sold from underwriters allotment	763,424

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Accounting Policies - Reconciliation of Cash, Cash Equivalents and Restricted Cash (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016
Accounting Policies [Abstract]
Cash and cash equivalents	$ 199,230	$ 39,213
Restricted cash included in other long-term assets	356	365
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$ 199,586	$ 39,578	$ 17,689	$ 17,139

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Accounting Policies - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Accounting Policies [Line Items]
Anti-dilutive shares excluded from computation of income (loss) per share	0	9,600,000	0	9,600,000
Class A Common Stock [Member] | Put Option [Member]
Accounting Policies [Line Items]
Shares issued					200,000
Put right, exercise price					$ 12.50
Put right exercise period from date of purchase					5 years
Ministry of the Economy, Finance and Industry, France [Member] | Research and Development Tax Credit Carryforward [Member]
Accounting Policies [Line Items]
Tax credit carryforward, period			3 years
Tax credit carryforward	$ 10.4		$ 10.4
Income tax receivable [Member] | Ministry of the Economy, Finance and Industry, France [Member] | Research and Development Tax Credit Carryforward [Member]
Accounting Policies [Line Items]
Tax credit carryforward	2.3		2.3
Other long-term assets [Member] | Ministry of the Economy, Finance and Industry, France [Member] | Research and Development Tax Credit Carryforward [Member]
Accounting Policies [Line Items]
Tax credit carryforward	8.1		8.1
Prepaid Expenses and Other Current Assets [Member]
Accounting Policies [Line Items]
Asset held for sale of building and related assets	$ 2.1		$ 2.1

XML

Accounting Policies - Computation of Numerators and Denominators Used in Basic and Diluted Income (Loss) per Share Amounts (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Numerator:
Net income (loss)	$ 1,513	$ (7,246)	$ 5,433	$ (9,434)
Weighted average shares outstanding:
Denominator for basic income (loss) per share—weighted average shares	65,580	50,374	64,614	50,255
Effect of dilutive securities, stock options and RSUs	7,811		8,267
Denominator for dilutive income (loss) per share	73,391	50,374	72,881	50,255
Net income (loss) per share attributable to common stockholders, basic	$ 0.02	$ (0.14)	$ 0.08	$ (0.19)
Net income (loss) per share attributable to common stockholders, diluted	$ 0.02	$ (0.14)	$ 0.07	$ (0.19)

XML

Acquisitions - Additional Information (Detail) $ in Thousands, € in Millions	1 Months Ended			6 Months Ended
	May 31, 2018 USD ($)	May 31, 2018 EUR (€)	Apr. 30, 2018 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Business Acquisition [Line Items]
Goodwill				$ 63,263		$ 62,706
Acquired intellectual property assets				$ 2,738	$ 2,120
FluiDyna GmbH [Member]
Business Acquisition [Line Items]
Assets acquired	$ 2,700	€ 2.2
Business combination, prior equity interests	24.00%
Finite-lived intangibles	$ 2,200
Goodwill	$ 1,700
CANDI Cortrols, Inc. [Member] | Asset Purchase Agreement [Member] | Intellectual Property [Member]
Business Acquisition [Line Items]
Acquired intellectual property assets			$ 2,400

XML

Inventory - Schedule of Inventory (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Inventory Disclosure [Abstract]
Finished goods	$ 1,786	$ 1,980
Total inventory – net	$ 1,786	$ 1,980

XML

Property and Equipment, Net - Summary of Property and Equipment (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 69,105	$ 68,500
Less: accumulated depreciation and amortization	38,993	37,054
Property and equipment, net	30,112	31,446
Land [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	7,994	7,994
Building and Improvements [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	12,894	15,185
Computer Equipment and Software [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	35,137	32,103
Office Furniture and Equipment [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	6,820	6,751
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Total property and equipment	$ 6,260	$ 6,467

XML

Property and Equipment, Net - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Property Plant And Equipment [Abstract]
Depreciation expense	$ 2.0	$ 1.5	$ 3.6	$ 3.0

XML

Goodwill and Other Intangible Assets - Changes in Carrying Amount of Goodwill Attributable to Software Reporting Segment (Detail) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
Balance at December 31, 2017	$ 62,706
Acquisitions	1,708
Purchase price adjustment	96
Effects of foreign currency translation	(1,247)
Balance at June 30, 2018	$ 63,263

XML

Goodwill and Other Intangible Assets - Summary of Other Intangible Assets (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Summary Of Other Intangible Assets [Line Items]
Gross carrying amount	$ 41,616	$ 37,884
Accumulated amortization	19,380	16,161
Net carrying amount	22,236	21,723
Gross carrying amount	44,226	40,622
Accumulated amortization	19,380	16,161
Net carrying amount	$ 24,846	$ 24,461
Developed Technology [Member]
Summary Of Other Intangible Assets [Line Items]
Weighted-average useful life of acquired finite-lived intangible assets	4 years	4 years
Gross carrying amount	$ 29,333	$ 25,947
Accumulated amortization	12,664	9,909
Net carrying amount	$ 16,669	$ 16,038
Customer Relationships [Member]
Summary Of Other Intangible Assets [Line Items]
Weighted-average useful life of acquired finite-lived intangible assets	7 years	7 years
Gross carrying amount	$ 12,154	$ 11,794
Accumulated amortization	6,661	6,195
Net carrying amount	$ 5,493	$ 5,599
Other Intangibles [Member]
Summary Of Other Intangible Assets [Line Items]
Weighted-average useful life of acquired finite-lived intangible assets	10 years	10 years
Gross carrying amount	$ 129	$ 143
Accumulated amortization	55	57
Net carrying amount	74	86
Trade Names [Member]
Summary Of Other Intangible Assets [Line Items]
Net carrying amount	$ 2,610	$ 2,738

XML

Goodwill and Other Intangible Assets - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Goodwill And Intangible Assets Disclosure [Abstract]
Amortization of intangible assets	$ 1,986	$ 1,155	$ 3,926	$ 2,098

XML

Other Liabilities - Summary of Other Accrued Expenses and Current Liabilities (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Other Liabilities Disclosure [Abstract]
Accrued VAT	$ 4,048	$ 3,916
Accrued royalties	3,395	2,037
Accrued professional fees	2,849	2,500
Income taxes payable	1,941	3,724
Defined contribution plan liabilities	1,131	1,274
Government grants	829	712
Self-insurance and other insurance reserves	812	601
Billings in excess of cost	540	832
Related party liabilities	202	119
Other current liabilities	4,696	6,029
Other accrued expenses and current liabilities	$ 20,443	$ 21,744

XML

Other Liabilities - Summary of Other Long-term Liabilities (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Other Liabilities Disclosure [Abstract]
Pension and other post retirement liabilities	$ 7,676	$ 7,670
Deferred tax liabilities	1,818	1,620
Other liabilities	3,980	8,357
Other long-term liabilities	$ 13,474	$ 17,647

XML

Stock-based Compensation - Additional Information (Detail) $ / shares in Units, $ in Millions	6 Months Ended
	Jun. 30, 2018 USD ($) Installment $ / shares shares	Dec. 31, 2017 $ / shares shares	Sep. 27, 2017 shares	Dec. 31, 2012 shares	Dec. 31, 2001 shares
NSO Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options, outstanding	4,876,300	6,441,972
Exercise price stock options outstanding | $ / shares	$ 0.000025	$ 0.000025
Contractual term	35 years
Intrinsic value of options exercised | $	$ 47.8
ISO Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options, outstanding	597,600	888,864
Exercise price stock options outstanding | $ / shares	$ 0.65	$ 0.67
Contractual term	10 years
Intrinsic value of options exercised | $	$ 2.8
ISO Plan [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options vesting period	2 years
ISO Plan [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options vesting period	3 years
ISO Plan [Member] | Class A Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares authorized					11,153,872
2012 Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options, outstanding	1,629,118	2,183,127
Exercise price stock options outstanding | $ / shares	$ 4.08	$ 3.74
Contractual term	10 years
Intrinsic value of options exercised | $	$ 15.4
Total requisite service period of awards	4 years
Compensation cost related to nonvested awards not yet recognized | $	$ 1.2
Weighted average period of recognition	2 years 4 months 24 days
2012 Plan [Member] | Class A Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares authorized				5,200,000
2017 Plan [Member] | Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost related to nonvested awards not yet recognized | $	$ 5.7
Weighted average period of recognition	4 years
Weighted average grant date fair value of RSUs | $ / shares	$ 29.59
Number of vesting equal annual installments | Installment	4
2017 Plan [Member] | Class A Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for issuance			8,104,971

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Stock-based Compensation - Summary of Stock Option Activity under NSO Plan (Detail) - NSO Plan [Member]	6 Months Ended	12 Months Ended
	Jun. 30, 2018 $ / shares shares	Dec. 31, 2017 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of options, Outstanding, Beginning Balance	6,441,972
Number of options, Exercised	(1,565,672)
Number of options, Forfeited	0
Number of options, Outstanding, Ending Balance	4,876,300	6,441,972
Number of options, Exercisable	4,876,300
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted average exercise price per share, Outstanding, Beginning Balance | $ / shares	$ 0.000025
Weighted average exercise price per share, Exercised | $ / shares	0.000025
Weighted average exercise price per share, Outstanding, Ending Balance | $ / shares	0.000025	$ 0.000025
Weighted average exercise price per share, Exercisable | $ / shares	$ 0.000025
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted average remaining contractual term (years), Outstanding	18 years	19 years
Weighted average remaining contractual term (years), Exercisable	18 years

XML

Stock-based Compensation - Summary of Stock Option Activity under ISO Plan (Detail) - ISO Plan [Member]	6 Months Ended	12 Months Ended
	Jun. 30, 2018 $ / shares shares	Dec. 31, 2017 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of options, Outstanding, Beginning Balance | shares	888,864
Number of options, Exercised | shares	(291,264)
Number of options, Forfeited | shares	0
Number of options, Outstanding, Ending Balance | shares	597,600	888,864
Number of options, Exercisable | shares	597,600
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted average exercise price per share, Outstanding, Beginning Balance | $ / shares	$ 0.67
Weighted average exercise price per share, Exercised | $ / shares	0.71
Weighted average exercise price per share, Forfeited | $ / shares	0
Weighted average exercise price per share, Outstanding, Ending Balance | $ / shares	0.65	$ 0.67
Weighted average exercise price per share, Exercisable | $ / shares	$ 0.65
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted average remaining contractual term (years), Outstanding	1 year 10 months 24 days	2 years 6 months
Weighted average remaining contractual term (years), Exercisable	1 year 10 months 24 days

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Stock-based Compensation - Summary of Stock Option Activity under 2012 Plan (Detail) - 2012 Plan [Member]	6 Months Ended	12 Months Ended
	Jun. 30, 2018 $ / shares shares	Dec. 31, 2017 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of options, Outstanding, Beginning Balance | shares	2,183,127
Granted | shares	0
Number of options, Exercised | shares	(542,784)
Number of options, Forfeited | shares	(11,225)
Number of options, Outstanding, Ending Balance | shares	1,629,118	2,183,127
Number of options, Exercisable | shares	883,429
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted average exercise price per share, Outstanding, Beginning Balance | $ / shares	$ 3.74
Weighted average exercise price per share, Granted | $ / shares	0
Weighted average exercise price per share, Exercised | $ / shares	2.68
Weighted average exercise price per share, Forfeited | $ / shares	4.72
Weighted average exercise price per share, Outstanding, Ending Balance | $ / shares	4.08	$ 3.74
Weighted average exercise price per share, Exercisable | $ / shares	$ 3.63
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures [Abstract]
Weighted average remaining contractual term (years), Outstanding	7 years 4 months 23 days	7 years 3 months 18 days
Weighted average remaining contractual term (years), Exercisable	6 years 7 months 5 days

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Stock-based Compensation - Summary of Restricted Stock Units Awarded (Detail) - 2017 Plan [Member] - Restricted Stock Units (RSUs) [Member]	6 Months Ended
	Jun. 30, 2018 shares
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Number of RSUs, Granted	203,701
Number of RSUs, Outstanding Ending Balance	203,701
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Additional Disclosures [Abstract]
Weighted average remaining contractual term (years), Outstanding	9 years 9 months 17 days

XML

Stock-based Compensation - Summary of Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 434	$ 11,168	$ 650	$ 14,037
Cost of Revenue - Software [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	8	11	16	16
Research and development [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	108	3,009	155	3,784
Sales and marketing [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	134	1,684	175	2,115
General and administrative [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 184	$ 6,464	$ 304	$ 8,122

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Other (income) expense, net - Schedule of Other (income) expense, net (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Other Income And Expenses [Abstract]
Foreign exchange loss (gain)	$ 217	$ 473	$ (580)	$ 917
Other	(393)	(46)	(496)	(131)
Other (income) expense, net	$ (176)	$ 427	$ (1,076)	$ 786

XML

Income Taxes - Schedule of Income Tax Expense (Benefit) and Effective Tax Rate (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Income Tax Disclosure [Abstract]
Income tax expense (benefit)	$ 795	$ (887)	$ 2,029	$ (1,659)
Effective tax rate	34.00%	11.00%	27.00%	15.00%

XML

Income Taxes - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Income Tax Disclosure [Abstract]
United States pre-tax loss	$ (2.1)	$ (9.4)	$ (1.0)	$ (14.9)
Tax credits not benefited due to valluation allowance	$ 0.9		$ 3.1
Non-deductible stock-based compensation expense		$ 7.5		$ 9.4
U.S. Federal statutory income tax rate			21.00%		35.00%

XML

Accumulated Other Comprehensive Loss - Components of Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance			$ 60,591
Other comprehensive income (loss) before reclassification			(1,769)
Amounts reclassified from accumulated other comprehensive loss			40
Tax effects			(7)
Total other comprehensive income (loss)	$ (1,929)	$ 1,121	(1,736)	$ 1,467
Ending balance	201,712		201,712
Foreign Currency Translation [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance			(3,374)
Other comprehensive income (loss) before reclassification			(1,842)
Total other comprehensive income (loss)			(1,842)
Ending balance	(5,216)		(5,216)
Retirement Related Benefit Plans [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance			(1,698)
Other comprehensive income (loss) before reclassification			73
Amounts reclassified from accumulated other comprehensive loss			40
Tax effects			(7)
Total other comprehensive income (loss)			106
Ending balance	(1,592)		(1,592)
Accumulated Other Comprehensive Loss [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance			(5,072)
Ending balance	$ (6,808)		$ (6,808)

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Related Party Transactions - Additional Information (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Related Party Transaction [Line Items]
Obligations to related parties, current	$ 202	$ 119
Receivable eliminated period	2018-05
Other accrued expenses and current liabilities [Member]
Related Party Transaction [Line Items]
Obligations to related parties, current	$ 200	100
FluiDyna GmbH [Member] | Other long-term assets [Member]
Related Party Transaction [Line Items]
Receivables from equity investment		$ 500

XML

Commitments and Contingencies - Additional Information (Detail) $ in Millions	Nov. 13, 2014 USD ($)
Commitments And Contingencies Disclosure [Abstract]
Damages amount on MSC litigation	$ 0.4

XML

Segment Information - Additional Information (Detail)	6 Months Ended
	Jun. 30, 2018 Segment
Segment Reporting [Abstract]
Number of reportable segments	2

XML

Segment Information - Schedule of Segment Reporting Information (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Segment Reporting Information [Line Items]
Revenue	$ 95,566	$ 81,646	$ 187,297	$ 158,528
Adjusted EBITDA	7,305	4,147	14,979	7,056
Software [Member]
Segment Reporting Information [Line Items]
Revenue	81,520	67,804	159,136	130,872
Adjusted EBITDA	6,720	3,790	13,872	6,723
CES [Member]
Segment Reporting Information [Line Items]
Revenue	12,417	12,365	24,497	24,594
Adjusted EBITDA	1,508	1,713	2,564	2,742
All Other [Member]
Segment Reporting Information [Line Items]
Revenue	1,629	1,477	3,664	3,062
Adjusted EBITDA	$ (923)	$ (1,356)	$ (1,457)	$ (2,409)

XML

Segment Information - Reconciliation of U.S. Gaap Income (Loss) Before Income Taxes to Adjusted EBITDA (Detail) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Segment Reporting [Abstract]
Adjusted EBITDA		$ 7,305	$ 4,147	$ 14,979	$ 7,056
Stock-based compensation expense		(434)	(11,168)	(650)	(14,037)
Interest expense		(45)	(548)	(61)	(1,159)
Interest income and other	[1]	(536)	2,046	719	2,131
Depreciation and amortization		(3,982)	(2,610)	(7,525)	(5,084)
Income (loss) before income taxes		$ 2,308	$ (8,133)	$ 7,462	$ (11,093)

[1] Includes an impairment charge for royalty contracts resulting in $0.9 million and $1.8 million of expense for the three and six months ended June 30, 2018, respectively. Includes a non-recurring adjustment for a change in estimated legal expenses resulting in $2.0 million of income for the six months ended June 30, 2018 and the three and six months ended June 30, 2017

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Segment Information - Reconciliation of U.S. Gaap Income (Loss) Before Income Taxes to Adjusted EBITDA (Parenthetical) (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Segment Reporting [Abstract]
Impairment charge recognized in non-recurring adjustment for royalty contracts	$ 0.9		$ 1.8
Income recognized in non-recurring adjustment for change in estimated legal expenses		$ 2.0	$ 2.0	$ 2.0

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Subsequent Events - Additional Information (Detail) - Subsequent Event [Member] $ in Millions	Aug. 07, 2018 USD ($)
Subsequent Event [Line Items]
Net proceeds from sale of building	$ 6.5
Building [Member]
Subsequent Event [Line Items]
Lease term	three-year